October 8, 2008
Over the past six years, an El Paso law firm has quietly played a key role in a major international trade dispute. The catch is, they don't represent the U.S. government, but that of Antigua and Barbuda in its fight for the lucrative American market for online gaming. After several wins and a drawn-out appeals process, a settlement may be on the horizon.
I first came across the case in The Economist, and was perplexed by the El Paso connection. I published several references to the case in this publication’s “In the News” section in 2005, and shortly thereafter began a correspondence with chief counsel Mark Mendel, formerly of El Paso, but who settled in Ireland in 2002. He is a partner in Mendel Blumenfeld, LLP, an El Paso law firm with offices in Cork. [link]
I finally met Mr. Mendel in person at a swank Dublin bar one year ago in October, just as he had flown back from a hearing in Geneva. He lives in Cork when he is not frequenting the Swiss headquarters of the World Trade Organization (WTO). He is not himself a gambling man, but his persistence yielded an unlikely victory in a lopsided fight. He makes a point to return to El Paso, where his wife is from, several times each year. They still have a house on the old road to Las Cruces. The case has consumed his recent professional life, and his passion for the issue is evident.
Online Gaming 101
The trade dispute is about America’s prohibition of online or remote gaming. Of a worldwide market between $20 and $30 billion, a significant percentage of consumers are American. In early 2003, Antigua decided to challenge the United States’ policy of prohibition through the WTO’s process. After a few months of failed negotiations, the country formally requested a WTO dispute panel, made up of three judges, in order to resolve the issue.
Antigua cited a chief principle of free trade, being that countries can’t discriminate against foreign competitors. It would be one thing if Antigua were offering something that wasn’t already widely available and legal within the U.S. Apart from traditional casinos and lotteries, websites like Youbet.com rake in millions of bets annually on horse races. The U.S. could hardly claim a moral objection.
On March 24, 2004, the first verdict was in, with an unequivocal victory for Antigua. The U.S. appealed to the WTO appellate body, and its appeal was denied. The case entered arbitration, with reasonable WTO rules outlined, and the U.S. was given one year to comply, during which time it did nothing. The United States is represented by the Office of the United States Trade Representative (USTR). [link]
The country had asked for damages of $3.4 billion. During the penalty phase of the case, Antigua won the right to violate $21 million annually of intellectually property rights, effectively allowing the country to waive U.S. copyrights in films, television and music. [Editor's note: The preceding sentence was corrected to reflect the award to Antigua at 3:30 p.m. Oct. 8, 2008] It has not yet done so. The unusual ruling raised the stakes even more and now involves Microsoft, music industry and film industry representatives, all urging the United States to settle.
The complete case filings and summaries can be found at this website. [link]
The Devil and the Deep Blue Sea
Antigua and Barbuda is a twin-island Caribbean country of a mere 84,000 people, and is situated southeast of Puerto Rico. It gained independence from Great Britain in 1981. Tourism represents half of its GDP of $1.526 billion, according to the CIA’s World Factbook. It is a small island with few natural resources, and minimal problems with crime and drug transshipments.
Traditional measurements of GDP don’t include gaming revenues, which are difficult to calculate because the industry in Antigua is tax-free and thus there is no reporting system or data gathering. When calculating damages, $3.4 billion was arrived at by an economist who estimated the damages as the differences in what should have been made in a multi-year period between 2006 and 2012, and what was actually made.
Antigua has proposed various regulatory schemes to the U.S., including the creation a joint body to regulate the industry. The country proposed a special central bank, a tentative two-year initial relationship, with all transactions monitored by governments. Mendel constantly emphasizes that all proposals were made in good faith, which he feels has yet to be reciprocated.
Friends and Enemies
In the U.S., the enormous gaming industry was conflicted. Horseracing proved a surprising ally in the case, as much of the growth in the sport has been remote gambling. Las Vegas and the bricks and mortar gambling industry have been less enthusiastic. On the one hand, their business model is currently lucrative and they want that protected, but if they jumped into the great unknown of online gambling, it could prove even more so.
Mendel has spent time on Capitol Hill, and counts as friends Reps. Barney Frank, Ron Paul, John Conyers and John Dingell, as well as some of the black congressmen with ties to the Caribbean. It is unclear what effect the current presidential election could have on the outcome, although Sen. McCain’s close ties to the domestic gaming industry could prove an impediment to Antigua’s position.
In its case against Antigua, part of the United States’ defense rested on legal and moral concerns including money-laundering, organized crime, gambling addiction, and that catch-all, protecting the children. Mendel scoffs at the first two, since online transactions create a paper trail (from credit cards) that is hard to divert, unlike the millions in cash that casinos are rolling in. The Christian Right, bingo addicts, and Indian casinos are full-fledged enemies in this case.
Mendel does acknowledge gambling addiction as a potential problem, but having examined medical and behavioral research, contends that with 10 years of online gaming data, the percentage of addicts has remained constant.
Sun City’s Support
Back in El Paso, Mendel Blumenfeld, LLP has provided support for the complex litigation process, necessitating some adjusting to the time difference. Attorney Bob Blumenfeld calls the process a true “globalizing experience,” and described to me how the firm was able to divide up work between Blumenfeld’s team and European Union lawyers, with the El Paso team at times pulling shifts from 5 p.m. to 2 or 3 a.m., and then handing the briefs back to the EU lawyers, in order to have the work continue nonstop.
Blumenfeld and Mendel have both expressed perplexity about the lack of knowledge or interest in El Paso about the case. The El Paso Times, for example, has published wire stories on the case, and even contradictory editorials about restricting online gaming, without ever having interviewed the law firm. Even though there are no remote gaming businesses in the city’s immediate vicinity, there is now an immense amount of local expertise, and the firm has received other industry business as a result.
Looking Ahead
Antigua has been pushing hard for a settlement with the U.S., but nothing has been finalized as of publication of this article. In a recent email, Mendel wrote that he is not holding his breath. Meanwhile, the U.S. may have to contend with a future challenge from the larger European Union and its online gaming companies, making the U.S. position even less tenable.
For Mendel, the bottom line is that Antiguan online gaming was seen by the U.S. as just too lucrative. “You have multinational corporations that just want to extract resources, and then you have a country like Antigua that wanted to offer services, had the foresight, took their position seriously, had no natural resources, and began to bring in a lot of money, but then the U.S. says it’s too much.”
Under the Bush administration, he sees the U.S. as having refocused its efforts on negotiating bilateral and regional trade agreements, with less emphasis on global agreement.
Meanwhile, the rest of the world is following the larger implications of the case on trade globalization and the inevitable role of the WTO, or some kindred organization. Mendel thinks that globalization can be good, but ultimately must be fair.
After years of delving into the intricacies of international trade law, Mendel has become a true believer in the merits of his case. Towards the end of the evening in Dublin, he asked me the question that is fair to pose to any participant in a global economy.
“Is this just a trade organization for people with a lot of money, or is it for everybody?”
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Vanessa Johnson is the former publisher of Newspaper Tree. She lives in Douglas, Alaska.