Nevada Authorizes Interstate Online Gambling Arrangements

While New Jersey Governor Chris Christie vetoed an online gambling bill earlier this month, the Governor of Nevada has signed legislation (Nevada 2013-AB114) [PDF] that enables and authorizes Nevada to make arrangements and enter into agreements with other States that legalize interstate online poker conducted across those state lines. The United States Department of Justice (DOJ) still holds that sports betting is illegal under the Interstate Wire Act of 1961 and there has been no move to repeal or amend the Unlawful Internet Gambling Enforcement Act of 2006 or, for example, the corresponding compliance obligations applicable to financial institutions imposed by the FDIC [PDF]. However, at the end of 2011, the DOJ released a memorandum indicating it no longer believes that non-sports related online betting and wagering (e.g., online poker) is prohibited by the Wire Act, essentially paving the way for States to act in the arena of intra-State online gambling – including sports wagering solely within the State.

Technically, the Nevada statute eliminates a provision in the existing law that would require either approval from the U.S. DOJ or some Federal enabling legislation and the effect is that the Gaming Commission in Nevada may now adopt regulations that authorize the State (ostensibly through the Governor’s office), to enter into agreements with other States. Obviously, each other State would require similar enabling legislation and New Jersey is poised to again send another bill to the Governor’s office in the hopes they can craft legislation Governor Christie is willing to sign.
Nevada has traditionally had a strong regulatory environment and the bill includes the following language expressing the intent and basis for the new legislation. The bill notes that “The state of Nevada leads the nation in gaming regulation and enforcement…” and “ … is uniquely positioned to develop an effective and comprehensive regulatory structure related to interactive gaming.” .

If you need more information about the complex legal and regulatory issues that relate to online or interactive gaming or gambling and the payment and e-Commerce implications and requirements, not only in the United States, but internationally, feel free to contact me, Joseph I. Rosenbaum or the Rimon attorney with whom you regularly work. 

When Online Games, Health & Life Sciences and Crowd Sourcing Combine

This time, the law of unintended consequences is bringing scientists and online gamers together in a crowd sourcing manner hitherto unimaginable.

An article in this month’s edition of the journal Nature Structural & Molecular Biology has announced (citing both research scientists and online gamers as co-authors of the article) that through a 2008 purpose-oriented video game developed at the University of Washington in 2008 – Foldit – the structure of an enzyme, one used in complicated customizing of retroviruses, was accurately modeled. 

Who cares and how does this affect us? Well, as a former biochemist wannabe, if you can model the structure of these proteins, you can better understand how diseases are caused and correspondingly develop drugs to block or stymie the progress of those diseases.

Amazingly, gamers were able to produce an accurate model of an enzyme whose structure had eluded scientists for a very long time in only three weeks and the report notes, referring specifically to medication against the human immunodeficiency virus (HIV) for which an understanding and design of antiretroviral drugs is absolutely critical. Seth Cooper, one of the creators of Foldit noted that "Games provide a framework for bringing together the strengths of computers and humans. The results in this week’s paper show that gaming, science and computation can be combined to make advances that were not possible before."

If you thought the intellectual property, licensing, user generated content, crowd sourcing, cloud sourcing, social media legal issues were already enough arising from scientific research, online gaming and crowd sourcing alone were enough to make your head spin, conjure up the implications when the term ‘convergence’ is applied to any two or three of these disciplines. Isn’t it time you had legal counsel and representation who can seamlessly help navigate them while your teams are busy solving the health care and medical problems of the world?

If you want to know more about how lawyers who understand can help your business, feel free to contact me, Joe Rosenbaum, or any of the Rimon attorneys with whom you regularly work.

Protection of Minors Doesn’t Trample Free Speech in Online Games

In 2005, California enacted a ban on the sale or rental of violent video games (defined as a game that depicts killing, maiming, dismembering or sexually assaulting an image of a human being) to minors. The stimulus for the law was the stated belief that violent videogames are likely to make minors become more aggressive and violent. The penalty for retailers who violate the ban? As much as $1,000 per violation.

As you might imagine, the legal challenge started almost immediately – from publishers, distributors and sellers; and today, in a 7–2 vote, the U.S. Supreme Court upheld a ruling by an appeals court that held the California law unconstitutional. I believe (although I didn’t go back and check yet) that California now becomes the seventh state to have such a law struck down. Justice Scalia, in summarizing the decision, is reported to have said, “Our cases hold that minors are entitled to a significant degree of First Amendment protection. Government has no free-floating power to restrict the ideas to which they may be exposed"; and in his written opinion for the majority noted, "Even where the protection of children is the object, the constitutional limits on governmental action apply."

We will try to bring you more details once we analyze the 18-page opinion handed down today, but if you have questions, feel free to call me, Joseph I. ("Joe") Rosenbaum, or any of the Rimon attorneys with whom you regularly work.

