Until recently, I wasn’t familiar with Freedom House’s Freedom on the Net reports. Freedom House has useful recommendations for Internet non-regulation and for protecting freedom of speech. Their Freedom on the Net Reports make an attempt at grading a complex subject: national online freedoms.

However, their latest US report came to my attention. Tech publications like TechCrunch and Internet regulation advocates were trumpeting the report because it touched on net neutrality. Freedom House penalized the US score in the US report because the FCC a few months ago repealed the so-called net neutrality rules from 2015.

The authors of the US report reached a curious conclusion: Internet deregulation means a loss of online freedom. In 2015, the FCC classified Internet services as a “Title II” common carrier service. In 2018, the FCC, reversed course, and shifted Internet services from one of the most-regulated industries in the US to one of least-regulated industries. This 2018 deregulation, according to the Freedom House US report, creates an “obstacle to access” and, while the US is still “free,” regulation repeal moves the US slightly in the direction of “digital authoritarianism.”  

The authors of the US report resort to net neutrality platitudes and don’t actually examine the 2015 Title II order. It’s never encouraging when a substantive report begins with an inaccurate summation of the 2015 Order: that the Order “ensured that internet service providers treated internet traffic equally.” That’s not what the Order does. (The “treat all traffic equally” aspiration is “happy little bunny rabbit dreams,” in the words of early Internet developer David Clark.) Despite branding efforts by Internet regulation advocates, the 2015 Order wouldn’t be recognizable as net neutrality to the average net neutrality supporter. The Obama FCC was quite clear that the Order allowed ISP content blocking and prioritization of services.

Relatedly, as pro-net neutrality publications like TechCrunch have noted, the net neutrality policies in the 2015 Order are optional for ISPs. 

[A] tiny ISP in Texas called Alamo . . . wanted to offer a “family-friendly” edited subset of the internet to its customers. Funnily enough, this is permitted! And by publicly stating that it has no intention of providing access to “substantially all Internet endpoints,” Alamo would exempt itself from the net neutrality rules! Yes, you read that correctly—an ISP can opt out of the rules by changing its business model. They are . . . essentially voluntary.

The current FCC cited this optional nature of the 2015 rules as a good reason to repeal the rules:

In practice, the Title II Order deregulates curated Internet access relative to conventional Internet access and may induce ISPs to filter content more often, rendering the no-blocking and no-throttling rules ineffectual as long as an ISP disclosed it was offering curated services.

I noticed that this report isn’t the first time that advocate talking points have clouded what should be substantive regulatory analysis from Freedom House. In November 2017, Freedom House issued a statement when the FCC announced plans to repeal the 2015 Title II order:

This change . . . could also set a dangerous precedent for countries that model their policy on Washington’s. In less democratic countries, where most providers of online content are state-owned and censored, authorities would have an excuse to give faster lanes of access to progovernment outlets.

Their apparent unfamiliarity with US telecom laws means they got this exactly backwards. It was the 2015 Title II order that increased the amount of control that the President of the US has over Internet access, as Berin Szoka has explained.   If there was a model to would-be despots around the world, it was the Title II classification in 2015, which gave greater war power authority to the President to prioritize the President’s favored communications over the Internet. (Left unexplained by Freedom House: why the FCC’s non-Title II policy from roughly 1996 to 2015 had not already inspired authoritarians.)

The 2018 deregulation reduced Presidential power over Internet services. Yet, according to Freedom House, the President’s loss of power to prioritize communications is also a loss of freedom to Internet users.

The Freedom House US report omits these details, uncritically endorses net neutrality maxims, and therefore slightly downgrades the US score to 22 (lower is better). That puts the US in the same class as the UK (score: 23), a country that is arresting thousands of online trolls and posters annually for “grossly offensive” social media posts. This includes convictions for

• a teenage girl who posted the lyrics from Snap Dogg’s I’m Trippin’ to pay tribute to a boy who died in a road crash.
• a young man’s tasteless attempt to annoy his girlfriend, including by teaching her pug to do a Nazi salute.

Needless to say, nothing in the US, and certainly not the recent Internet deregulation, compares to these mass arrests and convictions for online behavior.

Ironically, the Freedom House US Internet report reveals the same deficiency as the 2015 Internet regulations: creating a standard that is aspirational, occasionally internally inconsistent, and multi-factor means that, too often, advocates can reach whatever pre-determined result they wish.

Anupam Chander, Director of the California International Law Center and Martin Luther King, Jr. Hall Research Scholar at the UC Davis School of Law, discusses his recent paper with co-author Uyen P. Lee titled The Free Speech Foundations of Cyberlaw. Chander addresses how the first amendment promotes innovation on the Internet; how limitations to free speech vary between the US and Europe; the role of online intermediaries in promoting and protecting the first amendment; the Communications Decency Act; technology, piracy, and copyright protection; and the tension between privacy and free speech.

Download

Related Links

• The Free Speech Foundations of CyberLaw, Chander, Lee
• The Electronic Silk Road: How the Web Binds the World Together in Commerce, Amazon
• Rules of the Digital Age: PW Talks with Anupam Chander, Publishers Weekly
• Securing Privacy in the Internet Age, Amazon

Patrick Ruffini, political strategist, author, and President of Engage, a digital agency in Washington, DC, discusses his latest book with coauthors David Segal and David Moon: Hacking Politics: How Geeks, Progressives, the Tea Party, Gamers, Anarchists, and Suits Teamed Up to Defeat SOPA and Save the Internet. Ruffini covers the history behind SOPA, its implications for Internet freedom, the “Internet blackout” in January of 2012, and how the threat of SOPA united activists, technology companies, and the broader Internet community.

Download

Related Links

• Patrick Ruffini, Engage
• Patrick Ruffini, Huffington Post
• Hacking Politics: How Geeks, Progressives, the Tea Party, Gamers, Anarchists and Suits Teamed Up to Defeat SOPA and Save the Internet, Goodreads

Andy Greenberg, technology writer for Forbes and author of the new book “This Machine Kills Secrets: How WikiLeakers, Cypherpunks, and Hacktivists Aim to Free the World’s Information,” discusses the rise of the cypherpunk movement, how it led to WikiLeaks, and what the future looks like for cryptography.

Greenberg describes cypherpunks as radical techie libertarians who dreamt about using encryption to shift the balance of power from the government to individuals. He shares the rich history of the movement, contrasting one of t the movement’s founders—hardcore libertarian Tim May—with the movement’s hero—Phil Zimmerman, an applied cryptographer and developer of PGP (the first tool that allowed regular people to encrypt), a non-libertarian who was weary of cypherpunks, despite advocating crypto as a tool for combating the power of government.

According to Greenberg, the cypherpunk movement did not fade away, but rather grew into a larger hacker movement, citing the Tor network, bitcoin, and WikiLeaks as example’s of its continuing influence. Julian Assange, founder of WikiLeaks, belonged to a listserv followed by early cypherpunks, though he was not very active at the time, he says.

Greenberg is excited for the future of information leaks, suggesting that the more decentralized process becomes, the faster cryptography will evolve.

Download

Related Links

• This Machine Kills Secrets: How WikiLeakers, Cypherpunks, and Hacktivists Aim to Free the World’s Information, Greenberg
• WikiLeaks’ ‘PLUS D’ Aims To Digitize America’s Secret Diplomatic History, Greenberg
• A Different Approach To Foiling Hackers? Let Them In, Then Lie To Them., Greenberg
• WCITLeaks, Greenberg

Today the Reason Foundation publishes my policy brief on keys to successful state regulation of Internet gambling.

Thanks to a Department of Justice’s December 2011 memo on the parameters of the Wire Act, states can now license real-money intrastate online casino games. Earlier this year, Nevada became the first state to permit online wagering, and in August granted the first online operating license to South Point Poker LLC, which was to have launched trials last month. Since the Reason report went to press, South Point disclosed that its software is still undergoing independent testing but  hopes to have its site up by the end of the year.

Elsewhere, Delaware has enacted legislation to authorize online gambling under the auspcies of the state lottery commission and Illinois has begun selling lottery tickets online.

It goes without saying that U.S. citizens should be free to gamble online, just as they legally can in casinos throughout the country. The degree of regulation is subject to debate, but unfortunately remains a necessary element in policy. Yet lessons about taxation and regulation can be learned from experiences in Europe, as well as from regulation of brick-and-mortar casinos in the U.S. With a better understanding of usage trends, consumer game choices and operator cost models, legislators who want to offer constituents the freedom to play online can craft an environment that supports a robust online gaming climate, as opposed to one that drives legitimate operators away.

Regulation should derive from an enlightened approach that respects the responsibility and intelligence of its citizens. Internet gambling can be a safe, secure pastime.  Overall, the government’s only goal should be to protect users from theft or fraud. Gambling should not approached as an activity that needs to be controlled or discouraged under the rationale that it is a “sin” (to moralists) or “destructive behavior” (to social utilitarians), and then, hypocritically,  politically tolerated so it can be excessively taxed on those rationales.

Although it is likely states will differ in the particulars of how they structure the license and tax arrangements, a successful climate for legalized Internet gambling is likely to derive from the following fundamental principles. Lawmakers should heed the following guidelines:

Create a competitive environment

Consumers are best served when there is ample competition. The greater the competition, the more incentive competing companies have to offer better value—both to win new customers, and to keep existing ones loyal.

The state government itself should not compete for players

As a corollary to the competition guideline, states should not attempt to operate online casinos themselves. They should also be wary of giving incumbent lottery management companies a built-in advantage, such as an automatic license set-aside. Experiences in Europe, where some countries initially granted exclusive Internet poker and other gaming licenses to lottery operators, have shown that such ventures are rarely competitive, are inefficiently run, and do not draw players.

Recognizes intrastate online gambling has different cost structure than brick-and-mortar casinos

States that do not account for the difference in cost models between brick-and-mortar casinos and Internet counterparts are setting themselves up for failure. An Internet gaming site can be established with a capital investment that is a fraction of that required to build a land-based casino. But revenues scale down as well; one reason an online poker room can support penny-ante games. States must grasp the lower revenue and tax expectations and set up tax and licensing structures so they are compatible.

