The court ruled 2-1 that the government couldn't confiscate domain names of 141 out-of-state gambling sites because the 1974 forfeiture law only applied to gambling "devices," like roulette wheels.
"It stretches credulity to conclude that a series of numbers, or Internet address, can be said to constitute a 'machine or any mechanical or other device,' " judge Michelle Keller wrote.
The dispute started late last summer, when the state hired a law firm to bring proceedings against online gambling companies. At the time, Kentucky Gov. Steve Beshear made no secret of his protectionist motives. He said he wanted to shutter the gambling sites as part of an effort to preserve horse racing, which he termed the state's signature industry.
As news of the court showdown spread, a wide range of groups questioned whether one state could legally reach beyond its borders to claim jurisdiction over sites with a global reach. Outside parties -- ranging from trade organizations like the Interactive Gaming Council and the Internet Commerce Association to civil rights groups like the Electronic Frontier Foundation and ACLU -- weighed in on behalf of the Web sites.
The groups argued the law was unconstitutional for a host of reasons, including that Kentucky had no right to block sites visited by a worldwide audience.
While the appeals court dodged those issues for now, they're bound to recur. If Kentucky rewrites its laws to specifically include domain names, the court will again be faced with determining how far one state can go to police the Web.