North Carolina Creates Tax Incentive for Digital Media Companies

Interactive digital media developers that are currently located in North Carolina—as well as those contemplating doing business in North Carolina—should evaluate their business activities to take full advantage of the tax benefits of a new North Carolina tax credit for companies developing interactive digital media, including video game companies and developers of online virtual worlds and interactive websites that allow consumers to create and manipulate certain digital goods (i.e., avatars in role-playing scenarios). In particular, digital media developers should consider joint ventures with educational institutions that will allow them to maximize the benefits provided by the North Carolina credit. For more information on North Carolina’s new tax credit for digital media developers, please read our full client alert, “North Carolina Creates New Tax Incentive Opportunity for Digital Media Companies,” written by Rimon attorneys Donald M. Griswold, Michael A. Jacobs, John P. Feldman and Kelley C. Miller.

UK Sports Minister Proposes Changes to Gambling Legislation

This post was also written by Laura Hicks.

Last week, Gerry Sutcliffe, Minister for Sport in the United Kingdom, announced proposals to make significant changes to the existing legislative framework under which remote gambling is regulated. Following a review of the system of online gambling regulation in Great Britain by the Department for Culture, Media and Sport, a consultation is being launched with a view to introducing laws requiring all online operators to apply for a license from the Gambling Commission in order to either advertise or provide gambling services to British consumers. According to the Minister for Sport, the proposed changes were “necessary to ensure the protections in the Gambling Act – to keep gambling crime free, to ensure gambling is fair and open, and to ensure that children and vulnerable people are protected from harm – continue to be afforded to British consumers.”

Under the proposals, a license will be required even if the gambling services are offered to British consumers using remote gambling equipment from outside Great Britain. Currently, only operators based and licensed in the UK are allowed to advertise in the UK, unless the country in which they are based is either a member state of the EEA or on the government’s “whitelist.” More information on the “whitelist” is available on the Department for Culture, Media and Sport website, but to give you some insight, territories currently on the list are Antigua and Barbuda, Tasmania, the States of Alderney and the Isle of Man. “Whitelisting” is the process used by the UK Ministry to assess the regulatory framework for gambling in any jurisdictions outside the EEA that apply for permission to advertise their services within the UK.

As well as being obliged to share information about suspicious betting patterns with the UK’s sports governing bodies and the Gambling Commission, foreign operators would also have to comply with British license requirements concerning the protection of children and vulnerable people, and contribute to the research, education and treatment of problem gambling in the UK.

This appears to be a move by the UK government to close a loophole in the laws that protect online gamblers in the UK, and that more closely mirror the more protectionist regime in the United States. If this extension of the licensing regime is introduced into legislation, it will be interesting to see how the regulator intends to enforce the license scheme against gambling companies with no UK presence. In the United States, enforcement has involved a variety of “indirect” mechanisms, from the Department of Justice’s use of the Interstate Wire Act of 1951, which applies to sports betting to assert jurisdiction over online gaming – even though the Fifth Circuit ruled in 2002 that the Wire Act only applies to sports betting – to seizing advertising payments made to broadcast networks by advertisers seeking to promote online gambling considered illegal by the United States. Since 2006, with the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), the United States has sought to seize assets in financial institutions tied to online gambling, based on what it considers illegal activity, money laundering and a variety of other offenses. It is noteworthy that UIGEA does not make online gambling illegal per se, but rather prohibits any transfer of funds from a financial institution (as defined in the legislation) to an illegal Internet gambling site.

Once you read the UK Sports Ministry’s announcement, if you need more information, contact Laura Hicks, an associate in the Media and Technology team, in our London office. Of course, you can always contact me, Joseph I. (“Joe”) Rosenbaum in New York, or Gregor Pryor in London, or the Rimon attorney with whom you regularly work, if you need legal advice, information or support on this subject.

Death Knell or Glimmer of Hope: Care to Bet on Online Gambling?

Legal Bytes has previously reported to you concerning Title VIII of the Security and Accountability For Every Port Act of 2006 (or SAFE Port Act), which is the part of the SAFE Port Act endearingly known as UIGEA (the Unlawful Internet Gambling Enforcement Act of 2006). On Tuesday, the U.S. Court of Appeals for the Third Circuit rejected a claim by the Interactive Media Entertainment & Gaming Association that UIGEA is too vague or unconstitutional or infringes on the individual’s right to privacy. The unanimous ruling was issued amid a tug-of-war between the Justice Department that is anxious to crack down on the gambling industry, and the actions of Rep. Barney Frank (D-Mass.) and other members of Congress who are advocating legislation to legalize the gaming industry.

