Canadian Gaming Lawyer Magazine November 2008

Canadian Gaming

Lawyermagazine

Volume 1 Number 2 november 2008

Casino Security A Question of duplication

Inside: Self-Exclusion in the UK Money Laundering: A Criminal’s Perspective Gaming Operators Breathe a Sigh of Relief

contents 4 Message from the Editor Michael D. Lipton, Q.C. 5 Message from the President Robert W. Stocker II 6 A Question of Duplication: Licensing Under Ontario's New Private Security and Investigative Services Act and Employee Registration under Ontario's Gaming Control Act

By Richard Paris

16 Money Laundering in the Gaming Industry: A Criminal Point of View

By Charles Blau 19 Don't Shoot the Messenger: Is there Liability for Intermediaries for Online Gambling?

By C. Ian Kyer and Andrew Alleyne 23 EU Gambling Regulations

By Hilary Stewart-Jones 26 Legal Profile

9 Gaming Facility Operators Can Breathe a Sigh of Relief: Honda Canada Inc. v. Keays

By Christine Jonathan 11 Self-Exclusion in the UK: A Risky Obligation

By Peter Wilson

27 The Patentability of Casino Games in Canada

By Professor Emir Mohammed 29 The Origination and Implementation of the World's Only Gambling Treatment Court: A Reflective Essay

By The Honorable Mark G. Farrell

14 What You Need to Know About Registration: Part Two

By Michael D. Lipton and Chad Finklestein

Canada’s Leading Gaming Law Practice Government Proposals • Casino Operations • Gaming Equipment & Services Registrations • Government Agency Advice

For further information, please contact: Michael D. Lipton Q.C. mdliptonqc@aol.com 416.367.0871

november 2008 | 3

Message from the Editor

Judging by the nature of

favourable responses received from our readers of the first edition of the Canadian Gaming Lawyer, I am proud to present the second edition of our magazine. As advised earlier, the core mission of Canadian Gaming Lawyer is to serve as a tool to assist members of industry and legal practioners in their day-to-day business in gaming. I believe that the articles presented in this edition will continue to fulfill that mission. Our topics will include information relating to money laundering in the gaming industry, licensing under Ontario’s new private security and investigative services legislation, a review of a recent court decision in England about self-exclusion and a discussion of the world’s only gambling treatment court.

Our contributors include Chris Jonathan and Chad Finkelstein who work closely with me in the Gaming Law section which I chair at Elkind & Lipton LLP; Judge Mark Farrell, who originated the Gambling Treatment Court; Hilary StewartJones, of Berwin Leighton Paisner LLP of London, England; Ian Kyer and Andrew Alleyne, of Fasken Martineau in Toronto; Emir Aly Mohammed, who is an Assistant Professor of the Faculty of Law at the University of Windsor; Peter Wilson, of Blake Lapthorn Tyler and Lyons of London, England; Charlie Blau, of Meadows Collier from Dallas, Texas; and Richard Paris, Director of Security at Fallsview Casino Resort. In addition, Bob Stocker of Michigan and current President of the International Masters of Gaming Lawyers has provided his President’s Column outlining the current activities of the IMGL, one of the sponsors of the Canadian Gaming Lawyer.

As before, I very much appreciate your views regarding our magazine and encourage you to email me with your comments. Again, if you desire to contribute to future editions, by writing an article or placing an advertisement, please contact me.

Our journey continues and I am delighted to share it with our many readers.

Canadian Gaming

Lawyermagazine November 2008

Volume 1 Number 2

Publisher

Chuck Nervick

chuckn@mediaedge.ca 416-512-8186 ext. 227

Editor

Michael D. Lipton, Q.C. mdliptonqc@aol.com

Advertising Sales

Philip Soltys

philips@mediaedge.ca

Senior Designer

Annette Carlucci

annettec@mediaedge.ca

Designer

Ian Clarke

ianc@mediaedge.ca

Circulation Manager

Cindy Youman

circulation@mediaedge.ca

Proudly published by:

Publisher Chuck Nervick

President of the IMGL Robert W. Stocker II

chuckn@mediaedge.ca

rstocker@dickinsonwright.com

Editor Lucie Grys

Executive Director, IMGL Melissa Lurie

lucieg@mediaedge.ca

IMGLDirector@aol.com

Canadian Gaming Lawyer is published twice a year as a joint venture between Canadian Gaming Business Magazine and the International Masters of Gaming Law (IMGL).

For advertising information, Contact Chuck Nervick 416-512-8186 ext. 227 chuckn@mediaedge.ca

For editorial information, For editorial information: Contact Michael D. Lipton at mdliptonqc@aol.com

Thank you.

Canadian Gaming Business Magazine is owned and published by: mdliptonqc@aol.com

4 | Canadian Gaming Lawyer Magazine

MESSAGE FROM THE PRESIDENT

Thank s to the

efforts of Canadian Gaming Law yer Magazine's Editor, Michael Lipton, and our publishing partner, MediaEdge Communications, the inaugural issue of IMGL's Canadian Gaming Lawyer was a smashing success! Thank you for all the compliments that have been received regarding this publication endeavor.

The gaming industr y is thriving in Canada. The recent opening of the major expansion of Casino Windsor and its rebranding as Caesars Windsor is but the latest positive development in Canadian gaming. The expanded facility is fabulous. It lights up the Detroit River skyline at night and dominates the Canadian riverfront. Kudos to the Province of Ontario and Caesars Windsor management for a job well done. In its continuing effort to support and enhance the Canadian gaming industry, the IMGL and its members will be actively participating in the two major gaming conference events held each year in Canada.

The Canadian Institute on Gaming will be held in Toronto on Februar y 26 -27, 2009. Michael Lipton, immediate past president of the IMGL, is the Chair of this annual conference.

Thereafter, from April 27-30, 2009, the Canadian Gaming Summit, which is the largest gaming conference conducted in Canada each year, will be held in Windsor, Ontario at the newly expanded and renamed Caesars Windsor.

Recognizing the importance of this event, the IMGL is currently exploring conducting its Spring 2009 gaming conference contemporaneous with the Canadian Gaming Summit at the Caesars Windsor hotel and conference facility. Negotiations to finalize this cooperative venture are currently underway and may be finalized by the time this issue of Canadian Gaming Lawyer is in your hands. The IMGL 2008 Fall Conference will be held in Berlin from October 29-31, 2008. This conference follows on the heels of the highly successful 2008 IMGL Spring conference held in Napa Valley, California where Ernest Stevens, Jr., Chairman, National Indian Gaming Association and Frank Fahrenkopf, Jr., President and CEO, American Gaming Association, were jointly honored as the IMGL Gaming Executives of the Year. While the Berlin conference will have a distinctly European flavour, it will also address the hot issues facing gaming in North America, including the impact of national and state elections in the United States as well as the elections in Canada.

The latest developments in the world of Internet gaming will also be a hot topic of discussion. In addition, the highly prestigious IMGL Regulator of the Year award will be announced and presented at the Berlin conference.

As has been the case for the past several years, the IMGL will have an official presence at the Global Gaming Expo (G2E) set for November 18-20, 2008, in Las Vegas, Nevada.

The IMGL will have a kick off party at the Stirling Club on November 18 from 6 to 9 p.m. The IMGL will once again maintain an IMGL information booth at the exposition.

If you plan to attend G2E, please contact me at rstocker@ dickinsonwright.com, Michael Lipton at mdliptonqc@aol. com or Melissa Lurie at IMGLDirector@aol.com and we will arrange for an invitation to the Stirling Club function and, by all means, visit us at the IMGL booth at booth number #414. Articles for Canadian Gaming Lawyer are not restricted to members of IMGL. We encourage the submission of timely, thoughtful articles dealing with relevant, state of the industry gaming issues. While Canadian Gaming Law yer is published twice a year, our flagship publication in the United States, Casino Lawyer, is published four times a year. Six issues of hard print magazine publications per year presents many significant opportunities for those gaming experts who wish to enlighten the gaming industry with thoughtful, timely discussions of critical issues facing the many facets of the gaming industry. In addition, the IMGL's close working relationships throughout the gaming industry present other venues for publication. Write well and you shall be heard!

The IMGL is constantly striving to expand and enhance its educational role in the world's gaming industry. In addition, the IMGL stands for and vigorously supports a strong, fair gaming regulatory environment. A strong statutory and regulatory environment designed to protect the public and the gaming industry from gray market operations and undesirable elements is a win-win proposition. The IMGL supports focusing on such an environment on a global scale.

If you want to know more about the IMGL, contact me, Michael Lipton or Melissa Lurie at the email addresses set forth above and we will be very happy to answer your questions and enlighten you regarding the IMGL, its commitment and its goals. In the alternative, visit our website at www.gaminglawmasters.com.

The holidays will soon be upon us. Have a great fall and holiday season. We look forward to seeing you at G2E, the Canadian Gaming Institute and the Canadian Gaming Summit.

Robert W. Stocker II, President Robert W. Stocker II, Dickinson Wright PLLC, is current president of the IMGL and practices gaming law on an international basis.

november 2008  |  5

cover story

By Richard Paris

A Question of Duplication

Licencing under Ontario’s new Private Security and Investigative Services Act and Employee Registration under Ontario’s Gaming Control Act New Ontario legislation regulating security practitioners seeks to improve standards, increase accountability and enhance public safety. These changes are generally regarded as long overdue and much needed in the broader security industry. But for the 2,000 security guards employed by Ontario’s casinos and slot facilities, not all of these changes are so positively received. For them, the new registration requirements are redundant and add an additional administrative layer to an existing regulatory regime already providing the same benefits.

6 | Canadian Gaming Lawyer Magazine

The Private Security and Investigative Services Act (PSISA or the new “Act”) was passed in 2005, with Regulations on a two-year phased implementation plan beginning in Aug ust 20 07 through to August 2009. The new Act replaced the Private Investigators and Security Guards Act (the old “Act), enacted in 1966. The PSISA provides several improvements to the general security industr y including (among other things): 1. Expanding the number of security practitioners subject to the legislation.

2. N e w l i c e n s i n g a n d d i s c l o s u r e requirements.

3. C r i m i n a l b a c k g r o u n d c h e c k requirements.

4. Mandatory training and testing.

The primary driving force behind the revisions to the old Act was the Coroner’s I nquest recom mend at ion s fol low i n g the death of Patrick Shand; a 31 year old suspected shoplifter who died while being arrested and restrained by Loblaws Security Officers in 1999. The provisions of the new Act closely mirror the 22 recommendations cited in that Coroner’s report.

Expanding the numbers There has been dramatic growth in the number of security guards employed in Ontario. It is estimated that as many as 50,000 security guards are employed in the province today.

In recognition of that growth, provisions in the PSISA expand who the Act applies to.

Under the old Act, ‘in-house’ security guards (those employed by one employer, where that employer undertakes business activities other than providing security services) were exempt. Considering that approximately 50% of all security guards are employed ‘in-house’, that exemption was significant. The new Act eliminates the ‘in-house’ exemption, along with several other exemptions that formerly existed including Commissionaires and bouncers in bars and nightclubs.

The large majority of ‘in-house’ security guards, being exempt from the old Act, were previously unregulated. There were no standards for conducting security services, no recruitment requirements or background checks, no licensing requirements, no performance accountability, and generally no government oversight or any other regulatory scrutiny. In that regard, the

establishment of new standards and a regulatory oversight process for ‘in-house’ security was considered by many to be much needed and in the interest of public safety.

Certainly that issue was at the core of the Shand Inquest.

Security guards at casinos and slot facilities however, while operating ‘in-house’ and therefore exempt from the old Act, were by no means exempt from a robust regulatory regime, industry standards or a government oversight process. In fact, it was quite the opposite. Operating under the requirement to hold a Gaming Employee Registration in compliance with the Gaming Control Act 1992 (GCA), these security guards have long been subject to a regulatory oversight process that far exceeded that of the old Act, and, in many ways, is duplicative of the licensing and regulatory process now contemplated by the PSISA.

