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CBPD To Begin Enforcement Of Sweepstakes Machine Ban

Managing Editor

CAROLINA BEACH - The Carolina Beach Police Department has been preparing to begin enforcement of a state law that bans the operation of sweepstakes machines seen in Internet Sweepstakes Parlors and other area businesses. After seeking the advice of the District Attorney's Office and waiting to see how other court jurisdictions handled pending cases involving the machines use, the Town sent out letters dated January 30 to Sweepstakes operators saying enforcement will start February 9th.
The letter states, "According to Town records, you were issued a privilege license for the operation of an Internet Sweepstakes Machine. As you may be aware, due to a recent decision by the North Carolina Supreme Court, Hest Technologies, Inc. v. Perdue, Internet Sweepstakes Machines are illegal. Due to the legality of the Internet Sweepstakes Machines, no further privilege licenses will be issued to any applicants."
The letter states, "If you are operating Internet Sweepstakes Machines, please be advised that effective immediately, the Town of Carolina Beach Police Department will begin enforcement of North Carolina General Statute 14-306.4 which prohibits electronic machines and devices for sweepstakes."
The letter explains, "The first offense is a class 1 misdemeanor. The second offense is a class H felony. The third offense is a class G felony. Each violation of" the general statute, "is a separate offense which means that if you are operating an establishment with multiple Internet Sweepstakes Machines, you can be charged accordingly for the operation of each machine."
The letter states, "In the event you do not believe that the Internet Sweepstakes Machines in your establishment violates" the state law, "please contact, or have your attorney contact, the Town of Carolina Beach Police Department prior to February 9th, 2013."
Police Chief Kurt Bartley said the issue has been complicated with court cases across the state seeking injunctions to stop law enforcement from enforcing the ban.
According to an opinion recently issued by the NC Supreme Court, "After careful constitutional analysis, we conclude that" North Carolina General Statute 14-306.4 "as enacted in 2010 does not violate the First Amendment because it regulates conduct, not protected speech."
The opinion states, "In an effort to curtail the use of a perceived loophole in the State’s gambling laws, the General Assembly passed N.C.G.S. § 14-306.4, which bans the operation of electronic machines that conduct sweepstakes through the use of an “entertaining display.”... Claiming an unconstitutional restriction on their freedom of speech, plaintiffs challenged the new law. The Court of Appeals declared the statute an overbroad restriction on protected speech and struck it down as unconstitutional.  We conclude that this legislation regulates conduct and not protected speech and now reverse" the Court of Appeals opinion.
In 2006 the General Assembly banned video poker and all other forms of electronic gambling. Since that time companies have developed systems that appear to sidestep traditional gambling restrictions by combining legal sweepstakes with video games that simulate a gambling environment, thus purportedly removing the “bet” or consideration element of gambling.
Since the ban on video poker in 2006, the manufacture’s have found ways to reprogram the machines in an effort to capitalize on perceived loopholes in state law. Several times they have been granted injunctions by courts protecting them from law enforcement. They claimed the state could not legally regulate what appears on the screens because it was protected by the U.S. Constitution as free speech.
The Supreme Court decision states that sweepstakes operators, "market and sell prepaid products, primarily long-distance telephone and/or high-speed Internet service.”  As a promotion, plaintiffs have developed electronic sweepstakes systems. Sweepstakes participants obtain entries from a predetermined, finite pool of entries - some of which are associated with a prize value and some of which are not - either after a qualifying purchase of plaintiffs products or at no charge upon request. Participants receive a magnetic stripe card which allows them to access a game station terminal and stores the information related to their individual sweepstakes entries. At the terminal “the program reveals the content of the sweepstakes entry using different displays that simulate various game themes.”  These simulated games do not determine, and cannot modify, the sweepstakes outcome or any prize that might be associated with a sweepstakes entry. Any prize amount won through the sweepstakes may be claimed in cash at the counter of the establishment or may be used at the game terminal to purchase more of the product in one-dollar increments, thereby enabling the customer to immediately receive more sweepstakes entries." The Court of Appeals majority concluded that both the announcement of the sweepstakes result and the video games are protected speech and that the definition of “entertaining display” in the statute is virtually unlimited.  The State Supreme Court reversed that decision saying the state law regulates putting the machines into operation which is conduct and not free speech.
On Monday February 5, Davidson County Superior Court Judge Robert Johnson approved a motion to dismiss a case brought against the State by International Internet Technologies, LLC (IIT). IIT licenses the software used on many sweepstakes machines.
According to the The Dispatch of Lexington, NC, IIT and a local business owner sought an injunction to stop law enforcement from enforcing the sweepstakes ban until a judge could rule whether or not their new software met the requirements of the law.
Chief Bartley said it was his understanding some sweepstakes machines had been updated since the Supreme Court ruling in an effort to comply in some manner and continue operation. He said it's his understanding the law will cover the machines in general and hopes that rulings from pending court cases will add some clarity to the issue of enforcement.
According to the The Dispatch of Lexington, NC,  during the hearing in Davidson County Superior Court, it was argued the new software no longer used an entertaining screen with video games or simulations to "reveal" the outcome of the game. Instead it displays a static background with a "reveal" button the user has to click on the screen.
Chief Bartley said that's similar to what he's researched. He said it was his understanding some software blanks out the screen and you hear the results announced by the machine in an attempt to find a loophole to work around the law banning the machines use.
The state law banning sweepstakes machines is intricate. Part of the law states, " shall be unlawful for any person to operate, or place into operation, an electronic machine or device to do either of the following: (1) Conduct a sweepstakes through the use of an entertaining display, including the entry process or the reveal of a prize. (2) Promote a sweepstakes that is conducted through the use of an entertaining display, including the entry process or the reveal of a prize." It states, " "Enter" or "entry" means the act or process by which a person becomes eligible to receive any prize offered in a sweepstakes."
One section of the law states, "It is the intent of this section to prohibit any mechanism that seeks to avoid application of this section through the use of any subterfuge or pretense whatsoever."
Chief Bartley said his department will proceed with enforcement and he's sure there will be further legal debates on the issue. The City of Wilmington has begun enforcing the law. Their Code Enforcement department recently notified owners of Sweepstakes Parlors they are in violation and will be subject to fines after February 11th if they fail to comply with the state law. That fine will be $100 for the first offense and then $200 a day until they comply. That's a civil penalty imposed by the City. Operators would also be in violation of state law and subject to criminal prosecution.