CATO: pérdida de impuestos obligará a legalizar el juego en línea

No. 336
Popular, Inexorable, and (Eventually) Legal
by Tom W. Bell
Executive Summary
The Internet offers new and better access to something
that American consumers demand in spades: gambling.
Lawmakers and prohibitionists can neither effectively stop
Internet gambling nor justify their attempts to do so. In
the long run it will, like so many other forms of gambling,
almost certainly become legal. In the short run, however,
Internet gambling faces some formidable opponents.
As a market activity devoted to the pursuit of happiness,
Internet gambling draws support from neither
Democrats nor Republicans. As an upstart competitor to
entrenched gambling interests, both public and private,
Internet gambling threatens some very powerful lobbies.
Not surprisingly, Congress has been considering bills
that would prohibit Internet gambling. But the architecture
of the Internet makes prohibition easy to evade and
impossible to enforce. As an international network, moreover,
the Internet offers instant detours around domestic
Consumer demand and lost tax revenue will create enormous
political pressure for legalization, which we should
welcome if only for its beneficial policy impacts on network
development and its consumer benefits. We should also
welcome it for a more basic reason: as the Founders recognized,
our rights to peaceably dispose of our property
include the right to gamble, online or off.
Tom W. Bell is an assistant professor at Chapman University
School of Law and an adjunct scholar of the Cato Institute.
He is coeditor with Solveig Singleton of Regulators’
Revenge: The Future of Telecommunications Deregulation
(Cato Institute, 1998).
March 8, 1999
For better or for worse, the Internet offers new ways
of satisfying age-old human desires. For the most part it
serves blandly virtuous ends, such as private correspondence,
public discourse, and legal commerce.1 Clean living
sells few stories, however, and buys still fewer votes, so
reporters and politicians tend to focus on the Internet’s
salacious side. They dwell especially on pornography and
gambling, both of which mix big money with powerful temptations.
In the eyes of overeager regulators, however,
Internet gambling presents something even more shocking
than sex: the threat that entrenched gambling monopolies,
nurtured and sometimes even run by government officials,
might face new competition.
This paper describes the powerful demand for Internet
gambling, analyzes the forces arrayed against it, and
argues against its prohibition. Attempts to outlaw
Internet gambling will inevitably fail. The very architecture
of the Internet will frustrate prohibitionists,
while consumer demand for Internet gambling and the
states’ demand for tax revenue will create enormous political
pressures for legalization.
Public deliberation and government action will determine
whether legalized Internet gambling comes slowly and
painfully or quickly and cleanly. All facts indicate,
however, that sooner or later Americans will legally gamble
over the Internet. We should welcome this inevitability.
The legalization of Internet gambling will have several
beneficial policy impacts, and, as the Founders recognized,
our right to peaceably dispose of our property
includes the right to gamble. Lawmakers therefore can
neither effectively stop Internet gambling nor justify
their attempts to do so.
Consumer Demand for Internet Gambling
Americans love to gamble. At least 56 percent of
Americans gambled in 1995.2 It was estimated that
Americans would wager more than $600 billion in 1998–
nearly $2,400 for every man, woman, and child.3 About $100
billion of that sum would go toward illegal bets on professional
and college sports, evidence that Americans
already pay little heed to anti-gambling laws.4 Having
already embraced traditional games of chance, Americans
will almost certainly extend a warm welcome to Internet
gambling, legal or not.
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The Internet offers cheap and easy access to a variety
of gambling services, bringing competition to an
industry that has long operated under highly restrictive
licensing practices. Thanks to the Internet, gamblers no
longer have to fly to Las Vegas to play the slots, drive
to the nearest authorized track to play the horses, or
even walk to the corner store to play the state lotto.
Consumers can now play those and other games at home via
the many Internet sites–well over 100 and growing–that
offer gambling services.5
Americans have already shown that they support the
nascent Internet gambling industry. Analysts calculate
that of the $1 billion in revenues that Internet gambling
generated in 1997, about $600 million came from the United
States. Online casinos will have worldwide revenues of
some $7.9 billion by the year 2001, $3.5 billion of it
coming from U.S. consumers.6
Because the Internet offers bettors instant access to
overseas gambling sites and relative safety from prosecution,
online gambling will grow regardless of what lawmakers
and prudes want. Futility, however, seldom bars bad public
policy. So it remains quite uncertain how quickly consumers
will enjoy legal Internet access to new gaming services.
The Prohibitionist Lobby
A variety of political forces pushes for a ban on
Internet gambling. Left-wing activists have shown no
interest in defending consumers’ rights to assemble and
speak on the Internet about gambling. And conservatives,
while nominally in favor of free markets, make notable
exceptions for activities that, like gambling, smack too
much of the pursuit of happiness. Since neither Democrats
nor Republicans will defend Internet gambling as a matter
of principle, lobbyists have rushed into the vacuum.
A number of powerful lobbies have financial reasons
to favor a ban on Internet gambling. The established,
offline gambling industry has huge sunk and overhead costs
that nimble new competitors might prevent it from recovering.
The incumbent industry also brings very deep pockets
to the political process; it contributed nearly $7 million
to candidates in the 1995-96 elections.7 Lobbyists for the
offline gambling industry do not openly demand the prohibition
of Internet gambling. They have, however, objected
that Internet gambling unfairly escapes heavy regulation8
and have already demonstrated their power to shape legislation
banning Internet competition.9
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State and municipal authorities, having grown fond of
nurturing and taxing local gambling, can easily see that
Internet gambling might put their cash cows out to pasture.
In 1996 state authorities alone collected $3 billion
in taxes from casinos and other licensed private gambling
operations.10 Because of their lottery monopolies,
which in 1996 sold $43 billion worth of tickets (up 12
percent from 1995)11 and earned revenues of $14 billion,12
state authorities have a direct stake in preventing citizens
from shopping for better odds on the Internet. After
all, state and local officials collect $0.00 from Internet
gambling operations.
