US Law Gives the Nod to $9 Billion Illegal Gambling Co. Says No to File Sharing

June 29, 2005
June 29, 2005 - (HOSTSEARCH.COM) - In a bizarre Internet news week, US law has proven to be a powerful influence on, or contradictorily, totally irrelevant to software companies and the Internet.

The paradox of American law and the Internet this week begins with PartyGaming, the online poker company hosted out of Gibraltar debuted on the London stock exchange with a value of approximately $9 billion dollars. Despite online gambling being illegal in the United States, the lion’s share of the company’s revenue(90%) comes from American gamblers with the United States government seemingly able to do little or nothing about the situation with the company’s offering document even saying as much, "PartyGaming and its directors rely on the apparent unwillingness or inability of regulators generally to bring actions against businesses with no physical presence in the country concerned."

At the same time, on the flip-side of the coin, the Supreme Court handed down a ruling in the MGM Studios vs. Grokster Ltd. case that said peer to peer file sharing networks can be held liable for what their users share opening up the peer to peer network software providers to truly massive lawsuits.

While there is no denying that Justice David H. Souter was correct when he said, "The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement."

To avoid legal issues in America, PartyGaming obtained a gambling license in Gibraltar and moved absolutely 100% of their holdings out of the United States. With organizations like the W.T.O. siding with PartyGaming, and hundreds of millions of dollars in profits for the companies founders from their IPO there is little incentive for any company with questionable business practices or risk of liability to remain in the United States.

If Grokster had decided to move it’s holding to Gibraltar or the nearest convenient Caribbean Island nation would the Supreme Court have even been able to hand down a ruling? Although Grokster and StreamCast (creator of Morpheus) have been defiant in the face of the Supreme Court ruling, to have avoided the massive lawsuits awaiting them these file sharing companies could cut and run long ago.

While hosting sites that are found to have illegal content is unlikely to hold any increased liability for web hosting providers because of the Supreme Court ruling, so long as the hosts cooperate with law enforcement officials, it does raise the question of whether providing Internet access to pedophiles or even online gamblers, of which there are over 120,000 per day going to PartyGaming’s online poker tables alone, will create a similar liability to Grokster’s illegally used software.

Some of the primary uses of the Internet itself are for pornography, gambling, and downloading movies and songs illegally, which would make providing access to it illegal in exactly the same manner as providing peer to peer network software for downloading copyrighted material illegal.

It’s doubtful to the point of being ludicrous that any ISPs are going to get nabbed simply because the authorities are never going to take action against powerful corporations that control such a fundamental aspect of the economy but in theory the scenarios aren’t much different.

If the laws were applied evenly and strictly the current situation would almost demand a mass exodus of tech companies for the free shores of Gibraltar but where it concerns the Internet, US law is occasionally rigorous, vague, convoluted, and sporadically and unevenly enforced, for example, the lack of culpability for MCI’s hosting of SendSafe the multi-million dollar Trojan spammers. US lawmakers have also shown a lack of understanding for the technical consequences of their decisions as is the case with spam, adware/spyware regulations and they haven’t even bothered to make the law enforceable, whether at home or abroad when it comes to the Internet. The thread that holds this farce of regulation together is a tendency for the government to back large profitable corporations for right or wrong.

A business planning guide for illegal internet operations would read something like this; For companies planning on taking a share of larger companies’ profits illegally it’s best to simply go overseas (Yes, this means you Grokster. Go to Bangkok or Hong Kong and find a stall next to the guys selling Star Wars DVDs and Windows Server 2003 for $2.50 a burn). For companies planning on making money illegally where you’re not cutting into a larger companies’ pie you can usually just stay here at home in the US but if you want to fly right in the face of the law and really make a ton of money, it’s easier to go overseas (see our online gambling section). For small to medium size companies illegally making good money where larger companies aren’t complaining (spam/adware/spyware/viagra) or even get a profit boost you can stay in the US as well.

It’s time for the lawmakers to catch up to the technology makers who have somehow been able to create the necessary protocols for our grand global Internet. Or perhaps, given their track record, it’s better that we keep them on important issues like where statues of the 10 Commandments belong and flag burning laws.

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