141 Internet Domain Names Seizure – Dangerous developments

As one of the most important domain law cases of recent times, the Commonwealth of Kentucky v 141 Internet Domain Names 08-CI-1409 case has raised concerns across not only the domainer community, but the broader business world as well.

The facts

For those of you who aren’t familiar with this case, it is a judgment of the Commonwealth of Kentucky – Franklin Circuit Court.

The State of Kentucky, USA undertook investigations into online gaming websites accessible to residents of Kentucky to determine if they breached Kentucky law prohibiting gambling. Kentucky made an application to the Court to seize 141 domain names that were used to facilitate residents of the state gambling online; more particularly a state law that allows the state to seek forfeiture of “any gambling device or gambling record possessed or used in violation” of the state anti gambling laws. The investigation also claimed Kentucky bank accounts and credit cards issued out of Kentucky were used in the online gaming.

Kentucky sought on an ex parte (without the defendants having an opportunity to respond or be present before the court at the time) basis (and was granted a seizure order). This case was to review the seizure order granted by the Court in first instance.

Various organizations, including the Internet Commerce Association (ICA) sought leave to be heard by the Court, in opposition to the State of Kentucky.

The issues

In the context of our blog post we have identified only the primary issues for consideration by the Court, which is what the case turns on.

Does the Court have subject matter jurisdiction over a civil forfeiture action involving internet domain names ?

The Defendants argued that the Court did not have jurisdiction, and that the statute was only applicable to seizures arising from criminal convictions, and was not intended to apply to civil seizures such as this. Therefore, the Court did not have jurisdiction to grant a civil seizure (and forfeiture) order in reliance on the seizure laws (Chapter 528).

The Court disagreed with this position and found that Chapter 528 was broad and extended to give the Court jurisdiction grant civil seizures and forfeiture.

 

Does the Court have in rem jurisdiction over the Defendants 141 domain names ?

(a) Are the Defendants 141 Domain Names property ?

The Defendants argued that domain names are not property but rather rights in a contract.

The Court disagreed and found that a bundle of rights (e.g. right to manage, possess and control) to something of value gave domain names the character of property, and therefore allowed the Court to order forfeiture of the ‘property’.

(b) Do the Defendants 141 Domain Names have a presence in Kentucky ?

The Defendants argued that there were no Registrars or other domain name authorities in the state, therefore the domain names were not situated in the state.

The Court cited a number of authorities and stated that all that was required were minimum contacts in the state, and that because the domains were present at every step of the gaming process, they were present in the state, and subject to the law of Kentucky.

(c) Are domain names by reason of their illegal or unlawful use gambling devices?

The Defendants argued that domain names don’t fit the statutory definition of a ‘gambling device’ as they are not a tangible device, which is designed and manufactured.

The Court did not agree and viewed domain names as virtual keys for entering and creating virtual casinos from the desktop in the state.

The Consequences

As a consequence, the seizure and forfeiture order was upheld.

On the face of it, any state could potentially treat a domain name as property located within a state and capable of seizure and forfeiture. This in itself is a great concern, and has the potential to set a dangerous precedent.

It is our view that the Court erred in a number of its findings, for example on a reading of Chapter 528 the law is clear, it is intended that a gambling device is a physical piece of hardware or machinery. A domain name can hardly fall into this category. The Court also made an interesting comment on this point when it said “…..the Court is not persuaded. Like most endeavors, a person who adheres to the literal text of the law, but violates its spirit cannot succeed”. This statement gives us some insight into why the Court deemed a domain name to be a gambling device.

Current Developments

An appeal was filed and heard by an Appeals Court, it is expected that the judgment will be handed down by the Appeals Court in late January 2009. Don’t forget to check out our blog for an update.