Even religious groups may have a conflict of interest
when it comes to opposing Internet gambling. Charitable
games raked in $2.5 billion in 1995, a 3.4 percent share
of the legal gambling market.13 Whether or not Internet
gambling represents a moral scourge, it certainly represents
a competitive threat to church bingo games and the
like. It bears noting, given the fervor with which some
self-appointed moral guardians attack gambling, that few
Americans regard gambling as immoral.14 A 1993 survey
found that only 25 percent of those who did not gamble
cited moral or religious reasons.15
Political Efforts to Ban Internet Gambling
Both the U.S. House and Senate have recently considered
bills to prohibit Internet gambling. Although they
differ in their details and may well change as they work
through the legislative process, any of the proposed bills
would, if signed into law, impose draconian, unjust, and
unenforceable restrictions on Internet gambling.16 Sen. Jon
Kyl (R-Ariz.), sponsor of the Senate bill, summed up how
many U.S. politicians regard Internet gambling (and,
undoubtedly, much else) when he said, «I don’t believe it
can be regulated, so we have to prohibit it.»17
That existing laws cover Internet gambling makes the
rage for new legislation all the more perverse. Several
federal statutes plainly outlaw the business of Internet
gambling, though the paucity of relevant case law makes
their application to individual amateur bettors uncertain.18
The current version of the Federal Interstate Wire Act
(the Wire Act) prohibits using interstate communications to
run a gambling business.19 The Organized Crime Control Act
of 1970 similarly makes it a federal crime to engage in a
gambling business that is illegal under state law.20 The
federal Travel Act,21 as read broadly by the courts, criminalizes
all interstate communications22 that attempt to
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facilitate the distribution of gambling proceeds.23 Still
other federal laws may apply to Internet gambling.24
Federal law enforcement agents thus lack not the authority
but the will to go after Internet gambling.
The Justice Department has admitted that federal law
already prohibits transmitting gambling information via the
Internet but confesses that enforcing the law «isn’t one
of our priorities.»25 Even Senator Kyl’s office admits
that he «has the view that it is already against the law
to gamble on the Internet.»26 Given that courts have hardly
had a chance to apply existing laws to Internet gaming,
why would Congress rush to pass new and potentially unnecessary
A close look at recent legislative proposals suggests
that, by invoking the supposed need to address the horrors
of Internet gambling, Congress aims to expand federal power
over both currently legal gambling activities and the
Internet as a whole. Enforcing the proposed statutes would
require law enforcement officials to engage in detailed,
constant, and intrusive monitoring of citizens’ Internet
use. That would wreak havoc on the Internet and our civil
liberties while doing little to inhibit Internet gambling.
The Kyl Bill
Senator Kyl’s Internet Gambling Prohibition Act of
1997 initially banned every sort of online commercial contest,
everywhere in the United States, for everyone
involved.27 That blanket prohibition stirred up a swarm of
lobbyists,28 however, and Kyl amended the bill. As passed
by the Senate in 1998,29 Kyl’s bill included a loophole for
certain sectors of the incumbent gambling industry, such
as state lotteries and intrastate parimutuel activities,
when conducted by parties licensed under state or federal
law.30 Another loophole exempted widely popular fantasy
sport leagues from prosecution.31 Apart from those concessions
to special interests, Kyl’s bill continued to subject
Internet gambling to a blanket ban.32 The Internet
Gambling Prohibition Act failed to make it to the president’s
desk in 1998, but Kyl has vowed to renew his fight
in the 106th Congress.33
Kyl presented his bill as merely an update of the
Wire Act, a federal statute that already regulates wagering
over the wires. In fact, however, Kyl targeted
Internet gambling for new and special penalties. His bill
would subject amateur bettors to federal liability for
gambling,34 whereas the Wire Act applies only to people
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«engaged in the business of betting or wagering.»35 Phone
in your picks to the office football pool and rest easy.
E-mail them in and, under Kyl’s bill, you would face as
much as $500 in fines and three months in jail.36 Even the
Department of Justice criticized Kyl’s discriminatory
treatment of Internet gambling, noting that lawmakers may
find it «hard to explain why conduct that is not a federal
crime in the physical world suddenly becomes subject to
federal sanction when committed in cyberspace.»37
Kyl’s bill would also, unlike the Wire Act, make
interstate gambling a federal crime, even when carried on
between states that have legalized the games in question.38
The Wire Act exempts from prosecution bets transmitted
between two states, or a state and a foreign country, so
long as both jurisdictions permit such betting.39 The Wire
Act rightly keeps the federal government out of locally
legal business, whereas Kyl’s bill would create a whole
new class of federal crimes.
Kyl’s bill reaches beyond the Internet–and even
interstate communications–to interfere with matters better
left to state and local authorities. Its coverage
includes «any information service» that «uses a public
communication infrastructure» to «enable computer access by
multiple users to a computer server.»40 Kyl’s bill would
thus cover e-mail merely sent across town. Given that
many office e-mail systems rely on outside service
providers, it might even cover e-mail sent across the
hall! The Wire Act that Kyl claims to take as his model
modestly, and properly, limits its scope to transmissions
«in interstate or foreign commerce.»41
The Goodlatte-LoBiondo Bill
Although it shares the name and the professed aims of
Senator Kyl’s bill, the Internet Gambling Prohibition Act of
1997 that Reps. Robert Goodlatte (R-Va.) and. Frank A.
LoBiondo (R-N.J.) introduced in the House differs from the
Senate bill in some important respects.42 Whereas Kyl’s bill
targets only Internet users, the Goodlatte-LoBiondo bill
would expand federal law to reach all individual amateur
bettors, online or off.43 It would make it a federal crime
to telephone a neighbor and casually bet a six-pack on the
big game. Together, the two bills thus offer a Hobson’s
choice between unjust inconsistency and unjust breadth.
The Goodlatte-LoBiondo bill would require an interactive
computer service provider, once given mere notice by
law enforcement agents, to discontinue furnishing any
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facility that «is being used or will be used for the purpose
of transmitting or receiving gambling information» in
violation of law.44 As discussed in the next section, the
architecture of the Internet renders this provision utterly
impractical. Even if it were enforceable, the Goodlatte-
LoBiondo bill would make Internet communications less economical,
less efficient, and less secure.
The Inevitable Failure of Prohibition
Several factors will frustrate attempts to prohibit
Internet gambling. This section discusses three of them:
• First, Internet technology renders prohibition
futile. The Internet’s inherently open architecture
already hobbles law enforcement officials, and relentless
technological innovation ensures that they will
only fall further and further behind.
