Firm Cheers Decision on Internet Sweepstakes Parlors
Rulings by the N.C. Court of Appeals this week that a state law aimed at Internet sweepstakes cafes is unconstitutional could make life easier for High Falls businessman Rick Upchurch.
Upchurch’s company, VS2 Marketing Group, is one supplier of player terminals used at such cafes, where players enter sweepstakes when they buy Internet time.
The cafes that use terminals like his sell long-distance telephone time and high-speed Internet service in Internet cafes, business centers, convenience stores and other retail establishments.
“I am happy about it, but we weren’t involved in those cases,” Upchurch said, commenting by telephone about the ruling from Superior Court Judge John O. Craig. “Judge Craig put it as good as anybody, said it was the same thing as if his boy came and took a cap off a bottle of soda and looked up the number on the Internet. Same concept.”
Upchurch said his company just changed its displays so they would meet the law’s bar on “entertaining display” of sweepstakes results.
“We complied with the law,” he said. “We revealed ours in an ‘unentertaining’ way. Maybe we could change back now — have to check with our lawyer, I guess, if we want to be entertaining.”
His machines employ proprietary management software for promotional sweepstakes as a means of marketing their products at the point of sale, the court said. In its primary ruling, the court upheld in part and reversed in part Craig’s 2010 decision.
While Craig said the law banning the use of an “entertaining display” was unconstitutionally overbroad, he didn’t throw out the entire statute. On Tuesday, the Court of Appeals upheld Craig’s ruling that the law was overbroad and also went on to find using “entertaining displays” to reveal sweepstakes results are constitutionally protected by the First Amendment.
The two appeals court judges agreed with the plaintiffs and concluded that the entire law “is an unconstitutionally overbroad regulation of free speech,” their ruling said.
In a second ruling, the court reversed Wake County Superior Court Judge Paul C. Ridgeway, who found the law constitutional and dissolved an injunction prohibiting the state from enforcing it. The court cited its earlier decision in its written opinion on this case.
“In a decision filed today … this court held that the portion of (state law) which criminalizes the dissemination of a sweepstakes result through the use of an entertaining display must be declared void, as it is unconstitutionally overbroad,” the court said. “Since (that law) has been declared void as unconstitutionally overbroad, the trial court’s order in the instant case must be reversed.”
Judges Ann Marie Calabria and Linda M. McGee concurred, while Judge Robert N. Hunter dissented. He said the law only regulated conduct and not speech, and therefore such displays are not protected by the First Amendment.
Among the plaintiffs in that case were Sandhill Amusements Inc. in Pinehurst, J & F Amusements Inc. in Sanford and Uwharrie Fuels in Star. Representatives of those companies either declined comment or did not return calls.
The two-judge majority said existing state law lets players “learn the results of their sweepstakes entries by using the exact same computer terminals” as long as it is by words shown on the monitor instead of an entertaining display.
“Thus, it is the specific method of disseminating sweepstakes results through an entertaining display that is criminalized,” the court said. “The U.S. Supreme Court has stated that ‘the creation and dissemination of information are speech’ (and) has also recently made clear that video games are entitled to full First Amendment protections.
“Like the protected books, plays and movies that preceded them, video games communicate ideas — and even social messages — through many familiar literary devices (such as characters, dialogue, plot and music) and through features distinctive to the medium (such as the player’s interaction with the virtual world). That suffices to confer First Amendment protection.”
Upchurch got into the Internet sweepstakes terminal business after poker machines were banned. When he was trying to look after his mother, who had Alzheimer’s disease, he and a friend bought three poker machines and put them out. That led to a successful enterprise working with Phil Cornic, of Farmingdale, N.J., as his partner.
After state law banned video poker, Upchurch and his partner moved to Internet sweepstakes and computer games revealing the results. Using terminals like their company supplies Internet cafes to display sweepstakes results “through entertaining displays cannot be characterized as merely a regulation of conduct” the court said.
The court found that any state law that forbids “the reveal of a prize” by means of an entertaining display “directly regulates protected speech under the First Amendment” and is therefore unconstitutional.
Upchurch said his terminals don’t just reveal sweepstakes results — they give customers “access to Internet, ability to work with documents, play fun games and play popular fun video games” as well as access the Internet, work with office documents and spreadsheets, or use media programs like a movie or audio player or a picture viewer.
All the results are predetermined and independent of any game play. His terminals are only a way to show sweepstakes results. Players could cash out as soon as they pay in. Playing the game has no effect on winning or losing. The court agreed.
“The result of each sweepstakes entry has been predetermined by the sweepstakes software prior to disbursement,” the court said. “The method by which the result is revealed does not affect the outcome of the sweepstakes.”
Upchurch and VS2 Marketing Group were not listed as parties in either case.
The Court of Appeals heard arguments in both appeals Oct. 25, 2011, and filed its written opinions March 6. Because one judge dissented, the state attorney general’s office said the ruling will be appealed to the Supreme Court of North Carolina for a final decision.
Contact John Chappell at email@example.com.
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