Tax operators not players

On the other hand, states should avoid creative new tax structures purely on the justification that some hold the opinion that gambling is a vice or sin. Players should not be taxed through levies on their accounts or through “hand charges” that are paid directly to the state, as some European countries have attempted (again without success; players migrated to Internet casinos in countries without such taxes). Meanwhile, winning players under law are obliged to report winnings (and are often held accountable though W-2Gs). Anything else is double taxation.

Do not attempt to “protect players from themselves.”

State legislatures tend to have a love/hate relationship with gambling. They covet the tax revenues, yet they believe that they are being “responsible” by creating artificial notions, such as limiting casinos to “riverboats” or out-of-way locations, in the belief that this will somehow either mask or temper the popular appeal of gambling. The ineffectiveness of these measures is seen in how these conventions gradually fall by the wayside. Likewise, regulations that infantilize players, such as a since-revised Missouri rule that limited player chip purchases to $200 per hour, have proved ineffective and easy to defeat.

Don’t discount the market as an effective regulator

The Internet itself offers numerous resources in the form of information sites, message boards and discussion groups where players can exchange information about the quality and reliability of particular sites, the general skill level of players, and any concerns about sites that might be cheating or too tolerant of collusion or poker bots. Independent game analysts have proved adept at identifying problem software and posted their findings.

The return of Internet gambling is only a matter of time; the consumer demand is there and the fiscal situation in many states makes the taxation opportunities attractive. While a number of states will resist, for most, the issue should lead to serious debate. The paper, in addition to making the principled case for legalized Internet gambling, addresses and recommends policy approach with an aim toward creating win-win-win regulatory environments for consumers, game site operators and state governments.

The full report can be downloaded here.

Facebook has quietly launched a real-money online gambling application in the U.K., marking a major thrust of the social networking site into online gambling.

The Financial Times is reporting that starting today, Facebook will offer users in the U.K. ages 18 and over online bingo and slots for cash prizes. Slate.com  picked up the story this afternoon.

“Gambling is very popular and well regulated in the U.K. For millions of bingo users it’s already a social experience [so] it makes sense [for us] to offer that as well,” Julien Codorniou, Facebook’s head of gaming for Europe, Middle East and Africa, told the Financial Times.

It’s telling in and of itself that Facebook has a gaming chief for the EMEA region. The synergies of social media and gambling has been seriously discussed for several years, mostly in foreign venues,  as the U.S. government until recently, has been hostile toward Internet gambling.

However, the recent thaw on the part of the Department of Justice, seen most recently in its settlement (don’t-call-it-an-exoneration) with PokerStars, plus state action toward legalization in in states such as Nevada and Delaware, point to eventual legalization of Internet gambling in the U.S.

In that respect, look for Facebook to be ready. Research from The Innovation Group,  a gaming marketing research company, shows that more than half the users on online gaming come in through social media or search. Companies such as Zynga, which began by offering multiplayer social games such as Cityville, Castleville and Mafia Wars on Facebook, are particularly well-positioned. Zynga’s most popular on-line game is poker, and Zynga and companies like it have a logical growth path into online gambling. Given their established connection with social networks, it’s a good shot we’ll see virtual online casino environments emerge within social networks such as Facebook, Google+, Orkut and others.

The natural convergence of social media and gaming environments has been explored fairly extensively. European researchers such as Jani Kinnunen of the Game Research Lab at Finland’s University of Tampere finds this running both ways. As social networks explore gaming, gaming sites explore social networking.

Skill gaming sites can be excellent examples of new forms of gambling. Casual web-browser based games (any game can be a gambling game). Players can place a monetary bet on their games and play against each other, which requires social interaction between player.

Moreover, games and game-related interaction don’t have to be situated in the same place. Kinnunen notes that online poker sites and player forums are usually separated. Poker forums are online communities where players can interact with each other before and after playing, communicating, learning new skills, exchanging tips for good gaming sites and so on.

What we have yet to learn is how Facebook is setting up age-verification and security procedures, as well as location-based restrictions. All of these will be part of the picture once Internet gambling moves forward in the U.S., and they represent technology skill strengths Americans have. The central takeaway today, however, is that a major U.S. company has entered the international online gambling market, where legitimacy has long been established. Facebook’s move is another step toward extending that legitimacy to the U.S.

Yesterday brought a spate of news reports, many of them inaccurate or oversimplified, about a settlement the U.S. Attorney’s office in Manhattan reached with two major international Internet poker sites—PokerStars and  Full Tilt Poker.

The buried lead–and very good news for online poker players–is that Internet poker site PokerStars is back in business. Manhattan U.S. Attorney Preet Bharara ended his case against the site and it is now free to re-enter the U.S. market when states begin permitting Internet gambling, which could start as early as this year in states such as Nevada and Delaware.

The three-way settlement itself  is rather complicated. Full Tilt Poker will have to forfeit all of its assets, at this point mostly property, to the U.S. government. PokerStars will then acquire those forfeited Full Tilt Poker assets from the feds in return for its own forfeiture of $547 million. PokerStars also agreed to make available $184 million in funds in deposits held by non-U.S. Full Tilt players, money players believed was lost.

The U.S. government seized these funds on April 15, 2011 when it shut down Full Tilt, PokerStars and a third site, Absolute Poker, on charges of money laundering. The date has become known as Black Friday in the poker community. Specifically, the three sites were charged with violation of the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), which prohibited U.S. banks from transferring funds to off-shore Internet poker and gambling sites. To combat the measure, sites such as PokerStars and Full Tilt began using payment processors that allegedly lied to U.S. banks about their ties to gambling sites. Although this would be fraud under the letter of the law, the U.S. government never claimed payment processors stole money from players or banks and no evidence suggests they did.

What the shutdown did reveal, however, was a shortfall in player deposits at Full Tilt, which led prosecutors to charge that Full Tilt was illegally paying investors out of player funds in a Ponzi-like scheme. Those charges, which look to be more serious then the UIGEA violations, still have yet to be resolved. The deal prohibits Full Tilt management and investors to have roles in PokerStars.

PokerStars, however, is clean. In the settlement the site admits no wrongdoing. While $547 million is far from nominal, it’s a far cry from the money-laundering convictions and 20-year prison sentences that were talked up when the charges were first brought.  In reality, the resolution of the case is PokerStar’s takeover of one of its largest competitors and the opportunity to reposition itself for the U.S. market, perhaps getting its deal with Wynn Resorts back on track.

If you see something truly punitive here, please comment. The arrangement actually appears to be another concession by the government on Internet gambling. The first, and still most significant, was the Department of Justice’s December 2011 memo to Illinois and New York saying the Wire Act does not prevent them from selling lottery tickets online—or offering any other wagering game on the Internet–as long as customers are in-state. That decision opened the door to state Internet gambling legislation and several states have jumped at it. The New York settlement also strengthens the contention, voiced by some in the gaming law community, that the government, faced with pressure from states who covet tax revenue, the unpopularity of the Internet gambling prohibition, and the difficulty in winning convictions, may eventually grant some sort of general amnesty just to get free of what was, at the end of the day, a political compromise to appease a handful of moralists in Congress.

The PokerStars settlement, while allowing U.S. Attorney Bharara to save face, may be the first step toward that.

Hat tip to Hard Boiled Poker, a blog that adeptly clarifies the media’s inaccuracies and oversights in reporting this story as well outing the inability of  CNNmoney.com’s editors to tell the difference between a blackjack and poker layout. The blog commends Forbes.com’s coverage as the best for grasping the settlement’s significance.

Delaware looks ready to become the second state after Nevada to authorize Internet poker as a gambling bill was approved this week by the state senate 14-6 with one senator abstaining.

In the wake of the Department of Justice’s Dec. 23, 2011 memo that for all intents and purposes said there were no federal statutes prohibiting intrastate online wagering on anything save sports, several states. Including Iowa, New Jersey and California, have started moving on legislation that would permit Internet poker, other casino games, and online purchasing of lottery tickets for residents and visitors inside their borders.

Poker players across the country would welcome the chance to play online once more. The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 did not make Internet poker illegal outright, but by prohibiting U.S. banks from conducting transactions with off-shore gaming sites, made it extremely difficult for U.S. players to open or maintain accounts with legitimate sites such as Bovada, Bodog and PartyPoker.

With legislation moving along, most gaming industry analysts see Internet poker becoming a reality in at least one or two states by the end of this year.

While the topic of online gambling is still controversial, poker is just one more place where the Internet has had an impact. Before the World Wide Web, you either had to live in Nevada or New Jersey (even in states that had casino gambling, not every casino had a card room) to play regularly. For most who did play, poker was a friendly diversion within a family or social circle.

In broadening poker’s appeal, the Internet also changed the nature of the game. These changes fully manifested themselves when Chris Moneymaker won the main event of World Series of Poker (WSOP) in 2003. Moneymaker was the first world champion to have qualified for the tournament at on line site. The WSOP was the first major live tournament he played. The bulk of his experience and expertise was acquired through online play.

In honor of developments in Delaware and elsewhere, and keeping in mind that the main event of the 2012 World Series of Poker begins July 7, and because it’s Friday afternoon, let’s look at four ways the Internet has changed poker significantly from the game your parents knew. For our purposes here, we will keep things in the context of Texas Hold ‘Em, today’s most popular poker game.

Math knowledge has become critical to winning

You’re last to act and have four to the winning, or “nut,” flush (say the Ace and 10 of spades in your hand, with two more spades among the four community cards that have been drawn). There are no pairs showing on the board that would make an opponent a possible full house. You’re the last to act. The pot is $100 and it will cost you $50 to call. Do you call, raise or fold?

Since the Internet offers no opportunity to assess a player’s body language, a solid grounding in mathematics and probability theory became more important to consistent winning online. This has since carried over to live games. When it comes to gambling, a good bet pays better than the odds of the expected outcome. Since there are 9 spades remaining among the 46 cards you haven’t seen, the odds of a making the nut flush “on the river,” that is, with the final card drawn, is 46/9 or just slightly more than 5 to 1. That means for you to consistently make money from this decision the pot must be more than 5 times the size of your $50 bet for you to correctly call. In the example above, the right move is to fold.