Licensing/Registration and Disclosure The application process for the Private Security license under the PSISA and the Gaming Employee Registration under the GCA are very similar insomuch as both require the applicant to complete an application november 2008 | 7

Cover Story

In the absence of any training or testing requirements, security guards at casinos and slot facilities are left with duplication and redundancy in a new security licensing process that adds little to an existing regulatory regime already exceeding PSISA requirements. form thereby providing personal details and disclosing information about one’s past.

However, in administering this license/ registration process, the GCA covers every material requirement of the PSISA, plus goes much further.

Some examples of how the GCA process is more comprehensive than that of the PSISA are as follows: GCA applicants are required to provide a more detailed history of one’s residency and employment background (10 yrs under the GCA vs. 5 yrs under the PSISA).

2. GCA applicants are required to disclose detailed financial information including a list of assets/liabilities, banking details and credit information. The PSISA does not require any review of one’s financial status.

3. GCA applicants are required to disclose the existence of any proceedings related to civil litigation, bankruptcy or garnishment orders. The PSISA does not require any such information to be disclosed.

1.

In addition to the differences above, the GC A process ent a ils a criminal background check and police investigation that is much more thorough and intrusive than the PSISA demands.

Criminal Background Check and Investigation The PSISA establishes a list of prescribed criminal offences that applicants cannot h a v e b e e n c o n v i c t e d o f , w it h out a pardon, to successfully qualif y for a security license. The Ontario Provincial Police (OPP) is utilized to assist with performing these criminal background checks in this regard.

8 | Canadian Gaming Lawyer Magazine

Although the GCA does not provide a list of prescribed offences, and in that sense is more flexible than the PSISA, GCA registration applicants are nonetheless required to undergo a full criminal and provincial offences background check. This check is similarly performed by the OPP, seconded to the Alcohol and Gaming Commission of Ontario (AGCO), the body responsible for regulating gaming in Ontario. In fact, Gaming Employee Registration requirements go much further than a simple background check, as applicants are also required to attend, in-person, for an interview with the OPP where the application is reviewed in detail, the applicant is photographed and samples of the applicant’s fingerprints are collected for government records.

In addition to the duplication concern noted above, another problem arises when the prescribed and prohibitive criminal offence regime of the PSISA is overlapped with the more in depth yet more flexible requirements of the GCA. Specifically, PSISA limitations, in the form of those criminal offences, may result in the inability to license a long service security guard who, having successfully met all GCA requirements and after comprehensive police investigations had been conducted, may, depending upon the nature of the prescribed conviction, have been deemed fully employable by the AGCO.

informed the public in May 2008, that the Training and Testing Regulation had been repealed. The Ministry intends to file a new Regulation, once a revised implementation date has been established, however a new date is not expected for a least a year and perhaps much longer. Even when the new Regulation and implementation date is finalized, the Ministry intends to exempt existing security license holders from the basic training portion of the Regulation.

Conclusion

Training and Testing

In the absence of any training or testing requirements security guards at casinos and slot facilities are left with duplication and redundancy in a new security licensing process that adds little to an existing regulatory regime already exceeding PSISA requirements.

This duplication comes with a significant financial cost, as PSISA licenses are renewed annually at $80 per year, which is additional to the $165 annual renewal fee for Gaming Employee Registration under the GCA. As the Ministry continues to formulate its new training Regulation and contemplates future amendments to the Act, it is hoped that this duplication is acknowledged and an exemption for security guards already regulated by the AGCO (or other regulatory body) where existing registration or licensing requirements meet or exceed the licensing requirements of the PSISA is considered. CGL

W hen the PSISA f irst become law, it included Ontario Regulation 463/07, which provided mandatory training and testing requirements with an implementation date set for November 30, 2008. The Ministry was tasked with developing the infrastructure and materials to support these new requirements.

Unfortunately, the Ministry was not able to develop the program in time to meet the implementation date, and subsequently

Richard Paris joined Casino Niagara as the Security Director in 2001. He later formed part of the executive opening team for Fallsview Casino Resort, Canada's largest resort casino complex, in 2004. Paris now oversees the security operations at both Niagara Casinos.

He is the President of the Canadian Association of Casino Security Directors and sits on several Boards and Associations. He holds a Masters degree in social work from the University of Toronto.

By Christine Jonathan

Gaming facility operators can breathe a sigh of relief HONDA CANADA INC. v. KEAYS

The Supreme Court of Canada issued its decision in Honda Canada Inc. v. Keays on June 27, 2008, erasing a landmark wrongful dismissal award for punitive damages. In a 7 to 2 ruling, the original punitive damages award of $500,000, which was reduced to $100,000 by the Court of Appeal, was totally erased by the Supreme Court.

The Facts Kevin Keays was employed by Honda for approximately 11 years before he was diagnosed with chronic fatigue syndrome in 1997. Soon thereafter, Keays ceased working and received disability benefits until 1998 after which Honda’s insurer decided to discontinue his benefits.

Keays returned to work and was placed in a disability programme which allowed employees to take absences from work on condition that they produced a doctor’s note confirming that their absences were related to their disability.

Upon his return to work, Keays was chronically absent due to his disability, sometimes for days at a time. Honda become concerned about the frequency of his absences and requested an independent medical evaluation.

On the advice of his lawyer, Keays refused to meet with Honda’s medical expert without an explanation of the purpose, methodology, and parameters of the consultation. Honda refused to deal with Keays’ lawyer and advised Keays that his employment would be terminated if he refused to meet with their medical expert. Keays remained unwilling to meet with the medical expert and Honda formally terminated his employment for

insubordination after 14 years of service.

Keays sued Honda for wrongful dismissal.

Judicial Consideration At the trial, the Ontario Superior Court of Justice found that there was no just cause for the termination of Keays’ employment and awarded him 15 months pay in lieu of notice of termination. In addition, the Court extended the notice period by nine months because it found that Honda acted in bad faith in the manner in which it terminated Keays’ employment. Moreover, the Court awarded punitive damages in the amount of $500,000, the largest punitive damages award to be delivered in a Canadian employment law case, on the basis that Keays had been harassed and discriminated against by Honda in an “outrageous manner”, contrary to the Ontario Human Rights Code. The decision was appealed to the Ontario Court of Appeal.

The Court of Appeal reduced the punitive damages award to $100,000 but otherwise agreed with the lower court in all respects. In particular, it confirmed that a claim for discrimination or harassment under the Ontario Human Rights Code could constitute an “independent actionable wrong” necessary to support an award of

punitive damages. The case was appealed to the Supreme Court of Canada.

In its ruling, the Supreme Court of Canada took the opportunity to “clarify and redefine some aspects of the law of damages in the context of employment”, and to “review the basis for and calculation of damages for conduct in dismissal” established in the pivotal 1997 employment case Wallace v.

United Grain Growers Ltd. The Court found that there was no basis to interfere with the trial judge’s award of 15 months pay for failure to provide reasonable notice, and relied on the factors enumerated in the oft quoted decision of Bardal v. Globe & Mail, such as age, length of service and character of employment.

Other key findings of the Supreme Court of Canada were:

No Extension of Notice Period for Bad Faith Dismissal (Wallace damages) Although the Supreme Court upheld the notice period of 15 months, it overturned the bad faith or Wallace extension of 9 months damages for the employer’s bad faith in the manner in which it dismissed Keays. The Court found that Honda’s conduct during the course of dismissal “was in no way an egregious display of bad faith justifying an november 2008 | 9

award of damages for conduct in dismissal”, by being, for example, untruthful, misleading or unduly insensitive.

More significantly, the Court held that any damages for bad faith conduct should be “fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties; those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages.”

The Supreme Court gave examples of the type of conduct which would result in compensable damages, such as attacking the employee’s reputation by declarations made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a benefit or a right.

Punitive Damages and the Need to Avoid Duplication in Damage Awards The Court reviewed the law regarding punitive damages and warned against the pitfall of making overlapping damage awards for both bad faith and punitive damages. The court confirmed that “damages for conduct in the manner of dismissal are compensatory while punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.”

The Court found that Keays was not entitled to receive punitive damages because there was no egregious or outrageous misconduct warranting punishment of Honda. Further it found that Keays was not harassed by Honda, and Honda’s disability programme was not discriminatory, but rather a good faith attempt to monitor the absences of employees who are regularly absent from work. Honda was skeptical about Keays condition and was taking steps to confirm it.

The Court held that Honda’s refusal to deal with Keays’ lawyer was not inappropriate because there is “no legal obligation on the part of any party to deal with an employee’s counsel while he or she continues with his or her employer.” The Court overturned the

10 | Canadian Gaming Lawyer Magazine

Court of Appeal’s finding that discrimination could constitute an independent actionable wrong giving rise to punitive damages. In the Court’s view, the Human Rights Code is “a comprehensive scheme for the treatment of claims of discrimination” and the person alleging discrimination must seek a remedy pursuant to the statutory scheme of provincial Human Rights legislation, and as a result, punitive damages are not available for a breach of the Human Rights Code.

Honda v. Keays and the Ontario Human Rights Code The Human Rights Code Amendment Act, 2006 (the “Act”), was passed on December 5, 2006 and came into force on June 30, 2008. The Act made sweeping changes to the Ontario Human Rights Code (the “Code”), including amendments that have a significant impact on wrongful dismissal litigation.

Prior to these recent amendments, courts only took human rights violations into account in deciding whether to award punitive or aggravated damages in a wrongful dismissal case, but they could not award damages for discrimination per se.

Since the amendments, the Court now has the power to make an order directing a gaming facilitator who discriminates against an employee with respect to employment to pay monetary compensation to that employee for loss arising out of the infringement, including compensation for injury to dignity, feelings and self-respect.

In addition, the Court now has the power to make an order directing an employer such as a gaming facility operator who discriminates against an employee to make restitution other than through monetary compensation, for loss arising out of the infringement, including restitution for injury to dignity, feelings and self-respect.

Accordingly, it appears that judges may now have the same power as the Commission to order reinstatement, force gaming facility operators to provide letters of reference and even make it post letters of apology in the workplace or in the media.

As such, the Supreme Court’s comments concerning the proper jurisdiction for allegations of discrimination are not relevant

in Ontario as employees in Ontario are now entitled to sue for discrimination in the context of a wrongful dismissal suit.

Impact of the Decision There is no doubt that the Supreme Court’s decision will have a significant impact on the conduct of employment law litigation and can only be viewed as a positive development for gaming facility operators.

With the elimination of Wallace damages which have been heavily relied upon by employees in wrongful dismissal cases, employees will no longer be able to seek an extension of the notice period where employers have been found to have acted in bad faith in the manner of dismissal.

Wrongfully dismissed employees will now be limited to pursuing a separate claim for fixed compensatory or aggravated damages for employers’ bad faith conduct.

The decision also seems to have increased the threshold of what constitutes “outrageous or reprehensible” conduct in the employment context. The circumstances of the misconduct must be very exceptional to attract an award of damages.

Lastly, the decision provides some guidance to both employees and gaming facility operators when it comes to how best to monitor and manage workplace absenteeism. The court confirmed that employees need to cooperate with employers with a view to achieving viable accommodations of any disability that may impact an employee’s performance or attendance. In addition, the court seems to be prepared to recognize an employer’s good faith attempts to monitor employee absenteeism as a means of managing its work force. CGL

Christine Jonathan practices employment law at Elkind & Lipton LLP and represents employers in a wide range of employment issues, including acquisitions and divestitures, employment standards, employment contracts, recruitment and hiring practices, wrongful dismissal litigation, injunction applications, breach of non-competition and non-solicitation covenants and human rights issues.

Self-Exclusion in the UK: A Risky Obligation?

