A judge in Kentucky seized the Web addresses of more than 140 Internet-gambling sites last week, the latest example of how local governments can affect online businesses with physical operations beyond their jurisdictions.

should online businesses be subject to local laws?

It is common to think of the Internet as a global network that transcends geography. But online entities are often forced to adhere to laws in the places where they do business. One iconic example is a ruling by a French court in 2000, where the court said a French law banning the sale of Nazi paraphernalia applied to U.S.-based Web site Yahoo.

In the Kentucky case, Circuit Court Judge Thomas Wingate concluded that gambling Web sites were “virtual keys” that provided access to places where one could play online versions of gambling devices such as slot machines and roulette tables, which are illegal in the state.

None of the online businesses—such as GoldenPalace.com, PokerStars.com and UltimateBet.com—are based in Kentucky or rely on technical equipment located in the state. Still, the sites readily accept bets placed by users in Kentucky and process payments from banks based there. That is what triggered Judge Wingate to seize control of the Web addresses.

“Seizing,” it should be noted, sounds more ominous than it is when applied to the Internet realm. It prevents an Internet registrar that issues Web site names from transferring a Web address to a different registrar, even if the owner of the address, such as a gambling site, requests it. The gambling sites will remain operational until the judge issues a forfeiture order, at which point they will become state property.

The court said it will lift its seizure order for online casinos if they implement technology that would block Kentucky residents from accessing their sites.

Groups affiliated with the online casinos are worried about the precedent the ruling sets. “If you’re a business operator, you should be subject to the laws where you do and pursue business, and not have to worry about a state halfway around the world taking away your storefront,” says Jeremiah Johnston, president of the Internet Commerce Association, which monitors legal matters for online businesses. He adds that there is no reason that other governments couldn’t use the same technique to challenge online businesses for whatever reason they choose.

Todd Greene, an attorney for Oversee.net, which has a subsidiary called Moniker Online Services that is the registrar for two of the gambling sites, says he doesn’t believe that the Kentucky court has the jurisdiction to order the seizure. While Moniker has frozen the domain names for now — effectively following the court order — it is doing so as a matter of policy.

J. Michael Brown, secretary of justice and public safety for Kentucky, who brought the lawsuit, says he only wants to stop what he considers an illegal activity.

A final hearing is set for November.

Update: We want to make it clear that the Web sites and registrars aren’t just sitting by, but intend to challenge both the Kentucky courts ruling and its jurisdiction in the matter.

-Ben Worthen

Image: Jeff Kubina via Flickr

Original here