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Constitutional – Free Speech – Videogame Sweepstakes – Regulation of Conduct

Hest Technologies, Inc. v. State ex rel. Perdue (Lawyers Weekly No. 12-06-1203, 23 pp.) (Robin E. Hudson, J.) Appealed from Guilford County Superior Court (John O. Craig III, J.) On appeal from the Court of Appeals. N.C. S. Ct.

Holding: G.S. § 14-306.4, which bans the operation of electronic machines that conduct sweepstakes through the use of an “entertaining display,” regulates conduct and only incidentally affects speech. The statute is not an overbroad restriction on protected speech.

We reverse the Court of Appeals’ decision, which struck down the statute as unconstitutional.

Plaintiffs sell customers a magnetic stripe card which allows them to access a game-station terminal and stores the information related to their individual sweepstakes entries. The customers play a videogame, after which they learn whether or not they have won a sweepstakes prize.

The General Assembly determined that plaintiffs’ business models, involving sales of internet  time and  telephone cards with accompanying “free” sweepstakes entries, are a mere pretext for the conduct of a de facto gambling scheme.

The record here does not show whether the telephone or internet time that sweepstakes participants purchase is ever used. We cannot on this record summarily conclude that these plaintiffs are involved in an illegal gambling operation that uses the sale of legal products as a pretext to avoid state gambling laws.

It is well settled that the police power of the state may be exerted to preserve and protect the public morals. Here, the General Assembly exercised its police power to address the problem it saw; as long as the General Assembly has not contravened a constitutional prohibition in the process, the law is valid.

Plaintiffs argue that the law prohibits the videogames involved in their sweepstakes systems and that these videogames are entertainment and thus merit full First Amendment protection. The state maintains that the law only prohibits specific conduct, namely, placing into operation an electronic machine that conducts sweepstakes using an entertaining display.

Section 14-306.4 makes it “unlawful for any person to operate, or place into operation, an electronic machine or device” to “conduct a sweepstakes through the use of an entertaining display.”

Operating or placing into operation an electronic machine is clearly conduct, not speech. It has never been deemed an abridgment of freedom of speech to make a course of conduct illegal merely because the conduct was in part initiated, evidenced, or carried out by means of language.

The statute does not prohibit the videogames, only the conduct of a sweepstakes that happens to announce its result through such videogames. Plaintiffs are free to provide the video games to their patrons and their patrons are free to play them — and thus make and receive whatever protected message is communicated by the video game — so long as the games are not associated with the conduct of a payoff.

Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), does not apply. Here there is no speaker-based restriction; anyone can conduct a sweepstakes and offer video games independently, and no one can combine the two. There is also no content-based restriction related to the sweepstakes result because the law applies regardless of the content of the announcement — the announcement could say “winner” or “you lose” or “good job” or “too bad” or simply show the amount of money won, and the law would still apply. 

More importantly, we are not convinced that the announcement is protected speech at all because the announcement is merely a necessary but incidental part of the overall noncommunicative activity of conducting the sweepstakes.  That the conduct at issue relies upon words to announce the result does not automatically implicate the First Amendment.

Brown v. Entm’t Merchs. Ass’n, 131 S. Ct. 2729 (2011), also does not apply. While Brown confirmed that First Amendment protection extends to video games, the Court struck down the state law at issue because it was a content-based restriction on violent video games. Here § 14-306.4 applies regardless of the content of the video game.

Even if we were to conclude that § 14-306.4, while directed at conduct, burdens some speech, the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech.

Plaintiffs have not shown that the statute is overbroad. We see no speech or conduct, other than that which is plainly the target of the legislation, that would be chilled or otherwise burdened by this statute.

G.S. § 14-306.4 regulates conduct, with only incidental burdens on associated speech, and is therefore constitutional.

Reversed and remanded.


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