Digital Media Lawyer Blog

Digital media law update: In a January 21 decision, a California Federal judge permitted a plaintiff to discover the identity of the operator of a counterfeit online poker chip business, without requiring the plaintiff to providing evidence to support its allegations. The court merely required the plaintiff to (1) show that the anonymous defendant was a real person who could be sued in a Federal court, (2) recount the steps it had taken to locate the defendant, (3) show that its action could survive a motion to dismiss, and (4) file its request for discovery with the Court. See Zynga v. Does 1-5 d/b/a Easy Chips, Northern District of California, No. 5:09-cv-05232, Order Granting in Part and Denying in Part Plaintiff Zynga's Motion for Leave to Conduct Third Party Discovery (January 21, 2010). While the standard imposed by the Court here was far lighter than that typically imposed in cases involving Internet defamation, it was not necessarily inappropriate in this case.

We have frequently written about the differing standards that courts use when confronted with a request from plaintiffs to uncover the identity of the anonymous author of material posted on the Internet. The right to speak and write anonymously is protected by the First Amendment of the U.S. Constitution -- and to an even greater extent by some State constitutions. However, the extent of the right to anonymous speech varies based on the content of the speech. At one end of the spectrum, the author of purely political anonymous speech may be given absolute protection against disclosure of his identity. At the other end, the author of defamatory speech may ultimately be given no protection from disclosure at all, since defamatory speech is considered unprotected under the U.S. Constitution. Fn1

While certain types of speech, such as defamation, may get little or no protection, a court considering a complaint is not in a position to know whether the allegations have any merit. There is always a danger that the allegations will prove untrue, or that the defendant will be able to establish a valid affirmative defense. As such, to protect the rights of anonymous authors, courts around the U.S. generally require a plaintiff to show that their claims have at least some level of merit before being permitted to discover the identity of the anonymous author of the speech at issue.

These standards can vary greatly from court to court. Some courts impose what we have termed a "light" standard, and merely required the plaintiff to show that his complaint would withstand a motion to dismiss or that it was filed in "good faith." This light standard was applied in the recent Liskula Cohen case. See In re Liskula Cohen, Supreme Court of the State of New York, County of New York: Part 11, Index No. 100012/09. While this test has different labels, it ultimately merely requires the plaintiff to show that his complaint meets pleading standards -- no evidence or proof is required.

Continue reading "Zynga v. Does d/b/a Easy Chips: California Federal Judge Applies Light Standard for Uncovering Identity of Anonymous Proprietor of On-line Business" »

Internet gaming: On September 1, 2009, the 3rd Circuit handed down an opinion rejecting several facial challenges to the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 (31 U.S.C. § 5361). This decision was on a suit brought by the Interactive Media Entertainment and Gaming Association - iMEGA -- a gaming industry advocacy group. Interactive Media Entertainment and Gaming Association, Inc. v. Attorney General, U.S.C.A., Third Circuit, Case No. 08-1981.

The UIGEA does not directly outlaw internet gambling, but instead makes if unlawful financial institutions and other persons to knowingly financial instruments such as credit cards, ETFs and checks in connection with "unlawful Internet gambling" by a third party. The effect of the UIGEA has been to seriously dampen the involvement of U.S.-based financial institutions in Internet gaming.

A major reason is that the statute defines "unlawful Internet gambling" to include placing, receiving or transmitting a bet or wager by means of the Internet "where such bet or wager is unlawful under applicable Federal or State law in the State or Tribal lands in which such bet or wager is initiated, received, or otherwise made." This means that even if the gambling business operates in a location where Internet gambling is legal, it is prohibited from accepting common financial instruments from an Internet gambler if the gambler is located in a place where Internet gambling is illegal.

The problem is that financial institutions often cannot determine the precise jurisdiction from which a gambler has placed a bet over the Internet. As a result, it cannot determine whether the bet is lawful. While Internet gambling, per se, has only been outlawed in a handful of states, the effect of the UIGEA has been to seriously dampen the involvement of U.S. financial institutions in Internet gambling. iMEGA filed the this suit in 2007 against the U.S. Attorney General, the FTC and the Federal Reserve in an attempt to block enforcement of the UIGEA.

The District Court rejected iMEGA's suit. On appeal to the 3rd Circuit, iMEGA raised two primary arguments: that the UIGEA on its face is void for vagueness and that it violates an individual's right to privacy. A plaintiff raising a facial challenge to a statute faces a serious uphill battle, because he must prove that the law is impermissibly vague in all its applications. A statute is void for vagueness if it fails to provide "fair notice" of what is prohibited or if it permits seriously discriminatory enforcement.

The 3rd Circuit held that iMEGA had failed to meet this tests because it believed that the conduct outlawed in the UIGEA was clear enough -- it prohibits acceptance of financial instruments in connection with Internet gambling initiated at a place where such gambling is illegal. Because at least some States have clear laws outlawing Internet gambling, the UIGEA would clearly apply to Internet gambling initiated from those locations. Because the UIGEA could clearly be applied to gambling initiated from those locations, it is not void for vagueness.
Interactive argued that the UIGEA was also impermissibly vague, because it is often difficult for a financial institution to determine the location form which a gambler has placed an Internet bet. The 3rd Circuit rejected this argument, noting that the mere fact that it may be difficult to prove an element of a law does not mean that the law itself is vague.

iMEGA also argued that under the law of some foreign jurisdictions, a bet is deemed to have been placed in the location where it is received. As such, a financial institution processing payments relating to such a transaction would be unable to know where the bet was placed as a matter of law. The 3rd Circuit had little patience for this argument, stating that nothing in the language of the UIGEA "suggest[s] that Congress meant anything other that the physical location of a bettor or gambling business in the definition of "unlawful Internet gambling."