• Second, as an international network, the Internet
offers an instant detour around merely domestic prohibitions.
Principles of national sovereignty will prevent
the United States from forcing other countries
to ban Internet gambling, and it takes only one safe
harbor abroad to ensure that U.S. citizens can gamble
over the Internet.
• Third, consumer demand for Internet gambling and
the states’ demand for tax revenue will create enormous
political pressure for legalization. The law
enforcement community, which has until recently
enjoyed the media spotlight, will quickly find its
calls for prohibition drowned out by those and other
political forces.
Internet Technology Renders Prohibition Futile
The very architecture of the Internet renders gambling
prohibition futile. Even the Department of Justice admits
that traditional attacks on interstate gambling «may not
be technically feasible or appropriate with regard to
Internet transmissions.»45 In contrast to telephone communications,
which typically travel over circuit-switched
networks, Internet communications use packet switching.46
Each Internet message gets broken into discrete packets,
which travel over various and unpredictable routes until
received and reassembled at the message’s destination. In
other words, sending a message over the Internet is a bit
like writing a letter, chopping it up, and mailing each
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piece separately to the same address. The recipient can
piece it together, but anyone snooping on your correspondence
has a tougher go of it.
Understanding Internet communications as akin to the
postal system clarifies why prohibition of Internet gambling
will not work. Imagine telling the U.S. Postal
Service that it must henceforth crack down on all letters
conveying information used in illegal gambling. It would
rightly object that it already has its hands full just
delivering the mail and that it lacks the equipment and
personnel to snoop through every letter. Furthermore, it
cannot always tell which messages relate to illegal activities.
People use «bet» and «wager» in everyday conversations,
whereas gamblers often speak in code. Finally,
customers of the mail service would strongly object to
having the Postal Service paw through their correspondence.
Prohibitionists could not expect the Postal Service to
simply stop delivering mail to and from certain addresses
associated with illegal gambling. The Postal Service
would again object to the burdens of implementing such a
program, and citizens would again object to law enforcement
officials’ spying on private correspondence. More important,
trying to cut off mail to certain addresses would
utterly fail to stop gambling: gamblers would rely on post
office boxes–which they could change at a moment’s notice–
and drop off outgoing correspondence with no return address.
All of those considerations apply with equal or
greater force to Internet gambling. The high volume of
traffic alone ensures that Internet service providers would
find it impossible to discriminate between illicit gaming
information and other Internet traffic.47 It is easier to
encrypt messages, to change addresses, and to send and
receive messages anonymously over the Internet than through
the postal system.48 The inherently private nature of the
Internet would also stymie prohibitionists. In contrast
to the quasi-public and monolithic postal system, the
Internet relies on thousands of separate and wholly private
service providers to carry out its deliveries. All
of them would stridently object to the burdens of enforcing
a ban on Internet traffic. More than a few would simply
refuse to cooperate.
Does that sound like a pessimistic account? To the
contrary, it merely describes the current situation. As
technological innovation continues to drive the development
of Internet communications, law enforcement officials will
fall further and further behind the tricks used by illegal
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Given the technological constraints, prohibiting
Internet gambling plainly will not work as intended. As
an unintended side effect, however, prohibition would sorely
compromise the cost, efficiency, and security of
Internet communications. In criticizing recent legislative
proposals to outlaw the consumption of Internet gambling
services, the Department of Justice observed that «this
would likely require the backbone provider to filter messages
by examining the content of traffic flowing across
its network in a way that may have serious economic and
societal consequences for Internet usage generally.»49 We
would never accept the cost–in money, time, or privacy–
of authorizing the post office to open every letter in a
futile crusade against gambling. Internet users will
hardly allow their network to suffer a similar fate.
Given the inevitable failure of technical fixes, legalizing
Internet gambling offers the only viable solution.
Internet Gambling Can Escape Domestic Prohibitions
Outlawing Internet gaming services domestically will
simply push the business overseas. Federal law enforcement
agents admit that they cannot stop overseas gaming
operations. «International Internet gambling? We can’t
do anything about it,» Department of Justice spokesman
John Russell said. «That’s the bottom line.»50 Even Kyl
has confessed that «this would be a very difficult kind of
activity to regulate because we don’t have jurisdiction
over the people abroad who are doing it.»51
Both practical and legal considerations ensure that no
domestic ban on Internet gambling will have an international
reach. Because the Internet provides instant
access to overseas sites, to be effective, any domestic
prohibition on gaming services will have to cover the
entire planet. American law enforcement agents can–and
recently did–arrest local citizens accused of running
Internet gambling businesses,52 but smart operators will
quickly learn to set up abroad and stay there.53
Gaming services can find ample shelter overseas. A
growing number of countries, including Australia, New
Zealand, Antigua, and Costa Rica, have decided to legalize
and license Internet gaming services.54 Principles of international
law, which protect each country’s sovereignty, bar
the United States from extraditing its citizens merely for
violating domestic anti-gambling laws.55 Furthermore, the
Sixth Amendment of the Constitution’s Bill of Rights,
because it guarantees criminal defendants the right to confront
their accusers, prohibits the prosecution of those who
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remain overseas while operating Internet gambling sites.56
Law enforcement officials in the United States can therefore
neither arrest nor sentence anyone who offers Internet
gambling services from a safe harbor abroad.
Even if through international negotiations U.S.
authorities managed to export a domestic ban on Internet
gambling, that sort of foreign trade carries too high a
price. As the Department of Justice observed in its critique
of the Kyl bill, «If we request that foreign countries
investigate, on our behalf, conduct that is legal in
the foreign state, we must be prepared to receive and act
upon foreign requests for assistance when the conduct complained
of is legal, or even constitutionally protected,
in the United States.»57 That threat looms all too large,
given that most foreign states regulate speech in ways
forbidden by the First Amendment.
Political Demand for Internet Gambling
As discussed above, consumers have already demonstrated
a huge demand for Internet gambling. Soon, though, the
prohibitionists will have more than angry voters to worry
about. Law enforcement agents have seized the media spotlight
by telling scary stories and demanding new powers to
crush Internet gambling. As the futility of prohibition
becomes more and more evident, however, cooler heads in
state revenue departments will begin to see Internet gambling
as a huge new cash cow. Prohibition merely ensures
that Internet gamblers will ship their money to places
like Antigua, New Zealand, and Australia. State governors
and legislatures will soon demand a share of that bounty.