Good poker players always had a feel for pot odds. But the Internet made the math aspect integral to long-term success at the game. In the past, mediocre players could survive much longer without a grasp of pot odds and the more fluid concept of “implied odds.” Today, because of the Internet, you’ll find good players are adept at calculating and manipulating pot sizes to drive out drawing hands that could trump treys or a made two-pair. Sharper players not only keep pot odds in mind, but are aware of basic win percentages of any two-card Hold ‘Em hand against any random hand. That accounts for the “maniac” play you find in richer no-limit games–players making big bets, even going all-in pre-flop from a late position (that is, they are among the last to act). They may hold a weak hand, but they are nonetheless wagering that it has a 50 percent chance or better of beating the two or three hands behind it. Detailed knowledge of hand percentages, which can determine the correct times as to bet all your chips, is now integral to winning tournaments. Sites like PokerStove.com provide hand-analysis software that help players hone this tactic.

Aggressiveness is Rewarded

Because successful Internet play depends on the application of math in every poker hand, it has yielded a generation of players who are far more aggressive when they have the edge. Today’s players who are dealt pocket aces or kings, unless they develop into a monster hand on the flop, are not going to allow six or seven players to stick around through the river just to fuel a big pot. By then, their aces will likely have gone from favorite to underdog. The Internet has taught players to play big pairs, two-pairs and treys early and aggressively, while they still have the lead.

Conversely, today’s passive players suffer in several ways. For one, they pay heavily for calling early with marginal hands that can’t justify a follow-up call to a raise behind them. Second, once an aggressive player realizes that a passive player won’t call a raise, the aggressive player will begin raising with weaker hands, say a suited 8-7, in hopes the passive player, out of fear, will muck a slightly better hand like 6,6 or J,10. Third, when an habitual passive player does call a raise, the aggressive player knows that he is likely has a strong hand and backs off. The passive player doesn’t get the full value for his good hand.

Growth of Fast Tournaments

Until the Internet, multi-day, multi-table tournaments were the rule, a tradition that’s kept alive by the WSOP, which features a number of two- and three-day events, culminating in the 10-day main event. The Internet popularized “sit-and-goes”–single table tournaments decided in a few hours, as well as smaller multi-table events in which the blinds and antes rise in 15 or 20-minute intervals compared to an hour or more in traditional formats. For up-and-coming players they can be fun because an inexpensive entry fee can yield several hours of play.

These “fast” tournaments call for the knowledge of math and the daring (some might say reckless) aggressiveness that the Internet has fostered. In fact, traditional tournament strategies may be of no use in these faster formats. For a long time, Patrick Harrington’s three-volume Harrington on Hold ‘Em was the bible for tournament strategy. Newer books, such as Arnold Snyder’sPoker Tournament Formula and Lee Nelson’s Kill Phil and Kill Everyone have generated controversy by claiming Harrington’s advice and methods won’t work in fast tournament formats. Snyder and Nelson advocate new strategies that address factors that arise in these fast games, such as relative chip value, playing position and the way the math of the game changes when play reaches the “bubble,” that is, when exiting the tournament means missing the a significant share of the prize money by just one or two places.

The Game Has Expanded

Fifteen years ago, only a handful of casinos had poker rooms. Because of the Internet, now you can find one in every casino. There’s also a wider variety of games and tournaments, suited to players of various skill and experience levels. A beginner may be comfortable at the $3-$6 limit game Golden Nugget in downtown Vegas. Someone looking for a challenge may try the $10-$20 no-limit game at the Aria on the Strip.

The return of Internet poker promises more variety at lower stakes, increasing the popularity of a game of skill already enjoyed by millions of responsible adults. And yes, the changes to the game brought by online players further underlines the level of skill poker requires. Poker is not a game of chance, despite what some legislators insist when citing existing state laws against online wagering. The very fact that playing strategies evolve over time–techniques that won in the past fail to win now–demonstrates this. Poker is much closer to chess or go in this regard. As players master the game, they affect the way it is played.

Cross-posted at Reason.org

The big news in online gambling circles these past two weeks has been the busting of BLR Technologies, a software supplier for a number of online gambling sites, after a leading gaming mathematician determined the variance against winning at its craps game was statistically off the charts.

While most online gambling sites host honest games, there’s bound to be some bad apples. What’s often overlooked is that there is a market-enforced structure that militates against suspect play or outright cheating. That was clearly at work here.

The finding already has led at least one online casino, 5Dimes, to remove the BLR software from its site. That the news circulated the online gambling community as quickly as it did, and led to immediate action from a major online casino group, testifies to the knowledge and power of online gamblers. Of course, the image of informed players backed by mathematical and statistical experts contrasts with the views of government policymakers, who tend to treat online gamblers as gullible knuckleheads who need to be protected from unscrupulous gambling predators, predominantly through bans. This misconception is worth keeping in mind as a Congressional panel convenes this week to revisit federal laws against online gambling.

In the BLR case, Michael Shackleford, whose Wizard of Odds website takes an in-depth mathematical approach to all manner of gaming probabilities, strategies and odds, personally tested the software after a reader complained that he had won only 25 percent of 3,200 “pass” or “don’t pass” bets made.

In craps, the bettor wins a pass bet by rolling a 7 or 11 on the initial, or “come-out,” roll. He loses immediately on a 2, 3 or 12. Rolling a 4, 5, 6, 8, 9 or 10 establishes a “point.” After this, in order to win, the player must roll the point before rolling another 7. A “don’t pass” bet works exactly the opposite.

In a Nov. 2 blog post, Shackleford said he first dismissed the complaint. Then, after reviewing videos the reader posted on YouTube, Shackleford decided to conduct his own series of trials, which confirmed the anomaly.

For example, the probability of rolling a 7 or 11 on a come-out roll is 22.2 percent. In the 328 bets Shackleford made, his expectation was about 73 come-out wins. His actual result with the BLR software was 33. Wins by successfully rolling an established point were not just below expectation, but statistical outliers. By Shackleford’s calculations, the odds of his overall result–a 24.7 percent win rate against an expectation of 49.29 percent–was 1 in 6 billion. Putting this in layman’s perspective, he said, “it would be 184 times easier to win the Powerball [lottery] 2 out of 2 times than to be as unlucky as I was in this craps game.”

Shackleford’s test was repeated by mathematician and gaming software consultant Eliot Jacobson, who also experienced the same extreme improbabilities. While Shackleford simply cautioned players against sites using the BLR software, Jacobson went as far to call the software “rigged.”

As the House panel gathers this week to evaluate the pros and cons of online gambling, members should be aware that most online gamblers are smart, responsible and sensible when it comes to playing. They are also very good at sniffing out suspicious sites, verifying whether real problems exist, and exposing them when they do. The online gambling ban, effectively managed through intrusive regulation of international financial transactions, was a mistake to begin with and deprives law-abiding Americans from using the Internet to engage in a recreational activity legal, in some form or another, in a majority of states. The busting of BLR is simply another reason to end the nannying over online wagering.

Over the weekend, Janet Morrissey of The New York Times posted an excellent article on the U.S. government’s continuing crackdown on Internet gambling. (“Poker Inc. to Uncle Sam: Shut Up and Deal“) Ironically, her article arrives on the same week during which PBS aired the terrific new Ken Burns and Lynn Novick documentary on the history of alcohol prohibition in the United States. It’s a highly-recommended look at the utter hypocrisy and futility of prohibiting a product that millions of people find enjoyable. If there’s a simple moral to the story of Prohibition, it’s that you can’t repress human nature–not for long, at least, and not without serious unintended consequences. Which is why Morrissey of the Times notes:

And so the poker world now finds itself in a situation many liken to Prohibition. America didn’t stop drinking when the government outlawed alcoholic beverages in 1919. And, in this Internet age, it won’t be easy to prevent people from gambling online, whatever the government says. “It’s a game of whack-a-mole,” says Behnam Dayanim, an expert on online gambling and a partner at the Axinn Veltrop & Harkrider law firm. “They’ve whacked three very large moles, but over time, more moles will pop up.”

Exactly right (except that it should be “whac” not “whack”! There’s no K in whac-a-mole.)  It reminds me of the paper that my blogging colleague Tom Bell penned back in 1999 for the Cato Institute with its perfect title: “Internet Gambling: Popular, Inexorable, and (Eventually) Legal.” As Tom noted back then:

Consumer demand and lost tax revenue will create enormous political pressure for legalization, which we should welcome if only for its beneficial policy impacts on network development and its consumer benefits. We should also welcome it for a more basic reason: as the Founders recognized, our rights to peaceably dispose of our property include the right to gamble, online or off.

Again, you can’t hold back human nature and the effort of millions to pursue happiness as they see fit. It was true of alcohol and it will be true of online gambling–eventually.

And although it represents the worst argument for legalization, Tom was right about the tax revenue benefits as a primary factor leading to legalization. As Morrissey notes in her Times piece:

Uncle Sam is leaving a lot of money on the table. Over 10 years, legal online gambling could generate $42 billion in tax revenue, according to the Congressional Committee on Taxation. An estimated 1.8 million Americans played online poker last year, and some make a living at it. Because of the legal issues in the United States, online card rooms typically base their computer servers elsewhere, in places like Costa Rica or, in the case of Full Tilt, in the Channel Islands.

It was the same story back during alcohol prohibition, of course. All the “money left on the table” was snatched up by foreign governments and organized crime, who were all too happy to satisfy the thirst Americans had. Some State governments have already realized this and are taking steps to partially legalize online gambling and get in on the action, as Morrissey reports:

Oddly enough, Internet gambling is already legal in the nation’s capital. Earlier this year, the District of Columbia became the first jurisdiction in the United States to legalize it. Officials there said they hoped the move would bring in $13 million to $14 million a year in tax revenue. But Washington may only be the start. Several bills now working their way through the House of Representatives would give online poker the run of the country.

Again, as Bell’s paper argued, it’s popular, inexorable, and it will eventually be fully legal. We just have to be patient while some lawmakers play through this latest silly experiment in legislating morality.

