October 15, 1998

The Honorable Jeff Modisett
Attorney General of Indiana
Indiana Government Center South, Fifth Floor
402 West Washington Street Indianapolis, IN 46204

Dear Mr. Modisett:

It has come to our attention that a number of our member companies and other interested parties have been contacted by your office via e-mail concerning their international operations. Your communication, in substance, provided the contacted parties with your opinion on the legality of internet gaming related activities that are currently accessible to Indiana residents. In the communication, you also explicitly: 1) advised recipients to post your interpretation of the law as to the legality of internet gaming conspicuously on each web site; 2) ordered that recipients cease offering a contrary opinion on the legality of internet gaming related activities; and 3) urged recipients to utilize a filtering mechanism to prevent Indiana residents from engaging in internet gaming related activities.

If you intend to address the conduct or promotion of internet gambling with Indiana residents, and prosecute those residents and non-residents who engage in it, there are a number of legal and policy issues you should first consider. Enforcing antiquated Indiana statutes on the internet will certainly endanger this dynamic new medium and set a terrible precedent. Indiana's attempt to prohibit activity on a global network would be ineffective towards bad actors, technologically unenforceable, and impact persons over whom Indiana has no rightful claim of jurisdiction. Additionally, enforcement by Indiana will invariably require an unconstitutional governmental intrusion upon the freedom of speech and privacy rights of residents and non-residents alike. Finally, internet gaming should not be hastily targeted for prohibition when careful consideration shows that the best way to protect both minors and all Indiana residents, and minors in particular, is through a system of comprehensive regulation.

I. ROLE OF THE INTERACTIVE GAMING COUNCIL

The Interactive Gaming Council (IGC) is a representative and regulatory body of the interactive gaming industry. Formed in 1996 under the auspices of the Interactive Services Association, the IGC has more than 60 members from around the globe. The IGC is working to address consumer protection issues on our own as we seek a comprehensive regulatory framework for interactive gaming. We have developed a code of conduct that mandates (among other things) accountability and testing, consumer privacy and data protection, truth-in-advertising, dispute resolution and the creation of audit trails.

As representatives of the worldwide internet gaming industry, we are concerned for those members who have been contacted by your office while peaceably engaged in legitimate electronic commerce. It was our wish to reply to your correspondence in order to highlight numerous considerations that urge caution before you undertake further action. In the following section and attached appendices we have outlined some of these considerations that were not adequately addressed in your correspondence or were misinterpreted. We have done this in the hope that such considerations will be sufficient to cause you to reexamine the extent of current law, enforcement issues, and the underlying policy rationale.

II. DISCUSSION

Contrary to the proposition asserted in your letter and opinion, the law governing internet gaming related activities and the internet generally is far from a settled issue nationally, circuit wide, or even in Indiana. As your citation of disparate court cases from various jurisdictions across the nation indicates, there is very little authoritative case law on the subject at hand. Fundamental issues of jurisdiction, sovereignty, free speech, and privacy on the internet have yet to be resolved by the nation's highest courts. The most authoritative pronouncement to date about the internet was made by the U.S. Supreme Court in ACLU v. Reno, 117 S. Ct. 2329 (1997). That case stands for the proposition that the government must have very compelling objectives and narrowly tailored enforcement mechanisms in order to even attempt to regulate the internet and justify the intrusion upon the privacy of ordinary citizens.

The legal and policy issues are intertwined with the underlying technology itself, and courts and policy makers have found that applying pre-existing law to this new medium often fails. Your dismissal of the concept that statutes enacted before the internet came into being might be invalid when applied there, fails to appreciate the unique nature of the internet and the need for fresh approaches. The combination of misunderstanding and zealousness in applying outdated laws to the internet could have significant negative consequences for the continued growth and utility of global electronic commerce.

III. POLICY CONSIDERATIONS

A. Enforcing Pre-existing Indiana Law Will Endanger The Growth Of The Internet

The enforcement of antiquated state laws upon the new and still developing medium of the internet will jeopardize its growth and harm internet commerce as a whole. Attempts to enforce state laws on the internet would have a devastating effect by exposing those involved in electronic commerce to liability in multiple jurisdictions. (See, Appendix D, Testimony of David G. Jemmet, President, Winstar Goodnet) A dangerous precedent would also be set for taxation of the internet by various jurisdictions, and would effectively destroy a major part of its utility. Your attempt to cram the entire internet into a traditional paradigm by opining that the internet is a "gambling device" or "a mechanism… construction, or installation designed primarily for use in connection with professional gambling" is a prime example of how the attempt to apply existing law will result in disastrous, if not ridiculous consequences. As the U.S. Department of Justice has warned, prohibitions on internet activity: "must be carefully drafted in ways that accomplish the legislation's objectives without stifling the growth of the internet or chilling its use as a communications medium." (See, Appendix B, Letter from Anthony L. Sutin, Acting Assistant U.S. Attorney General, to Senator Patrick J. Leahy, May 28,1998). Surely, a state law designed before the internet's existence does not meet that reasonable standard.