Continue reading "iMEGA v. Holder: Third Circuit Rejects Gaming Industry Group's Constitutional Challenges to Federal Internet Gambling Law (UIGEA)" »

A bill (H.R. 2267) introduced by U.S. House Financial Services Committee Chairman Barney Frank to remove Federal obstacles to Internet gambling may be delayed, but don't consider it beyond hope. This bill, which was introduced in May 2009, has already garnered significant House support. While reports indicate that consideration of the bill has been delayed, given the current fiscal crisis, it would only seem logical for Congress to look to Internet gaming as a source of much-needed revenues.

There has long been a debate as to whether Federal laws prohibit many forms of Internet gaming, such as on-line poker. The DOJ has historically taken the position, which has been accepted by some courts, that the Wire Act (18 U.S.C. § 1084) prohibits transmission of wagers over interstate wire communications facilities for all forms of on-line gaming. See e.g, People, ex rel. Vacco v. World Interactive Gaming Corp., 185 Misc.2d 852, 860 (N.Y. Sup. Ct., 1999).

On the other hand, the 5th Circuit and District Courts in other Circuits have held that the Wire Act only prohibits wire transmissions for sporting events, but not on-line gaming, such as poker. In re MasterCard. Intern. Inc, Internet Gaming Litigation, 132 F.Supp.2d 468 (E.D. La. 2001), aff'd 313 F.3d 257 (5th Cir. 2002); United States v. BetOnSports PLC, U.S.D.C., Eastern District of Missouri, Case No. 4:06CV01064 (Nov. 9, 2006).

Of course, all States have laws regulating gaming, and some outlaw virtually all games of chance, including poker. So, in 2006, Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA). See 31 U.S.C. § 5361 et seq. The UIGEA did not directly outlaw Internet gaming, but prohibited any person "engaged in the business of betting or wagering" from "knowingly accept[ing] in connection with the participation of another person in unlawful Internet gambling" . . . credit, electronic funds transfers, checks and the proceeds of other financial transactions. Id. at § 5363.

Transactions constitute "unlawful Internet gambling," only if prohibited by other Federal, State or Tribal law. However, the UIGEA prohibits online gambling transactions if an Internet bet is placed or received in a place where a State, Federal or Tribal law make such a transaction illegal. Id. at 5362(1). Given this breadth of scope, the UIGEA creates real risks for financial institutions who attempt to cooperate in on-line gambling anywhere in the U.S.

Congressman Barney Frank has been opposed to the UIGEA for some time, and first introduced legislation to curtail some of its effects in 2007. In May 2009, Rep. Frank introduced H.R. 2267 in a further attempt to help legalize online gambling in the U.S. The Bill would give the U.S. Treasury Secretary regulatory powers over Internet gambling, and would permit the Secretary to issue licenses to Internet gambling facilities. Licensees would be permitted to accept bets from persons in the U.S., so long as they were physically located in a jurisdiction that permits Internet gambling at the time the bet was placed. The Bill would also provide immunity for any financial institution that processed transactions on behalf of licensees, for activities conducted under the Bill's provisions.

Continue reading "Internet gaming: Bill Offering Protection for Internet Gambling Delayed, but Not Necessarily Dead" »

A much-maligned Internet marketing model that is currently struggling to morph into societal acceptance is the "penny auction" or "entertainment shopping" model, such as operated by www.Swoopo.com and www.for10cents.com.

In the Swoopo version, users pay a small fee for the privilege of bidding on a variety of consumer goods, such as a Samsung 46" LCD TV or an Apple MacBook Pro Laptop. The opening price for each auction starts at $.12 cents, and the price goes up by $.12 cents (or less) for each bid placed. However, each bid placed costs the bidder $0.60.

So how do the economics add up? On an auction conducted on August 17, 2009 for a Logitech G7 Laser Cordless Mouse, Swoopo listed the mouse as "Worth up to: $64.99." The final auction price was $12.96. Assuming that the price started at $0.12 and was increased by $0.12 with each bid, the participating bidders were charged $64.68 in bid fees. In addition, the winning bidder, "Ichholes," paid $12.96 as the final auction price. The Swoopo site also indicated that it would charge $12.90 for delivery. The winning bidder, who placed 10 bids, paid $18.96 for the mouse -- a real bargain. However, Swoopo's total take was $90.60. That's $25.61 over the $64.99 that Swoopo stated was the mouse's maximum value.

According to Swoop's terms of use, "bidding rights, so-called 'bids', must be purchased and paid for by users prior to online bidding." Bids are purchased in packages ("BidPacks"). In my visit to the site on August 17, 2009, I saw BidPacks for 50 and 300 bids being auctioned on the site.

Swoopo's unique business model has generated speculation as to whether it constitutes a form of gambling. However, it is not altogether clear that Swoopo's practices are prohibited -- at least under California lottery and gambling laws.

For example, California Penal Code Sections 321-23 make non-State lotteries illegal. A lottery is defined as a "scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or any portion of it . . .upon any agreement, understanding or expectation that it is to be distributed or disposed of by lot or by chance . . ." Cal. Penal Code § 319.

Here, Swoopo could argue that its auctions don't result directly in the distribution of any property. Rather, the products on the site are only distributed when a successful bidder pays the discounted purchase price. All the auctions do is to merely compute the discount to be applied.

Continue reading "Swoopo!: Do Penny Auction Sites Run Afoul of California Gambling Laws?" »