LEGAL BRIEFS

IV. Prosecution Risk Factors

[Part 1] [Part 2]

The likelihood of an American-based Webmaster facing some sort of civil, criminal or administrative prosecution under state or federal law for advertising online gambling sites depends not only on the availability of an appropriate statutory prohibition, but also on more intangible factors such as the ever-changing political climate and resource allocation policies.LEGAL BRIEFS

IV. Prosecution Risk Factors

[Part 1] [Part 2]

The likelihood of an American-based Webmaster facing some sort of civil, criminal or administrative prosecution under state or federal law for advertising online gambling sites depends not only on the availability of an appropriate statutory prohibition, but also on more intangible factors such as the ever-changing political climate and resource allocation policies. At any given time, a politician may decide to make the policing of Internet gambling a political issue, thus raising the stakes for the advertisers along with the online casinos themselves.

Certain areas of the country have also historically been more hostile toward vice activities such as gambling, drugs and prostitution. The “Bible Belt” states would almost certainly be more likely to initiate some sort of governmental action in response to a high-profile Internet gambling advertising campaign. On the other hand, the perceived more liberal states in the northwest, such as Oregon and Washington, may be less likely to react in such a manner just given their politics culture. Big cities may also be more tolerant of vice activities than more rural areas. However, the winds of politics are always subject to sudden change, and thus an advertising campaign cannot be solely based on the current political climate.

The legal issues encountered in connection with the advertising of Internet gambling may also significantly depend on the type of media chosen for the promotional campaign. The laws relating to traditional advertising media are well established, and thus the only factor remaining is the legality of the underlying activity itself. If the Internet is the choice of media for the marketing campaign, the legal issues become even more complicated and unsettled. For example, if an online casino licensed in a foreign jurisdiction chooses to launch an Internet promotion through banner placement on other Websites viewed by individuals worldwide, the United States government may be hard-pressed to identify a valid basis and appropriate vehicle for regulation of such advertising. However, should that same online casino choose to promote its services by distributing unsolicited email to United States citizens, one or more state or federal laws may be implicated to criminalize the advertising campaign. For example, at least sixteen states have already passed laws regulating the content of SPAM e-mail. Such a promotional campaign may also run afoul of various states’ deceptive and unfair trade practices laws. Accordingly, any legal analysis of a promotional campaign must include, at a minimum, a review of the following factors:

1. The specific gambling activity being advertised, i.e., casino gambling, sports betting, etc.

2. The target audience.

3. The medium and means used to disseminate the message.

4. The potential applicability of the target jurisdiction’s laws.

Certain practical realities regarding the advertising of Internet gambling should be recognized as well. A relatively low-key mailing or Internet promotion is simply less likely to garner the attention of law enforcement than a prime time television-advertising blitz. The content of the marketing materials, itself, will also bear on the likelihood of government intervention. The use of sexually-oriented images or suggestive language will make a promotional piece stand out. The intended target audience also remains a critical factor. For example, online advertising directed at a global audience is less likely to capture the attention of a particular state or even the federal government than a more targeted advertising campaign intended to perk the interest of gamblers of a particularly conservative state or locality.

The fact that a particular casino has been licensed in a foreign jurisdiction will also factor into the likelihood of governmental intervention. Unlicensed casinos may be presumed to be breaking the law in every jurisdiction, and therefore their advertisements may be deemed more suspect. Those and a multitude of other intangibles will play into the risk factoring associated with any particular advertising campaign. Therefore, a careful review by experienced advertising counsel is critical before the initiation of any particular promotional campaign associated with online gambling.

V. Potential Legal Challenges

Many of the legal issues associated with advertising online casinos will be brought to the courts and resolved. The development of Internet gambling advertising law is at its early formation stages, and therefore many of the legal issues are unsettled. The following are a sampling of such legal issues that will likely be litigated by online casinos, or their promoters, in the near future.

A. The Legality of the Underlying Business Activity.

Can United States residents legally gamble online with licensed foreign casinos? The applicability of various state and federal laws to this relatively new form of home entertainment is at best unsettled, and at worst a hopelessly confused morass of conflicting court decisions interpreting obviously outdated anti-gambling laws. The question is not so much whether online gambling is legal; the question is where is the activity legal?

As opposed to an all-out ban or legalization of Internet gambling throughout the United States, the more likely result is in the development of “pockets” of legal, licensed jurisdictions permitting online gambling within defined geographic boundaries. The issue will then become whether certain states, or localities, can constitutionally regulate their jurisdictions differently than the rest of the nation. Those imponderables likely have been the primary reason why government officials have not been more proactive in investigating and prosecuting the promotion of online casinos thus far.

Each solution produces another question: Does the regulation violate the First Amendment? If not, what about the Commerce Clause? However, the Supreme Court has established that the legality of the underlying business transaction is not determinative of the legality of all advertising associated with that business activity.

With the legality of Internet gambling up in the air, the validity of any particular promotion associated with online gambling becomes exponentially more difficult to evaluate. However, the courts will still look at this factor in analyzing the legal issues associated with the marketing of online casinos in the United States pursuant to the Central Hudson test.

