Kentucky cannot seize Internet domain names, court says

Computerworld - The Kentucky Court of Appeals has overturned a Circuit Court ruling that had authorized the state to seize the Internet domain names of 141 online gambling sites in an effort to block access to them from inside the state.

In a 2-1 opinion (download PDF), the appeals court said the lower court had erred in interpreting domain names as "gambling devices" that were subject to forfeiture under the Commonwealth of Kentucky's online gambling statutes.

"It stretches credulity to conclude that a series of numbers, or Internet address, can be said to constitute a 'machine or any mechanical or other device ... designed and manufactured primarily for use in connection with gambling,' " Judge Michelle Keller wrote in the majority opinion.

In addition, under existing Kentucky statutes, domain names are not included under the state's definition of gambling devices, Keller noted. Neither the appeals court nor Kentucky's Justice and Public Safety Cabinet, which sought to shut the sites down, "were free to add to that statutory definition."

The latest court decision was immediately appealed by the state to the Kentucky Supreme Court (download PDF).

The controversy followed a ruling by Franklin County Circuit Court Judge Thomas Wingate last September. That ruling (download PDF) ordered the domain registrars of each of 141 domains to transfer ownership of the sites to the "account of the Commonwealth" without any configuration changes.

Wingate's order came in response to a motion filed by the state's Justice and Public Safety Cabinet that sought to shut down the gambling sites last year to protect Kentucky citizens from what it called an "illegal, unregulated and untaxed industry." The state argued that the sites promote online gambling activities that are illegal in Kentucky.

Wingate's order was immediately challenged by lawyers representing the sites, on the grounds that domain names are not tangible property and thus can't be seized by the state. The site owners also questioned whether a state court has authority over 141 domain names registered in other states. After reviewing the challenges, Wingate in October upheld his initial order, ruling that domain names are intangible property but can be owned, controlled and sold like any other property.

"Property is about the relationship of people with respect to things, both tangible and intangible," the judge wrote.

The ruling was met with considerable criticism from several quarters. In a friend-of-the-court brief seeking to have the decision overturned, the Electronic Frontier Foundation called the Franklin County Circuit Court ruling "unconstitutional and made without jurisdictional authority." The San Francisco-based group argued that the decision, if allowed to stand, would create a precedent others could use to shut down sites whose content they dislike.

Others pointed out that it was the first time a court had invoked "in rem" jurisdiction over domain names, which basically allows legal action to be taken against a property itself rather than against the owners of the property.

Matthew Zimmerman, senior staff attorney at the EFF, today said that the appellate court's decision was based on an interpretation of state statutes and was the "right one." Though the lower court decision was appealed on constitutional issues as well, the appellate court did not have to examine those issues in deciding the case.

Appellate courts are "supposed to decide cases based on statutes first, rather than on constitutional issues," he said. "They are supposed to avoid addressing constitutional issues if they don't have to get into it."

Michael Brown, secretary of the Kentucky Justice and Public Safety Cabinet, said in a statement that the state would continue its efforts to protect residents from illegal Internet gambling operations via its Supreme Court appeal. He argued that the appellate court did not dispute that "millions of dollars are being lost as a result of that activity."

He pointed to a dissenting opinion from the appeals court, noting, "We now have two judges who agree with our position and two who disagree. So the most appropriate step is to make our case to the higher court."