The same political forces that have led to the widespread
legalization of lottery, casino, and riverboat gambling will
eventually favor the legalization of Internet gambling.58
Indeed, the trend toward the legalization of Internet
gambling has already started. When he introduced his bill
banning Internet gambling, Senator Kyl proclaimed,
«Gambling erodes values of hard work, sacrifice, and personal
responsibility.»59 He nonetheless amended his bill to
ensure that the incumbent gambling industry would remain
free to exploit the Internet (even while would-be competitors
remained shut out). Kyl’s generosity attracted the
attention of the Department of Justice, which noted that
«the numerous exceptions for parimutuel wagering would
expand the scope of permissible parimutuel activities
beyond what is currently permitted by existing law.»60 As
Internet gambling grows and spreads, both in its officially
sanctioned legal forms and in its unstoppable illegal
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ones, so too will the power of its lobbyists to wear down
Notwithstanding lawmakers’ apocalyptic tales to the
contrary, legalized Internet gambling will come as no
great shock. Representative Goodlatte defended his bill
to prohibit Internet gambling with the claim that existing
laws «have been turned on their head» by the Internet
because «no longer do people have to leave the comfort of
their homes» to access casinos.61 In fact, however, nine
states already allow their citizens to access professional
gaming services at home via telecommunications devices.62
Far from revolutionizing American culture, legalized
Internet gambling will merely extend current social and
technological trends.
The Benefits of Internet Gambling
For the reasons set forth above, attempts to prohibit
Internet gambling will inevitably fail and give way to
legalization. Futility, however, hardly suffices to bar
bad public policy. It thus bears noting that the legalization
of Internet gambling offers a number of benefits.
Internet gambling will encourage the private sector to
develop network capacity and commerce. Just as real-world
casinos have competed to build innovative and appealing
environments, so too will Internet gaming services compete
to offer the flashiest graphics and most sophisticated
user interfaces. That competition will result in broader
bandwidth and better software for all sorts of Internet
Critics of real-world casinos fault them for luring
consumers into windowless caverns far from the real world,
with money traps at every turn and free-flowing booze.63
Some gambling analysts even claim that casinos, tracks,
and other real-world sites rely on giving gamblers a place
to socialize, creating little communities that console losers
and–for a price–administer to the lonely.64
Regardless of the validity of such criticisms, they certainly
do not apply to Internet gambling. To the contrary,
consumers who log on from home computers will find
it impossible to escape yelling kids, barking dogs, and
all the other distractions of the real world. Internet
gambling thus offers a more wholesome environment than its
real-world counterpart.
Gamblers deserve all the benefits that other consumers
of entertainment services enjoy–including the benefits of
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a competitive marketplace. By giving consumers cheap and
easy access to a variety of gaming opportunities, the
Internet will bring competition to an industry that has
too long enjoyed the shelter of highly restrictive licensing
practices. Freeing the gambling market will help to
ensure that only the most honest and generous casinos succeed
in drawing bettors’ business.
Gamblers also deserve the same legal protections that
other consumers enjoy. Prohibition will not cut off
access to Internet gambling; it will, however, cut off
access to the courts. Internet gamblers, like other consumers,
will undoubtedly suffer fraud, breach of contract,
and other legal wrongs from time to time. Prohibition
ensures that Internet gamblers, like people involved in
the drug trade, will have no recourse to legal remedies.65
Prohibiting Internet gambling will not make it inaccessible,
whereas legalizing it will put the benefits of
increased competition within the rule of law.
On the Regulation of Internet Gambling
For the reasons set forth above, we should both recognize
and celebrate that legalization will trump the prohibition
of Internet gambling. But regulators will no
doubt remain worried. What role will they have in the
brave new world of Internet gambling? Playing off that
worry, proponents of a ban on Internet gambling have
argued that, if prohibition will not work, then neither
will any scheme of regulation.66 Such an argument fundamentally
misunderstands a basic principle of governance: if
they offer greater benefits than burdens, regulations can
succeed even where prohibition fails.67
The comparative advantage of limited regulation over
prohibition explains why people do not illegally shoot
craps in Las Vegas alleys. In the case of Internet gambling,
the benefits of winning an official stamp of
approval might convince an online casino to submit to regulation,
68 even if that same casino could easily flout a
total ban on its business. Exactly how much regulation
will the Internet gambling industry tolerate? In all
likelihood, not very much; for the reasons set forth
above, providers and consumers of Internet gambling services
will find it relatively easy to escape unduly burdensome
It may well turn out that Internet gambling tolerates
only such simple and general rules as those that common
law stipulates for property, contracts, and torts. That
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would still constitute regulation of a sort. Those basic
principles already suffice to make regular many other
types of commerce, after all, and would probably suffice
for the rest were commerce more free.69 Politicians and
bureaucrats might not regard it as «regulation» to treat
Internet gambling as an ordinary business, but their preferred
solution–detailed and particular rules enforced by
specialized administrative bodies–would arguably do more
to make Internet gambling subject to rent seeking and
industry capture than it would to make it regular. At any
rate, such statist «irregulation» has little chance of
affecting Internet gambling.
The Right to Gamble, Online and Off
Friends of liberty argue convincingly that the right
to peaceably dispose of one’s property includes the right
to gamble. Although utterly sound in philosophical terms,
such an argument will almost certainly fail to affect public
policy. Lawmakers typically care more about practices
than principles. They will thus comfortably ban Internet
gambling on the assumption that history has demonstrated
the legitimacy of prohibiting, or at least heavily regulating,
games of chance.
Of course, history alone could never defeat the moral
argument for the right to gamble. Somewhat surprisingly,
however, history does not even support lawmakers who would
infringe on that right. Gambling in fact played a major
role in the personal and political lives of the Founders
of the United States. The infamous Stamp Act, which triggered
the shot at Concord «heard round the world,» infuriated
colonists by taxing playing cards and dice.70 Thomas
Jefferson, while drafting the Declaration of Independence,
relaxed by gambling on backgammon, cards, and bingo.71
Jefferson later declared the lottery preferable to conventional
means of raising government revenue on grounds that
it is «a tax laid on the willing only.»72
Benjamin Franklin–using his era’s most advanced technology–
printed a good portion of the colonies’ playing
cards.73 George Washington regularly bet on horses, gambled
in card games, and bought lottery tickets.74 Washington
also managed public lotteries, as did Franklin and John
Hancock.75 Lotteries even helped to pay for the first home
of the U.S. Congress,76 as well as for public buildings
throughout the new U.S. capital.77
Clearly, the Founders embraced gambling as part of
their inalienable right to «the Pursuit of Happiness.»