Yesterday the FBI effectively shut down three of the largest gambling sites online and indicted their executives. From a tech policy perspective, these events highlight how central intermediary control is to the regulation of the internet.

Department of Justice lawyers were able to take down the sites using the same tools we’ve seen DHS use against alleged pirate and child porn sites: they seize the domain names. Because the sites are hosted overseas (where online gambling is legal), the feds can’t physically shut down the servers, so they do the next best thing. They get a seizure warrant for the domain names that point to the servers and force the domain name registrars to point them instead to a government IP address, such as 50.17.223.71. The most popular TLDs, including .com, .net, .org, and .info, have registrars that are American companies within U.S. jurisdiction.

Another intermediary point of control for the federal government are payment processors. The indictments revealed yesterday relate to violations of the Unlawful Internet Gambling Enforcement Act, which makes it illegal for banks and processors like Visa, MasterCard and PayPal to let consenting adults use their money to gamble online. According to the DOJ, in order to let them bet, the poker sites “arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.” (PDF)

Now, imagine if there were no intermediaries.

In my TIME.com Techland column today, I write about Bitcoin, a completely decentralized and anonymous virtual currency that I think will be revolutionary.

Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace.

And if a P2P currency can make it so that there is no fiscal intermediary to regulate, how about a distributed DNS system so that there are no registrars to coerce? This is something Peter Sunde of Pirate Bay fame has been working on. These ideas may sound radical and far-fetched, but if we truly want to see an online regime of “denationalized liberalism,” as Milton Mueller puts it, then getting rid of the intermediaries in the net’s infrastructure might be the best path forward.

Again, check out my piece in TIME for a thorough explanation of Bitcoin and its implications. I plan to be writing about it a lot more and devote some of my research time to it.

Just the other day, I complained about the fact that New York Federal district court overseeing the Google Books settlement apparently doesn’t plan to webcast the final public hearing that will take place on February 18 in this hugely important case about the future of digital books and copyright. Now I discover that the 11th Circuit Court of Appeals (which covers Florida, Georgia & Alabama) has issued a decision with even more far-reaching applications—allowing prosecutions for online obscenity distribution according to local “community standards” wherever a user might have downloaded the material—without even publishing the landmark decision!

Adam discussed this obscenity/localism issue in detail back in 2004. Eugene Volokh explains the substance of this decision:

United States v. Little concludes that Internet obscenity distribution prosecutions may rely on the community standard of the place in which the material was distributed — which means the government can try to download the material in the most restrictive community, and prosecute the distributor there.

If left to stand, this decision could essentially amount to a ban on hardcore pornography in the U.S.—with the definition of “obscenity” being left to local puritanical politicians in the country’s most socially traditionalist backwaters, subject only to some general restraint by the courts as to just how far the definition of “obscenity” can be pushed. Volokh continues:

[The 11th Circuit’s decision] may well be correct, given the Court’s decision in Ashcroft v. ACLU (I); and the Ninth Circuit’s contrary decision in United States v. Kilbride might well be mistaken. Still, it seems odd that the Eleventh Circuit’s opinion — which apparently considered this argument for the first time in that circuit, and which expressly rejected the reasoning of the one precedent on the subject from another circuit — was unpublished.

In case you non-lawyers are wondering how the heck this travesty of transparency happened, the short explanation is that the Supreme Court regulates much of the practice of the federal courts through the Federal Rules of Civil Procedure, Appellate Procedure and Evidence.  But beyond those basic rules, every Circuit makes its own rules on many other issues—including under what circumstances a district or appellate court may decide not to publish a particular decision. Why not publish all decisions? Because courts issue lots of opinions and other less significant orders and memoranda and it’s just easier for them not to have to give each one the attention it would deserve if it were going to be published officially.

This is a pretty arcane debate involving multiple questions (you can read more here if you’re interested). The Supreme Court finally barred the Circuits from prohibiting the citation of unpublished opinions in 2006. So at least now, if a decision’s out there and you manage to find it, you can cite it as support for your argument before any federal court. That was a major step to ensuring that the rule of law wasn’t undermined by allowing courts to issue decisions that were both hard to find and ostensibly disclaimed any precedential effect on other cases.

The next big challenge facing the judiciary is publishing more, if not all, decisions. I’m no expert in this area and I have very limited appellate experience (having clerked for a lowly district judge). But In an era of information abundance and perfect searchability, it’s really hard to see why any court decision shouldn’t be published and made as easily accessible as possible.

At the very least, there’s simply no excuse for not publishing decisions as important as this one. Was the court perhaps hoping to minimize criticism of its decision by “hiding the ball?” I’d like to think we could expect better from those to whom we give life-time appointments and trust to be above the pressures of politics and public opinion.

On the issue of accessibility, I point you to the excellent RECAP project led by my former TLF colleague Tim Lee, which aims to break down the silly barriers the Judiciary has erected around published court documents with their pathetically antiquated and user-unfriendly PACER database. It’s also worth noting that Google Scholar late last year began allowing users to search some published legal opinions. This kind of innovation will certainly make the workings of the judiciary more accessible to citizens, but until the judiciary starts publishing more of the decisions, we’ll all be left in the dark about important decisions like this one by the 11th Circuit (which is available neither on PACER nor on the 11th’s Circuit’s webpage for recently released decisions).

If this robotic girlfriend—unveiled last weekend at the AVN Adult Entertainment Expo and costing $7-9k—actually goes mainstream, I’ll bet it’s only a matter of time before we see some state lawmaker somewhere propose to ban the toys. The FCC well, no doubt, follow suit, by demanding the incorporation of parental control tools into the devices so Junior doesn’t have his way with Ms. Roxxxy (or her soon-to-be-released male counterpart, Rocky) while Mom and Dad are out at NASCAR the opera.

Laugh if you will, but if Moore’s Law holds true, such robots will become smarter, cheaper, and probably sexier as microchips continue to plummet in price and meaningful artificial intelligence becomes marketplace reality.  Move over, Roomba, Roxxxy has arrived—and she ain’t no Rosie the Robot Maid from The Jetsons! Telegraph reports that there’s a whole book about this:

In a 2007 book, “Love and Sex with Robots,” British chess player and artificial intelligence expert David Levy argues that robots will become significant sexual partners for humans, answering needs that other people are unable or unwilling to satisfy.

But the most interesting part of the telegraph article is creator Douglas Hines’s motivation:

Inspiration for the sex robot sprang from the September 11, 2001 attacks, he said, where a friend died and he vowed to store his personality forever.

This sounds an awful lot like the plot of Caprica, the new SyFi television series, a prequel set 58 years before the beginning of Battlestar Galactica, the cult phenomenon that even seduced hardened TV-refusenik like me. The show launches January 22, 2010, but the prequel came out late last year birth of the Cylons, who began as clunky, metallic-scanned robots but eventually evolve into humanoids indistinguishable from humans—and also bent on wiping out the human race. While Battlestar was set in space, Caprica is largely set in cyberspace, and depicts nightmarish realm of violence, sadism, drug use, and utterly unbridled sexuality in which teenagers run wild and ultimately produce very, very scary robots whose artificial intelligence is actually born in cyberspace.

So my serious prediction for 2010 is that, if this prequel is half as popular its sequel, it will drive discussions about online child safety heights of hysteria. And yes, in the next, say, 10 years, I think these discussions will increasingly span the rapidly disappearing line between virtual reality and virtual people like Roxxxy. In both cases, the closer we get to verisimilitude, the more people are going to freak out—the “Uncanny Valley” first described by Japanese roboticist Masahiro Mori in 1970. And, rest assured, the same people who have tried to shut down Craigslist’s “Erotic services” category, will be sure to try to shut down “robotic prostitution.” I haven’t read it yet, but Adam Thierer reminds me that David Friedman discussed these issues in Chapter 20 (“All in Your Mind”) of his 2008 book Future Imperfect: Technology and Freedom in an Uncertain World, including philosopher Robert Nozick’s “experience machine” concept from his masterpiece Anarchy, State & Utopia. (Tyler Cowen also discusses this in his new book, Create Your Own Economy).

H.L. Mencken once defined “Puritanism” as “the haunting fear that someone, somewhere, may be happy.” So perhaps ” techno-Puritanism” could be defined as “the haunting fear that someone, somewhere, may be having fun with the content, service, screen, device, toy, or mechanical orifice of their choosing.”

Don’t like it?  Don’t use it! (And yes, as these tools to become prevalent and easily accessible by children, expect that their manufacturers will build parental controls into, but of course, the ultimate parental control for an expensive device is the power of the purse—and, if Mom and Dad really do want to keep a “playmate” in the closet but away from Junior—a good-ol’ fashioned lock!)

This morning the Federal Trade Commission released its report on kids and virtual worlds.  You can read the report, entitled Virtual Worlds and Kids: Mapping the Risks, here.  (I’ve posted similar thoughts over at Terra Nova, apologies for the cross-post).

What initially strikes me about the report is the distance between how the report’s being billed and what it actually says.  The billing of the report—and thus the likely media tagline—is that the “FTC Report Finds Sexually and Violently Explicit Content in Online Virtual Worlds Accessed by Minors.”  But a more accurate statement would be “FTC Report Finds Surprisingly Little Sexually and Violently Explicit Content in Online Virtual Worlds Accessed by Minors, Especially Compared to What Minors Can Find on the Internet.”

The Commission found at least one (really? that’s all?) instance of explicitly violent OR sexual content in a significant percentage of the virtual worlds it examined—and that includes user chat, but in general it didn’t find many such instances per world.  So to be counted in the study as a virtual world that contains explicit violent or sexual content, the researchers just had to find one instance of chat in which someone said something violent or sexually oriented (which of course includes the scatalogical as well as the sexual).  The point is, it appears to me that they went looking for anything and didn’t find much.  Far from being seen as an indictment of virtual worlds as dangerous for kids, this seems to me to be quite positive for virtual worlds, especially as compared to the internet at large.  I’m relying on the following language from the report:

Despite this seemingly high statistic [the Commission found at least one instance of sexually or violently explicit content in 19 out of 27 worlds], the Commission found very little explicit content in most of the virtual worlds surveyed, when viewed by the actual incidence of such content.