The decision to uphold UIGEA, which banned payment processing by U.S. financial institutions for online betting, might appear to be a blow to the gaming industry, but there is a potential ray of hope. On page 8 of the Court’s Opinion, the Third Circuit concluded UIGEA was not constitutionally vague, nor had the law made any gambling activity illegal. Rather, the vagueness problem cited by the Court arose from the underlying state law. To wit, the Court explicitly notes what many in the industry have known for a long time: “[T]he Act itself does not make any gambling activity illegal [under the UIGEA]. Whether the transaction in Interactive’s hypothetical constitutes unlawful Internet gambling turns on how the law of the state from which the bettor initiates the bet[.]”

One can thus read this decision as an opportunity for state gambling clarity. Currently, only six states in the United States have an outright prohibition against Internet gambling; the other 44 states (and U.S. territories) have an opportunity, if they wish to seize it, to legalize, authorize, license, regulate and potentially tax online gambling.

For the record, the Frank Internet gambling legislation that proposes to delay enforcement of UIGEA pending the enactment of a federal online gambling licensing and regulatory framework, has been pending in committee since May, and there are many pressing items on Congress’s plate. Thus, it is unlikely that Congress is poised for quick action on this legislation. That said, the court’s decision appears to leave the door to online gambling enabled by state legislation open. Stay tuned.

If you need to know more, contact Amy S. Mushahwar directly, or you can always contact me, or the Rimon attorney with whom you regularly work. We are happy to help.

Carpe Diem! Italy Authorizes Issuance of Online Gaming Regulations.

Gaming is a fast-growing segment of the online community—remarkable since people have actually been saying that since 1994! Well online gaming and gambling may become more difficult (and more expensive) in places like Italy, if the Italian Chamber of Deputies has its way. New legislation ratifying and amending existing Italian law authorizes the State Monopolies Authority (Amministrazione Autonoma Monopoli di Stato (AAMS)) to promulgate implementing regulations—which are likely to be issued in early 2010 (although late 2009 is a possibility). Currently, Italy licenses online poker tournament games and fixed-odds sports betting, but online gambling in Italy is limited to Italian gamblers on internal, not international networks.

So what does the new law provide? Although absent the actual regulations it is impossible to predict with certainty, there does appear to be both good news and bad news.

First the good news. The law authorizes the introduction of online cash games—both fixed draws and card games—and permits the implementation of new online lotteries of various types and modes of play. Consequently, online games involving cash are likely to become legal and be introduced in Italy. 

Now the bad news. The tax that will be imposed on these new games is 20 percent of the total (essentially a gross profits tax). This represents an increase above the current 4.5 percent tax on “gross gaming revenues” that applies to sports betting in Italy. In cash online games, unlike tournament poker (in which a tax is imposed as a percentage of gross gaming revenue), the network operator generally takes a “rake” from each game. Thus, using a gross profits tax will allow the operator to set the rake more rationally in the marketplace, but will also result in more tax revenue.

So bottom line, while these new provisions are likely to stimulate new online gaming, the AAMS retains very broad authority to define the basis upon which operators can customize the wagering products and services being offered. Because the AAMS still retains the right to approve each betting product, one wonders if that will not limit both innovation and competition in the online gaming marketplace. That said, gaming and gaming revenues continue to increase and tax revenue will likely follow. We’ll see if the new regulations provide additional opportunities, but as they said in ancient Rome: Cum catapultae proscriptae erunt tum soli proscript catapultas habebunt.

Need to understand more about online gaming, or online gambling, or both? Need help? In Italy? In the United States? Anywhere? Need references? In Italy? In the United States? Anywhere? Contact me at joseph.rosenbaum@rimonlaw.com, check out my bio at Joseph I. Rosenbaum, or contact the Rimon lawyer you normally work with. We are happy to help.

Online Gaming Laws Survey – Free (Yes, You Read Correctly)

With the help of one of our trusty Summer Associates, and stimulated in part by our desire to update and consolidate research we have done over the years in a variety of different contexts, we have prepared a Survey of U.S. Federal and State Gaming Laws & Regulations that apply or may apply to “Online Gaming.” We defined “gaming” relatively loosely, and tried to cover promotions and contests involving money or consideration of any kind, the potential implications of related gambling statutes, “amusement gaming,” and anything related that popped onto our radar screen. With the proliferation of Internet-web-based online advertising, promotions, games and interactive entertainment, these gaming laws will increasingly be implicated and potentially used by state and federal authorities to regulate how these activities are conducted.

Now you may ask, “Why would a law firm be giving away such valuable research for free online, on the web, for everyone to see?” Well you may ask – but first read on:

This is an area in which Rimon has both U.S. and international experience, and as complex gaming, promotional activities and in-game advertising—involving proprietary and user-generated content—proliferate, the convergence and intersection of these laws and regulations with advertising, promotional and marketing regulation will surely increase over time. Contact Joseph I. Rosenbaum if you would like to know more about our experience, our resources, or our ability to help you.