By Peter Wilson

Many of the leading Internet gambling territories now include social responsibility in their regulatory requirements. One of the key licensing objectives in the British regime is to protect children and other vulnerable persons from being harmed or exploited by gambling. An operating licence holder in Britain has a legal obligation to implement a comprehensive social responsibility policy including, crucially, a scheme of self-exclusion. Alderney, the Isle of Man and Gibraltar also require selfexclusion and/or the means for a player to limit his stakes and/or playing time and Malta's terrestrial casinos provide voluntarily self-exclusion.

Recently, self-exclusion was put under the spotlight in the UK case of Graham Calvert v. William Hill Credit Limited1 and grave doubts were raised about its effectiveness. It is an interesting and insightful tale.

Graham Calvert was a greyhound owner and trainer who became a heavy gambler and eventually, a problem gambler. He moved from betting offices to telephone credit betting and at various times held accounts with several of the leading bookmakers.

William Hill had the misfortune of being one

of the last bookmakers he dealt with before his gambling lead to his financial ruin.

As Mr. Calvert's gambling increased, he went through periods which he described as "betting frenzies" when he would place several very large bets during the course of an afternoon and chase losses. On one of the worst days, he bet some £459,000 and lost £124,000. In September 2006, he infamously lost £347,000 on betting that the US would win the Ryder Cup. On other occasions, he had what he described as "moments of

clarity". In some of those moments, he asked bookmakers from time to time to close his account, usually, with an instruction never to reopen it. However, he moved on to other bookmakers and opened new accounts.

The crux of the case Mr. Calvert brought against William Hill is that he asked for his telephone betting account to be closed. As a socially responsible operator, William Hill had already put a self-exclusion policy in place before it became a legal requirement.

Accordingly, a team leader offered Mr. november 2008 | 11

Calvert the facility of self-exclusion for a minimum period of six months. He accepted but regrettably the Hill employee failed either to act on the request for self-exclusion or, crucially, to get Mr. Calvert to sign a waiver of liability. When his moment of clarity passed, Mr. Calvert went on to open a new account with William Hill. He continued gambling, and claimed that it was William Hill's fault that he lost in the order of £2 million when he should have been excluded from gambling with the company.

On delivering his judgement, Mr. Justice Briggs

there may be a broad duty of care in relation to a customer "whose behaviour has become so extreme as to demonstrate to a bookmaker that his gambling is wholly outside his control…"

• Imposing such a broad duty would, in relation to a problem gambler who did not seek a bookmaker’s help, be an invasion of his autonomy, in relation to an activity for which he is primarily responsible for the consequences.

It is a different proposition where a problem gambler presents himself in need of help, asks for it specifically and is assured that he would be given it i.e. in the form of self-exclusion, then a duty does arise to take care to implement that exclusion. It cannot be an infringement of the gambler's autonomy since he has himself specifically requested the exclusion.

This was exactly what happened when William Hill took on a duty of care by reassuring Mr. Calvert that he would be excluded and then it breached that duty when its employee failed to implement any exclusion properly.

A self-exclusion agreement could contain a disclaimer that would, subject to any question as to its reasonableness, protect the bookmaker from his own negligence. At least as far as Britain is concerned, the judge said that the Gambling Commission's policy is to permit bookmakers to exclude liability whilst still complying with the licensing regime. On the other hand, where gambling contracts are legally enforceable, as they are in the UK, Isle of Man, Malta and Gibraltar, and subject to consumer laws regarding the use of fair and reasonable terms, the wording of any disclaimer or exclusion will be critical.

Where a self-exclusion agreement was limited to exclusion from telephone betting and, as in the case of William Hill, the gambling operator had land based betting offices, then the duty of care would not extend to taking care to prevent a gambler from being prohibited from gambling in the bookmaker's shops. This type of partial self-exclusion has been frowned upon by the British Gambling Commission in a recent consultation paper on gambling Licence Conditions and Codes of Practice. It is proposing the following additional wording in the Codes, "Licensees should not permit partial selfexclusion, in which a customer requests self-exclusion only from particular products, unless they are satisfied that such a request is reasonable and that it is practical for it to be enforced. Although licensees may consider partial self-exclusion if it is requested, this should not be suggested by the licensee."

As Mr. Calvert’s gambling increased, he went through periods which he described as “betting frenzies.” started by saying, "this case raises, for the first time in an English Court, the question whether there are any circumstances in which a bookmaker can occur liability in negligence in respect of the gambling losses of a customer who is, and is known by the bookmaker to be, a problem gambler."

By the last quarter of 2006, Mr. Calvert had deteriorated from being a problem gambler to a pathological gambler and as the judge put it, "the evidence of a person carrying sack loads of borrowed cash into betting shops in order to fund telephone gambling at ever increasing stake levels, and continuing to do so in the face of unremitting losses to the complete ruin of his career and the security of his family, admits of no other sensible conclusion."

Was William Hill legally responsible? The judge rejected the proposition that by developing a social responsibility policy a bookmaker could be said to have voluntarily assumed responsibility and a broad duty of care to all of its problem gambling customers to compensate them injured in their mind or in their pocket by any failure to take care. The reasons he gave included: • Problem gambling is a spectrum disorder ranging from experiencing difficulties in control at one end to complete loss of control at the other end. It would not be proper for the law to treat them as being so vulnerable so as to require special treatment even in the absence of a request for it.

• It is "wholly unrealistic" for a bookmaker to be expected to undertake what amounts to a medical diagnosis in order to identify even pathological gamblers. However, the judge recognised that 12 | Canadian Gaming Lawyer Magazine

It is clear that a self-exclusion agreement must be carefully worded so that it identifies whether the exclusion is to be effective in relation to an Internet business only, or both Internet and land based activities. As a duty of care will arise with a selfexclusion agreement then the implementation of the exclusion must match what is offered to prevent the gambling operator inadvertently breaching his duty from the outset.

Despite the fact that the Court concluded that there was a breach of duty, William Hill was not held liable for the gambling losses incurred by Mr. Calvert. The judge took the view that because Mr. Calvert had lost control of his gambling by the time he had entered into the self-exclusion agreement then he would have lost his money anyway, albeit at a slower rate. The judge said, "it would in my opinion fly in the face of common sense and be a travesty of justice if a problem gambler were able to attribute liability for his financial ruin to a particular bookmaker with whom he made a relevant losses due to their failure to exclude him at his request, if he would, had he been excluded by that bookmaker, probably have ruined himself by betting with one or more of that bookmakers competitors."

As to self-exclusion generally, the judge was unimpressed and commented, "standing back for a moment to look at the wood rather than the trees, it is perhaps unsurprising that a negligent failure by a bookmaker in connection with the now officially sanction process of self-exclusion failed to cause the problem gambler any measurable loss. The conclusion flows in my judgement naturally from the inherently limited effectiveness of self-exclusion as a remedy for the underlying problem."

It is a rather pessimistic view and one that fails to recognise that self-exclusion is, as the British Gambling Commission points out, “just one tool in the management of problem gambling.” It is probably self evident that any treatment for a compulsive disorder or addiction will only be effective if there is some readiness and willingness on the part of the patient for it to work. If a person who self excludes is also referred to professional help then there is clearly a greater potential for he or she to maintain their abstinence. Perhaps the judge's dismissive approach was partly due to his opinion of Mr. Calvert's own problems when he described Mr. Calvert as, "a man with no commitment to enforced abstinence even in his moment of relative clarity."

Admittedly, there may well be something in the judge's analysis that a gambler who has selfexcluded with a single bookmaker might, when the temptation to gamble returns in force, simply open a

new account with another bookmaker. Of course it’s possible, if not probable, and no one suggests that self-exclusion is a perfect solution (or even that there is one) but it’s a start. It also seems to be taken up on fairly broad basis across different types of gambling products and so is apparently seen in a more positive light by the customers themselves than by the Court and it is the players who, after all, are the ones using and relying on it.

As to the legal position of operators, it is now clear that a self-exclusion agreement with a customer will give rise to a narrow duty of care and it could be a breach of that duty if the operator fails to implement the exclusion arrangement with reasonable care. An operator may possibly also be fixed with a broader duty of care to a customer with a gambling problem if the customer's gambling is so out of control that it is obvious to the operator.

Whether any disclaimer of liability will be effective will depend upon whether it was brought to the customer's attention clearly and before the contract, the facts of the case and whether the wording of the disclaimer or exclusion complies with consumer law standards of fairness and reasonableness.

The highest risk for gambling operators of incurring liability does not appear to be from the most serious problem gamblers or pathological gamblers who, following the Calvert case, might fail to establish that a negligently implemented self-exclusion was the cause of any financial loss from gambling.

Instead, it may be from those whose gambling has only just become a problem or is temporarily a problem and they seek help from their bookmaker, for instance, who then lets them down and lets them gamble again during a self-exclusion period.

The lessons to be learned are that a self-exclusion policy must be clearly worded as to what it will do, robustly and effectively implemented by properly trained staff and, if all else fails, there should be in place a cautiously worded disclaimer. CGL

Peter Wilson is Partner and Head of Gambling at Blake Lapthorn Tarlo Lyons Gambling Law Practice. He has over 15 years of experience, has represented clients from across the gambling spectrum and has advised on Internet gambling for an international client base.

Disclaimer: this article is intended as opinion only and we would need to be specifically instructed to provide legal advice on which you can rely.

1[2008] EWHC 454 (Ch)

november 2008 | 13

What you need to know about registration: Part ii In the last issue of Canadian Gaming Lawyer, we examined whether prior approval of gaming regulators was required upon a change of control, or of the officers or directors, of a registered entity under the gaming legislation in Ontario, British Columbia and Alberta. In this edition, we expand the discussion to consider the matter with respect to the gaming legislation in Saskatchewan, Manitoba, Quebec and Nova Scotia.

Saskatchewan

By Michael D. Lipton Q.C. and Chad Finkelstein

14 | Canadian Gaming Lawyer Magazine

In Saskatchewan, the Saskatchewan Liquor and Gaming Authority (“SLGA”) is given the power to control and administer registrations.

The SLGA does not require its registrants to obtain approval before completing a sale of a portion of the business or changing its officers or directors. According to the SLGA Terms and Conditions of Registration ( t h e “ Te r m s a n d C o n d i t i o n s ” ) ,

which are issued upon being found suitable for registration by the SLGA, a registrant must notify the SLGA immediately of any changes in the officers, directors or shareholders having more than a 5% interest in the registrant’s business. This condition is echoed in the Policy Guidelines to the Registration of Suppliers of Gaming and Non-Gaming Goods and Services, which provide that during the period of registration, if there

are any changes to the original Gaming Supplier Application for Certificate of Registration, which include a change of key persons, the supplier is “obligated to immediately report such changes” to the SLGA. The scope of disclosure under the Sas ka tche w a n ga mi n g l e g i s l a t i o n i s wide and accordingly any changes in the officers and directors of the parent companies of the registrant should be reported. Although it is not legislated nor found in the Terms and Conditions, the SLGA prefers to be notified before the sale or acquisition of a corporate registrant occurs.

Manitoba The Manitoba gaming legislation requires advance notice, but not advance approval, as a condition to a transfer of interest. Pursuant to section 11 of the Gaming Control Regulation of the Manitoba Gaming Control Act, a registrant must notify the Executive Director of the Manitoba Gaming Control Commission (MGCC) not less than 10 days before the effective date of any of the following transactions: any sale, assignment or transfer of assets of the registrant through which the activities authorized by the registration are carried out; any sale, assignment or transfer of 5% or more of the shares or units of the registrant or an entity which directly or indirectly controls the registrant; or any sale, assignment or transfer which results in a change in direct or indirect control of the registrant.

Since the legislation requires notification for any “direct or indirect” change in control of the registrant, notification must be given for any change in control of the parent companies of the registrant. Following its review of such transaction, the MGCC may either maintain or cancel the registrant’s registration, or modify its terms and conditions.

Neither the Manitoba Gaming Control Act nor the Gaming Control Regulation specifically address the issue of a registrant’s change of its officers or

directors, however, it is prudent practice to provide prompt written notification to the MGCC upon effecting such change.