And:

Of [the 14 virtual worlds open to children under 13], the Commission found at least one instance of explicit content on seven of them.  Significantly, however, with the exception of one world, Bots, all of the explicit content observed in the child-oriented worlds occurred when the Commission’s researchers visited those worlds as teen or adult registrants, not when visiting the worlds as children under age 13.

I think the study said some interesting things, and there is some strong analysis, but the reception the report will get is, I bet, far removed from what the report actually says.

The U.S. Treasury and the Federal Reserve have pushed back the deadline for banking industry compliance with regulations pursuant to the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). UIGEA, the controversial tack-on to the Bush administration’s SAFE Port Act aimed at curtailing on-line gambling by making it illegal for U.S banks and financial institutions to participate in funds transactions between U.S. citizens and corporations that operate online casinos, effectively banning Internet gambling.

In a joint statement, the Treasury and the Fed delayed the compliance date, which had been set for today (December 1) to June 1, 2010, the Gambling Today blog reports. The decision also comes just days before Thursday’s scheduled hearing in the House Financial Services Committee on H.R. 2267, a bill introduced by Rep. Barney Frank (D-MA), which would overturn UIGEA and create a full licensing and regulatory framework for the Internet gambling industry in the United States.

As Financial Services Committee chairman, Frank has been a vocal opponent of UIGEA and has been working for its repeal over the past two years. In authorizing the delay, the two agencies said that financial institutions were not prepared with the mechanisms they needed to block unlawful Internet gambling transactions, but they also noted that the rules did not provide a clear definition of unlawful Internet gambling. This last observation could be significant as it acknowledges one of the bill’s principal vulnerabilities—it broadly defines Internet gambling as games of chance. Opposition groups, notably the Poker Players Alliance, have repeatedly argued (correctly IMHO) that certain online casino games, especially poker, are games of skill.

Online gambling blogs generally greeted the delay positively and hope it is another step in the direction of restoring the freedom to gamble online.

As the Gambling Today blog notes:

The postponement was greatly appreciated by the supporters of online gambling. House Financial Services Committee chairman Barney Frank has two of his sponsored bills coming up for hearing on December 3. Frank said, “This will give us a chance to act in an unhurried manner on my legislation to undo this regulatory excess by the Bush administration and to undo this ill-advised law.”

Adam has done yeoman’s work for years pointing out, and arguing against, the phenomenon of techno-panic as it relates to children. That’s not the only area in which techno-panic can tighten its grip on the neck of common sense and the constitution, of course.

But here’s a delight I ran across this morning: the Los Angeles Times arguing against techno-panic despite the use of Web sites to research and case potential burglary victims (by the “bling ring,” soon to be the subject of a major motion picture).

The Times editorializes:

[T]hieves [did not] have to wait for the invention of Google maps to reconnoiter neighborhoods in search of easily accessible homes. That’s worth remembering if, as we fear, some legislator decides that a law should be passed to prevent Internet surfers from looking at houses they easily could scope out from the sidewalk. . . . . A law against photographing a home or what occurs outside it in plain sight — or disseminating the images to others — would be overreaching, not to mention unconstitutional.

What a delight—a major newspaper arguing to keep a hot issue in perspective and citing the constitution as a limit on government power! Thank you, L.A. Times.

Last year, my PFF colleague Adam Thierer asked whether State AGs + NCMEC = The Net’s New Regulators? Adam noted that NCMEC, the National Center for Missing and Exploited Children, a private non-profit organization, was playing a law enforcement role in regulating child pornography—but without any clear mechanisms for ensuring its accountability and effectiveness. Adam’s point wasn’t just that transparency is a good thing, but that when it comes to a cause as important as protecting children from exploitation, it’s vital to ensuring that we’re that we’re actually doing a good job at it!

Yesterday, Emmanuel Lazaridis commented on that post:

Given the increasing regulatory and investigative powers of the NCMEC, it is no longer clear whether or not the [Freedom of Information Act] applies to NCMEC records. We are about to find out. I am right now bringing a case against the NCMEC in federal court for access to records under the FOIA and, failing that, for discovery under 28 U.S.C. § 1782(a).

Mr. Lazaridis’s complaint in the D.C. District Court claims that Lazaridis (a Greek national) has been unfairly deemed a fugitive from U.S. justice for having taken his daughter to Greece over the objections of the girl’s American mother, Lazaridis’s ex-wife. NCMEC got involved by placing the girl on their MissingKids.com registry of abducted children. Lazaridis wants the court to recognize his custody, deem him not to be a fugitive, and to order NCMEC to turn over all their records on the girl.

This is, of course, just one side of the story (and such cases are usually so complicated as to be indecipherable to outsiders). But even if Lazaridis’s case were wholly without merit, his basic argument would be a sound one: Why shouldn’t NCMEC, in exercising any of its essentially governmental functions, be subject to the same accountability requirements through FOIA as the FBI would be?

When the issue is the Lazaridis family’s trans-Atlantic custody battle, it may seem easy to ignore this question. But when NCMEC is essentially making policy regarding filtering Internet content, blacklisting websites, turning over user logs to law enforcement, or “cleaning up” Craigslist, the question of NCMEC’s accountability under FOIA cannot be avoided as a critical decision about the future of Internet governance.

On heels of Adam’s piece last year, controversialist Chris Soghoian suggested one answer: Given its status as a sacred cow, we cannot expect any politician pay heed to calls to overhaul NCMEC or subject it to oversight. However, what we can do, is call for the nationalization of the National Center for Missing and Exploited Children.

Think of it this way: We have a drug czar, a war czar, a copyright czar, and will likely have a cybersecurity czar and car czar under the next administration. Why not throw a child porn czar into the mix? Nationalize NCMEC, make all of its workers federal employees, with good health care and job security, and perhaps even expand its budget–after all, it does good work, right? NCMEC’s job is simply too important to be entrusted to a nonprofit group–such a task can only be performed by a fully trained and funded law enforcement agency (one, which conveniently enough, is subject to the Freedom of Information Act, congressional oversight, and constitutional requirements for due process.)

Despite my differences with Chris, he’s often right and may be here, too. He’s certainly right that Congress is unlikely to address the problem of NCMEC’s accountability given the sensitivity of the issue of child protection.

But, fortunately, we live in a republic, not a pure democracy: Our third branch of government, the courts, exists to enforce the rule of law; being somewhat insulated from political pressure, the courts provide a final check on the authority even of the almighty NCMEC. So while Chris’s nationalization proposal might well be the ideal solution, it hasn’t happened yet—nine months later to the day, and it’s probably not high on the Obama administration’s list of czarist reforms.

But simply by ordering NCMEC to comply with FOIA, the Lazaridis court could, with the stroke of a pen, bring accountability to NCMEC’s law enforcement functions. The legal question is simple: Does NCMEC qualify as an “agency,” which FOIA defines as an “authority of the Government of the United States?”

If so, NCMEC must not only respond to requests for certain of its “records,” but it must also follow a rule-making process akin to that required of federal agencies when they make policy decisions, offering the public appropriate notice and the opportunity to comment on proposed regulations—instead of, say, threatening Internet companies behind closed doors (sometimes the same companies that later make generous donations to NCMEC) or cutting deals with state attorneys general.

It turns out that this is not a new issue. Federal courts have had to decide whether a number of quasi-governmental entities qualify as “agencies” over the years, especially given the trend towards privatization over the last three decades. Some organizations, like the Smithsonian Institution, have decided to comply with FOIA even though courts have held that they’re not required to do so. NCMEC could have allayed all these concerns years ago by doing the same thing, but absent a change in management at the organization, it seems only a court order will force the organization to open its “black box” of decision-making to public inquiry.

In a number of other circumstances, courts have required nominally private organizations to comply with the federal FOIA or its state equivalents. A thorough (if dated) treatment of this issue can be found in the 1999 law review article, Privatization and the Freedom of Information Act: An Analysis of Public Access to Private Entities Under Federal Law by Craig Feiser, Florida’s deputy solicitor general and an adjunct at FSU Law. Feiser explains:

When Congress amended FOIA in 1974, it added section 552(f)(1) and broadened the definition of “agency” to include entities not explicitly mentioned under the APA, but which “perform governmental functions and control information of interest to the public.”

In deciding whether a private organization qualifies as an agency subject to FOIA, courts have considered two factors.

One factor asks whether the entity has substantial independent authority in performing a function of the government, making it the functional equivalent of the government. The other factor asks whether the government substantially controls the entity’s day-to-day operations or organizational framework. In using either factor, the court is essentially asking to what degree the entity is performing a government function. In one case, the government is pulling nearly all of the strings; in the other case, the entity is making decisions independently for the government.

Financially, NCMEC is largely a creature of government: 70% of NCMEC’s $42 million budget in 2007 came from the government. But as Feiser notes, funding does not always mean control. Government control over NCMEC’s internal decisions is unclear. Indeed, the very lack of government control over an organization essentially regulating the Internet and imposing criminal sanctions that could follow convicted “sex offenders” for life would by itself be an enormous problem.

But given what NCMEC actually does, it obviously qualifies as an “agency” subject to FOIA under the “functional equivalence factor,” which as Feiser explains,

basically represents the opposite situation from the control factor. Here, the entity is functioning independently, but making decisions for the government, as opposed to having its decisions made by the government. In effect, it is the functional equivalent of the federal government, and, therefore, it should be an “agency” under the FOIA.

I’ll be watching the Lazaridis case closely, hoping that the court sees NCMEC for what it is: a private organization tasked with implementing not just any government function, but the enforcement of laws against the most vulnerable victims in society. Absent such a recognition, NCMEC will continue to grow into an unaccountable regulator for the Internet.