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The historical record should give pause even to lawmakers
willing to ignore the moral argument against interfering
with the right to gamble. How could any modern politician
justify stripping the American people of rights that the
Founders fought for, won, and exercised? Certainly, the
advent of Internet gambling is no excuse for ignoring honorable
historical precedents.
Pundits have described the Internet, typically in
overblown prose, as a powerful tool for decentralizing
political power and advancing human liberty.78 Whether or
not the Internet will live up to such hyperbole remains to
be seen. True, the Internet has frustrated censors and
brought worlds of information to our fingertips. But it
has never fought against the combined forces of big money,
political power, and moral rhetoric–not, at least, until
Internet gambling began to compete with entrenched, realworld,
public and private gambling interests.
Gambling presents the Internet with the greatest test
it has yet faced, but it will probably prevail. Its prohibitionist
opponents must not only pass legislation banning
Internet gambling (a relatively easy task), but enforce it
(a nearly impossible one). Sooner or later, as the futility
of prohibition sinks in, as consumers demand the benefits
of competition in gambling services, and as states
tire of seeing potential tax revenues flow to foreign
jurisdictions, Americans will enjoy legal Internet gambling.
The legalization of Internet gambling will advance
vital public policy goals. It will reaffirm the values,
so dear to the Founders, of individual liberty, property
rights, and the pursuit of happiness. And it will establish
the Internet as a bona fide technology of freedom.
1. See Mary Meeker and Sharon Pearson, The Internet
Retailing Report (New York: Morgan Stanley, 1997), chap.
5, , for a discussion
of the relative popularity of Web sites and of various
uses of the Web.
2. Kevin Heubusch, «Taking Chances on Casinos,» American
Demographics, May 1997, , quoting Roper
Starch Worldwide Survey.
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3. Steven Crist, «All Bets Are Off,» Sports Illustrated,
January 26, 1998, p. 85. Note that this sum represents
what American gamblers risked on their bets («handle» to
gambling businesses) rather than what they lost (gambling
businesses’ gross revenues).
4. Ibid. It bears noting that this represents an estimate
of illegal bets on professional and college sports
alone; other types of illegal bets, such as unlicensed
poker games, are not included in the estimate.
5. Allison Flatt, «Overview of Internet Gambling,» Staff
briefing on Internet gambling prepared for the National
Gambling Impact Study Commission, May 13, 1998, p. 2,
, counted
over 90 casinos, 39 lotteries, 8 bingo games, 53 sports
books, and various dog- and horse-racing sites as of May
1998. For general discussions of the scope and operation
of offshore gambling sites, see Crist, p. 85; Mary Ann
Akers, «On-Line Betting Makes Some Rich, Others Edgy,»
Washington Times, January 27, 1998, p. A1; and Brett
Pulley, «With Technology, Island Bookies Skirt U.S. Law,»
New York Times, January 31, 1998, p. A1.
6. Sebastian Sinclair, Casino Gambling and the Internet
(New York: Christiansen/Cummings Associates, 1998), p. 8,
estimates that in 1997 worldwide Internet casino revenues
reached $1,090.1 million and that revenues from the combined
U.S. and Canadian market reached $603.5 million.
7. Those contributions have, moreover, been on a sharp
upward trend. In the 1991-92 elections, the gambling
industry gave $1.7 million to candidates. Peter H. Stone,
«Upping the Ante,» National Journal, June 6, 1998, p. 1289.
8. «We cannot support it without tough regulation,» said
Frank Fahrenkopf, president of the American Gaming
Association, of Internet gambling. Quoted in Tony Batt,
«Study Panel to Address Internet Gaming,» Las Vegas
Review-Journal, May 20, 1998, p. D1. Batt reports that
«Fahrenkopf and other industry supporters prefer not to
dwell on the competitive threat posed by Internet gaming.
Instead they argue that the absence of regulation could
lead to a major scandal that could taint the entire industry.»
It would hardly prove surprising if the gambling
industry privately cared a great deal about the competitive
threat posed by Internet gaming, however. The incumbent
industry clearly profits when licensing practices bar
new competition, but admitting that fact would harm public
Page 15
9. Stone reports that the American Gaming Association
successfully lobbied Sen. Jon Kyl (R-Ariz.) to change legislation
that might have adversely affected its members’
ability to advertise online. Stone, p. 1292.
10. Sinclair, p. 14.
11. «Present Legal Realities,» International Gaming and
Wagering Business, August 1997, p. S55.
12. Sinclair, p. 14.
13. Heubusch, quoting Roper Starch Worldwide survey.
14. In refusing to condemn gambling, many no doubt follow
the official doctrines of their religions. For example,
«[G]ames of chance (card games, etc.) or wagers are not in
themselves contrary to justice. They become morally unacceptable
when they deprive someone of what is necessary to
provide for his needs and those of others.» Catechism of
the Catholic Church (The Vatican: Paulist Press, 1994), p.
580. «Brian Rusche, director of the Joint Religious
Legislative Coalition, a mainstream lobbying group, said,
‘When we scanned [Christian and Jewish] religious writings,
we couldn’t find an absolute moral prohibition’ against
gambling.» Martha Sawyer Allen, «Gambling Doesn’t Seem
Quite Right, But Is It Wrong?» (Minneapolis) Star Tribune,
October 18, 1997, p. 7B.
15. Heubusch.
16. See, for example, Adam Thierer, «Will Rain Fall on
Their Field of Dreams?» Washington Times, April 22, 1998,
p. A17, criticizing bills that would outlaw online fantasy
sports leagues.
17. Quoted in Crist, p. 85.
18. For arguments that existing federal laws outlaw many
types of Internet gambling, see generally Seth Gorman and
Antony Loo, «Comment: Blackjack or Bust: Can U.S. Law Stop
Internet Gambling?» Loyola Los Angeles Entertainment Law
Journal 16 (1996): 667; and Nicholas Robbins, «Baby Needs
a New Pair of Cybershoes: The Legality of Casino Gambling
on the Internet,» Boston University Journal of Science and
Technology Law 2 (1996): 7.
