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US TKOs Antigua in bizarre WTO arbitration decision

Dispute strangely reaches climax

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The long-running dispute between little Antigua and the mighty US over the cross border provision of gaming services came to a head this morning, with the announcement of a US $21 mil award in Antigua’s favor. The amount was quite a bit less than the $3.4 bil demanded by the Antiguans, but considerably more than the $500,000 offered by the US.

The panel agreed with Antigua that it had no effective trade sanctions against the United States other than to suspend its WTO obligations to the United States in respect of copyrights, trademarks and other forms of intellectual property. Antigua now has the right to produce counterfeit copies of Hollywood movies, Microsoft software, or whatnot to satisfy the judgment.

The arbitrators assessed Antigua’s level of damages based upon a hypothetical form of compliance proposed by the United States, rather than through the withdrawal of the overall prohibition - a prohibition that in fact has been expanded in the years since Antigua initially brought the case through the passage of the Unlawful Internet Gambling Enforcement Act, which targeted banks and other financial institutions, and provided for a whole new series of domestic carve-outs. In light of the way the US has been thumbing its nose at previous WTO rulings in the case, the feeble award comes as a definite shock.

In a conference call, Mark Mendel, Antigua’s lead attorney, referred to the decision to use a hypothetical on gambling on horse racing estimate of damages rather than actual damages as ”unsound” and “incredible.”

"There was never an assessment that the only discrimination was in horse racing. I think it's a horrible ruling."

“It’s an extraordinary document. It’ll have academics and lawyers talking for years. First off, just the length. The previous record was 52 pages. Second, the existence of a dissenting opinion. There’s never been a dissenting opinion in an Article 22 hearing.”

Although the arbitrators were tasked only with assessing damages - after all, Antigua had already won, and won big - two of the three arbitrators managed to knee-cap the prior compliance panel ruling by resorting to the Article 22 principle of "reasonably expected compliance," and adopting the approach sought by the US. The majority ruling essentially gutted the prior compliance panel ruling by adopting the US position of what constitutes reasonableness under the circumstances.

This decision also resulted in an unprecedented disagreement among the arbitrators, with one panelist dissenting from the approach adopted by the other two members over the unprecedented use of the Article 22 provision to eviscerate a prior compliance panel decision.

"What kind of precedent does this set?" asked Mendel.

Mendel did express satisfaction that the panel approved Antigua’s right to cross-retaliate by suspension of intellectual property rights of United States business interests. He expressed notably less satisfaction with the amount of damages assessed. In a move sure to throw fuel on the fire of this controversial trade dispute, the arbitrators decided on the $21 mil figure based solely on what Antigua’s hypothetical share of the US online horse racing market, although previous rulings had interpreted Antigua's trade rights far more broadly.

“I find it astonishing that two of the three panelists would in essence grant the United States the benefit of a hypothetical method of compliance most favorable to the American side in assessing Antigua’s level of trade impairment. What appears to have been done here is assuming a form of compliance that has not happened and probably will not happen without giving Antigua the ability to contest the method under the WTO’s normal procedures,” he added.

Unlike other WTO rulings, awards of arbitrators are not subject to review by the Appellate Body of the WTO. However, were internet gambling to continue to expand in the US - as seems almost certain - Antigua would have the right to return to the WTO to reassess the damage award. Antigua's position will also have to be revisited as the US continues its Article 21 proceedings to withdraw gambling services from its WTO commitments.

While expressing dismay at the low number and the dodgy method by which it was reached, Mendel tried to stay upbeat about what the future has in store.

“I hope that the United States government will now see the wisdom in reaching some accommodation with Antigua over this dispute and look forward to seeing efforts in this regard.”®

Burke Hansen, attorney at large, heads a San Francisco law office

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