B. The Sufficiency of the Governmental Interest.

The legal analysis applicable to Internet gambling advertising will include an evaluation of the sufficiency of the stated governmental interest in regulating the online activity.1 While the courts have unhesitatingly found that a substantial governmental interest exists in limiting or regulating information about traditional gambling, the sufficiency of any such interest relating to the online version remains an open question. Several of the arguments advanced to justify the sufficiency of the governmental interest relating to traditional gambling may not be present in the cyberworld. Take, for example, the major premise that gambling is a “vice activity” that can be banned all together.2 While the United States may have the power to ban traditional gambling anywhere within its borders, it does not have the coequal power to prohibit the establishment of online casinos in cyberspace nor their licensure in foreign jurisdictions. This is particularly true given the increasing number of foreign countries willing to recognize the legality of such business operations.

The government also traditionally argues that a wide variety of social ills are caused by traditional gambling which is still allegedly permeated by organized crime connections.3 Online gambling did not evolve as a moneymaking opportunity for the Chicago crime families. While traditional casinos may have attracted organized crime groups over the years,4 the same cannot be said about virtual casinos.

The other “secondary effects” allegedly caused by traditional gambling may also not be present in any way, shape or form as a result of Internet gambling. For example, it is difficult to imagine a serious argument being made that Internet gambling fosters prostitution. The government ran into this same problem when it attempted to justify regulations on adult Websites based on the traditional presumed negative impacts caused by brick-and-mortar adult entertainment establishments such as adult bookstores.5 The courts simply did not accept the proposition that the two types of businesses cause the same kind of problems.6 In short, the traditional arguments supporting the alleged governmental interest in regulating or banning land-based gambling promotion may not support regulation or prohibition of the online counterpart.

C. Geographic Prohibitions.

Gambling advertising restrictions traditionally have been analyzed based on their geographic scope and impact. In general, if the advertising is directed at those individuals who can legally engage in the gambling activity, the advertising restrictions have been upheld. Typical broadcast or direct-mail advertising of online gambling will be analyzed in a manner similar to advertisements for traditional gambling activities, as discussed earlier. However, Web-based advertising and even direct email promotions will be evaluated somewhat differently due to the inability to geographically limit the recipients of the promotion under existing Internet technology. The United States Supreme Court has acknowledged that Webmasters do not currently possess the technology to geographically block certain communities from receiving communications on the Internet.7 That technological handicap forces the courts to recognize that any online communication restriction that is dependent upon the definition of a geographic-based audience is extremely problematic from a constitutional standpoint. After all, it is both pragmatically unfair and constitutionally problematic to require advertisers of Internet gaming services to limit or target their promotion to recipients in the location where, for example, the online casino is licensed to operate, or where residents are allowed to gamble. The inability to impose such geographic restrictions may render any legislation requiring same, defective.

VI. Conclusion

The concept of Internet gaming advertising raises a host of legal issues that are dependant on a number of factors, including the medium chosen for the promotion and the potential applicability of various state and/or federal laws. The courts will employ the same legal analysis used to evaluate traditional gambling advertising regulations, but under a relatively new paradigm that is based on the underlying premise that the government’s power to prohibit or regulate particular conduct does not necessarily include the power to prohibit or regulate speech about that conduct.8

The traditional justifications for imposing restrictions on gambling advertising may well be lacking in the context of online gambling promotion. Virtual casinos do not generate increased prostitution or drug activity, and have not been historically infiltrated by organized crime. The inability to geographically limit the target audience for online gambling advertising may also impair the government’s ability to constitutionally restrict advertising about online gaming services to areas where it is considered a legal activity. Thus far, the United States government has not specifically legislated in the area of Internet gambling, let alone the advertising of such services. While the various states have touched on this subject, or have enacted legislation which appears to regulate or prohibit such promotions, the validity of any such laws as applied to virtual casinos is questionable.

Obviously, a legal compliance review of any online gambling marketing activity available to, or directed at, United States citizens is critical. The legal principles concerning Internet gambling promotion are not well-defined, and the law is still developing. Therefore, marketing executives must make educated guesses based on legal precedent as to what the courts might do in any particular circumstance.

Another option is to proactively initiate litigation challenging the applicability of a particular state or federal law that appears to regulate or inhibit the advertising of online casinos, thereby bringing a “test case.” The law recognizes the ability of one threatened with the application of a particular law to obtain a declaratory judgment as to the constitutionality or applicability of such law to a particular form of speech such as commercial advertising.9 Regardless of whether promoters take the offensive, or are put on the defensive by way of a prosecution, the legal issues identified in this article will be resolved for better or worse. The online gaming industry is currently looking through a window of opportunity to assist the courts in making the right decisions to protect the public’s right to receive truthful information regarding this popular form of home entertainment.

Lawrence G. Walters is a partner with the national firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. The firm practices in the area of Free Speech regulation, Internet law, Gaming law and Advertising issues. Nothing in this article is intended as legal advice. Please consult with your personal attorney on specific legal issues. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.GameAttorneys.com or AOL Screen Name, “Webattorney”.

1 Central Hudson, supra.
2 Posadas, supra.
3 E.g., Valley Broadcasting at 1332.
4 Organized Crime and Gambling: Hearings Before the President’s Commission on Organized Crime, (June 1985)
5 Reno v. ACLU, 521 U.S. 844, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997); compare with Renton v. Playtime Theaters, Inc., 475 U.S. 41, 54, 106 S.Ct. 925, 932, 89 L.Ed.2d 29 (1986)
6 Id.
7 Ashcroft v. ACLU, Case Number 00-1293 (May 13, 2002).
8 Greater New Orleans Broadcasting, supra.
9 18 U.S.C. 2201, et. seq.