Quebec An Act respecting lotteries, publicity contests and amusement machines (the “Quebec Act”) provides significantly less guidance than other jurisdictions do with respect to notification arising from a transfer of interest. Section 36 of the Quebec Act states that a person seeking to obtain a licence must, within the “prescribed time”, apply to the Régie des alcools, des courses et des jeux (the “Regie”) by sending in the completed prescribed form. The Regulation respecting amusement machines (the “Regulation”) defines the prescribed time as at least 30 days before the Regie must make a decision with respect to such a licence.

Section 36 of the Quebec Act further states that “any modification relating to the documents or information…must be reported immediately to the Regie”, otherwise the licence will be revoked.

No further guidance is provided as what would constitute “immediate” reporting of modification to the documents required for registration. The Regulation does state that a person seeking a licence must ensure that the form, documents and information “referred to in section 36” of the Quebec Act are forwarded to the Regie within 30 days. In our view, this section mandates that any modifications to the documents and information required for registration must be reported at least 30 days before the Regie makes a decision with respect to the licence. Since the legislation encompasses “any modification”, any change in the organization of the registrant must be reported.

partnership that is a registered supplier shall disclose any change in its officers, directors or membership “within fifteen days of any change” by filing a disclosure form with the Director of Registration: Under subsection 86(2), the following changes must be disclosed within fifteen days by filing a disclosure form with the Director of Registration; (i) a person acquiring a beneficial interest in the business of the operator of a casino; (ii) a person exercising control, either directly or indirectly, over the business of the operator of a casino; and (iii) a person providing financing, either directly or indirectly, to the business of the operator of a casino.

As we advised in the last issue, while preparing for any change in the officers, directors, shareholders, or any other individual or entity which owns a part of or exercises any decision-making authority over the registrant, it is wise to examine the applicable provincial gaming legislation or consult your counsel to determine when prior approval or notification is required.

Failure to do so may result in termination of gaming registration.

Note: In our last issue, we listed the direct acquisition of one or more securities issued by the registrant, other than the voting shares already described, if the amount paid up under the securities is equal to or greater than 5% of the aggregate paid up capital of the registrant as an event requiring prior approval of the BC Gaming Policy & Enforcement Branch.

It is the policy of the GPEB to receive a request for prior approval of the above circumstances in the case of the registrant or an associate of the registrant. CGL

Nova Scotia Subsection 67(2) of the Nova Scotia Gaming Control Act states that every applicant for a lottery licence shall notify the Nova Scotia Gaming Control Commission of any change in the information contained in the application for the licence within fifteen days of such change. Further, subsection 86(1) stipulates that a corporation or

Michael Lipton is senior partner and chair of the gaming law section of Elkind & Lipton LLP. He is immediate past president of the IMGL with an international practice in gaming law.

Chad Finkelstein is an associate with Elkind & Lipton LPP & a member of the gaming law section. november 2008 | 15

By Charles Blau

AMoney Criminal Point of View: Laundering in the Gaming Industry

Money laundering is “the process by which one conceals the existence, illegal source, or illegal application of income, and disguises that income to make it appear legitimate.”1 There are many methods to launder money but most methodologies resort to some variation of a three-step process to covert illicit funds into legitimate financial transactions. This three-step process includes: (i) Placement: the criminally derived money is placed into a legitimate enterprise; (ii) Layering: the funds are layered though various transactions to obscure the original source; and (iii) Integration: the newly laundered funds are integrated into the legitimate financial world “in the form of bank notes, loans, letters of credit, or other recognizable financial instruments.”2 In sum, money laundering is the “Art” of changing dirty money into clean money.

16 | Canadian Gaming Lawyer Magazine

The Scope of the Money Laundering Problem The Financial Action Task Force (FAFT) of the European Union estimates that 2% to 5% of the world’s GNP annually are laundered funds.3 Any criminal enterprise of any size has a financial component to handle money. Large sums of cash are generated in most illicit businesses and money must be safeguarded, properly accounted for and moved to operate the business. The illegal drug business is illustrative of the moneylaundering problem. The illicit drug trade generates large amounts of cash in day-today transactions that may range from a few hundred dollars in street sales to millions of dollars at the wholesale or cartel level. The sheer volume of money that is generated in the illegal drug industry is staggering and poses many problems for the industry. Drug money launderers often find themselves awash in money and they quickly determine that handling large sums of money is both dangerous and very difficult to manage from a business standpoint.

Money laundering from the criminal point of view Consider for a moment the problems that you would face if you were responsible for hundreds of millions of dollars of a criminal organization’s money. Your first major problem would be to provide adequate security for the money. This element would require you to find some place to keep money safe. Money launderers have many fears, but one of their worst fears is someone stealing their money. Large amounts of money provide a tempting target for any criminal or any governmental organization in the business of investigating money laundering.

Additionally, most criminal organizations deal harshly with people who lose their money. The obvious solution to this problem is finding a financial institution of some type to secure your illegal funds, as safeguarding money is their business.

The second problem the criminal money launderer has is to properly account for the funds that he receives. The drug business will again illustrate this issue. Most drug transactions are financed. The purchase of a kilogram of cocaine might require a

down payment of 5% to 10% with the balance of the purchase price due in 30 to 60 days. Failure to pay for the entire purchase can be hazardous to your health.

In most drug deals there are two sides to each transaction, the product side and the payment side. Money and drugs should never be found together. The drug money launder and his associates account for all the financed drugs that are sold. They must account for the daily payments that are made by street dealers for product sold.

The money launderer will keep a record of the amount of money that is turned in by the dealers so the illegal drug seller will know who has paid and who has not paid for the drugs. The money launderer, being the organization’s accountant will report to the seller the amounts of money he or she has on account on a regular basis. Consider again the volume of money that you might have to collect and account for on a monthly basis. Small sales transactions generate a large number of small denomination bills, $10’s, $20’s, $50’s, and $100’s on a daily basis. It does not take long to accumulate a room full of cash.

The third problem the criminal money launderer must face is to find some way to shrink the volume of money. The ideal solution is to reduce the size of the transaction to the smallest conceivable amount. One might begin this process, as drug dealers did in the mid-1980s by only taking $100s for payment of their illicit drugs. Standardizing the payment in $100s reduced the size of the payment, made it easier to count and transport.

To solve the cash problem however, you need to reduce the cash volume further.

The better way to do this is again in a financial institution through the purchase of cash instruments like cashier’s checks or reducing the cash through the use of wire transfers. Think about it, $1,000,000 dollars cash reduced to a few electrons, properly accounted for, safe, and easy to transfer to any place in the world.

The fourth major problem the money launderer must deal with is to disguise the true ownership of the illicit funds. He cannot put it into an account in the name of the drug dealer or terrorist for obvious

“The gaming industry is a target for any good money launderer.”

november 2008 | 17

reasons, so he or she must find reasonable alternatives to disguise the ownership.

The solution to this problem can usually be found in creating nominee business or personal accounts within a financial institution. Ideally, the money launderer would want to create a number of accounts in false or fictitious names within a financial institution and launder illicit funds in one account for a period of time, then move on to the next account. Small business accounts are ideal for this type of operation.

Alternatively, the launderer might consider setting up a business account in an off-shore jurisdiction that has strict secrecy laws as to the ownership of the account and send money to a business account for payment of goods and services that do not exist. There are many variations on this theme, but the end result is the criminal’s name is never associated with the financial transaction.

The final problem the launderer must face is finding some way to control the money, by providing a low risk way of transporting it and replacing dirty money with clean money in legitimate commerce. Financial institutions provide reliable solutions to this problem. Money is fungible and dirty money can change its character with a single financial transaction. Financial transactions can be layered into complex networks of different transactions to obscure the link between the initial entry point and the end of the laundering cycle. Having looked at basic money laundering structure and problems, let us turn our attention to the gaming industry as a safe haven for money launderers.

Money Laundering in the Gaming Industry The gaming industry is a target for any good money launderer. The Canadian Government, the United States Government and the FATF of the European Union have all found that gambling establishments are susceptible to laundering organizations.

Gaming establishments are defined as financial institutions in most jurisdictions by statute or regulation. 4 As financial institutions, the industry is regulated by governmental agencies that require detailed records keeping and reporting of suspicious financial transactions to deter illicit money laundering. Gaming operations provide all the financial services that a criminal money launderer would need.

Why Criminal Organizations Like the Gaming Establishments Criminal money launderers are attracted to legitimate gambling establishments for obvious reasons outlined above. Casinos provide services that are extremely helpful in laundering large sums of dirty money.

First, a casino as a financial institution has a great deal of expertise in handling cash. The casino is in essence a large cash business.

Because of the large amount of currency that flows through the doors of a gambling establishment on a daily basis, the casino has to be a very secure institution. Money launderers know that their dirty money will be secure within the casino. Second, large amounts of cash can be laundered at any given time though normal daily operations.

Dirty money becomes co-mingled with legitimate gambling commerce and tracking illegal money in this type of environment is very difficult. Launderers can use a number of different ways to move dirty money in such a situation. Buying gambling chips with dirty money and subsequently exchanging the chips for the casino’s cash is often a simple way of exchanging dirty money for clean money. Launderers will often use multiple participants in a laundering operation to launder smaller amount of cash over a period of time in amounts that would not require reporting requirements.

Launderers will also use people with false identities when laundering sums where reporting large cash transactions is required.

There are many variations on these themes, but the launderer wants a safe place to move dirty money and exchange it for clean funds.

Gaming establishments clearly meet this requirement. Additionally, casinos generally provide adequate accounting procedures for all cash transaction. The launderer also knows that gaming establishments do not generally care about who owns the money that is being used to gamble. Customer due diligence is very difficult, except for high stakes gamblers who are carefully reviewed for credit advances. Casinos also provide many ways in their regular operations to shrink the volume of dirty money and finally casinos provide financial services to facilitate the exchange of clean money into normal commerce, such as lines of credit, cashier’s checks and wire transfer facilities.

All legitimate gambling establishments must be extremely vigilant to guard against large or unusual monetary transactions that may signal money laundering is taking place within the gaming establishment. Canada and the United States have stringent criminal penalties attached to money laundering. Failure to properly report large cash transactions can have severe criminal and civil penalty ramifications for the casino. CGL

Charles W. Blau is a partner with the law firm of Meadows, Collier, Reed, Cousins & Blau. He is a Board Certified in Criminal Law by the Texas Board of Legal Specialization and a former federal prosecutor and Associate Deputy Attorney General of the United States. He was selected for Who’s Who Legal of Business Crime Lawyers for 2005 2008 by the International Bar Association and was named a Texas Super Lawyer from 2003-2008

by Texas Monthly and Law & Politics Magazine.

He has authored various publications on the subject of gaming law and assisted in writing the U.S Money Laundering statutes. He can be reached at cblau@meadowscollier.com.

1 See PRESIDENT’S COMMISSION ON Organized Crime, INTERIM REPORT TO THE PRESIDENT AND ATTORNEY GENERAL, THE CASH CONNECTION: ORGANIZED CRIME, FINANCIAL INSTITUTIONS, AND MONEY LAUNDERING 7 (1984).

2 See Tersa A. Adams, Note, Tacking on Money Laundering Charges to White Collar Crimes: What Did Congress Intend and What are the Courts Doing? 17 Ga. St. U. L. Rev. 531, 535-38 (Winter 2000).

3 Financial Action Task Force Annual Report 2007 4 The Bank Secrecy Act (31 U.S. Code) defines a gaming establishment as a “financial institution” as follows: “A, casino, gambling casino, or gaming establishment with annual gaming revenue of more than $1 million which-(1) is Licensed as a casino, gambling casino, or gaming establishment under the laws of any State or any political subdivision of any state; or (2) is an Indian gamin operation conducted under or pursuant to the Indian Gaming Regulatory Act or other than an operation which is limited to class I gaming (as defined in section 4(6) of such Act.” 31 U.S.C. §5312 (X) 5See The Bank Secrecy Act, 31 U.S. Code

18 | Canadian Gaming Lawyer Magazine

Don’t shoot the messenger!

