There's a war simmering, right now, that you may not have heard about. The object of the war is control of the Internet.
In some ways, this war is similar to the deceitful "harmful tax competition" campaign that industrialized nations have been conducting against offshore jurisdictions for more than a decade. It involves the same protagonists: industrialized nations versus developing countries. And one of the opening salvos of this war is occurring, of all places, in a Kentucky courtroom.
Kentucky is trying to force 141 Internet gaming sites, none of them based in the United States (much less Kentucky) to block access to Kentucky users, or to relinquish control of their domain names. The state alleges, among other things, that online gaming drains money from horse racing, a key source of tax dollars. Following a hearing last September, a state judge ordered the domain names to be transferred to the state. That decision is now under appeal.
Many of the sites have already been transferred to the state or are barred from being transferred to another owner. Other sites have informed users based in Kentucky they will no longer be able to use the site.
Internet gambling is no doubt controversial, but that's not the point. Kentucky has fired the opening shot in a trade war against the Internet. It's been able to seize the property of dozens of non-U.S., non-Kentucky companies because many of the domain names are registered in the United States.
What's more, there's no reason to think that this trade war will be limited to Internet gambling. The Internet is the fastest growing segment of the global economy. In just the past four years, global Internet sales have exploded from US$87.5 billion (2004) to an estimated US$204 billion (2008).
Given this track record, it should come as no surprise that governments want to shut down competition to local bricks-and-mortar businesses. That's particularly true given the state of the global economy. In the United States alone, more than 75,000 major retail locations are expected to shut down in 2009. Many will never reopen—the businesses that operated there will increasingly exist only in cyberspace.
If you're an Internet entrepreneur, you've chosen to be involved with what may be the only fundamentally healthy aspect of the global economy. But if you offer a product or service that can be construed to compete with a bricks-and-mortar company in an industrialized country, expect to be attacked
To deal with these attacks:
- Register your domain name outside any major industrialized country.
- Set up backup servers outside major industrialized countries.
- Be prepared for court challenges from governments, such as that of Kentucky, to steal your intellectual property (IP).
Finally—if your Internet business is successful—you should take steps to transfer the ownership of your IP to a suitable offshore structure, if you haven't already done so. That way, when the Kentuckys of the world come after your Web site, you'll no longer own it the most valuable part of it. That may not make bureaucrats very happy, but it will help insure that you can continue operating online.
Copyright © 2009 by Mark Nestmann
Comments