U.S. May Suffer After WTO Rules Against Internet Gambling Ban

By NICHOLAS WAPSHOTT, Staff Reporter of the Sun
December 27, 2007

American companies may suffer from the legal piracy of movies, music, computer programs, and other intellectual property after the international regulator of free trade, the World Trade Organization, ruled that a ban on Internet gambling services provided by companies abroad is unlawful.

The WTO decision this week is the culmination of a long-running dispute between the U.S. Commerce Department and foreign gambling companies that are forbidden by American law from accepting bets from Americans.

In a test case brought by Antigua and Barbuda, the Caribbean islands were granted permission to ignore intellectual property rights owned by American companies in compensation for the loss of earnings caused by federal statutes and four American states that have outlawed Internet gambling. The American government responded robustly and with a veiled threat of withholding American investment, claiming in a statement that "it would establish a harmful precedent for a WTO Member to affirmatively authorize what would otherwise be considered acts of piracy, counterfeiting, or other forms" of intellectual property rights infringement.

Sean Spicer, a spokesman for U.S. trade representative, Susan Schwab, said further that if the islands began ignoring American copyright laws, it "would severely discourage foreign investment in the Antiguan economy."

Antigua was quick to try to mollify the dispute. "Antigua doesn't want to negate American intellectual property rights. They don't want to sell ... DVDs and copies of Microsoft Office," the lawyer who represented Antigua in the WTO proceedings, Mark Mendel, said in a press statement.

The WTO ruled that the gambling ban was against the principles of the General Agreement on Trade in Services, the free trade deal of which America is a party, and that America's failure to comply should be punished by allowing countries affected to ignore copyright laws protecting intellectual property owned by American companies.

Antigua and Barbuda had claimed compensation of $3.4 billion for their loss of earnings from American gamblers. Washington argued that Antigua was entitled to only $500,000. The worldwide online gambling industry is thought to be worth $15.5 billion, of which half was expected to come from Americans.

Though the final compensation to the two Caribbean islands was set at a modest $21 million a year, the WTO found that America was operating a double standard in banning Internet gambling organized by foreign companies, on grounds that the practice was harmful to American morality, while continuing to allow online gambling on horse racing by American companies.

America bans Internet gambling under the Wire Act, the Travel Act, and the Illegal Gambling Business Act, and under state laws passed in Louisiana, Massachusetts, South Dakota, and Utah.

The WTO decision is a legal precedent protected by treaty that would allow other countries whose companies can claim to have suffered from the American ban also to ignore laws regulating copyright, trademarks, and patents owned by American companies. Three other WTO members are currently negotiating with the U.S. Commerce Department: India, Costa Rica, and Macao. Canada, the European Union, and Japan agreed to a deal earlier this month to waive their right to Internet gambling in exchange for free trade with American companies on other disputed sectors, such as postal and courier, research and development, and storage and warehouse services.

"The United States is concerned … that the arbitrator agreed with Antigua's request to suspend WTO concessions not just with respect to services, but also with respect to intellectual property rights," Mr. Spicer said.

"The United States is pleased that the figure arrived at by the arbitrator is over 100 times lower than Antigua's claim," he said.

Because America had come to a compensation agreement with three of the countries involved in the dispute and was working toward agreement with the others, Mr. Spicer said he did not expect Antigua to proceed with its waiving of American held copyrights. "Once the process of clarifying the U.S. schedule of commitments is complete, any issues in our bilateral dispute with Antigua will be moot, and there will no longer be any basis for suspending WTO commitments in accordance with the Arbitrator's award," he said.

A U.S. Commerce Department statement said the agreement to free trade in Internet gambling was "the unintended consequence of imprecision in the drafting of the 1994 U.S. GATS schedule" and that "gambling or betting services are generally prohibited or highly restricted in the United States for reasons of public morality, law enforcement, and protection of minors and other vulnerable groups, and the United States never intended to make a GATS commitment covering gambling."

In any case, the department said it believed the American Internet gambling ban "would qualify for a GATS exception for laws necessary to protect public morals or to maintain public order." However, it acknowledged that with respect to Internet gambling on horse racing, "the United States could not show that federal gambling prohibitions applied equally to foreign and domestic suppliers."