Is there liability for intermediaries for online gambling?

By C. Ian Kyer and Andrew Alleyne

“Internet liability is… a vast field where the legal harvest is only beginning to ripen.” – Justice Binnie in Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providers (SOCAN).

Intermediaries as Attractive Defendants When the United States began its campaign against online gambling, Internet intermediaries, telecommunications providers and Internet service providers (ISPs), became nervous. Would they be caught in the net of anti-gambling measures? Although some time as gone by, the question remains largely unanswered. Internet intermediaries are the sine qua non of the online gambling industry. Without the wired and wireless services that these intermediaries offer, Canadians could not access offshore gambling sites and engage in online gambling. However, unlike online gambling companies, intermediaries offer a more easily accessible target as their head offices and bank accounts are located in Canada and, in some cases, they have very deep pockets. For all of these reasons, intermediaries are legitimately concerned about possible criminal and civil liability.

“Here and There”: The Ability of Canadian Courts to Assume Jurisdiction Though there is no instance of Canadian courts assuming jurisdiction in a case dealing specifically with the liability of Internet intermediaries regarding online gambling activities undertaken using their services, 2 there are precedents that deal with cross-border telephone fraud, defamation, and copyright infringement that would likely allow Canadian courts to assume jurisdiction in such a case.3 With regard to telecommunications in general, Canadian courts have taken the position that there may be a “real and substantial connection”4 in matters of civil and criminal liability regarding foreign transmissions coming into Canada5 and transmission from Canada to other jurisdictions. 6 American courts have taken a similar view in assuming jurisdiction both when the US is the country of transmission7 and when it is the country of reception.8 While it dealt with an online gambling company rather than an Internet intermediary, the R. v. Starnet Communications International Inc.9 decision underscores that an online gaming operation that is unlicensed in Canada but has sufficient connections to Canada may still be successfully prosecuted under the Criminal Code. Ultimately, to relieve itself of criminal liability, Starnet had to restructure itself in a manner that reduced its connections to Canada significantly. From Starnet, it is apparent that relevant connecting factors—and therefore potential targets for november 2008 | 19

prosecution—might include the end users, the gaming operator, the host server, and the intermediaries. Given the amorphous multijurisdictional nature of online gambling companies and the anonymous nature of the Internet, it becomes immediately apparent that it might be difficult to pursue the gaming operator and to properly identify the end users. This leaves Internet intermediaries—those that may be hosting the online gambling website on their servers and whose customers may be using their infrastructure to access the online gambling website—as the most readily available targets for legal action. The possible willingness of Canadian courts to assume jurisdiction based on both transmission and reception of telecommunications only broadens the potential number of intermediaries that might be added as parties to a lawsuit.

The Knowledge Factor for Criminal Responsibility: Controlling the Medium but not the Message10 A foundational principle of criminal justice in common law jurisdictions is that an act cannot make a person guilty unless their mind is also guilty. Thus, in addition to fault, in order to be found criminally guilty an awareness of wrongdoing is required in Canada for any type of offence with the possibility of imprisonment,11 such as the Criminal Code’s gambling provisions.12 Although it is clear that some sort of knowledge of illegal activity would be required for Internet intermediaries to be held criminally responsible, the lack of case law specifically dealing with intermediary liability in the online gambling context makes it difficult to determine what would constitute such knowledge. Given the 20 | Canadian Gaming Lawyer Magazine

uncertainty about what is legal and illegal in the online gambling context, would it be unfair to expect our intermediaries to police the offerings made through their services in order to avoid liability?

Turning to Other Common Law Jurisdictions for Guidance Because of the dearth of Canadian legislation and case law dealing with intermediary liability in the online gambling context, it is helpful to turn to the US and the UK for guidance. Despite the US’ strong stance against online gambling, there are several key instances where their legislation insulates Internet intermediaries from liability. Section 230(c)(1) of the United States’ Communications Decency Act of 199613 states: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Further, s. 2 of the Unlawful Internet Gambling Enforcement Act14 of 2006 states that “the term ‘business of betting or wagering’ does not include the activities of a financial transaction provider, or any interactive computer service or telecommunications service.” Though not binding in Canada, the fact that the US, even with its vigorous anti online gambling campaign, has legislation aimed at protecting intermediaries, gives some indication as to how a Canadian court might decide an intermediary liability case.

In a recent UK decision, 15 the court addressed intermediary liability in the defamation context. The judge explained that “an ISP which performs no more than a passive role in facilitating postings on the internet cannot be deemed to be a publisher at common law.” However, that, if it can

be proven that the ISP “knowingly permits another to communicate information which is defamatory, when there would be an opportunity to prevent the publication, there would seem to be no reason in principle why liability should not accrue.”17 If there were to be an intermediary liability case in the online gambling context in Canada, it is likely that, as in this UK defamation case, it would turn on the issue of knowledge.

Guidance from Canada?

Although we have no Canadian cases that have dealt specifically with the criminal accountability of intermediaries for facilitating illegal online gambling in Canada, we have a number of cases where our courts have looked at their responsibility for other illegal acts, such as copyright infringement, which may be of some precedent value.

Those cases suggest that mere passive transmission of unknown content will not create liability. Those same cases suggest that there is a line between such activity and knowingly promoting the illegal activity.

The Ability of the Intermediary to Control the Offender Though not dealing with Internet intermediaries, several older cases provide some insight into the level of authorization that is acceptable. These cases focus on the ability of the intermediary to exercise control over the infringing party and directly prevent infringement. In one case, the court explained that “authorize” must be interpreted to mean “sanction approve and countenance” the infringing act.18 This focus on the ability of the intermediary to control the infringer persists in contemporary Canadian case law. In one instance,19 a play was publicly

performed at a non-profit community centre without the consent of the copyright holder.

After the producer filed for bankruptcy, the copyright holder pursued an action against the community centre as the intermediary.

The court ruled that the community centre exercised no control over the producer and, therefore, did not authorize the performance within the meaning of the Copyright Act.20 If there was a formalized agreement where the community centre had direct control over the producer, such as an employment agreement, the court suggested that such authorization might have been deemed to occur. This would seem to suggest that an intermediary that merely passively hosts an online gambling website—without any formal agreement that allows them to control their clients’ activities—would not be seen as authorizing illegal behaviour.

However, intermediaries often require the websites they host to sign agreements which include indemnity provisions and terms of use that provide that the intermediary will cease hosting the website if there is evidence of illegal activity. The inclusion of such terms might imply a certain degree of control, and hence liability.

Only Authorized in Accordance with the Law More recently, in CCH Canadian Ltd. v.

Law Society of Upper Canada,21 the Supreme Court clarified that in addition to control, to the extent that implied authorization is provided, this authorization does not encompass illegal activities. Here, the copyright owners claimed that the Law Society was responsible for infringement occurring at the Great Library at Osgoode Hall as they made photocopying services

available to library patrons. Chief Justice McLachlin, writing on behalf of the Court, emphasized that “a person does not authorize infringement by authorizing the mere use of equipment that could be used to infringe copyright.”22 However, she added, “this presumption may be rebutted if it is shown that a certain relationship or degree of control existed between the alleged authorizer and the persons who committed the copyright infringement.”23 Therefore, assuming the logic of CCH could be extended to intermediaries in the online gambling context, if there is no formal relationship whereby an intermediary could exercise control over the activities of an online gambling website, it is presumed that any illegal activities conducted over this website would not be seen as authorized by the intermediary. However, once made aware of illegal activities, the protections of CCH will likely no longer apply.

Ignorance is Bliss: Passive Retransmitters An early approach taken by the Supreme C o u r t o f C a n a d a 24 f o c u s e s o n t h e intermediary’s lack of knowledge of the transmission as the key factor allowing it to avoid liability. The court reasoned that “the owners of the telephone wires, who are utterly ignorant of the nature of the message intended to be sent, cannot be said within the meaning of the covenant to transmit a message of the purport of which they are ignorant.”25 This same logic prevailed 113 years later in the SOCAN case. 26 In SOCAN, the plaintiffs alleged that the ISPs were not merely passive conduits for information of which they had no knowledge, but active participants in copyright infringement. 27

The ISPs, however, maintained that although “they provide the medium… they do not control the message.”28 The Court decided in favour of the intermediaries, reasoning that if “an Internet intermediary does not itself engage in acts that relate to the content of the communication… but confines itself to providing ‘a conduit’ for information communicated by others” then it will not be deemed to be a participant to the infringement.29 The question, then, is when does an Internet intermediary cease to be “a conduit” and begin to be an active infringer?

Justice Binnie explains that “notice of infringing content, and a failure to respond by ‘taking it down’ may in some circumstances lead to a finding of ‘authorization.’”30 This uncertainty as to when authorization, and hence intermediary liability, occurs will surely cause intermediaries to err on the side of caution; upon the receipt of any notice, fear of legal consequences would cause intermediaries to take down content before they have the ability to consider whether or not the take down request is legitimate.31 The practical effect for Internet intermediaries is that they will do their best to remain ignorant of their customers’ online gambling activities in order to avoid potential liability.

Once they discover any questionable activity they will either (a) take down the website they are hosting, lose business, and face the possibility of a lawsuit from their hosting client; or (b) do nothing and face potential criminal legal responsibility. For Internet intermediaries, ignorance is bliss.

Where is the Line?

From passive hosting to active promotion, there are varying degrees to which an november 2008 | 21

Internet intermediary might be involved with online gambling. Despite the dearth of legislation and case law dealing with Internet intermediary liability in the online gambling context, from the case law discussed above we can infer that (a) supplying the infrastructure for online gambling, such as passively hosting a website, will likely not constitute participation in illegal activity; and (b) to an extent, any implicit authorization does not constitute authorization to undertake illegal activity. This is all good news from the perspective of Internet intermediaries.

Attempting to infer the law of Internet intermediary liability in the online gambling context from cases discussing copyright infringement and the limited foreign jurisprudence available, however, can only provide a limited degree of insight and legal certainty. Passive or implicit authorization might involve inaction where action would have been required to stop the infringement, while active authorization might involve

express approvals or urgings to commit the act of infringement. There is a grey area in the middle of this spectrum in which it is difficult to demarcate between passive and active authorization; it is knowledge that transforms a passive conduit into an active—and potentially liable—participant.

Because of the lack of case law in the online gambling context, it is difficult to be specific about what constitutes knowledge. Justice Binnie’s comments in SOCAN suggest that notice “may in some circumstances” amount to knowledge. Certainly, according to this logic it would be unacceptable in Canada for a telecommunications provider to actively partner with a purveyor of online gambling products as T-Mobile recently did with Cecure Gaming.33 Enacting legislation, as the US did, or producing case law, as the UK did, that properly immunizes intermediaries would be helpful. Contrary to the age-old adage in business of “know your customer,” as it stands, legal uncertainty causes Internet

intermediaries to ensure they are as ignorant as possible of their customers’ identities and activities. Which leads us to the question, how can Canada foster a leading information technology industry when intermediaries cannot know their customers, implement effective business practices, or provide responsive customer service? CGL

1[2004] S.C.J. No. 44 at 41 (SOCAN).

9See Kyer & Hough “A Look at Starnet,” supra note 2.

23Ibid.

2But, see generally Criminal Code, R.S.C. 1985, c. C-46, ss.

202(1),(2), and 207 [Code]. See also C. Ian Kyer and Danielle Hough, “Is Internet Gaming Legal in Canada: A Look at Starnet” Canadian Journal of Law and Technology, Vol. 1 No. 1, online: http://cjlt.dal.ca/ vol1_no1/articles/01_01_KyeHou_gaming.pdf [Kyer & Hough “A Look at Starnet”] for an overview of the Code provisions that relate to online gambling.

10See SOCAN, supra note 1 at 4.

24Electric Despatch Co. of Toronto v. Bell Telephone Co. of Canada (1891), 20 S.C.R. 83, at p. 91 as cited in SOCAN, supra note 1 at 96.

