ADVERTISING, MARKETING & PROMOTIONS >> ALERT JUNE 2012 GOVERNMENT CHALLENGES INTERNET SWEEPSTAKES CAFÉS Recent legislation and state Attorney General actions relating to Internet sweepstakes cafés may be a sign of greater legal scrutiny of games and promotional tactics that skirt or come close to the line of lotteries and gambling. For instance, Michigan Attorney General Bill Schuette has asserted that Internet sweepstakes cafés – in which Internet sweepstakes players buy something of value, usually Internet time or phone cards, in exchange for points that are wagered, accumulated, and cashed in for money – violated the state’s Gaming Control and Revenue Act. Attorney General Schuette characterized Internet sweepstakes cafés as “nothing more than unregistered, illegal casinos” and directed his Alcohol & Gambling Enforcement Division to issue “cease and desist” letters to nine Internet sweepstakes cafés that he alleged were operating illegal gaming operations. The Michigan Attorney General’s action followed its pursuit of eight similar operations, which closed down after the Attorney General’s office reached an agreement with a gaming software supplier. The cease and desist letters warned of possible legal action if the owners and operators refused to halt ongoing gambling operations that Attorney General Schuette asserted violated Michigan’s gaming laws, which prohibit unregulated gambling and authorize only pari-mutuel horse racing, bingo, the state-sponsored lottery, certain charity events, and casino gambling licensed under the Michigan Gaming Control and Revenue Act. Attorney General Schuette said that should any of the nine locations refuse to halt operations, he would take “immediate action” to shut them down through the criminal or civil court system. Moreover, he declared that investigations still were pending against the owners and operators of these businesses that, he warned, “may result in additional criminal or civil charges.” NEW LEGISLATION Authorities also have raided Internet sweepstakes café businesses in other states, including Alabama, Texas, Massachusetts, Utah, Florida, Ohio, Georgia, and Virginia, but some found that they were unable to easily prosecute these businesses under existing anti-gambling or other laws. As a result, a number of cities and states have introduced legislation to increase regulation of, and in some cases to ban, Internet cafés. The legislation was meant only to target “Internet sweepstakes cafés” that allow patrons access to the Internet and those that purport to sell goods and services but that use sales as a pretext to allow people to play illegal online slots, sweepstakes, and other games. However, in many instances it is THE BOTTOM LINE It is important to recognize that much of the new legislation targeting Internet cafés is extremely broad and therefore could encompass activities beyond what they were meant to address. Anyone conducting “games for game’s sake,” including penny auctions, reverse auctions, and the like, and possibly other promotions involving a purchase and a chance to win a prize, may be inadvertently running afoul of these laws. >> continues on next page Attorney Advertising