Holders of music, film and television copyrights are on the verge of becoming victims of US prohibitions on online play. After a decade-long trade dispute over remote online gaming, the small Caribbean nation of Antigua and Barbuda is now planning the lawful taking of $21 million of US entertainment industry intellectual property per year.

This development results from a complaint filed by Antigua with the World Trade Organization (WTO) in the early 2000s. It alleged that a US crackdown on offshore online gambling sites in the late 1990s destroyed the Antigua’s once-thriving remote gaming industry, which had been the country’s second largest employer and revenue generator after tourism.

The island country, just east of Puerto Rico, had found a niche by providing online gaming services as the Internet was coming of age. At its peak, the industry was valued at $3.4 billion and employed 4,000 of the nation’s roughly 80,000 people.

The benefits to the country are the same that you now hear touted here in the U.S. by online gaming proponents: a large number of good-paying, blue and white collar jobs – especially important for a country otherwise almost wholly dependent on tourism, like many others in the Caribbean.

But in 1998, the US began cracking down on offshore gaming sites, indicting several Antiguan operators in the process and blocking US citizens from playing on Antiguan sites by restricting certain electronic funds transfers.

With about half of the world’s online gaming revenues coming from the US, the loss of American customers devastated the local industry. Mark Mendel, a Texas-based gaming industry attorney, saw the damage and offered to appeal to the WTO on Antigua’s behalf.

In 2005, a WTO dispute settlement panel ruled in favour of Antigua, finding that the actions violated US commitments under the General Agreement on Trade in Services (GATS) treaty, which came into force in 1995. The US argued, to no avail, that online gaming did not yet exist as a tradable service at the time of the signing and therefore was not covered by the treaty.

Disputes at the WTO normally involve years of appeals, negotiations, and arbitration panels; this case was no different. After the U.S. proved unable and unwilling to allow online gaming to comply with the GATS rules, and with no other amenable solutions being proposed, Antigua asked for retaliatory measures. (In defense of the U.S. Trade Representative, who negotiates these types of disputes, resolving it directly would have required a large-scale legislative fix from Congress, something that wasn’t going to happen.)

With trade disputes, the WTO typically allows victim countries to impose a certain amount of retaliatory tariffs, determined by an arbitration panel, against the offending country’s imported products, as compensation for damages. Since half of Antigua’s imports come from the US, and there are no corresponding domestic industries that would benefit from more expensive imports, imposing tariffs on these imported goods would simply have further damaged Antigua’s economy.

So instead, Antigua appealed for – and was granted – cross-retaliation rights against a non-offending sector, with that sector being intellectual property. Its government is now nearing the completion of an online portal that will allow its citizens to access U.S. movies, music, and shows without paying any licensing royalties to U.S. companies that own the content.

Understandably, the U.S. intellectual property (IP) community is not happy. This is the first time that a country has ever suspended another country’s IP rights through the WTO dispute settlement mechanism. While $21 million per year isn’t much in the scheme of things, the retaliation could, as The New York Times said in a February 2013 editorial, “set a disturbing precedent for global commerce”. Other small countries will feel empowered to follow the same path.

It’s possible that Antigua, even though acting in accordance with WTO guidelines – will become an international pariah state if it moves forward. If so, that will create a deterrence for others countries who may have been considering requesting similar retaliation rights.

Ironically, while the case is finally coming to a resolution involving penalties against the U.S., momentum is building in the U.S. to legalize Internet gaming – the original point of contention. Supported by the re-energized AGA, lead by Geoff Freeman, online play successfully launched in three states last year, and several others are set to consider it this year.

The developments are unlikely to provide Antigua with much consolation. They instead bolster Antigua’s argument that US protectionism harms their economy, though that won’t make a difference in the WTO case. And the country could gain little from full U.S. legalization, given that the AGA’s main argument is that federal regulation will keep shady offshore sites, such as Antigua’s, from being available to U.S. online customers.

Of course hindsight is always 20-20, but it’s worth pointing out that this whole mess probably could have been avoided had the U.S. embraced online play early. That would have allowed reputable domestic actors to develop, rather than the U.S. playing world police by enforcing its anti-gaming prohibitions overseas.