The Kentucky Court of Appeals has ruled that the state does not have the right to seize the domain names of web sites that contravene state law.
Courts in Kentucky ruled in September 2007 that the state had the right to seize 141 domain names belonging to online gaming sites which fell foul of strict anti-gambling laws.
But a successful appeal by the Interactive Gaming Council (IGC) and the Interactive Media Entertainment and Gaming Association means that such action would be unlawful.
"This is a very important decision for anyone doing business on the internet, " said Jeff Ifrah, counsel for the IGC.
"We hope this will prevent misguided state officials from considering litigation against online industries located outside state boundaries. While this proceeding was ill-conceived, the judicial process was permitted to properly function, for which we are grateful."
The judges decided that a domain name was not in and of itself a gambling device and as such could not be seized. They also said that, even if the law was changed to include domain names in the classification, it would still be struck down as unconstitutional.
The case has important implications for online businesses. The patchwork of state and local laws means that companies selling online could have their entire business shut down just for one violation of a state law.
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