B. Interactive Gaming Should Not Be Hastily Targeted Because Of Misconceptions

There is a misconception that because gaming related activity is new and occurs on the internet, it is somehow more onerous than other forms of legitimate or acknowledged gaming, and thus needs to be targeted. With regulation internet gaming is safe, reliable, and far removed from the "corner bookie." Participating in internet gaming is the equivalent of traveling to Las Vegas via cyberspace instead of driving. If Indiana targets those who "promote internet gambling with Indiana residents," then you may also be forced to target those who promote trips to Las Vegas, sell vacations on casino cruise ships, or offer travel to the Kentucky Derby. As the U.S. Department of Justice has cautioned, it may be: "hard to explain why conduct that is not a federal crime in the physical world suddenly becomes subject to. . . criminal sanction when committed in cyberspace." (See, Appendix B).

Moreover, the rush by states to prosecute is inappropriate, especially in light of the fact that a National Gambling Impact Study Commission (NGISC) has been specifically charged by Congress to carefully examine internet gaming. State action before the NGISC issues its report will assuredly lead to much unnecessary litigation.

You should also know that internet gaming has a number of inherent safeguards that more traditional forms of gambling lack, despite uninformed perceptions to the contrary. For example, IGC members voluntarily provide links to Gamblers Anonymous. We do not provide free alcohol. Nor do we hide clocks or black out windows. If anything, interactive gaming addresses issues of compulsion and minor access in a far more thorough manner than most land-based casinos. The enforcement resources of the state of Indiana may be better focused on places where gambling is closely tied to alcohol, violence, and organized crime rather than against the much safer entertainment of citizens peaceably risking a few dollars on games of chance from the privacy of their own homes. If the state of Indiana were to seriously endeavor to prosecute all gambling activity equally, the current action would be more logical, for there is nothing particularly immoral about internet gaming. Indeed since Indiana authorizes, regulates, and even conducts numerous forms of gambling, the immorality of gambling itself cannot be the issue.

C. Regulation, Not Prohibition, Is In The Best Interests of Indiana Residents

History has demonstrated that prohibitions do not work. To the extent that enforcement by Indiana or the United States has any effect upon the providers of internet gaming services, it will disproportionately impact the most trustworthy operators. Legitimate operators either will be forced to relocate outside the United States or go out of business. Under either scenario, the opportunity for state and federal authorities to enact stringent consumer protection measures will be lost. Indiana residents will still have virtually unfettered access to internet gambling, but the gaming providers left will be unscrupulous or unregulated operators who are immune from domestic enforcement or choose to ignore it. Many of those remaining operators will have little reason to cooperate with overly burdensome regulation or oppressive enforcement. Pushing out legitimate operators will ensure that Indiana has no future role in regulating such gaming or sharing in tax revenues.

Legitimate operators on the other hand would welcome U.S. regulation and taxation of the gaming side of transactions. Traditional gaming has been strictly controlled and regulated, primarily at the state level in order to protect citizens. However, the internet is a global medium of communication that spans borders and jurisdictions. This suggests a federal - or even global - approach to regulation of interactive wagering. Some countries are far ahead of the United States in such efforts. (See, Appendix E).

We do not advocate regulation of the internet, but we do recognize there is an appropriate role for the regulation of gambling products provided over the internet. Attempts to enforce prohibition also undermine organized efforts by the Interactive Gaming Council and many legitimate operators to promote and adhere to recognized standards, age verification, problem gambler identification, and a strict code of conduct. (See, Appendix A, IGC Code of Conduct). If Indiana adult residents cannot be stopped from engaging in internet gambling, then they should have access to well regulated and monitored sites.

D. Minor Access Can Be Prevented By Giving Parents Alternatives

We appreciate your legitimate and genuine concern regarding underage access and understand your determination to address this problem. You are absolutely correct in taking an uncompromising stance that minors should NOT be allowed to gamble anytime, anywhere, period. The IGC and its members share your concerns. The internet gaming industry in general has no reason to permit access by minors, as debts incurred by children are largely unenforceable. Our members take strong measures to screen out minors and will continue to do so. (See, Appendix A, IGC and SurfWatch Partnership)

It is our belief that the best way to keep minors from gambling is to have parents know what their children are doing on-line. Without adequate parental involvement, kids are exposed to far greater dangers than placing an uncollectable bet. Moreover, there are a number of alternatives available that allow parents to prevent minors from accessing gaming sites. These include blocking software services such as SurfWatch or CyberPatrol, "pre-screening" by family-oriented internet service providers, and other mechanisms.