Today, the only public oversight of NCMEC required by law is the requirement that NCMEC (like any non-profit with federal tax-exempt 501(c)(3) non-profit status) file a Form 990 each year disclosing basic information about its finances. That report does not list NCMEC’s donors, because donors have a First Amendment right to remain anonymous, but a more transparent organization would, like my own think tank, at least identify its major donors. The 2006 and 2007 Form 990s do reveal a few interesting things, though, about what NCMEC does with its budget (70% of which comes from the taxpayer):

• NCMEC’s CEO, Ernie Allen, was paid $359,191 plus $411,636 in benefits in 2006 (PDF p. 46) and $409,821 plus $426,540 in benefits in 2007 (PDF p. 19), for a total of $1.6 million in two years (roughly $800,000/year);
• Not counting Allen, NCMEC spent $778,564 on its top five highest-paid employees in 2006 ($155,713/employee), and $875,657 in 2007 ($175,131/employee) (PDF p. 10 in both);
• 31% of NCMEC’s 2006 revenues and 35% of its 2007 revenues went to salaries (PDF pp. 1 & 2 in both); and
• NCMEC had 104 employees paid over $50,000 in 2006 (PDF p. 10) and 116 in 2007 (PDF p. 10).

I’d be reluctant to suggest that anyone at NCMEC was more interested in money than in protecting children, but if given the choice, we’d all prefer to do well while doing good. So if Allen were smart, he’d realize that a court order subjecting NCMEC to FOIA might be the best of all possible worlds: Requiring real accountability would neutralize calls for nationalizing NCMEC, allowing the organization to continue operating as a non-profit that can pay quite a bit better than the Federal civil service. Even the Senior Executive Service, for agency heads, maxes out at a measly $177,000/year.

Of course, if NCMEC’s records and decisions to regulate the Internet were subject to FOIA, the organization might not be able to… “convince” the Internet companies it essentially regulates to write large checks to NCMEC. But even this tax-hating libertarian would be hard-pressed to argue against funding the enforcement of laws against child pornography, abduction and exploitation with taxpayer dollars.

As the grandson of an FBI agent, whose framed credentials hang in a place of pride in my office (stamped “RETIRED” after his 25 years of loyal service), I can’t help but wonder how many more agents the FBI could employ to combat child porn with an extra $1.6 million/year in funding (the salary of Allen and NCMEC’s top-five highest paid employees). It seems that FBI agents today make roughly $48,000-87,000/year. Let’s call it an average of $67,500 and throw in 20% for overhead. That works out to $81,000/year—or:

• 20 new agents for what NCMEC is paying its top six employees; or
• 368 new agents for the $29.82 million NCMEC received in government support in 2007.

I’m sure the solution is far more complicated than simply hiring more FBI agents, and that NCMEC does much good work in the service of a noble cause. But until NCMEC is either nationalized as a direct arm of law enforcement or made significantly more accountable as a private organization, we won’t really have any way of knowing whether the money being spent on NCMEC is being spent in the most effective manner possible to deal with the problems of child pornography, abduction and exploitation. We also won’t know whether draconian alternatives to direct enforcement ( e.g., hiring more FBI agents) like network-level filtering mandates are truly necessary, despite their unintended consequences for the free speech and privacy rights of law-abiding Internet users.

craigslist has filed a complaint against South Carolina Attorney General Henry McMaster, seeking to enjoin him from prosecuting the site for displaying the solicitations to prostitution that sometimes appear there. The complaint cites section 230 of the Communications Decency Act, the First Amendment, and a few other laws that craigslist believes protect it from liability.

The complaint makes a pretty good case that craigslist has taken reasonable steps, working with law enforcement, to keep prostitution off the site. With that it has done its part. If prosecutors want to go after prostitution, they can use craigslist to do so. They should not attack the messenger if consenting adults are trying to exchange money for sexual services in their local areas.

CNN reports:

An Illinois sheriff filed a federal lawsuit Thursday against the owners of craigslist, accusing the popular national classified-ad Web site of knowingly promoting prostitution.

The sheriff is upset that the site maintains a bulletin board system which is very lightly policed by its creators. It is little more than a forum for people to place their own advertisements. Thus, principles of caveat emptor abound, as anyone who has tried to find an apartment through the service knows.

Without craigslist, back to street walking

More importantly, Craig’s List is perhaps the best example of a site that should be immune from prosecution for the actions of its users under Section 230 of the Communications Decency Act. It exercises little control over what its users do, and that’s what makes the service both valuable and free. If the company had to hire thousands more people to examine every post that comes before it, its service would become more like Apple’s iPhone/iPod Touch App Store.

Section 230 allows websites like Craig’s List, Google, YouTube, Blogger, and pretty much every other user-driven Web 2.0 site the security to know they can operate free of lawsuits about what someone else, their users, did. Adam Thierer goes so far as to argue that it makes possible a real world analog for Nozick’s meta-utopia. Moreover, it is philosophically required by the tenet of justice known as the “principle of intervening action.”

Yet attorneys general and other politicians have been seizing on high-profile internet-related misfortunes like the MySpace suicide to push against Section 230’s safe harbor promise. Adam Thierer recently gave an excellent summary of where the section may be heading in the US. Other countries are even worse.

Perhaps even more dangerous than overt legal erosion of Section 230 through bad precedents (there are still some judicial defenders of the section out there, after all) is its covert destruction through coerced “agreements” forced upon ISPs and websites by AGs. They started popping up all over the place this summer and there is no end in sight. Indeed, CNN pointed out:

Craigslist entered into an agreement with 43 states’ attorneys general in November to enact measures that impose restrictions on its Erotic Services section. The agreement called for the Web site to implement a phone verification system for listings that required ad posters to provide a real telephone number that would be called before the ad went public.

Let’s hope the new administration stops the trend and puts life back into Section 230.

During my summer internship at CEI, a couple of us interns discussed the book Cato’s Robert Levy published last May, The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom. We looked at Levy’s list of the worst decisions and sent each other lists of our own. Now that I’m taking ConLaw, I feel as though the time has come to post my lists of the twelve worst and the twelve best Supreme Court decisions of all time. It is by no means an exhaustive list. My inclusion of different cases than Levy does not indicate that I disagree with his assessment that those decisions are terrible – just maybe not as bad as the ones I select.

The Worst:

1. The Slaughter-House Cases (1873). The very worst decision ever made by the US Supreme Court. Eviscerated the 14th Amendment only five years after its adoption. It is best known for reading the Privileges or Immunities Clause, which was supposed to be (and could have been) a vehicle for both incorporation and unenumerated rights, out of the Constitution. But it also wrote out the Due Process Clause and the Equal Protection Clause, though those two clauses eventually crawled back into existence, to a degree.
2. Katzenbach v. McClung (1964). It was tough to decide which of the various cases reading the Commerce Clause expansively enough to permit Congress to pass any law it desires, thus destroying the basis of the federal government as one of defined and limited powers to include. But McClung seems to be the most expansive in both its result and its holding.

3. West Coast Hotel v. Parrish (1937). Abdicated the Supreme Court’s responsibility to prevent states from violating “economic” rights. Unlike the Commerce Clause cases, which were weakly limited by Lopez and Morrison, the freedom of contract cases have never recovered from Justice Roberts’ despicable “switch in time.”
4. Dred Scott v. Sandford (1857). The Court almost always does a good thing when it invalidates a law as being unconstitutional. Not here, where Chief Justice Taney overturned the Missouri Compromise with its promise of some limitations on slavery, relying on a ridiculous, convoluted, and racist reading of the Constitution as mandating that all African-Americans forever be treated as property. Chief Justice Hughes was right to call it a “self-inflicted wound,” as it resulted in the stigmatization of the Court’s role in deciding the constitutionality of laws, in particular on substantive due process grounds.
5. Korematsu v. United States (1944). Held that the government could lock thousands of U.S. citizens in concentration camps because of military necessity. Introduced “strict scrutiny,” while demonstrating its patent inadequacy. On the plus side, Jackson’s and Murphy’s dissents are some of the best ever written.
6. United States v. Carolene Products (1938). Typical case of the post-’36 era ignoring the Court’s responsibility to decide the constitutionality of laws. But Footnote Four made it even worse. Justice Stone introduced the idea of levels of scrutiny, claiming that it was fine in some cases for the Court to abdicate its role as the arbiter of the Constitution but less so in others. Made “economic” rights count less than other rights – and ensured that no right would ever be upheld just because the Constitution guaranteed it. Rather, the Court should uphold unconstitutional laws as long as the legislature had a really good reason (only a not-totally-insane reason in other cases) for passing it.
7. Plessy v. Ferguson (1896). The Court decide that separate “but equal” was fine, and so refused to overturn blatantly unconstitutional Jim Crow laws for generations.
8. Shelley v. Kraemer (1948). The 14th Amendment – and the rest of the Constitution – impose limitations on what the government may do; that’s both in the text and the nature of what a constitution is. Shelley v. Kramer eviscerated the “No State shall…” language of the 14th Amendment, by invalidating private contracts as in violation of the Amendment.
9. City of Boerne v. Flores (1997). Bad for two reasons. First, it overturned the “ratchet” interpretation of Section 5 of the 14th Amendment given by Katzenbach v. Morgan, thus holding that Congress cannot prevent states from violating any rights the Court hasn’t already said the states can’t violate. Second, the particular law it overturned was the Religious Freedom Restoration Act, designed to restore Sherbert v. Verner‘s interpretation of the Free Exercise Clause over the Court’s interprtation of it in Employment Division v. Smith, where the Court held that laws of general applicability can constitutionally prohibit the free exercise of religion.
10. Home Building & Loan Association v. Blaisdell (1934). Abandoned the Contract Clause, upholding a state law impairing the obligation of creditors to pay their debts.
11. Chevron v. NRDC (1984). Introduced “Chevron deference,” allowing administrative agencies to decide what the law is for themselves. Though higher courts review lower courts’ legal determinations de novo, administrative agencies get a much broader say in what the law is.
12. Buck v. Bell (1927). Justice Holmes upheld forced sterilization of the mentally ill, saying “three generations of imbeciles are enough.”

