The Mouthpiece: Will expanded sports betting force a decision on jurisdiction?

The Mouthpiece: Will expanded sports betting force a decision on jurisdiction?

“Jurisdiction is not given for the sake of the judge, but for that of the litigant.”

Blaise Pascal

Once upon a time, the question of legal jurisdiction was fairly simple. When in Rome, you follow Roman law. When elsewhere, the laws The Mouthpiece: Will expanded sports betting force a decision on jurisdiction?governing that elsewhere. Of course there were exceptions: diplomatic immunity, privilege of clergy, and so forth. But in general, location equaled jurisdiction the world over. And it was understood that if, for whatever reason, you decided to buck the system, and assert that your political creed or religious beliefs or whatever were paramount, then you had two choices: stand by to take the consequences, or get out of Dodge.

Even telecommunications didn’t really upset this paradigm. You may be watching, say, a moon landing on TV, but that doesn’t mean that you, in your living room, are suddenly subject to whatever lunar laws may exist. Ditto for telegrams and telephone. Communication does not, by itself, extend jurisdiction.

Enter the Internet

The Internet is easily the most disruptive human invention since we tamed fire—or at least the steam engine. Especially since broadband has become widely available, not only can you talk to somebody, you can send him money, in return for which he will send you goods he has for sale—you can even download it over the link if it’s a program or app. Which is why Jeff  Bezos is a multibillionaire.

Okay, but what makes these transactions genuinely different from, say, the old Sears catalog? There, too, it was a question of whether the seller had a presence in the customer’ s state,  substantial enough to justify the exercise of state jurisdiction, particularly taxes. The answer was no, not for a simple sale, from 1992 to the present, under the Quill v North Dakota  decision, But it is now yes, thanks to South Dakota v Mayfair.

But taxation is not the end of the jurisdiction question. Jurisdiction, in its entirety, means who gets to do what, to whom, and under what circumstances. And governments do not merely enforce taxation under their respective jurisdictions. They have laws that embody their political foundations and the values of their citizens. In Vegas or Miami, for instance, a webpage featuring skimpy bikinis and racy lingerie are nothing out of the ordinary. In Saudi Arabia or Iran,  however, even pictures of a one-piece swimsuit are taboo. Erotic and suggestive materials of every kind are strictly forbidden (and, of course, rabidly sought after, with the feverish diligence which only great sin can inspire).

Is the extension of local jurisdiction over remote Internet sites going too far? Or not far enough? On one hand there is the risk of alien and seditious ideas being forced onto an unsuspecting public from outside. But on the other, is it fair to force the entire Internet to progress only at the speed of the slowest, most backward, and most repressive jurisdictions.? So far, the response of most affected jurisdictions, both in the U.S. and abroad, has been to treat most Internet jurisdiction questions as “the elephant in the room.” As the old cartoon said, “we deal with it by not talking about it.” But the days of simply ignoring this issue, of “kicking it down the road” are fast coming to an end.

Jurisdiction—yes or no?

The American solution for extension of civil jurisdiction  has been to determine whether a given site or business has what are called minimum contacts with the state in question. If so, then the website in question may be forced to defend a civil case, such as an injunction, in a local court. There are always two tests: how was the defendant served, and did he have enough contact with the state so that it is not unfair to force him to show up for trial?  This, in turn, is determined by the state laws of the particular state under discussion service by mail on out-of-state defendants (so-called “long arm” statutes). If so, then there are two further choices. There are menu statutes, listing acts which will subject foreign residents to service by mail for lawsuits arising out of those acts. New York is a good example of these. Under New York’s Civil Practice Laws and Rules, § 302, an online gaming website would fall under that state civil jurisdiction if it “transacts any business within the state or contracts anywhere to supply goods or services in the state.” Even so, the court must still test to see if it would be constitutional to drag the defendant all the way back to the state for trial.

California is typical of the second type of long arm statute, which does away with the menu list and simply declares that, “The court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.”1 This type of long arm statute is said to go the limits of the Constitution. So, if the defendant has enough contacts with the state, such that forcing him to defend a civil case there does not violate his constitutional rights of due process, that would automatically meet the long arm statute as well. The opposite is also true: if the defendant does not have minimum contacts with a given state it would violate both the U.S. Constitution and the state’s long arm statute to force him to defend in that state.

So far so good, but how do we apply this in the context of cyberspace, where there are no borders? The simultaneous existence of a given transaction in cyberspace and the real world simultaneously has led judicial minds down differing paths. Some jurisdictions have held that the mere existence of a webpage, without more, may automatically constitute grounds for assertion of jurisdiction in any state where the webpage may be viewed.2 But there is a trap here. By this logic, an advertiser using a billboard in Alabama comes under California jurisdiction if someone from San Francisco happens to drive by. And this approach may lay open U.S. webpages, in a global environment, for prosecution from other nations with little or no protection for such things as free speech. It would be bad enough to have Wahabi standards applied to American art; what would happen if China or North Korea sought to impose their particular views on political expression?

As a result, we now use something close to the “Zippo” or “passive-active” standard.3 The defendant must have actually, perceptibly directed his activities toward the forum in question. Assertion of jurisdiction has to be based on the degree of interactivity of a given site with the customers. That is, the more a customer is required to interact with the site, the more probable it is that the site owner is deliberately availing himself of the forum where the customer lives.

Jurisdiction and criminality

Just because the courts of some state or country have demonstrated that they have civil jurisdiction over somebody, it does not, repeat NOT, automatically mean that they have obtained criminal jurisdiction too.