Regulation of the industry would also be invaluable in preventing minor access as it has been with land based casinos, alcohol, and tobacco. Your office is correct to believe that minor access can and should be stopped. We would suggest that some Indiana resources be invested in making voluntary alternatives affordable and available to parents, schools, and libraries. The IGC and our member companies stand ready to assist your office in whatever capacity to prevent minor access.

IV. JURISDICTIONAL CONSIDERATIONS

A. The Law Governing Jurisdiction Over The Internet Is Conflicting

There are a number of issues raised by your assertion of jurisdiction in both your letter and the underlying legal opinions that are troubling. To begin with the law is unclear as to what activity on the internet is sufficient to establish minimum contacts to invoke personal jurisdiction over non-residents. You cite several cases in your opinion from jurisdictions outside of Indiana that seem supportive of your view that promotion or merely the existence of a web site is sufficient for personal jurisdiction. See, e.g., Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D. Mo. 1996); Zippo Mfg. Co. v. Zippo Dot Corn, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).

However, you ignore a number of Federal appellate opinions that take a contrary view. See, e.g. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir. 1997) (no jurisdiction based on web site, mailing list and e-mail by plaintiff); Bensusan Restaraunt Corp. v. King, 126 F.3d 25 (2nd Cir. 1997) (web site and phone number do not satisfy state long arm statute); CompuServe, Inc v. Patterson, 89 F.3d 1257 (6th Cir. 1996) (jurisdiction based on choice of law provision and location of server).

Just in the months since your letter was written, the Fifth Circuit has reversed the conviction of a resident under a Texas anti-gambling statute for offering offshore gaming services. United States v. Truesdale, 1998 U.S. App. LEXIS 21018 (5th Cir., 1998) ( despite phone lines and financial transactions in Texas, gambling operation via phone clearly occurred offshore and was not subject to state law prohibiting bookmaking). It is apparent from these cases that there is conflict in the law as to whether you have personal jurisdiction over those who were contacted by your office. Even one of the chief supporting cases that you cite, State of Minnesota v. Granite Gate Resorts, Inc., 568 N.W. 2d 715 (Minn. Ct. App. 1997) was rendered by an evenly divided Minnesota high court and a petition for certiorari to the U.S. Supreme Court is expected.

B. Indiana's Claim Of Jurisdiction Is Overbroad And Violates Principles Of Sovereignty

Even if your assertion of personal jurisdiction were based on clearly established precedent, it would constitute an overly expansive theory of jurisdiction when applied. In effect, you would be claiming for the State of Indiana personal jurisdiction over anyone anywhere in the world who posts certain information on the internet merely because it may be accessible to Indiana residents. The exercise of such jurisdiction would violate the sovereignty of any other state, Indian tribe, or nation where the posting of such information by their residents is authorized. For example, internet gaming is legal and regulated in 15 nations such as Antigua, Australia, New Zealand and the Dutch Antilles. (See, Appendix E) Moreover, telephone wagering is permitted in some states, such as Pennsylvania, even when the bettor is physically located in a state where gambling is illegal.

Surely, Indiana would not accept infringement on its own sovereignty by other states or nations. But the Department of Justice has recently advised that: "If we ask a foreign country to investigate an activity (e.g. gambling) that is legal in the foreign state, that country may, for example, ask us to investigate constitutionally protected speech originating on computers based in the United States." (See, Appendices B & C). This jurisdictional consideration brings into question your authority as well as the propriety to demand via e-mail that residents of other sovereign jurisdictions engaging in a legal enterprise post certain materials to comply with Indiana law.

C. The Technology Of The Internet Does Not Allow For Necessary Jurisdictional Determinations

It is impossible to determine the vital jurisdictional question of where in the world a packet-switched internet transaction or communication occurs. While you make mention of this difficulty, you never adequately provide a solution. Despite your assertion that it is not legally or practically different from using a telephone, it is both. If you seek to claim personal jurisdiction in order to prosecute or enjoin non-residents from internet gambling related activities, you must be able to definitively say where those activities take place. One can just as easily argue that a particular transaction actually occurs in Sydney, Australia instead of Kokomo, Indiana. As discussed above, the recent 5th Circuit decision, United States v. Truesdale, casts further doubt upon your jurisdiction over such transactions.

V. CONSTITUTIONAL CONSIDERATIONS

A. Constitutional Issues Raised By Enforcement Demand Caution Before Proceeding

Your intended application of Indiana law to internet activity raises several constitutional issues involving the First Amendment, the right to privacy, and federalism. That such serious issues are present demands a greater level of scrutiny and deliberation than you have shown before action is taken. Your correspondence shows an inadequate level of caution by failing to give even fleeting consideration to the very real constitutional issues implicated by any attempt to enforce a state-based prohibition of internet activities. It is almost a universal principle of American law that whenever basic Constitutional values are threatened, heightened scrutiny is required and a rush to action is to be avoided.

