By Marisa Kendall From The Recorder

SAN FRANCISCO — The California Supreme Court on Thursday classified computer sweepstakes games as illegal slot machines in a ruling that could create legal issues for a wide range of companies that use promotional games to increase business.

Justice Ming Chin found a handful of computer games operated by Internet cafes are prohibited by California statute, even though they don’t physically resemble what he called the traditional “one-armed bandits.”

Writing for a unanimous bench, Chin provided clear guidance as to how the law should handle games such as “Buck Lucky” and “Baby Bucks,” where players can win thousands of dollars in cash at a computer screen. But it’s less clear what implications the ruling will have for mainstream companies that run other types of sweepstakes promotions.

I. Nelson Rose, a gambling law expert and professor at Whittier Law School in Costa Mesa, said the ruling could stir up trouble.

“Once you start trying to define gambling as including things that are clearly not gambling, like no-purchase-necessary sweepstakes,” he said, “you’re opening the door to real problems.”

Thursday’s decision resolves several cases brought by the Kern County District Attorney’s Office against Internet cafes that rewarded customers with sweepstakes points that could be used to play computer games offering cash prizes. The defendants argued that unlike a slot machine, where the player controls the outcome by pulling the handle and spinning the wheel, the computer games were not gambling because they were not interactive. The software chose the result before the player even approached the screen, and the game was nothing more than an “entertaining reveal.” Therefore there is no element of chance, the defendants argued.

Affirming the Fifth District Court of Appeal, Chin rejected that argument. The chance element is satisfied, he wrote, because players can’t use skill or judgment to influence the outcome of the game.

Furthermore, Chin wrote, the games are “specifically designed to cultivate the impression that the user may receive a reward by reason of any element of hazard or chance.”

The defendants also argued their devices are not slot machines because the individual computers do not generate the outcome of the game—the outcome has been chosen by an algorithm created by the software manufacturer. Chin rejected the idea that the individual computers must be considered in isolation. Instead, he ruled the computers are part of an integrated system that works together in a manner that constitutes an illegal slot machine.

Chin’s almost 30-page ruling acknowledged these games are already prohibited under an amendment to California law that went into effect at the beginning of the year. Tory Griffin of Hunt Jeppson & Griffin, one of three lawyers who argued for the defense, said Chin’s decision goes beyond the scope of the new law. He said under Chin’s parameters, he could see many scenarios where a company’s sweepstakes that used any type of computer or smartphone could qualify as a slot machine.

“I think there needs to be extreme caution on a go-forward basis in terms of how the system is designed and how prizes are distributed,” Griffin said.

Griffin represents John Stidman, the owner of the I Zone Internet Cafe in Bakersfield. John Weston of Weston, Garrou & Mooney and Steven Graff Levine, a criminal defense lawyer in Southern California, also argued for the defense.

“I think this opinion opened up a Pandora’s Box,” Levine said. “It’s going to be very difficult for corporations to run any kind of promotion where the result is revealed on a computer.”

Chin acknowledged defendants’ arguments that his ruling could affect promotional sweepstakes operated by companies such as Coca-Cola and McDonalds. But he declined to address whether those promotions are similar to Internet cafe games.

“Such questions would have to be decided in a case in which someone claims some other sweepstakes system is an illegal slot machine,” he wrote.

Mitchell Kamin of Bird Marella said he thinks Chin’s deliberate focus on Internet cafes could mean the decision won’t have broader impact.

“I don’t think large companies that are interested in sweepstakes or gamification have much to worry about because of this,” he said.

Deputy District Attorney Gregory Pulskamp, who argued on behalf of plaintiffs, said the decision is a win for law enforcement.

The Internet games “presented a serious risk of completely unregulated gambling proliferating throughout our communities,” he said.

The case also received significant interest from the gambling community, who weighed in with a handful of amicus curiae briefs siding with the government. Reed Smith represented the California State Lottery, and Mayer Brown represented the Viejas Band of Kumeyaay Indians and Lytton Rancheria of California. Attorney General Kamala Harris’s office also contributed a brief.

IMAGE:

Justice Ming Chin, California Supreme Court Jason Doiy / The Recorder

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