On the contrary, the assumption in law is that neither federal nor state criminal statutes are supposed to reach outside the territorial boundaries .

And in any case, under American law, nobody can be convicted of a crime unless they are physically brought into an American courthouse. The USA does not allow trials in absentia. Nor can one country simply reach into another country and grab somebody they have a beef with. The idea of reciprocity and comity is central to international law. The USA doesn’t get to bust gamblers in the Caribbean, even if they might be violating U.S. law. And by the same token, the Chinese cannot reach into the USA and grab one of their dissidents who has taken refuge over here. We give the Devil his due, as Thomas Moore observed, for our own safety’s sake.

Philosophy versus funding

Nevertheless, as sports betting spreads through the 50 states, we can expect more, not fewer, prosecutions for illegal gambling, particularly against online operators. Why? Up to this point, very few U.S. states had sports betting, thanks to the Professional and Amateur Sports Protection Act (PASPA). Somebody taking sports action from most of the States might or might not have been violating state law. State gambling laws tend to be vague; 16 states and the District of Columbia don’t even have an actual definition of what “gambling” is in their respective statute books, and the Internet is only mentioned in connection with gambling in about nine others. It was as much a philosophical puzzle as a law enforcement problem.

But since the Supreme Court struck down PASPA in the decision of NCAA  v Murphy, the law enforcement picture has changed, and changed fast. Before this, a sports book from someplace in the Caribbean, taking football bets from, let’s say, Los Angeles, might have been technically violating the law, but this was not a momentous matter either way. Now, however, California, with the rest of the states, has the right to pass enabling legislation that will allow licensing of sports books. Licensing means the state gets a cut-taxes, fees, “integrity funds,” and everything else they can think of. So now, our Caribbean interloper is not merely undermining ‘public morals’( whatever they  are). He’s taking revenue away from California state government. And so there will be war.

And the fighting will not be confined to actions against foreign gambling businesses. States with common borders will be bringing in sports betting. And that is likely to be operated online, as the quickest, cheapest, and most effective delivery of the service. Sheer probability tells us that sooner or later, Joe Gambler, resident of State X, will, knowingly or unknowingly, put a bet down with a sports book licensed only by State Y. Does State X go after Joe? Not likely. Individual gamblers seldom make worthwhile target anyway, and they vote. Go after State Y? We’re back to the jurisdiction problem again.

On the one hand, there is the problem of licensing states having their home market invaded by unlicensed operators, based in various locations. On the other hand, actual prosecution, civil or criminal, may soon turn problematic, either because state law doesn’t cover operators abroad, or because state jurisdiction is tricky to implement domestically, unless both state governments involved are of a like mind. Will it come down to bald assertions that WE can operate in their market, but THEY have to stay out of  ours?

How can we find a way out of this conundrum?

Existing US models

Actually, we already have one, up and running smoothly. Can it be adapted to sports betting? Fact is, it handles nothing else. We refer of course to the interstate OTB system whereby licensed gambling businesses handle pari-mutuel bets on horse races, throughout the United States and across the world.

The Mouthpiece: Will expanded sports betting force a decision on jurisdiction?Using these systems, patrons can bet at over 300 horse tracks and related facilities worldwide. Offerings include thoroughbred racing, harness racing, quarter horses, and greyhound racing too, although dog racing is not as popular.

Using the pari-mutuel betting system, companies like Betfair and US Racing offer not only off-track betting, but betting across state and even national lines. Using online ADW accounts, Americans can bet on races in Hong Kong, Australia, or Britain. And vice versa.

And what about all the jurisdictional hurdles? They were dealt with long ago. Every state participating in programs of this type knows just what percent of what races they can expect, And which other jurisdictions’ residents may participate.

The existing interstate/international system was developed to deal with a problem that horse racing has been experiencing for years, but might soon affect markets for other sorts of gambling, sports betting particularly. Falling attendance and shrinking receipts dictated that participating companies and jurisdictions share their respective pools of customers. There may not be enough bettors in, say, Rhode Island, to justify  a computerized online system—but add in the bets available from Hong Kong, San Francisco, and Marseille, and all of a sudden it’s a viable, even robust market.

There is no good reason that such a system of shared jurisdiction and profit cannot be expanded from horse racing to sports betting generally, even if the new markets do not use the pari-mutuel system. There is more than enough computing power and digital broadband available to transmit bets, results, and payoffs anywhere that Internet and/or Wi-Fi reception can reach.

All it will take is cooperation—between U.S. state governments, and between the existing vested interests of license gambling here: resort casinos, card rooms, Indians, and, oh yes, the race tracks too. No doubt the U.S. federal government will be heard from, as well.

At the time of this writing, Monmouth Park in New Jersey is already taking sports bet action in addition to the harness races it normally features. Market sharing can be done. It is being done. For the interested parties and stakeholders in this potentially vast new market, it’s up to them. If they want to fight, there’s a fight here. If they want a solution, there is a solution ready and waiting.

1  California Code of Civil Procedure § 410.10

2 CompuServe v Patterson, 937 F2d 1257, (6th Cir, 1996)

3 Cf. Zippo v Zippo Dot Com, Inc.m, 953 F. Supp 1119 W.D. Pa 1997).

Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose, (Mary Ann Liebert Publishers, 2nd ed 2009); Associate Editor, Gaming Law Review & Economics; Contributing Editor, TSN. Comments/inquiries welcome at [email protected].