B. Enforcement Will Necessitate An Unwarranted Government Intrusion Upon Privacy

Any attempt by Indiana to actually enforce a prohibition of internet gambling will require a massive invasion upon the privacy of ordinary citizens and Internet Service Providers (ISPs). This level of intrusion would have difficulty passing constitutional muster when the rather speculative benefits of enforcement are used to justify the state's significant deprivations of liberty. As Supreme Court Justice Louis Brandeis articulated nearly 60 years ago, state intrusion must be justified against the "right to be let alone." Olmstead v. United States, 277 U.S. 438, 478 (1928) ( Brandeis, J., dissenting). The Court has reaffirmed the concept continually and most recently in ACLU v. Reno, 117 S. Ct. 2329 (1997). Indeed the right applies most strongly to cases such as internet usage by private citizens from their own homes.

C. Indiana's Attempt To Ban Certain Speech Violates The First Amendment

Indiana's attempt to ban or censure certain web sites or information on the internet raises First Amendment concerns. The Supreme Court also cited such concerns in overturning the Communications Decency Act in ACLU v. Reno, 117 S. Ct. 2329 (1997). True, commercial speech enjoys a lower threshold of protection than individual speech, and actual gaming web sites may fall below that threshold. See, e.g., Valley Broadcasting Company, et al. v. United States, 107 F.3d 1328 (9th Cir., 1997). But the Supreme Court has recently held that advertising does enjoy a definite degree of First Amendment protection. See, 44 Liquormart, Inc., et al. v. Rhode Island, 116 S. Ct. 1495 (1996). It is doubtful, therefore, that Indiana has the ability to define or the authority under the First Amendment to prohibit speech involving either "promotion of internet gambling activities" or "sharing of gambling information." Furthermore, your order that our members (some of which are on-line magazines) post your opinion and cease disseminating their own opinion regarding the legality of internet gambling not only implicates fundamental freedom of speech principles, but violates the Fifth Amendment takings clause.

VI. ENFORCEMENT CONSIDERATIONS

A. Quickly Adaptable Internet Technology Makes Prohibition of Widely-Accepted Content Impractical

The impracticality of applying Indiana law to internet gaming providers, promoters, and participants should give you pause. The nature of internet technology makes enforcement the functional equivalent of either: 1) preventing all Indiana residents from traveling to Las Vegas; or 2) screening or stopping all incoming and outgoing mail to and from all Indiana residents. The Department of Justice has recognized that enforcing existing gambling statutes "may not be technically feasible or appropriate with regard to internet transmissions." (See, Appendix B). Internet messages can be encrypted, web addresses changed almost instantaneously, and return addresses removed. The burden associated with enforcing existing statutes against those in the business of internet gambling increases exponentially should you attempt to target Indiana residents who are casual bettors. This burden would also fall heavily upon Internet Service Providers (ISP's) with devestating consequences for the continued growth and viability of the internet. (See Appendix D).

B. International Legitimacy Circumvents State Attempts At Enforcement

The internet is an international network, which presents enforcement as well as jurisdictional barriers. The prohibition and enforcement efforts against internet activity by an individual state or even nation are easily circumvented if the activity is legal in any other jurisdiction that provides a safe harbor. The majority of operators and a significant number of participants are residents of foreign sovereign nations. Many operators submit to licensure and registration in the jurisdiction in which they are physically located. As discussed earlier 15 nations - nearly 10% of the world's recognized governments - accept interactive wagering in one form or another. Even if jurisdiction were not an issue for Indiana courts, there is no means for you to either extradite or try in absentia foreign residents who are engaged in a lawful gambling enterprise simply because Indiana law forbids its citizens from participating.

VII. CONCLUSION

It is our hope that this response will be another step toward a greater understanding of our respective positions. We are also hopeful that you will carefully consider our points before taking additional action. The interactive gaming industry wishes to be regulated and taxed in a sensible manner instead of blindly and ineffectively banned by a rush of misplaced (albeit well-intentioned) legislation and enforcement initiatives. We are confident that a through examination of the underlying issues involved in internet gaming will eventually result in a cooperative regulatory process between our industry and state, national, and global officials. In the meantime, however, we urge you not to rush ahead with efforts to enforce a broad prohibition. Such an effort would not only be ineffective but could trigger many unfortunate consequences for the internet industry as a whole, as well as the people of Indiana.

Respectfully,

Sue Schneider

Chairman, Interactive Gaming Council