We also maintain a similar chart and database relating to Gift Cards and Gift Certificates, covering both traditional and online payment instruments that are increasingly blurred with prepaid debit cards, stored value cards, smart or chip-cards, reward cards, discount certificates, and traditional credit, charge and debit cards. In the online world, often a simple code or account number, rather than a physical piece of plastic, is the only evidence that a “gift card” exists. Not only are there advertising disclosure regulations and restrictions on expiration dates or the imposition of dormancy or inactivity fees, but escheat and abandoned property laws are implicated as well. It’s a complex area of marketing and the law. In addition, in collaboration with our Security & Data Protection Group, we maintain a database of data breach, information security and identity theft statutes, which is an increasingly handy tool related to prevention and compliance and, of course, knowing what to do when you suffer a breach.

The Survey of U.S. Federal and State Gaming Laws & Regulations chart, which you can refer to at any time, lists each state (including the District of Columbia) in the United States, and a citation to the relevant statutes and regulations (organized so that amendments are cross-referenced by date and relevant citation), followed by a brief summary of the salient provisions of the law or regulation itself. We have also noted, where there was current activity, any pending legislation that may apply. For example, the relevance of federal gambling legislation appears in the notes at the introduction of the chart, referencing the recent introduction of bills that would potentially defer enforcement of the UIEGA and seek to establish a federal licensing scheme for online gambling. We will continue to update our research regularly for our clients, and if you want to know more about any of the databases, reference tools, or our teams of professionals who can help you—well you know what to do next. Oh, and if you want to know why we are giving this research to you at no charge—well I did say “you may ask.” So go ahead and ask.

FTC Releases Mobile Marketplace Report

Earlier today, the FTC staff issued a report concerning consumer protection issues arising in the mobile commerce marketplace. A copy of the full report, Beyond Voice, Mapping the Mobile Marketplace is available by clicking the link. The key findings in the report:

  • Cost disclosures about mobile services continue to generate consumer complaints. The FTC staff intends to monitor cost disclosures, bring law enforcement actions, and work with industry to improve self-regulatory enforcement
  • The FTC and its law enforcement partners should continue to monitor the impact on consumers of unwanted mobile text messages, malware and spyware, and take law enforcement action if and as needed
  • Although spyware and malware are not yet significant problems on mobile devices, the FTC is encouraging development of strategies to prevent or minimize their spread, since the issue is likely to magnify as consumers increasingly use mobile devices for a wider range of applications, including Internet access
  • Increasing use of smart phones to access the mobile Web presents unique privacy challenges, especially regarding children. The FTC will expedite regulatory review of the Children’s Online Privacy Protection Rule to determine whether the rule should be modified to address changes in the mobile marketplace. This review was originally set for 2015, and will now begin in 2010 instead.

Given the numbers of wireless and mobile devices in the hands of individuals under the age of 18 (and 13), and the increasing proliferation of mobile devices, this will become a hotter topic in the months and years ahead. As if this point needed to be emphasized, it has been reported that as of January 2007—two years ago—there were approximately 800 million cars, 850 million personal computers, 1.5 billion television sets, but already 2.7 billion (yes, billion) wireless and mobile devices in use around the globe, with more than 800 million e-mail and 1.8 billion SMS text-messaging users.

The sheer numbers are staggering, and we are on top of this issue big time. Contact Joe Rosenbaum, John Feldman or Douglas Wood if you need more information or assistance.

Dazed & Confused, Not Shock and Awe

For 2009, here are my predictions:

The economy and strife, regulation and surveillance will dominate the agenda, with the burden of paying for everything from wars to bailouts right in the crosshairs: watch those advertising budgets boys and girls, the taxman cometh.

Privacy and advertising, long separated by passive print, television and radio, will continue to collide—Congress will either pass ineffective and inappropriate legislation because it’s too busy to pay attention, or will defer legislation another year because it’s too busy to pay attention.

Wireless and mobile technology will continue to make us say “wow” and will continue to miniaturize our lives, putting not just communication, but also our wallets, calendars, purchasing, entertainment and working tool kits in our hands, not our laps.

The use of wireless and additional licenses, spectrum and bandwidth will bring the FCC and the FTC colliding in their zeal to regulate, and they will either cooperate because they are too busy to fight or fight because they are too busy to cooperate. In either case, regulation, re-regulation and self-regulation will continue to increase, unregulated.

Marketing, promotions, new media, digital content and distribution platforms will transform gaming and interactive play into entertainment, education and information—giving us more choices, but continuing to blur the lines between advertising, entertainment and information.

Continue reading “Dazed & Confused, Not Shock and Awe”