19. «(a) Whoever being engaged in the business of betting
or wagering knowingly uses a wire communication facility
for the transmission in interstate or foreign commerce of
bets or wagers . . . shall be fined under this title or
Page 16
imprisoned not more than two years, or both.» 18 U.S.C.S.
§ 1084 (1998).
20. «(a) Whoever conducts . . . an illegal gambling business
shall be fined under this title or imprisoned not more
than five years, or both. (b) As used in this section–
(1) ‘illegal gambling business’ means a gambling business
which–(i) is a violation of the law of a State . . .
in which it is conducted; (ii) involves five or more persons
who conduct . . . all or part of such business; and
(iii) has been or remains in substantially continuous
operation for a period in excess of thirty days or has a
gross revenue of $2000 in any single day.» 18 U.S.C.S.
§ 1955 (1998).
21. «(a) Whoever . . . uses the mail or any facility in
interstate or foreign commerce, with intent to–(1) distribute
the proceeds of any unlawful activity . . . (3)(A)
. . . shall be fined under this title, imprisoned not more
than 5 years, or both. . . . (b) As used in this section
(i) ‘unlawful activity’ means (1) any business enterprise
involving gambling. . . .» 18 U.S.C.S. § 1952 (1998).
22. See United States v. Lockretis, 385 F.2d 487, 489
(7th Cir. 1967), holding that the Wire Act prohibits «use
of an interstate wire facility with intent to promote illegal
activity, and it is well within the power of Congress
to so insure the integrity of channels of interstate commerce
by such a prohibition,» vacated on other grounds, 390
U.S. 338 (1967), rev’d on other grounds, 398 F.2d 64 (7th
Cir. 1968); and United States v. Smith, 209 F. Supp. 907,
916 (E.D. Ill. 1962), holding that «Congress intended that
communication facilities in interstate commerce should be
included within the scope of the prohibitions of the
statute. . . .» See also United States v. Villano, 529
F.2d 1046, 1052 (10th Cir. 1976); United States v. Kelly,
395 F.2d 727, 729 (2d Cir. 1968); and United States v.
Borgese, 235 F. Supp. 286, 298 (S.D.N.Y. 1964).
23. The plain language of 18 U.S.C.S. § 1952(a)(1) suggests
that the Travel Act should apply to individual amateur
Internet bettors. Internet gamblers certainly attempt
to «distribute the proceeds» of gambling, both by putting
money on bets and by collecting their wins. True, a line
of cases has interpreted 18 U.S.C.S. § 1952(a)(3) to not
render individual amateur bettors liable under the Travel
Act. See Rewis v. U.S., 418 F.2d 1218, 1221 (5th Cir.
1969), holding that interstate bettors do not «promote,
manage, establish, carry on, or facilitate the promotion,
management, establishment or carrying on of any unlawful
activity» under § 1952(a)(3), reversed on other grounds,
Page 17
401 U.S. 808, 811 (1971), stating in dicta that «it cannot
be said, with certainty sufficient to justify a criminal
conviction, that Congress intended that interstate travel
by mere customers of a gambling establishment should violate
the Travel Act.» But those cases do not address the
liability of interstate amateur bettors under § 1952(a)(1),
leaving the question unresolved.
24. See Interstate Transportation of Wagering Paraphernalia
Act, 18 U.S.C.S. § 1953(a) (1998): «(a) Whoever . . .
knowingly carries or sends in interstate or foreign commerce
any record . . . or other device . . . for use in
(1) bookmaking; or (2) wagering pools with respect to a
sporting event; or (3) in a numbers . . . or similar game
shall be fined under this title or imprisoned for not more
than five years or both.» But see § 1953(b) of the same
act, which exempts from the reach of § 1953 (a) transmissions
of materials the use of which is legal under applicable
state laws. See also Professional and Amateur
Sports Protection Act, 28 U.S.C.S. § 3702 (1998): «It
shall be unlawful for . . . (2) a person to sponsor, operate,
advertise, or promote . . . [any] wagering scheme
based . . . on one or more competitive games in which amateur
or professional athletes participate . . . .» But
see § 3704 of the same act, which exempts from the reach
of § 3702 various preexisting gambling schemes and any
parimutuel animal racing or jai alai game.
25. John Russell, Justice Department spokesman, quoted in
Mark Camps, «Web Sports Gambling a Sure Bet, for Now,» San
Francisco Chronicle, May 29, 1997, p. B3.
26. Unnamed spokesman from Kyl’s office, quoted in Thomas
Moore, «Internet Gambling Receives New Blow,» Las Vegas
Business Press, February 3, 1997, p. 18. Elsewhere, Kyl
himself said, «Currently, nonsports betting is interpreted
as legal.» Sen. Jon Kyl of Arizona, Introductory Remarks
on the Internet Gambling Prohibition Act of 1997,
Congressional Record 143 (March 19, 1997): S2560.
27. Internet Gambling Prohibition Act of 1997, S. 474
(reported in the Senate), 105th Cong., 1st sess. (1997),
§ 1085(b)(1): «It shall be unlawful for a person to place,
receive, or otherwise make a bet or wager, via the
Internet. . . .» See also § 1085(c)(1): «It shall be
unlawful for a person engaged in the business of betting
or wagering to engage in that business through the
Internet. . . .» and § 1081 (6), defining «bets or wagers»
as «the staking or risking by any person of something of
value (other than a de minimus amount) upon the outcome of
a contest, sporting event, or game of chance. . . .»
Page 18
28. For a description of the lobbying power of the
licensed gambling industry and its influence on Kyl, see
generally Stone.
29. See Internet Gambling Prohibition Act of 1998, Kyl
(and Bryan) Amendment No. 3266, to Departments of
Commerce, Justice, and State, the Judiciary, and Related
Agencies Appropriations Act of 1999, S. 2260 (hereinafter
Internet Gambling Prohibition Act of 1998, Amendment to S.
2260), 105th Cong., 2d sess., 1998.
