Business Permitting

Sweepstakes Industry Wins Constitutional Argument Over Recently-Enacted Legislation

For those without the background knowledge, internet sweepstakes have for some time been a hot topic throughout North Carolina. We’ll save the deep history and the technical points for another day.

Suffice it to update, this past summer the General Assembly passed House Bill 80. The Bill, signed by Governor Perdue, aimed to render it “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[; or] (2) Promote a sweepstakes that is conducted through the use of an entertaining display, including the entry process or the reveal of a prize.” You can view the law here.

This law had been set to go into effect on December 1. That deadline, and the uncertain breadth of the new ban, brought two providers of the maligned technology into State court. Arguing, inter alia, that the law violated the First Amendment, the providers successfully secured a preliminary injunction against enforcement thereof pending further consideration of the merits. Then, this past week, Superior Court Judge Craig ruled that video game sweepstakes are protected free speech. Specifically, the Court applied the “strict scrutiny” standard to take issue with the breadth of a notable restriction on “[a]ny other video game not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes.”

In doing so, however, the Court also held that the State maintains the right to restrict those games covered by the subsections codified at N.C.G.S. 14-306.4(a)-(h), restrictions which pass constitutional muster: video poker, video bingo, video craps, video keno, eight-liner, pot-of-gold, and any “video game based on or involving the random or chance matching of different pictures, words, numbers, or symbols not dependent on the skill or dexterity of the player.”

This ruling is a significant development for this industry, which secured a preliminary injunction in October against the collection of municipal privilege license taxes for the operation of these computer systems. Of course, it’s similarly significant for local governments, local law enforcement, and State legislators alike.

We’ll continue to monitor this fast-changing landscape.

***UPDATE December 2, 2010 UPDATE***
According to the news outlet The News and Observer, published among the oaks of Raleigh, the State will appeal Judge Craig’s ruling as to the unconstitutionality of N.C.G.S. 14-306.4(i).

***UPDATE December 3, 2010 UPDATE***
State Attorney General Roy Cooper has issued a written advisory to law enforcement officials regarding enforcement of N.C.G.S. 14-306.4 in light of the recent court rulings outlined above. We’ll keep an eye on the resulting fallout and appeal.

Mike Thelen is a lawyer in Womble Carlyle’s Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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