U.S. federal court decision could impact social casino activity

Online social casino activity in Washington State and perhaps further could be impacted by a decision handed down in the Ninth Circuit of U.S. Court of Appeals Wednesday by Judge Milan D. Smith.

Judge Smith ruled that Big Fish Games’ Big Fish Casino constitutes illegal online gambling, according to Washington state law.

Big Fish Casino offers a series of casino games that use virtual chips. The chips have no intrinsic monetary value, but players can only play as long as they have chips. If they run out, they have to wait until the game offers more free chips… or they can buy more chips to continue.

The case before Judge Smith dates back to 2015 when Big Fish player Cheryl Kater sued the online casino’s then-parent company Churchill Downs.

She claimed to have spent more than $1,000 on Big Fish Casino virtual chips, and her legal representatives argued that the chips represent “something of value,” an ambiguous clause within Washington state law required in the definition of illegal online gambling.

In 2016, Kater’s case was dismissed by a U.S. District Court judge in Seattle, but Wednesday’s ruling by the higher court now reverses that decision, creating a possible precedent for future litigation.

Judge Smith ruled: “Without virtual chips, a user is unable to play Big Fish Casino’s various games. Thus, if a user runs out of virtual chips and wants to continue playing Big Fish Casino, she must buy more chips to have ‘the privilege of playing the game.’ Likewise, if a user wins chips, the user wins the privilege of playing Big Fish Casino without charge. In sum, these virtual chips extend the privilege of playing Big Fish Casino.

“We therefore reverse the district court and hold that because Big Fish Casino’s virtual chips are a ‘thing of value,’ Big Fish Casino constitutes illegal gambling under Washington law.”

However, Judge Smith rejected a secondary argument from Kater that Big Fish Casino players are able to “cash out” on their virtual chips by agreeing to sell them for real money on a secondary market and then transferring them to other users.

He found that Big Fish prohibits those transactions in its terms of service.

Churchill Downs purchased Big Fish Games in 2014 for $885 million. Three years later, it agreed to sell Big Fish to Australia-based Aristocrat Technologies for $990 million.

Judge Smith’s finding sends the Kater case back to the district court in Seattle , and Churchill Doiwns can still request to have the case heard in front of a full bench appeals court panel or petition to argue the case in front of U.S. Supreme Court.

Smith in his opinion acknowledged past cases, arguing that each one dealt with different state laws as there are no specific federal laws governing online gambling. That broad “something of value” phrase is what makes this case stand out from the others, he opined.

Washington State is well-known for its draconian approach to online gambling.