By Spencer E. Ante If at first you lose your bet, double down. That seems to be the attitude of Michael Corfman, the CEO of Casino City, an online gambling portal that sued the Justice Dept. in a high-stakes battle over the future of online gambling. On Feb. 17, U.S. District Court Chief Judge Frank J. Polozola threw out Corfman's case in a harshly worded 16-page ruling.
"I was upset for a few hours," says Corfman. But the 51-year-old Massachusetts native isn't bluffing and says he'll appeal the decision. "The fight has just begun, and it's now a lot more interesting."
Corfman is fighting for the right to run advertising from online gambling operations on Casinocity.com. U.S. prosecutors have claimed that online gambling is illegal, and Justice has sent letters to Web sites and broadcasters that accept such ads, informing them they "may be aiding and abetting these illegal activities." Many companies, including Web giants Google (GOOG) and Yahoo! (YHOO), as well as radio-station owner Infinity Broadcasting, have stopped taking the ads. Corfman claims the government's campaign is a violation of the First Amendment's free-speech protections.
WHAT THE WIRE ACT ALLOWS. Judge Polozola dismissed the case primarily on technical grounds. His ruling stated that since the government didn't send Casino City a letter or serve it with a subpoena, Corfman failed to present an actual controversy and didn't have standing to bring the case. "The record fails to support a finding that Casino City is in any way subject to a threat of investigation or an actual investigation," the judge wrote.
However, in an unusual twist, the judge went on to say that even if Casino City had established standing, online gambling ads don't deserve protection under the First Amendment. Citing Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, the landmark Supreme Court case that laid out a test for the constitutional protection of commercial speech, the judge said ads for online gambling aren't protected by the Constitution. "Because plaintiff's speech concerns misleading information and illegal activities, it does not fall within the speech that is protected by the First Amendment," the judge wrote.
But Corfman's lawyers and other independent legal experts say the court didn't properly analyze the law. They contend that according to the so-called Wire Act of 1961, only sports betting on the Net has been clearly declared illegal in the U.S. -- and that other wagers, on blackjack or bingo, are still permitted.
"I was hoping for a more thorough analysis in light of existing precedent," says Florida attorney and gambling law expert Lawrence G. Walters. "Even the Fifth Circuit, where this trial court exists, has ruled that the Wire Act does not apply to nonsports gambling."
"SO EXTREME." The judge also didn't analyze whether the Internet changes the law's application. Corfman has argued that since his Web site is addressed to a global audience, the U.S. government doesn't have the right to stop him from showing ads for activities that are clearly legal in other countries. Online gambling is permitted in many countries, including Australia, Britain, and Germany.
Legal experts say the narrowness of the ruling means it's unlikely to prompt widespread changes in government policy or the marketplace for online gambling ads. They note that Judge Polozola's commentary on the First Amendment issues is dicta, or nonbinding in a court of law.
However, they say the commentary opens the door for an appeals court to address the merits of Corfman's constitutional argument. "The judge was so extreme that it will make it easier in an appeal process," says Corfman, who adds that he'll continue to run ads for online gambling.
FRIENDLY SUPPORT. The online gambling industry is taking the loss in stride. "This industry has been through so many challenges over the years," says Keith Furlong, deputy director of the Interactive Gaming Council, an online gambling trade group based in Canada. "This is another challenge." One option: Some lawyers say the industry may bring a new case with another entity that has been directly threatened by federal prosecutors.
Corfman's lawyers say they have up to 60 days to file an appeal, but they plan to file one well before that time. To bolster their case, they would like to get some First Amendment groups to file an amicus brief. They know this is just the latest round in what will probably be a long, drawn-out legal battle. Ante is Computers editor for BusinessWeek in New York