The Best:

1. Marbury v. Madison (1803). Got the Court in the business of overturning unconstitutional laws, thus making the Court the best of the three branches (for it can pass no laws of its own, merely decline to enforce bad ones made by the others).
2. Lochner v. New York (1905). Lochner was not the first, the last, or the strongest case enforcing the Due Process Clause of the 14th Amendment to prevent states from passing laws restricting freedom of contract. But it has served as the icon of the era, probably because of Holmes’ dissent. The Court held that a person who wants to work more than a certain number of hours can do so, in spite of state protectionist legislation to the contrary.
3. United States v. E.C. Knight (1895). Pointed out that the Commerce Clause only allows Congress to “regulate commerce… among the several states,” not manufacturing of products which then go out of state.
4. Griswold v. Connecticut (1965). Overturned anti-contraception laws. The justices varied in their reasoning. Douglas’s majority spoke of “penumbras” around enumerated rights. Harlan spoke of substantive due process (an interpretation later ratified in Lawrence v. Texas). But the best was Goldberg’s concurrence, invoking the totally-neglected Ninth Amendment and arguing that it serves as an interpretative guide for the Constitution, saying that rights should be read expansively.
5. Brown v. Board (1954). Overturned Plessy and got the Court involved in overturning state laws violating civil rights.
6. Reynolds v. Sims (1964). Following in the wake of Baker v. Carr, the Court held that states could not deprive their citizens of equal votes by screwy districting.
7. Mapp v. Ohio (1961). Introduced the exclusionary rule to the states, putting some teeth into the Fourth Amendment.
8. United States v. Butler (1936). Limited the Taxing and Spending Clause by holding that Congress couldn’t use it as “a means to an unconstitutional end,” namely the regulation of intrastate activities.
9. West Virginia v. Barnette (1943). Justice Jackson’s well-written majority opinion overturned state laws forcing saluting the flag, thus allowing religious freedom for Jehovah’s Witnesses and expanding speech rights.
10. Schechter Poultry v. United States (1935). Applied EC Knight to police the Commerce Clause, but also held that Congress could not delegate lawmaking authority to administrative agencies.
11. Reno v. ACLU (1997). Applied strict scrutiny to laws infringing freedom of speech on the Internet and overturned the bad parts of the Communications Decency Act (leaving the good Section 230 safe harbor provision).
12. Engel v. Vitale (1962). Overturned state official-led school prayer and got the Court into policing the Establishment Clause in a meaningful way.

At Stanford Law School, I am a member of the Stanford Law and Technology Association and the Center for Internet and Society. I write for CIS’s publication, Packets. I just published a piece summarizing the recent Third Circuit case once again holding the Child Online Protection Act unconstitutional. When the decision was released back in July, Adam Thierer wrote a wonderful post here on it. Adam’s and my pieces are complementary. Though Adam gave a nice assessment of COPA’s future, my summary goes into a bit greater detail on the court’s legal reasoning. If you’re interested in the law or in the constitutional principles involved, you may want to check out this interview with my brother, who was a counsel on the case.

WASHINGTON – November 4 /TLF News Service/ — The recently announced Alcohol Liberation Front event, Thursday, November 6 from 5:30pm on at Gazuza (1629 Connecticut Ave NW), has already roiled the social media world, but organizers pledge to carry on despite the ALF 7 controversies.

“I ain’t a quitter. People ask me to quit. ‘Stop Tweeting – it’s hurting my eyes,’ they say,” said someone other than Brooke Oberwetter, ALF 7 organizer. “But I ain’t a quitter. I’m keepin’ on keepin’ on. ‘Keepin’ on keepin’ on’? Did I just invent that! Better Tweet it!”

Trading on shares of privately-held Facebook remained suspended on the major markets today after it was revealed that the platform doesn’t permit the names of events to be changed. A typo rendering ALF 7 as ALF 6 on the Facebook event page threatens to bring down the social networking giant.

“Facebook won’t let me change the event name,” roared an enraged Berin Szoka on the Facebook page announcing the event. “I pledge to do everything in my power to destroy Facebook,” he didn’t say.

Meanwhile, one pageview of the Facebook event page displayed an ad that caught TLFer Jim Harper as an outrageous effront to the law of trademark. The image at right, displayed exclusively here on TLF and anywhere someone deems it appropriate, shows a screenshot of an ad that may violate Apple’s rights in the iPod trademark.

“It’s not outrageous. Don’t say that. I just think that calling a shaver the ‘iPod of shaving’ has the potential to cause consumer confusion as to the source of the shaver by suggesting that it’s an Apple product. There are so many mistaken allegations about trademark law – this could be a real trademark violation, and it’s worth pointing out.”

Asked if he would be an expert witness in any case brought by Apple, Harper replied, “You’re not funny, you know. You’re writing this yourself, by yourself, and not interviewing anybody. Oh yeah. You’re being ‘meta’ or something. Whatever. How stupid.”

“Sourpuss” Harper will be one of the attendees at the Alcohol Liberation Front event, Thursday, November 6 from 5:30pm on at Gazuza (1629 Connecticut Ave NW).

Facing threats of legal action from New York Attorney General Andrew Cuomo, many ISPs have curbed newsgroup access in the name of fighting child porn. Now, it looks like a big fish is holding out: Comcast.

Good for them. While it’s understandable that other ISPs elected to fold under intense pressure from an overzealous AG with a powerful bully pulpit, Comcast is entirely justified in standing its ground.

It’s not the responsibility of network providers to police their servers for potentially illegal files, as the Communications Decency Act makes clear. The only legal obligation of an ISP is to remove illegal content upon gaining knowledge of its existence on their network. But that hasn’t stopped Cuomo from sending a harsh letter to Comcast threatening to pursue “legal remedies to stop child pornography” if the cable giant doesn’t comply with his terms.

Cuomo wants ISPs to go far beyond merely removing illegal content as it’s discovered. The “voluntary agreement” that New York is pushing on ISPs has already resulted in many providers dropping newsgroup access completely, causing millions of subscribers to lose access to Usenet. Even among users who haven’t been completely cut off from newsgroups, the popular alt.* hierarchy has been disabled, making it nearly impossible to acquire anything larger than text files. The worst part is that the “bad guys” are unaffected by the crackdown on child porn—third-party Usenet servers with uncensored newsgroup access are a dime a dozen these days.

A legal battle with Cuomo might not be cheap, but it’d be worth fighting nevertheless. As I pointed out last month, suppressing speech through so-called “voluntary agreements” likely runs afoul of the First Amendment, and ISPs enjoy immunity under the Safe Harbor provisions of the Communications Decency Act.

Like his notorious predecessor, Andrew Cuomo seems bent on building his image as a crime-fighter through meaningless publicity stunts, even if it means extorting legitimate businesses to the detriment of consumers.

Let’s hope Comcast forces Cuomo to put his money where his mouth is—the future of free speech online may hang in the balance.

I have long been intrigued with the effort to regulate online gaming activities because it represents the most sophisticated effort by our government yet to eradicate a specific class of online speech or commerce. (My TLF colleague Tom Bell has done seminal work in this field). In her weekly “The Regulators” column, The Washington Post’s outstanding regulatory columnist Cindy Skrzycki writes about the enforcement challenges at work here:

It’s not easy making rules for a U.S. law intended to deter illegal Internet gambling by choking off the flow of funds to offshore sites. That’s because no one seems to agree on what the law covers. Officials at the Treasury Department and the Federal Reserve found that out after sifting through more than 200 comments from banks, gamblers, church groups and members of Congress on recommendations for the Unlawful Internet Gambling Enforcement Act of 2006. The basic sentiment was that their Oct. 4 proposal, which depends on financial institution enforcement, won’t work. The outcome will affect 23 million online gamblers, some 2,500 Internet sites and the growth of an industry with an estimated $15 billion in annual global revenue. The law bars financial institutions from processing payments involving Internet gambling — with the notable exceptions of Indian gaming, state gaming and horse racing. “If the federal agencies themselves cannot agree on the law, what hope is there that banks can resolve these confounding legal issues?” the American Bankers Association said in commenting on a conflict between the Treasury and Justice departments on the legality of betting on horses. The Washington trade group said the suggested rules are more likely to catch its members in a compliance trap than stop profits from illegal gambling from escaping offshore.

The enforcement challenges here come about for the same reasons I identified in my unpublished book on “The End of Censorship.” Namely, scale, volume, and convergence issues make efforts to bottle up certain types of speech or commerce on the Internet extremely difficult. The advantage regulators have going for them when it comes to Internet gaming, however, is that money is changing hands. And when money changes hands, financial intermediaries are relied upon to clear those transactions. And that provides a chokepoint that regulators put their thumbs on in an effort to control “illegal” activities.

Still, it isn’t easy. Frank Fahrenkopf Jr., president and chief executive of the American Gaming Association, tells Skrzycki that many privately owned offshore sites continue to let Americans wager, win and lose. “Money is fungible, and it gets to where it wants to go,” Fahrenkopf said. “I don’t know of prohibition of anything that ever worked.”

Moreover, the endless loopholes that some gaming sectors seek and win only complicated matters. Traditional casinos, state lotteries and horse racing are all exempted. Skrzycki quotes a business law professor on this point:

“What is legal now?” Joseph Kelly, a professor of business law at the State University of New York College at Buffalo and an expert in online gambling, said in an interview. “God only knows.”

And speaking of God–or at least morality–there are all sorts of thorny moral issues in play here that I haven’t even discussed. (More on that here). But, increasingly, when it comes to issues of online speech and e-commerce control, I don’t even bother getting into those morality issues. I just focus on the enforcement challenges at hand and try to point out that there are probably better ways to deal with the “problems” at hand than through unworkable regulatory schemes.

Some months ago, I noted that Betzip.com (since rechristened “PurePlay.com”) employs an intriguing legal hack to avoid anti-gambling regulations. It charges its customers a flat monthly fee, which qualifies them to win large prizes for winning online poker games. Non-paying customers can play the same games for free, too—though without qualifying for the largest prizes.

Why adopt that business model? Presumably, because it allows PurePlay to argue that it does not offer a gambling service. Specifically, PurePlay could claim that, because the amount players win has no relation to how much they stake, it dodges the “consideration” element of the legal definition of gambling. Query whether that claim would survive the devoted attentions of a prosecutor and court. I set that question aside, though, and here focus on PurePlay’s claim that they have patented their business model.

Curious about the scope of PurePlay’s patent, I searched its website for details. It offered none. I wrote to PurePlay asking for the patent’s number. PurePlay refused to say. So I put my able research assistant, Mr. Sherwood Tung, on the case. He found PurePlay’s patent, and more.

