1. FROM: Mitchell M. Hecht
DATE: April 17, 2013
RE: Internet Cafes
In recent years a number of states have introduced and passed legislation targeting Internet
Cafes. Generally speaking, Internet Cafes are enterprises where individuals purchase an item of
value, usually emergency phone cards, and receive an entry into a sweepstake. The individual can
enter the sweepstakes on a computer or other electronic device available on a given site.
Sweepstake Cafes also offer free entries into their sweepstakes. Legislators have targeted Internet
Cafes because they view them as thinly veiled gambling enterprises designed to skirt existing
gambling law.
North Carolina, Virginia, Georgia and New Hampshire have all passed legislation targeting
Internet Cafes. Other states including Michigan, Massachusetts, South Carolina, Florida and Ohio
are considering passing legislation. It is important to understand each individual state’s legislation
because the states target different components of what constitutes an "Internet Cafe". Likewise,
even if current state law does not implicate the sweepstake scheme here, future legislation could.
North Carolina passed legislation, and amending existing statutes, prohibiting the use of “an
electronic machine or device to… conduct a sweepstakes through the use of an entertaining
display, including the entry process or the revealing of a prize...”.1 However on appeal, the Court
of Appeals concluded that that entire statute is unconstitutional because the statute does not only
regulate conduct but also, by the use of broad language, including “Any 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” impermissibly regulates the dissemination of information2, through video games3.
The Attorney General has since appealed the decision.
While the Appeals Court decision invalidated the N.Cstatute there is nothing in the opinion
that prevents the legislature from amending the statute to regulate the conduct of sweepstakes.
Likewise an attempt by some to legalize and tax internet cafes, represented in N.C. H.B. 1180
“Video Sweepstakes Entertainment Tax”, is still pending as of 06/20/2012.
Perhaps the one redeeming fact, outside of the Appeals Court decision, is that the
legislative intent4 was to regulate a specific type of activity, namely internet cafes and not all
sweepstake activities. Thus, even if the statute was narrowed to focus on specific forms of video
1 N.C. Gen.Stat. § 14-306.4(b) (2011).
2 Citing Sorrell v. IMS Health Inc., U.S.,131 S.Ct. 2653, 2667, 180 L.Ed.2d 544, 558 (2011), the Court holds that the
statute is unconstitutional because “it is the specific method of disseminating sweepstakes results through an
entertaining display that is criminalized by N.C. Gen.Stat. § 14-306.4.”
3 Citing Brown v. Entm't Merchs. Ass'n, U.S., 131 S.Ct. 2729, 2733, 180 L.Ed.2d 708, 714 (2011).
4 The challenge to the N.C. statute was made by parties involved in sweepstake cafe enterprises. H.B. 1180, also
indicates that the concern and focus of the legislature remains on Internet Cafes. See also the text of HB 80

2. games and conduct, the statute would not target, and therefore not cover, the sweepstakes scheme
in question. On the other hand some legislative history indicates that “it [was] the intent of the
General Assembly to make it unlawful to provide this type of electronic machine or device to a
person who believes that
…he or she will get "something for nothing or a great deal for a very
little outlay; and [w]hereas a sweepstake's use of an electronic
machine or device with a visual display creates a lure based upon
chance and is a deceptive scheme.5
This language is certainly broad enough to include the simulations of games at question here. In
any case, until the Attorney General’s appeal is resolved, the legality of the sweepstake scheme in
North Carolina remains in question.