30. See ibid. at § 1085(e)(1)(A), which exempts from prohibition
any «otherwise lawful bet or wager that is
placed, received, or otherwise made wholly intrastate for
a State lottery or racing or parimutuel activity, or a
multi-State lottery» under certain conditions, and § 1085(e)(1)(B),
which similarly exempts Indian games conducted on Indian
31. See Bryan Amendment No. 3267, to Internet Gambling
Prohibition Act of 1998, Amendment to S. 2260, 105th
Cong., 2d sess., 1998, which changes § 1081(6)(D) in the
act’s definition of «bets or wagers» to exclude reasonable
administrative fees paid to participate in fantasy sport
or rotisserie leagues.
32. Internet Gambling Prohibition Act of 1998, Amendment
to S. 2260, § 1085(b) makes it «unlawful for a person
knowingly to use the Internet or any other interactive
computer service–(A) to place, receive, or otherwise make
a bet or wager with any person; or (B) to send, receive,
or invite information [intentionally] assisting in the
placing of a bet or wager. . . .» Section 1085(c) subjects
gambling businesses to a similarly broad ban.
33. «Congressional Update,» Fort Worth Star-Telegram,
October 22, 1998, p. 8.
34. The Department of Justice complained that Kyl’s bill
would unduly expand federal law. «In our view, extending
federal jurisdiction to cover mere bettors would be both
unnecessary and unwise.» L. Anthony Sutin, acting assistant
attorney general, U.S. Department of Justice, Office
of Legislative Affairs, letter to Sen. Patrick J. Leahy,
May 28, 1998, p. 3; copy on file with the author.
35. 18 U.S.C.S. § 1084(a) (1998).
36. Internet Gambling Prohibition Act of 1998, Amendment
to S. 2260, § 1085(b).
Page 19
37. Sutin, p. 1.
38. Internet Gambling Prohibition Act of 1998, Amendment
to S. 2260, § 1085(b)-(c), generally prohibits participating
in or conducting the business of Internet gambling;
section 1085(e) exempts from prosecution only intrastate
wagers on state lotteries or licensed parimutuel activities,
or wagers by persons physically located on duly
licensed Indian gaming sites.
39. 18 U.S.C.S. § 1084(b): «Nothing in this section shall
be construed to prevent . . . the transmission of information
assisting in the placing of bets or wagers on a
sporting event or contest from a State or foreign country
where betting on that sporting event or contest is legal
into a State or foreign country in which such betting is
40. See the definition of «interactive computer service»
in Internet Gambling Prohibition Act of 1998, Amendment to
S. 2260, § 1085(a)(3).
41. 18 U.S.C.S. § 1084(a).
42. Internet Gambling Prohibition Act of 1997, H.R. 2380
(introduced in the House), 105th Cong., 1st sess., 1997.
43. Ibid. at § 1084 (a)(2) levies criminal penalties on
anyone who «knowingly uses a communications facility for
the transmission or receipt in interstate or foreign commerce
of bets or wagers. . . .»
44. Ibid. at § 1084(c)(2). Kyl’s Internet Gambling
Prohibition Act of 1998, Amendment to S. 2260, contains
similar provisions, though they require interactive computer
services to terminate the accounts only of customers who
have violated the act (§ 1085(d)(2)(C)(i)) and in all
other instances directs courts to consider the technical
and economic burdens that the demands of enforcing the act
may impose on service providers. See § 1085(d)(2)(C)(ii).
45. Sutin, p. 7.
46. See generally Barry M. Leiner et al., «A Brief History
of the Internet,» ; and Kevin Werbach, «Digital Tornado: The
Internet and Telecommunications Policy,» Federal
Communications Commission, Office of Policy and Plans
Working Paper Series 29, March 1997, , pp. 16-18.
Page 20
47. Internet backbone providers «may not be able to differentiate
gambling-related transmissions that are being
sent by a specific user of a particular computer system
from other transmissions sent by other users of that system.»
Sutin, p. 7.
48. Even though a casual gambler may find such evasive
techniques too complicated to bother with at present,
Internet gambling businesses have strong incentives to master
them–and to develop and disseminate evasive techniques
that consumers will find easy to use.
49. Sutin, p. 7.
50. Quoted in Crist, p. 85.
51. Ted Koppel, «The Odds of Stopping Gambling on the
Internet,» ABC Nightline, April 7, 1998, excerpt of videotaped
statement by Kyl. Kyl continued his analysis by
proposing a solution to this admitted problem: «So the way
that our legislation is enforced is to simply pull the
plug at the point of entry into the United States.» This
reveals a fundamental misunderstanding of how the Internet
works, however. Thanks to packet switching, Internet
traffic from a given country can enter the United States
from any number of overseas sites. To bar entry of
Internet traffic from, say, Antigua, Kyl would have to bar
all international communications.
52. Professor I. Nelson Rose of Whittier Law School, an
expert on gambling law, offered this trenchant analysis of
why the Department of Justice finally decided to apply
existing federal laws against Internet gambling:
Federal prosecutors had been criticized by
state attorneys general and Congress for not
doing anything about Internet gaming. Now, by
striking at only six companies (and the safest
six to go after from a law-enforcement point-ofview),
the U.S. Attorney General has shown that
her U.S. Attorneys and FBI agents can put the
fear of God into the entire industry–using laws
already on the books.
Perhaps this was the secret agenda behind
these headline-grabbing arrests. The DOJ has
made it clear that it does not support proposals
being considered by Congress, like the Kyl bill,
which would make it a federal crime to make a
bet on the Internet. The DOJ has stated that it
does not want to go after first-time $5 bettors.
Page 21
Now, the DOJ has shown that the new laws
are unnecessary–at least for the easy cases.
I. Nelson Rose, «Internet Operators Arrested,» Gaming
Industry Litigation Reporter, April 1998, p. 9.
53. See Benjamin Weiser, «14 Are Charged with Taking
Sports Bets over the Internet,» New York Times, March 5,
1998, p. A1. Weiser recounts the first federal crackdown
on Internet gambling operators and quotes Anthony Cabot, a
gambling law expert in Las Vegas, Nevada. «You’re never
going to see a shutdown,» Cabot said. «[T]hose who are in
the industry are going to take much greater precaution in
hiding their ownership if they are U.S. citizens.»