3In the criminal stock fraud case of Libman v. The Queen, [1985] 2 S.C.R. 178 at 208 [Libman], where American purchasers were duped by a telephone call from Toronto and their money was routed through South America back to Canada, Justice La Forest explained on behalf of the Supreme Court, at 208, that it was appropriate for Canada to assume jurisdiction as “the transaction… is both here and there.” Justice La Forest, at 212-213, as cited in SOCAN, supra note 1 at 58, articulated the general principle regarding jurisdiction: “all that is necessary to make an offence subject to the jurisdiction of our courts is that a significant portion of the activities constituting that offence took place in Canada. As it is put by modern academics, it is sufficient that there be a ‘real and substantial link.’”

Courts and tribunals have also applied what has come to be known as “the real and substantial connection” test (see Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 [Morguard]; Beals v. Saldanha, [2003] 3 S.C.R. 416) to defamation cases involving the cross-border dissemination of hateful information. For example, in Citron v. Zundel, (2002), 41 C.H.R.R. D/272, even though the host server was located in California, because the content provider and some of his audience was located in Canada, the Canadian Human Rights Tribunal assumed jurisdiction.

Though not persuasive in Canada, see also the Australian case of Dow Jones & Co. v. Gutnick (2002), 194 A.L.R. 433, [2002] HCA 56 in SOCAN, supra note 1 at 41.

4Morguard, supra note 3.

5Liberty Net, ibid; see also WIC Premium Television Ltd. v. General Instrument Corp. (2000), 8 C.P.R. (4th) 1 (Alta. C.A.); Re World Stock Exchange (2000), 9 A.S.C.S. 658 as cited in SOCAN, supra note 1 at 62.

6Libman, supra note 3.

7See National Football League v. PrimeTime 24 Joint Venture, 211 F.3d 10 (2d Cir. 2000) as cited in SOCAN, supra note 1 at 70.

8See Los Angeles News Service v. Conus Communications Co., 969 F.Supp. 579 (C.D. Cal. 1997) as cited in SOCAN, supra note 1 at 71.

22 | Canadian Gaming Lawyer Magazine

11See Re B.C. Motor Vehicle Act, [1985] 2 S.C.R. 486; see generally s.

7 of the Charter of Rights and Freedoms, of the Constitution Act, 1982, enacted as Schedule B to the Canada Act 1982 (U.K.) 1982, c. 11: “Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.”

12See e.g. s. 202(2) of the Code, supra note 2: “every one who commits an offence under this section is guilty of an indictable offence and liable (a) for a first offence, to imprisonment for not more than two years; (b) for a second offence, to imprisonment for not more than two years and not less than fourteen days; and (c) for each subsequent offence, to imprisonment for not more than two years and not less than three months.”

Both C. Ian Kyer and Andrew Alleyne of Fasken Martineau DuMoulin LLP act for a variety of clients in the online gaming industry. Ian Kyer is a senior partner practising corporate/commercial law with an emphasis on serving buyers and sellers of technology and related services. He is on the national steering committee of the firm’s Technology and Intellectual Property practice group. Andrew Alleyne is an associate practising corporate/ commercial law with an emphasis on acquisitions, licensing, outsourcing and technology-related transactions.

25Ibid. per Justice Gwynne.

26 SOCAN, supra note 1.

27Specifically, they argued that the “caching” process whereby the ISPs store recently searched websites to speed up later searches amounted to more than mere passive participation.

28 Ibid. at 4.

29 SOCAN, supra note 1 at 92. The Court focussed on the 1988

15Bunt v. Tilley [2006] EWHC 407 (QB).

addition to the Copyright Act which suggests that intermediaries providing communication infrastructure are not considered parties to an infringing communication. See s. 2.4(1) of the Copyright Act, supra note 20: “For the purposes of communication to the public by telecommunication, … (b) a person whose only act in respect of the communication of a work or other subject-matter to the public consists of providing the means of telecommunication necessary for another person to so communicate the work or other subject-matter does not communicate that work or other subjectmatter to the public.”

16Ibid. at 36.

30Ibid. at 127 [emphasis added].

17Ibid. at 21.

31 At ibid. Justice Binnie recognizes this problem, explaining that “[a]

18See Falcon v. Famous Players Film Co., [1926] 2 KB 474. Similarly, in Vigneux v. Canadian Performing Right Society, Ltd., [1945] A.C. 108 (P.C.) [Vigneux] the Privy Council held the defendant should not be held liable for authorizing the public performance of a phonograph as the record player was merely supplied by the defendant to a restaurant, and they had no control over its use. This position was largely adopted by the Supreme Court of Canada in Muzak Corp. v. Composers, Authors and Publishers Association of Canada, Ltd. [1953] 2 S.C.R. 182, where it was held that “something more” than the mere supply of the equipment required to infringe is needed to find the intermediary responsible.

n overly quick inference of ‘authorization’ would put the Internet Service Provider in the difficult position of judging whether the copyright objection is well founded, and to choose between contesting a copyright action or potentially breaching its contract with the content provider.”

13The official title is Telecommunications Act of 1996, Pub. LA. No. 104-104, 110 Stat. 56 (1996).

14Title VIII of the Security and Accountability For Every Port Act of 2006 (or SAFE Port Act, Pub.L. 109-347).

19De. Tervagne v. Beloeil (Town) [1993], 3 F.C. 227 (F.C.T.D.); see also R v. M. (J.P.) 67 C.P.R. (3d) 152.

20Copyright Act ( R.S., 1985, c. C-42 ), s. 3(1) [Copyright Act].

21[2004] 1 S.C.R. 339, 2004 SCC 13.

22Ibid. at 38.

32 Ibid.

33 T-Mobile recently partnered with Cecure Gaming, to allow users to download Cecure Gaming applications, such as the poker game Aces Royal, from the cash games section of T-Mobile’s games portal, onto their mobile device without having to go into the open internet. See Alex Wade, “Offshore Operator Steps Up To UK’s Software Rules” gamblingcompliance.com, 11 June 2007.

EU Gambling Regulations

By Hilary Stewart-Jones

The European Union (or “EU”) currently comprises of 27 Member States with nothing approaching a cohesive set of regulations in relation to gambling. Whilst this can cause some anomalies in a bricks and mortar environment, the most vexing problems have been prompted by the proliferation of online gambling sites targeting Europe where operators can supply remotely and through “borderless” transactions.

Incumbent monopolies have understandably made extensive efforts to preserve their positions and domestic fiscal dominance, but there seems to be a growing consensus that continuing to prevent such free competition within Europe is both ideologically flawed, and completely impractical.

The Central Argument The European Community Treaty (the “EC Treaty”) incorporates the overall principle that within the EU, each Member State1 can freely trade with the others and unjustified restrictions on supply and movement of goods services and capital are therefore not permitted. Crucially, EU law is superior to domestic law and Article 49 of the EC Treaty states that no Member State may impose restrictions on the freedom to provide services from one Member State to another. However, EU law also recognises that national sensitivities may differ between Member States in areas such as gambling and if a Member State is of the view that restrictions should be imposed to safeguard the public interest, then justified proportionate and consistent derogations are permitted. What has therefore evolved in the context of online gambling supplies in the last ten years is a debate as to the legitimate parameters of such protectionism. All Member States allow some form of gambling, but with very few exceptions (the UK being one) do not freely open their markets to both domestic licensed operators supplying gambling products and operators from other Member States. Such inequality is legally and morally difficult to justify where there is no real attempt to restrict domestic internal supplies. In short, if a territory had a real concern about the effects and social harm caused by gambling, it would restrict any operator from providing them. november 2008 | 23

Do These Academic Arguments Have any Commercial Value?

The pro and anti freedom lobbies have been at loggerheads for almost a decade and with no resolution in sight. As with all collective nation entities, the absence of immediate and effective sanctions for noncompliance makes the latter a tempting option, particularly where a Member State is an economically powerful member of the EU. In theory however, if the European Commission (the “EC ”) 2 wanted to ensure that freedoms were afforded for gambling services, it could ultimately push for a Directive addressing the issue and create enforced harmonisation. (European Directives must be implemented into local legislation but Directives in relation to e-commerce have hitherto excluded gambling services on the basis that Member States could not agree upon their controversial inclusion). However, this is an unlikely route. Instead the EC has opted to date for a more convoluted approach by bringing infringement proceedings against each Member State individually for breach of the general EU trade rules insofar as they apply to gambling services. This process may ultimately escalate to referral to the European Court of Justice (the “ECJ”). The latter route is cumbersome and lengthy despite the fact that the current Commissioner with responsibility for Internal Markets and Services, (Charlie McCreevy), is supportive of the pro freedom lobbyists.

Although there are infringement proceedings outstanding against Denmark, Finland, Sweden, Hungary, Italy, France, Greece, Germany, Austria and the Netherlands, only one country has changed its domestic laws in response. Italy has introduced a licensing regime for online betting and skill games, although it appears that France is also currently considering a similar relaxation. Moreover in the case of Germany, it not only ignored the fact that the EC had taken infringement proceedings in relation to its existing domestic laws but on 31 December 2007, it passed the Interstate Treaty on Gambling, which made domestic laws more prohibitive and discriminatory.

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This continued state of flux makes for difficult business protocols and some high profile “martyrs”; in September 2001, two executives of Bwin were arrested in Monaco and in October 2007, the chief executive of Unibet was arrested in Holland, in both cases in response to requests made by the French authorities.

Clearly companies attempting to assess workable risk strategies may struggle in evaluating new target markets, executive travel risks and even private holiday plans.

Despite this, companies licensed in the EU in the few jurisdictions that currently provide a full online gambling licence (the UK, Gibraltar3 and Malta), still carry a perceived advantage, and although some operators will claim EU rights only if challenged (i.e. a defence of last resort) others are making high profile challenges in national courts, such as Ladbrokes’ challenge of the Finnish monopoly.

Companies which are listed (or considering it) must continue to satisfy themselves and their listing authorities/committees that they are not conducting unlawful business in any jurisdiction and it certainly assists their argument if local laws (insofar as they do not specifically permit online gambling) are contrary to EU law. However, the scope to ultimately apply this rationale to a business supply that is purportedly illegal under national law may be limited in several respects: 1. Certain EU countries may get the restrictive supply balance right: in short if they severely restrict domestic provisions, they can then justifiably preclude non-domestic supplies. This might in the short or medium term close off certain markets to operators.

2. Even ECJ judgements which endorse the pro freedom arguments may give certain Member States apparent “wriggle room”, based on loose justifications of protection of public interest. It is ironic that the first landmark decision of the ECJ (that reviewed the legality of an Italian agent taking bets on behalf of a British bookmaker) was interpreted by the pro and anti freedom lobbies as a victory4 and although the case law that followed (on more or less identical facts) was more clear cut in its pronouncements,

Italy has only made limited concessions to date (see below).5 3. As with Italy, some jurisdictions may insist on operators obtaining domestic licences to supply to local markets; certainly whilst operators welcome the liberalising of anti online gambling laws, domestic licences are not necessarily a price worth paying. Few operators will want to be in a position of paying for a licence in 27 jurisdictions, particularly given that the tax consequences can widely vary. Pro freedom lobbyists argue that mutual recognition of a Member States’ licensing regime is an appropriate adjunct to other trade freedoms; uniform standards of practice are at the heart of Member States’ obligations so that one should be able to assume that the online gambling licensing regime, if it exists, should be sufficiently robust.

However, certain countries, such as France, seem to be moving towards a policy of only permitting conditional mutual recognition. This conditionality could depend upon repatriation of taxes into the jurisdiction where the customer is playing, or a qualitative judgement as to the supplier’s licensing regime.