Virginia amended its gambling code to include the “the purchase of the product… [that] would
(a)be of insufficient value in and of itself to justify the purchase or (b) is merely incidental to the
chance to win money.”6 The Virginia law focuses on the value of the product purchased. Thus a
typical internet café which offers an emergency calling card, with 2 minutes of call time or that
can only be used once, for $1 would probably fall under the umbrella of this statute. Whereas a
business selling products that are reasonably priced (here, MSRP) would not. Also significant is a
2011 Attorney General opinion which implies that the focus of the law is on physical
establishments like Internet Cafes where the sweepstake is the main product sold.7
Georgia amended its lottery statute making it illegal for purchase schemes which allow people the
added benefit of playing games for rewards.8 The legislature provides some exceptions for
legitimate promotions such that “The promotion must be an advertising and promotional
undertaking, in good faith, solely for the purpose of advertising the goods, services, or property,
real or personal, of the sponsor.”9 The Georgia statute is a broad statute and can be interpreted to
cover the sweepstake scheme in question.10 However there is little question that the legislature was
targeting internet cafes.11
“Whereas, since 2006, companies have developed electronic machines and devices to gamble through pretextual
sweepstakes relationships with Internet service, telephone cards, and office supplies , among other products…”.
5 http://www.ncleg.net/Sessions/2011/Bills/Senate/ PDF/S3v0.pdf.
6 Va. Code Ann. § 18.2-325(1) (2011).
7See opinion of Attorney General to The HonorableG. Manoli Loupassi,Member, House of Delegates, 11-086,2011
Va. AG LEXIS 58 (8/12/11).
8 8 Ga. Code Ann. § 16-12-20(4) (2012).
9 9 O.C.G.A. § 10-1-393.
10 10 It is unclear if theGeorgia statute was governed by the same reasoningfound in the Virginia statute.Virginia is
clearly concerned about the value of the purchase, Georgia makes no such distinction.
11 See http://www.gmanet.com/LegislativeSession/BillDetail.aspx?ID=c834c6a2-3f78-e111-9976-0050569541de.

3. New Hampshire is the most recent state to pass legislation specifically targeting internet cafes. In
2012 the governor signed HB 1260 which amended the definition of gambling to include a
sweepstakes ticket or other item obtained in conjunction with the purchase of goods or services
that entitles the holder to a share or chance in a sweepstakes where, but for the opportunity to enter
the sweepstakes, the value of purchased goods or services is insufficient to justify the purchase or
the inducement to purchase the goods or services is the opportunity to play on a gambling
machine.12
However there is no question that this statute does not cover the present sweepstake scheme
because the statue defines sweepstakes as
any game, advertising scheme or plan, or other promotion which,
with or without payment of any consideration…the term includes
only those sweepstakes that an entrant can enter, play or otherwise
interact with using a gambling machine furnished by the
sweepstakes operator or an affiliate or person under contract with
the operator, in an establishment [emphasis added] controlled by,
affiliated with, or contracting with the operator.13
Thus this statute is implicated only if the sweepstake is entered into in conjunction with a
gambling machine in a physical location which has a relationship with the operator. Of the four
states discussed here, NH’s statute is the most narrowly constructed and, for our purposes, the least
threatening. In terms of the legislative intent of this it seems clear that it was intended to prevent
internet cafes.14
In conclusion none of the enacted legislation explicitly bars or targets the sweepstake
scheme involved here. This is supported by the legislative history which consistently reveals that
these statutes were authored in response to proliferating internet cafes. Nonetheless, some of the
statutes could be used in the future to target similarly situated enterprises. The language used in
the Georgia statute is broad and echoes the opinion of other Attorney Generals, who focus on
whether the promotion is ancillary to the business or is the business.15 This trend is especially
worrisome because even if the product sold justifies the cost, the sweepstake element could be
deemed the primary business and, therefore, per se illegal. In any event, emerging state legislation
should be monitored carefully to see if the language shifts from targeting physical internet cafes
to targeting enterprises that share some of the components that make up internet cafe schemes.
12 RSA 647:2, II(d).
13 RSA 647:2, II(h).
14 George Lambert a sponsor of the bill stated that“Explicitly,the languagein the bill as amended by the House and
Senate was specifically designed to address places likeBig's for operating under a loopholeof the lawthat allowed
them to go out and sell phone cards and other things that resemble slot machine gambling". See
http://nashua.patch.com/articles/gaming-cafe-targeted-by-new-legislation.
15 See http://www.michigan.gov/documents/mgcb/INTERNET_CAFE_GUIDE-final_372838_7.pdf.