The court's decision states that New York-based online casino WIGC broke state laws that prohibit taking wagers via phone lines even though its computer servers are in Antigua, where gambling is legal.
Other states also have sought to curb online gambling. In September 1998 the Missouri state attorney general won a case that effectively ran a Pennsylvania Internet gambling firm out of Missouri. But the New York ruling comes from the highest court yet and no doubt will impact the outcome of cases filed in the state against a slew of online gambling operations.
"I think it's a very important ruling," said Joel Michael Schwarz, New York's assistant attorney general. "It's precedent-setting in terms of where the gambling takes place physically."
He added: "This makes it clear that it's illegal to accept bets from users who are located in New York. Just because the information is in cyberspace doesn't mean the laws don't apply in real space."
Some legal experts think that the ruling could by applied to e-commerce as well.
"This case is one in a continuous series of cases where the attorneys general of various states have successfully convinced the courts they have jurisdiction over persons offshore who use the Internet to reach the citizens of their state," said Tony Cabot, an attorney with Lionel, Sawyer & Collins, who wrote a report on Internet gambling.
"Clearly, the principles being used to assert jurisdiction over the gaming sites are the same principles used to assert jurisdiction over an e-commerce site," he added.
Other legal experts agree that there is a growing trend of law enforcement officials cracking down on sites outside their state borders or even the United States. Any site on the Net is vulnerable to this type of legal action, no matter where their servers or employees are physically located, observers say.
"If you solicit business in a state, most courts are going to say it's only fair that you can be sued in that state," said Karl Olson, a First Amendment attorney with Levy, Ram, & Olson. "In this day of e-commerce, companies have customers all over. And where your server is located is one factor, but that doesn't mean that location is the only area (where) you can be sued."
Online casinos have faced a torrent of lawsuits and investigations. Last year 22 owners, managers, and employees of Internet sports betting companies were charged in New York with running gambling sites in violation of federal law. Some of the cases are still pending.
Defenders argue that offshore Net casinos should not fall under state laws.
"Say somebody from London logged onto Amazon.com--they won't pay British sales tax, because the visit's being made here," said Geoff Bacino, an online casino lawyer. "You're making a virtual visit to the country where the server resides."
Still, some observers say the latest court ruling will only serve as a deterrent to U.S. investment in cybercasinos.
"What it continues to do is drive the businesses out of the U.S. It makes it real clear that this is hostile territory," said Sue Schneider, editor of Rolling Good Times Online.
News.com's Courtney Macavinta contributed to this report.