Undoubtedly a cynic would be of the view that these approaches are all tactical and designed to ensure that operators have little scope to forward plan; most take a huge fiscal risk with television and sponsorship deals as they have little ability to prejudge which authorities will object and the steps they will take to prevent supplies.6 4. I n a n y event, the fact that some jurisdictions have elected to initiate criminal proceedings in connection with online supplies gives rise to material regulatory and reputational exposure, albeit that enforcement outside the relevant territory has occurred only rarely. However, whilst criminal proceedings have been directed at agents/customers in specific territories it is difficult for a responsible company to knowingly facilitate their participation or support even if ultimately those criminal laws might not be compatible with EU obligations.

In other words, the maintenance of an EU licence does not bring any regulatory

risk certainty. Such licences may therefore have commercial benefit but do not eradicate risk. That having been said, Member States have not, to date, elected to take the U.S. style approach towards enforcement, possibly acknowledging that end users (and voters) at least view gambling as a mainstream leisure activity.

Wider Tax Issues and Other Directives Whilst the above all points to the fact that it is on balance better to be in Europe than not (at least in the long term), tax issues cause significant problems. First, gambling tax, at least in the UK, for online supplies is prohibitively high (15% gross profits tax which is higher than for any other online licensing jurisdiction).

Second, VAT is a major issue. Online gambling supplies are generally exempt from VAT, but other support services sourced from within Europe will attract VAT and even if sourced from outside Europe will be paid for by the recipient as if they did attract VAT (the so called “reverse charge”). With VAT in most cases falling at above 15%, this is an important issue in determining how to structure one’s business in Europe.7 However, there is a tax plus in relation to supplying within Europe; the Lindman8 case determined that even in countries where tax is payable on winnings (most Scandinavian territories) this would not apply where the supply was made by an entity in another EU jurisdiction. This is particularly pertinent to the large poker players who actively “site” shop and tax payable on their winnings may cause them to look elsewhere.

Other Directives may also have an indirect impact; the Audio Visual Media Services Directive9 (which replaces the Television Without Frontiers Directive) permits broadcasting freedoms on the basis of a country

of origin principle (i.e. if it is legal in the country of broadcast then the laws of the country where the broadcast may be accessed are irrelevant), unless a case can be made by Member States to block the broadcast for the necessary protection of persons within the complainant jurisdiction.

This however is difficult to argue where there are excessive domestic opportunities for gambling in the country where territorial overspill may occur. The Directive also extends to some Internet content. In advertising terms at least there may therefore be quite complex hurdles in ultimately precluding cross border promotions that are supplied online or via broadcast media10

Responses of Certain Jurisdictions The only country to comprehensively embrace its EU obligations thus far is the UK and in the Gambling Act 2005, it codified what it regarded as its obligations under EU law, namely that any entity with a licence in the EEA or Gibraltar could feely advertise (and hence remotely supply) into the UK. It also extended these privileges to white listed jurisdictions (i.e. those which the Secretary of State regarded as having sufficiently robust licensing regimes). So far Alderney, Isle of Man and Tasmania are white listed, but to date the other regulatory advantages of being within Europe are not afforded to other operators in these jurisdictions. Also, whilst mutual recognition is laudable as a licensing rationale it is ironic that these latter jurisdictions would have had to jump through significant hurdles to prove the undoubted probity of their regimes whereas the regulators in the EU/ EEA did not.

There is an apparent desire on the part on the part of the Spanish to follow a similar regime.

This is not surprising; Spain has always been a tolerant jurisdiction in relation to all forms of

promotion for online gambling and has already introduced a licensing regime in Madrid and the Basque region.

However, apart from the rumoured changes in Spain, France, Bulgaria and Poland, initiatives in Member States have been limited, and certain countries such as Norway are set to pass laws which close the perceived gaps in existing legislation to make the position more hard-line anti gambling.

Conclusion The inconsistent approaches by each jurisdiction to online gambling have provided a complex regulatory puzzle for operators obliging them to assess even intra-Europe supplies on a territoryby-territory basis. The EC Treaty to date has proved a better shield than it has a sword, and for that reason operators are advised to keep their options open for example by the maintenance of non EU licences too until the position becomes clearer. Moreover, they should constantly be monitoring developments in Europe so as they are in a position to immediately shut down jurisdictions by blocking customers or by pulling specific marketing campaigns where the perceived risk to operators or to third parties to which it has outsourced support has materially increased. CGL

Hilary Stewart-Jones heads a team of lawyers who all work for the gaming sector ranging from licensing advice to contractual and compliance.

Stewart-Jones advises a broad range of clients from operators to banks and entities more peripherally associated with the industry. She is recognized as a leading expert in the Legal 500 and Chambers, and in 2005, she was voted Lawyer of the Year by the World Online Gambling Law Report. In 2007, she was selected by The Lawyer as one of the “Hot 100” lawyers in the United Kingdom.

1In some cases such obligations extend to EEA countries notably Norway, Liechtenstein and Iceland.

2The EC acts as a guardian of the pan European treaties; its enforcement rights permit it to take Member States to the European Court of Justice which can ultimately lead to an enforced change of domestic law.

3Gibraltar is not an EU Member State as such but enjoys certain trade freedoms because of its affiliation with the UK. 4Gambelli (Case C-243/01).

5The court held that it was wrong to permit any discrimination (and apply criminal sanctions) in relation to supplies where the operator was licensed in a reputable jurisdiction (see Placanica Case C-338/04).

6Of the numerous examples of such censorship and blocking Unibet were forced to withdraw its sponsorship of the Tour de France. Even when they replaced their logo with a question mark this was regarded as objectionable. More recently the French have precluded bookmakers from using the Roland Garros name or any French tennis match in connection with any bet.

7Clearly this is a very complex area and each entity’s tax position is different. Independent tax advice should in all cases be sought before setting up gambling related entities in or supplying into Europe.

8(Case C-42/02).

9See Directive 2007/65/EC. 10The Directive appears to exclude certain betting and gaming editorial content but not advertising relating to gambling (see paragraph 18). Also the issue has been of particular pertinence in the UK. The UK has recently changed its laws (see below) and in related amendments to broadcast regulations the advertising of gambling products over the radio and television have been permitted for the first time. However, most broadcasts in the UK are picked up in Northern Ireland which did not implement the Gambling Act despite the two territories having almost identical laws in place. The local laws in Northern Ireland precluded the mention of money and money’s worth (eg. jackpots) in any advertising relating to gambling and hence the UK broadcasters have insisted that operators limit their advertising broadcasts from the UK to adhere to this content restriction.

november 2008 | 25

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The patentability of casino games in Canada

By Professor Emir Aly Crowne Mohammed

The decision in Progressive Games, Inc. v. Canada (Commissioner of Patents)1 remains the only Canadian jurisprudence to squarely address the patentability of casino games (in this case, poker). Progressive Games sought to patent a modified version of a five-card stud poker game, with odds that favoured the house and which also provided for a bonus payment on certain hands.2 The decision is widely touted, and taught in many Canadian Law Schools, as excluding games (in general) from patentability.

The Patent Act defines an ‘invention’ as any new and useful art, process, machine, manufacture or composition of matter (or any new and useful improvement of those categories).3 The Trial Division in Progressive Games focused its main analysis on whether the patent application (i.e. the allegedly new way of playing poker) was considered an ‘art’.4 The Court stated that ‘art’ included a process that was (i) not a disembodied idea (but had practical application; (ii) a new and innovative method applying skill

or knowledge; and (iii) had a commercially useful result.5 The Trial Division accepted that playing poker had a practical application and was commercially useful (interestingly, the Patent Examiner who initially rejected the patent application found that playing poker had no commercially useful result! 6 ). However, the Trial Division held that the particular method of playing poker, as set out in Progressive Games’ patent application, did not amount to a

contribution or addition to the cumulative wisdom in poker (or ‘game playing’ in general). The Federal Court of Appeal endorsed this view of the Trial Court. In an oral judgment, Justice Sexton stated that : “the Appellant's changes in the method of playing poker did not amount to a contribution or addition to the cumulative wisdom on the subject of the game. These changes merely amounted to a change in the way an existing and well-known game is played. These changes do not substantially november 2008 | 27

modify the poker game as it is generally known. The Appellant's suggested game uses the standard deck of playing cards and the conventional rules of poker with a slight variation. We do not believe this amounts to a new and innovative method of applying skill or knowledge… We should add that we do not want to be taken as deciding that more substantial changes in the existing game would have changed the result.” 7 This clearly does not amount to a judicial exclusion of new and innovative ways of playing poker (or ‘game playing’ in general) from patentability. The Trial Division and Court of Appeal in Progressive Games were merely commenting on the patentability of the ‘invention’ before them. They were not making grand, general pronouncements over subject matter eligibility.

Nonetheless, the Canadian Intellectual Property Office’s Manual of Patent Office Practice also indicates that a method for playing a game is only patentable where gaming apparatus or articles are involved.8 Such apparatti or articles must be new and inventive, but the method itself is unpatentable. The Manual cites both the Trial Division and Court of Appeal ratios in Progressive Games in support of this. Ss. 12.04.06 of the Manual states: “A method for playing a game with a gaming apparatus or article is only patentable when the apparatus or article is new and inventive, or the apparatus or

article is being used for a new and nonanalogous use.”9 Nonetheless, I would argue that inventions which satisfy the traditional criteria of novelty (that is, no one did it before), non-obviousness (that is, inventive to the un-imaginative skilled practitioner in the art) and usefulness (that is, possesses utility and has commercial application) ought to qualify as patentable inventions. Restricting the category of ‘invention’ on any other basis leads to uncertainty and improper line drawing.

Furthermore, in view of the increasing acceptance of computer-implemented inventions and business method patents, one could also suggest that otherwise patentable ways of playing games ought to also be protected under letters patent.

Although, most computer-implemented inventions and business method patents still require some piece of hardware or physical apparatus to be present 10 (the “masculine” preoccupation of patent law, as I call it), the recent Patent Appeals Board decision in Belzberg Patent Application No. 2,119,921 (Re) 11 provides some hope. In Belzberg the Patent Appeals Board reversed an Examiner’s refusal of ‘Computerized Stock Exchange Trading System’ holding that the subject matter was within the definition of invention (and not obvious).

Perhaps this is an implicit acceptance by the Patent Appeals Board of the growing need to protect business methods, inline

with American jurisprudence (cf. Street Bank & Trust Co. v. Signature Financial Group, Inc.12) and the restricted reading that Lawson v. Commissioner of Patents13 ought to receive.

Indeed, if we accept the underlying goals of the patent system as promoting innovation and investment (inter alia) then the Canadian Patent Office and Courts should embrace new, innovative and useful ways of playing games. It would promote greater investment in research and development for the gaming industry.

The opportunities to create patent pools, or license patented ways of playing games would increase and stimulate further growth and innovation. The trite counter-argument that this would ‘stifle’ the Canadian gaming industry can easily be rebutted by emphasizing that patents also promote disclosure, and therefore competitors who cannot (or are unwilling to) obtain a license can ‘design around’ such patents. The benefits to the gaming industry, like all other industries, would be progressive. CGL

1[2000] F.C.J. No. 1829 (C.A.); the Trial Division judgment may be found at [1999] F.C.J. No. 162 [unless otherwise specified, both decisions will be collectively referred to as “Progressive Games”].

8 Manual of Patent Office Practice http://strategis.ic.gc.ca/sc_mrksv/cipo/

12 “As an alternative ground for invalidating the '056 patent under §

patents/mopop/mopop-e.html.

101, the [Massachusetts District] court relied on the judicially-created, so-called "business method" exception to statutory subject matter. We take this opportunity to lay this ill-conceived exception to rest.” (emphasis added)

2Para. 10 of the Trial Division’s judgment.

3s. 2, R.S.C. 1985, c. P-4.

4Despite the fact that the Patent Act has clearly distinguished ‘art’ from ‘process’, the Court adopted “well established” jurisprudence which held that ‘art’ is broad enough to include the term process (the Court cited Justice Maclean in Refrigerating Equipment Limited v. W.A. Drummond and Waltham System Incorporated, [1930] Ex. C.R. 154 at p. 166).