54. For a discussion of the plans of Australia and New
Zealand to legalize and regulate Internet gambling, see
Crist, p. 92. Crist, p. 88, also discusses Antigua’s
licensing practices; and Akers, pp. A1, A8, discusses
practices in Costa Rica.
55. Gyneth McAllister, expeditor of international investments
for the Antiguan government, commented, «The issue
for the United States should not be whether Internet gambling
should exist in Antigua or not. Antigua is a sovereign
state and isn’t their concern. We are no banana
republic.» Quoted in Crist, p. 88.
56. The Sixth Amendment to the Constitution of the United
States reads: «In criminal prosecutions, the accused shall
enjoy the right . . . to be confronted with the witnesses
against him. . . .»
57. Sutin, p. 5. Emphasis added.
58. «Internet gambling presents . . . an entrepreneurial
opportunity for the state itself.» David Post, «Betting
on Cyberspace,» The Recorder, June 5, 1997, p. 4.
59. Kyl, Introductory Remarks on the Internet Gambling
Prohibition Act of 1997.
60. Sutin, p. 6.
61. Rep. Robert Goodlatte of Virginia, Statement upon
introduction of the Internet Gambling Prohibition Act of
1997, Congressional Record 143 (September 3, 1997): E1633.
62. In some cases, the relevant state laws authorize only
gambling via telephone, leaving it ambiguous as to whether
or not Internet communications using telephone lines would
Page 22
qualify. See Regs., Conn. State Agencies § 12-571-11b(a)
(1997), authorizing telephone account wagering; Md. Bus.
Reg. Code Ann. § 11-805(a) (1997) (same); Rev. Stat. Neb.
Ann. § 2-1239 (1997) (same); NY Consol. Law Service, Racing
& Wagering § 1012 (1997) (same); Oh. Admin. Code Ann. 3769-
3-32(A) (Anderson 1997) (same); 4 Penn. Stat. § 325.218(b)
(1997) (same). Other state statutes speak more broadly,
leaving ample room for Internet gambling. See Kent. Rev.
Stat. § 230.378(1) (Michie 1996), which authorizes telephone
account wagering, together with § 230.210(17) (Michie 1996),
which defines telephone account wagering to include communication
by any electronic medium; Nev. Rev. Stat. Ann.
465.090-94 (1997), which allows gambling via telecommunications
when conducted pursuant to license; and Ore. Rev.
Stat. § 462.015(2) (1997), which authorizes electronic media
account wagering.
63. Casinos offer a «hypnotic mix of light, noise, alcohol
and day-into-night, night-into-day indulgence, to infuse in
the gamblers and vacationers a hazy, dazy sense of letting
go.» David Spanier, Welcome to the Pleasuredome: Inside
Las Vegas (Reno: University of Nevada Press, 1992), p. 14.
Casinos «design facilities so patrons lose track of time,
. . . treating their customers as if they were rats in a
cage.» Bernie Horn, communications director of the
National Coalition Against Legalized Gambling, Testimony
before the National Gambling Impact Study Commission,
Washington, August 20, 1997, .
64. «[T]he social rewards of gambling . . . include companionship,
empathy, and social interaction. As gamblers
become socialized into a gaming mileu [sic], their contacts
with nongamblers often become less meaningful, and
they find that other settings lack the social rewards
offered by the gambling world. In order to remain part of
that social world, individuals must continue their gambling.»
John D. Rosecrance, Gambling without Guilt: The
Legitimation of an American Pastime (Pacific Grove, Calif.:
Brooks/Cole, 1988), p. 163.
65. If drugs were legalized, «consumers would have access
to the legal system to protect them against fraud and negligence
on the part of the producer. Producers would no
longer have to resort to violence to enforce contracts and
ensure payments.» Mark Thornton, The Economics of
Prohibition (Salt Lake City: University of Utah Press,
1991), p. 151.
66. See, for example, Sen. Jon Kyl’s analysis of the
issue: «On one hand, they say no way can you control this,
Page 23
and then they turn around and say regulate it. I think
they’re being disingenuous.» Quoted in Joe Salkowski,
«Betting on the Horses,» April 15, 1998, .
67. An example of how gambling regulators must adapt to
market conditions is given by Rosecrance: «Although both
Nevada and Atlantic City adopted stringent restrictions to
keep illegal operators from being licensed, regulations
were relaxed when it appeared that former bookies and
illicit casino managers were the only ones capable of running
a profitable gaming operation» (p. 165).
68. «[T]he state is well-positioned [with regard to
Internet gambling] to take a piece of the action as a
trusted certifying authority, reassuring consumers that
activities are conducted honestly.» Post, p. 4. That by
no means justifies a state monopoly, however. «There is
no necessary reason that the state has to supply this certification–
why couldn’t Microsoft? or Citibank?» Ibid.
69. See generally Richard A. Epstein, Simple Rules for a
Complex World (Cambridge, Mass.: Harvard University Press,
1995); Friedrich A. Hayek, Law, Legislation and Liberty,
vol. 1 (Chicago: University of Chicago Press, 1973); and
Friedrich A. Hayek, The Road to Serfdom (Chicago:
University of Chicago Press, 1944), pp. 72-87.
70. Stephen Longstreet, Win or Lose: A Social History of
Gambling in America (Indianapolis: Bobbs-Merrill, 1977),
p. 31.
71. Ibid., p. 37.
72. Thomas Jefferson, The Writings of Thomas Jefferson,
ed. Andrew A. Lipscomb (Washington: Thomas Jefferson
Memorial Association, 1903), vol. 17, p. 450.
73. William N. Thompson, Legalized Gambling: A Reference
Handbook (Santa Barbara, Calif.: ABC-CLIO, 1994), p. 64.
74. Longstreet, p. 31.
75. John Samuel Ezell, Fortune’s Merry Wheel: The Lottery
in America (Cambridge, Mass.: Harvard University Press,
1960), p. 272.
76. Ibid., p. 108.
77. Ibid., p. 102.
Page 24
78. For example, John Perry Barlow has said, «Governments
of the Industrial World, you weary giants of flesh and
steel, I come from Cyberspace, the new home of Mind. On
behalf of the future, I ask you of the past to leave us
alone. You are not welcome among us. You have no sovereignty
where we gather.» John Perry Barlow, «A
Declaration of the Independence of Cyberspace,» February 8,
1996, .
Page 25
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