MMJK Inc., an entity located in San Francisco, California, owns PurePlay. It holds U.S. patent # 7,094,154. The Patentscope database of the World Intellectual Property Organization indicates that MMJK has also sought similar patent protection in many foreign countries. The patent’s abstract reads thusly:

A computer networked, multi-user game system utilizing subscription based membership and alternative methods of entry, as well as the award of prizes of immediate value to the winner is described. A game tournament is hosted by a game server computer coupled to client computers operated by participating players. The games offered are games that involve elements of both skill and chance and require active player participation and decision making. A subscription-based membership is established for each player by charging a fee for a pre-determined membership time period. An alternative method of entry is provided to allow non-subscription players to participate in the tournament without payment of the fee. The non-subscribing players receive equal access to the games and at least the same chance of winning as the subscribing players, but are limited to a single entry per game or tournament. The game server hosts at least one game or tournament within the period, and players are potentially eliminated until a winning player and any runner-up players are determined. A prize pool is disbursed to the winning players in the form of cash, cash-equivalent notes, or prizes that have inherent and immediate value.

[Crossposted to Midas Oracle and Agoraphilia.]

We’ve done a lot of writing about Internet gambling issues here at the TLF over the years. (Complete archives here). One of the things that always intrigues me about these debates is how passionate some policymakers can get about the supposed “evils” of private online gambling even though many of them support state-run lotteries.

What got me thinking about this again was an article in Sunday’s Washington Post entitled, “Officials Laud D.C. Lottery as Success.” The D.C. Lottery turns 25 this week and, in the article, one local lawmaker after another celebrates the fact that more than $1.4 billion has been generated by the lottery for the city treasury. “Every time you buy a lottery ticket, the city wins,” says the current DC Lottery director. And former DC mayor Marion Barry, who currently serves as a DC council member, argues that, “Nobody makes anybody play the lottery… It’s a voluntary contribution to the D.C. treasury. It was a great vision.”

OK, so what’s wrong with people playing for their own enjoyment? Nobody makes anyone play private games of chance either. But because the money goes to private interests instead of the State, apparently it’s immoral and “evil.” Stupid.

My letter to the Washington Post regarding Michael Gerson’s “Where the Avatars Roam,” which appeared in the Post last week:

Michael Gerson’s July 6 piece “Where the Avatars Roam” shows that his understanding of libertarianism isn’t nearly as deep as his understanding of online games.

Mr. Gerson describes Second Life as “large-scale experiment in libertarianism,” citing the game’s lack of community structure and long-term consequences.  He describes this “libertarian” world as one in which there is not human nature, only human choices.

This doesn’t describe a libertarian world, but one of fantasy.  Libertarianism, as envisioned by the founding fathers or Friedrich Hayek, is predicated on an understanding of the world that’s very different from Second Life.  Common sense agrees with this libertarian understanding–the world is one of consequences, community institutions are vital to human life, and human beings have an innate nature that we should harness, not deny.

True, libertarians believe in the idea of spontaneous order, but Mr. Gerson treats this idea unfairly.  Libertarianism holds that society is not the product of uncoordinated human choice, but of human choice coordinated by the institutions of liberty.  Rule of law, private property, and a robust civil society together create rules within which markets operate to ensure the greatest possible outcomes, both for individuals and for society as a whole.

Denying human nature and basic economics is the forte of the modern left, not libertarians.  Perhaps Second Life would be a good testing ground for the left’s pet theories–they may work better there.  As for libertarians, we’ll stick to the real thing.

Betcha.com recently began offering a U.S.-based, P2P, honor-based betting service. Its FAQ claims that Betcha.com avoids the reach of domestic state and federal anti-gambling laws because, “Unlike any other betting venue on the planet, Betcha bettors always retain the right to withdraw their bets . . . . Therefore, they are not ‘risking’ anything. No ‘risk;’ means no ‘gamble.'” Will Betcha’com’s hack of anti-internet gaming laws work?

Betcha.com has given that question a lot of thought. Its FAQ explains “(1) we spent thousands of man hours analyzing this and point and related ones, (2) our analysis encompassed U.S. federal law and the law of all 50 states, and (3) we are betting our very freedom that our analysis is spot on . . . .” As Betcha.com’s management realizes, however, even that effort cannot guarantee certainty; the quoted passage continues “. . . . [but] it isn’t as though some Almighty Power came down from the heavens and deemed us ‘legal.’ That’s not the way the law works.” (I have to think that Betcha.com’s founder, Nick Jenkins, wrote that bit. He describes himself as a “journeyman lawyer,” after all.)

Query whether Betcha.com can avoid the fate of the P2P betting service, BetBug.com, the owner of which at one time touted it as “the only legal way to offer online sports betting in the US.” Now, of course, BetBug has gone on hiatus, explaining that “[w]hile we continue to believe that BetBug’s true peer-to-peer software does abide by all major Federal gaming laws in the United States, the current legal environment seriously deters our chances of success.”

Betcha.com would doubtless argue that its honor-based payment system distinguishes it from BetBug.com. “If you don’t absolutely have to pay,” Betcha.com would explain, “it’s not gambling.” Note, however, that to say you don’t “absolutely have to pay” on a losing bet is not to say that you would risk nothing by so doing. To the contrary, you would risk seriously hurting the “Honor Rating” that Betcha.com assigns its users.

As Betcha.com’s FAQ explains, “A person’s Honor Rating is a measure of his trustworthiness on the Betcha Platform. Think of it as akin to a cross between a credit rating and a reputation score.” We might likewise analogize it to commercial goodwill—an asset that, while intangible, can be worth quite a lot. Someone with a poor Honor Rating on Betcha.com would, like someone with a low reputation score on eBay, effectively end up out of business.

The chink in Betcha.com’s legal armor thus lies in how authorities regard the Honor Rating. If they think it constitutes an intangible asset, one lost by customers who don’t pay off their bets, then Betcha.com might lose its gamble against the law. I’d regret that, naturally; we all lose when the law prevents us from peacefully disposing of our property as we alone see fit. But I have to say that, were I betting on legal hacks, I’d favor BetZip.com’s over Betcha.com’s.

[Crossposted to Midas Oracle and Agoraphilia.]

My friend and former colleague Radley Balko makes the case for the repeal of the online gambling ban:

Ever since the “Unlawful Internet Gambling Enforcement Act” passed during the last session of Congress, Rep. Barney Frank has been pushing to repeal it. Good for him. It’s a silly law for reasons Radley Balko of Reason magazine pointed out during testimony at a hearing Rep. Frank hosted last Friday. The hearing was held by the House Financial Services Committee, which Rep. Frank chairs, and it was entitled: “Can Internet Gambling Be Effectively Regulated to Protect Consumers and the Payments System?” In his testimony, Balko, a former colleague of mine at the Cato Institute, made the moral case against the law:

What Americans do in their own homes with their own money on their own time is none of the federal government’s business. Take online poker, by far the most popular form of online gambling. Poker has enjoyed a surge in popularity over the last several years. The game is about as mainstream and uniquely American as baseball. Poker evolved from similar card games in the early 1800s, then flourished in popularity on Mississippi’s riverboats, winning over such iconic American aficionados as Mark Twain. Today, most daily newspapers have a poker column, including the New York Times. The game saturates cable television. Until recently, even several of the Supreme Court justices held a monthly poker game. Online poker is merely a new evolution of the game, similar to the way Civil War poker games introduced the straight, and gave us variations like draw and stud poker. The Internet merely removes the geographic barrier preventing those who love the game from finding opponents of similar skill who are willing to wager similar amounts of money.

I have to admit that I’m terribly biased in reviewing Radley’s testimony, not only because I know and like him, but because I’ve been a poker fanatic since my grandmother and aunt taught me various card games as a young boy in the mid-70s. Hell, I sometimes think I learned basic math from a deck of cards! Everyone I knew played.

But these days, as Radley suggests, it seems like everybody is playing. And it’s probably also true that many people are waging when they do play. And what’s wrong with that? As Radley argues:

No one is hurt when two or more consenting adults sit down for a game of poker, be it online or in person. Why any of this should be of concern to the federal government is rather perplexing. I respect the fact that many Americans—and many members of Congress—may have moral objections to gambling, online or otherwise. To them, I’d say, simply, “don’t gamble, then.” […] Yes, it’s possible a parent could bet away their family’s savings, or their child’s education fund in an online poker game. They could also fritter that money away on eBay. Or on booze. Or fancy cars and exotic travel. These are all personal decisions, of course. And if a free society means anything, it means we should have the freedom to make bad choices, in addition to good ones. The ban on Internet gambling punishes the millions of Americans who were wagering online responsibly due to anecdotal evidence of a few who may do so irresponsibly. It’s an affront to personal responsibility, and symptomatic of a Nanny Statist government that treats its citizens like children. A government based on the principle of liberty doesn’t police the personal lives of its citizens for bad habits, at any level, much less at the federal level.

Amen, brother. But, unfortunately, logic like this doesn’t get us very far with the nannies in both parties in Congress who want to regulate virtually every aspect of our lives, especially when they think it’s “for the children.” Thus, I doubt Rep. Frank will find many allies in his fight to overturn this absurd, anti-freedom, anti-personal responsibility, anti-American legislation.

Incidentally, another friend of mine, Jeff Schmidt, also testified at the hearing. Jeff is an expert on identity authentication and age verification and is the CEO of a firm called Authis. Jeff recently participated in a Capitol Hill event I hosted entitled “Age Verification for Social Networking Sites: Is it Possible? Is it Desirable?” Many of the points he made at that event about the complexities of age verification were repeated at the hearing on Friday.

Jeff argued that:

it is critical to understand that age verification and determination of geographical location simply cannot be done reliably over The Internet. As no security measure is infallible, good security practitioners always consider a-priori what happens in the inevitable situations when security measures fail. I appear here today to discuss the factors that contribute to the unreliability of these particular security measures. The facts are that these two particular security measures are inherently unreliable, can be trivially circumvented, and will fail at high rates. This reality must be taken into account when considering this proposed legislation.