5[1999] F.C.J. No. 162 at para. 16.

6“”Methods of playing games do not produce results in any way associated with trade, commerce, or industry, nor may they be, "worked on a commercial scale", as required by Sections 66, 67, 68 and 69 of the Patent Act. Therefore it is deemed not to be in the public interest to grant patents for methods of playing games.” Progressive Games, Inc. Patent Application No. 596,848 (Re), 1997 LNCPAT 9 at para. 7 (citing the Final Action of the Examiner).

7 [2000] F.C.J. No. 1829 (C.A.) at para. 1 (emphasis added).

28 | Canadian Gaming Lawyer Magazine

9 Ibid.

10 Motorola Inc. Patent Application No. 2,047,731 (Re), 1998 LNCPAT 1 and Motorola Inc. Patent Application No. 2,085,228 (Re), 1998 LNCPAT 2 (allowing patents over ways of computing square roots, and reciprocal roots, since the applications were tied to specific pieces of hardware). The Canadian Intellectual Property Office’s Manual of Patent Office Practice also endorses the view that computer programs are patentable subject matter when articulated with a piece of hardware - “Software that has been integrated with statutory subject matter may be patentable... [but] A claim to a method consisting only of making certain calculations according to certain formulae is, even if it results in useful information, excluded from patentability under subsection 27(8) of the Patent Act [i.e. as in Schlumberger]” (Chapter 16 “Computer implement inventions”, available at http://www.ic.gc.ca/sc_mrksv/cipo/patents/mopop/chap16-e.html (last accessed August 18th, 2008)) .

11 2007 LNCPAT 1 (“Belzberg”).

149 F.3d 1368 (Fed. Cir. 1998) (which upheld the patentability of algorithms insofar as they were directed towards some useful, tangible result):

Emir Aly Crowne Mohammed, BA, LLB, LLM, LLM, PhD (cand.) is an Assistant Professor at the University of Windsor’s Faculty of Law. He is an expert on Intellectual Property Law, and has been playing games since early childhood.

13 [1970] Ex. C.J. No. 13 (“Lawson”) (concerning the patentability of an ‘innovative’ way of sub-dividing land). The decision is widely touted as excluding professional skills (as a whole) from patentability, even though the decision in Lawson only related to the an allegedly new way of subdividing land (in the shape of a champagne glass. Similar to the decision in Progressive Games with respect to ‘game playing’, Lawson is the only judicial decision on the patentability of such professional skills. No other Court has decided on the matter (although, see the Patent Appeals Board decision in Re Dixon Application No. ---20, 1978 LNCPAT 8 (denying patentability to “a novel technique to improve the voices of individuals by means of a series of vocal exercises”)). Aside from being said to exclude professional skills as a whole from patentability, the decision in Lawson is also touted as excluding ‘ways of doing business’ (or business methods) from patentability since those patents involve professional skills (see, Clarizio, D. “Appeal board willing to allow patents on business methods” in The Lawyers Weekly, Vol. 27, No. 12 (July 20, 2007)).

The Origination and Implementation of the World’s Only Gambling Treatment Court: A Reflective Essay

By The Honorable Mark G. Farrell

As a prelude to any conceptional analysis of the pragmatic and functional basis for the implementation of a Gambling Treatment Court it is essential, at the onset, to understand that Therapeutic Jurisprudence as a modality has become one of the fastest growing and one of the most creatively applied, philosophical innovations in the Criminal Justice System since its inception with the inaugural Drug Court pilot programs in Florida and California in the late 1980’s.1 Since that time the application of this diversionary protocol has been extended and applied beyond simply generic drug and alcohol dependency programs for the general adult population to Family Drug Courts, Juvenile Drug Courts, DWI Courts, Native American Courts, Community Intervention Courts and, within the past several years, Mental Health Courts.2 In addition, while the forgoing Court based programs are founded on the therapeutic rehabilitative aspect of justice, the protocol of judicially supervised intervention has also been applied to the Domestic Violence arena as an educational, zero tolerance focus.

While drugs and alcohol are acknowledged by the general populace as truly addictive substances reaping significant societal, familial and personal carnage underscoring at least a tacit, if not growing, enthusiasm for judicial intervention of a restorative, therapeutic nature, the same cannot, in this writer’s humble opinion be said about the public’s view of pathological and compulsive gambling and the individuals who directly manifest this malady. Drugs and alcohol are more comfortably seen in conjunction with a diseased based model, while pathological and compulsive gamblers are not really perceived as addicted, but instead as character flawed individuals in

need of a punitive or deterrent application of the Criminal Justice System.

The foregoing has become a reinforced belief on this writer’s part and the early perception of this mindset, along with the seemingly appropriate fit of a drug court protocol to gambling related defendants, provided the impetus for the formulation and implementation of a therapeutic regime in a separate, diversionary, judicially supervised setting. The emphasis of this programmatic effort was for addictive gamblers with pending criminal charges, the genesis of which stemmed from behavior directly related to their gambling preoccupation and compulsion.

The actual inception of this therapeutic endeavor began with a confluence of about a dozen to a dozen and a half criminal defendants appearing for arraignment within a three week period, all of which fortuitously or fatefully had, as the genesis of their crimes, some level of destructive involvement with gambling. These cases were all characterized by an almost uniform existence of some form of larceny related offenses as well as some secondary information from family members, friends, business associates or the defendant him/herself as to the presence of a gambling issue in their lives.

Uncharacteristically, almost every one of

these defendants had at least a high school, college or, in two cases, advanced graduate educations, all had families and jobs and, with the exception of two individuals, none had ever been involved in the Criminal Justice System before. The trend was peculiar and the behavior strangely analogous to the compulsive, addictive and self-destructive behavior, which by that point in time, we had been observing for almost seven plus years in a Drug Court setting.

Further investigation with experts in the gambling treatment field at Jewish Family Services of Western New York, educated our treatment team as to the issues prevalent with pathological and compulsive gambling and lead to the conclusion on this writer’s part that the application of a Drug Court regime, focused on gambling treatment, might be an appropriate methodology to employ. The Court did so, partnered with Jewish Family Services to provide gambling triage and treatment as well as establishing a weekly or bi-weekly Treatment Coordinator presence in the court room to report on the progress or challenges being encountered by these defendants who were now being placed in an individually structured, contractually based, judicially managed Drug Court like program. This placement had previously been approved for diversion by the Assistant november 2008 | 29

District Attorney assigned to the Court.

In the Criminal Justice System in New York State, as well as most places around the United States, the approval of the Prosecutor is essential to a diversion of a defendant prior to the entry of a plea or verdict.

This structural reorientation to deal with severe gambling abuse or dependency permitted the first insertion of a complete, multiphase gambling recovery program, operated by a licensed and properly credentialed gambling treatment agency into a judicially supervised diversion program in the Criminal Justice System.

The components of the foregoing program then, as now, have been comprehensive screening and evaluation, early intervention and confrontation with the gambling defendant, intensive counseling, on a one-on-one and/or group basis, a sixteen week psychotherapy program, Gamblers Anonymous, Gam-Anon (if appropriate), debt counseling, vocational training, mental health referral and treatment (if necessary) and drug and alcohol treatment, even at the Drug Court level, if the co-morbid involvement warranted same.

Gambling Court reporting is regular and ongoing with rewards and sanctions meted out for good or violative behavior.

Participants are re-screened with the South Oaks Gambling Screen every three months as a measure of progress along with a monitoring of the quality of their clinical participation. Retained defense counsel is welcome at each reporting appearance and a specially assigned defense counsel is always available to represent indigent participants with regard to relapse or other problem areas.

The Court has progressed to the point of utilization of long term, in-residence, in-patient treatment facilities both in-state and out of state when the severity of the gambling dependence so dictates.

1Peggy F. Hora, William G. Schma, & John T. A. Rosenthal, Therapeutic jurisprudence and the drug treatment court movement; Revolutionalizing the criminal justice system’s response to drug abuse and crime in America, 74 Notre Dame L. Rev. 439, (1999).

David B. Wexler, Therapeutic Jurisprudence: An Overview." 17 Thomas M. Cooley L. Rev. 125, (2000).

Christopher Slobogin, Therapeutic Jurisprudence Five Dilemmas to Ponder. 1 Psychology, Public Policy and Law 193 (1995).

30 | Canadian Gaming Lawyer Magazine

A c c e p t a n c e b y t h e D e f e n s e B a r, marginal at best in the early stages of the Court, has progressed exponentially as has acknowledgment by other members of the Bench and Bar. This has been manifested by both direct practitioner and judicial referrals across jurisdictional lines, from both courts of equal jurisdiction and Superior Courts where the Bench is utilizing Gambling Treatment Court as a pre-sentence compliance measure or component of an actual sentencing package itself.3 There are still skeptics in the Bench and Bar, as is the case in both government and the general community, which has been exhibited by a significant reluctance to accept pathological gambling as an addiction warranting diversion, let alone coordinated treatment. There are still those who view compulsive gamblers as character flawed individuals as opposed to diseased-based individuals.

Identification of potential participants remains the singularly most difficult challenge as screening tools (South Oaks, NZ8, Gamblers Anonymous 20 Questions, etc.) remain based on self-admissions.

Continued research and investigation is ongoing in this area.

The challenge at arraignment is also significant, as the Court must look at a plethora of circumstantial factors (type of defendant, type of crime, past history of DWI’s, past and current history of larceny related crimes, collateral reports, self admits and even, as has been the case over the last several years, demanded credit reports from defense counsel prior to any consideration of a diversionary plea) to determine cause to pursue further evaluation for gambling involvement. On a somewhat humorous note, it is generally accepted and obviously clear that there is not a blood or urine test for a pathological gambler!

The duration of participation is now minimally one year for pathological

gamblers and, in recognition of lesser limits of severity, we have an educational level of gambling abuse treatment that is four to twelve weeks in length. The Court educates all participants of both Drug Court and Gambling Court as to “Replacement Addictions” and conducts a separate noncourt session of formal orientation as to the programmatic expectations to eliminate, as much as possible, any lack of clarity that would otherwise inhibit program compliance on the part of any defendant.

As of August 1, 2008, the Court has thirtythree participants in Gambling Treatment Court, roughly one tenth the numbers in our Drug Court program, also again a testimony to the difficulty in identification.

With the expansion and maturation of gaming opportunities in Western and Central New York and Southern Ontario, we are expecting a steady increase in case load volume, as evidenced by the fact that the number of total screens for potential Gambling Court defendants has generated a one hundred percent increase in the defendants designated as appropriate for care in the first six months of 2008 as opposed to the same period in 2007. The number of outside referrals to our Court from the Superior Courts or other surrounding jurisdictions has also risen ninety-two percent in the last twelve months alone.

Gambling Treatment Court is firmly established and steadily growing in Western New York. The real challenge is replication in other jurisdictions and the challenge to change perceptions and beliefs and condition those in the Criminal Justice System, as well as in government and society in general, to deal with the negative side of gaming despite its hedonic allure and allow local, regional and even national growth and expansion of this type of programmatic effort in the Criminal Justice System. CGL

3 David Carson, Therapeutic Jurisprudence and Adversarial Injustice: Claire B. Steinberger, Persistence and Change in the Life of the Law: Can Therapeutic Jurisprudence Make a Difference? 27 Law and Psych. Rev. 55 (2003).

2Bureau of Justice Assistance. A Guide to Mental Health Court Design and Implementation http://209.162.194.102/mhcourts/Guide-MHC-Design. pdf (2005).

Questioning Limits. 4 Western Criminology Review 124 (2003) Reisig, Martin. "The Difficult Role of the Defense Lawyer in a PostAdjudication Drug Treatment Court: Accommodating Therapeutic Jurisprudence and Due Process" 38 Criminal Law Bulletin 216 (2002).

David B. Wexler, Therapeutic Jurisprudence and the rehabilitative role of the criminal defense lawyer. 17 St. Thomas L. Rev. 743, (2005).

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