BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1439|
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THIRD READING
Bill No: AB 1439
Author: Salas (D), Bonta (D), and Frazier (D), et al.
Amended: 8/21/14 in Senate
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 10-0, 6/24/14
AYES: Correa, Berryhill, Cannella, De León, Galgiani,
Hernandez, Lieu, Padilla, Torres, Vidak
NO VOTE RECORDED: Vacancy
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 75-0, 5/27/14 - See last page for vote
SUBJECT : Unfair business practices: contests and sweepstakes
SOURCE : California Police Chiefs Association
DIGEST : This bill prohibits any person, when conducting a
contest or sweepstakes, from using an electronic video monitor
to simulate gambling or play gambling-themed games that offers
the opportunity to win sweepstakes cash, cash equivalent prizes,
or other prizes of value.
Senate Floor Amendments of 8/21/14 clarify that a business
subject to this bill's prohibitions is one that has specified
financial interests in the conduct of the prohibited
sweepstakes.
ANALYSIS :
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Existing law:
1.Prohibits false advertising, unfair competition and unlawful
business practices, specifically prohibiting certain acts or
practices undertaken by a person in the operation of a
contest, including misrepresenting the odds of winning a prize
or failing to award and distribute all prizes, providing for
civil penalties and other remedies.
2.Outlaws use of a "slot machine or device," which "may be
operated, and by reason of ... hazard or chance or of other
outcome of operation unpredictable by [the user], the user may
receive or become entitled to receive ... [an] additional
chance or right to use the slot machine or device" or a
"token, or memorandum ... which may be exchanged for any
money, credit, allowance, or thing of value."
3.Prohibits lotteries, with exceptions for the California State
Lottery, bingo for charitable purposes, and charitable raffles
conducted by a non-profit, tax-exempt organization.
This bill:
1.Designates as prohibited unfair business practices the
following acts undertaken by a person in the operation of a
contest or sweepstakes:
A. Using or offering for use any method intended to be used
by a person interacting with an electronic video monitor to
simulate gambling or play gambling-themed games in a
business establishment that (1) directly or indirectly
implements the predetermination of sweepstakes cash,
cash-equivalent prizes, or other prizes of value, or (2)
otherwise connects a sweepstakes player or participant with
sweepstakes cash, cash-equivalent prizes, or other prizes
of value.
B. Excepts from this prohibition game promotions and
sweepstakes conducted on a limited basis as an advertising
and marketing tool incidental to substantial bona fide
sales of consumer products or services, as specified.
C. Defines "business establishment" as a business having a
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financial interest in the conduct of the sweepstakes or the
sale of the products or services being promoted by the
sweepstakes at its physical location.
1.Defines "sweepstakes" as a procedure, activity, or event, for
the distribution, donation, or sale of anything of value by
lot, chance, predetermined selection, or random selection that
is not unlawful under other provisions of law, including laws
governing lotteries and slot machines.
2.Declares that the above prohibitions shall not legalize any
activity that is currently illegal pursuant to laws
prohibiting slot machines, lotteries, or unlicensed gambling.
3.Declares that the prohibitions in this bill shall not render
unlawful otherwise lawful games and methods used by a licensed
gambling enterprise, and shall not restrict operations of the
California State Lottery.
Background
Internet sweepstakes café . Before the days of ubiquitous
broadband Internet access via mobile cellular networks, an
Internet café provided Internet access to the public, usually
for a fee. These businesses usually provided snacks and drinks,
hence the café in the name. Nowadays, many such businesses
often promote the sale of their products (e.g., computer time,
Internet access or telephone cards) by offering a sweepstakes
giveaway that allows customers to ascertain their winnings, if
any, by playing specialized game programs on the businesses' own
computer terminals. Often these programs simulate casino slot
machines or other gambling games.
As noted above, lotteries are illegal in California, except for
the State Lottery. Sweepstakes or business promotions, on the
other hand, are legal and are regularly utilized by companies to
increase sales. Typical examples include McDonald's Monopoly,
Burger King's "Be the King" sweepstakes, and the My Coke Rewards
sweepstakes. Under California law, these sweepstakes and
promotions are legal as long as there is a legitimate free
method for customers and non-customers to enter the contest or
sweepstakes. The differences between a contest or sweepstakes
and an illegal lottery are that, in a lottery, there is a
disposition of money or other property on a contingency
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determined by chance to a person who has paid money for the
chance of winning a prize. As long as there is a legitimate
free method of entry into the sweepstakes or promotion, the
consideration element is absent, and the "sweepstakes" is not an
illegal lottery. According to the Senate Governmental
Organization Committee, it appears that most Internet cafés are
not operating illegal lotteries under California law.
Proponents of this bill note that under the sweepstakes software
systems used by Internet café operators on their computer
networks and terminals, upon the payment of money (such as the
purchase of Internet time or a phone card), patrons can activate
computer sweepstakes games on the terminals and, based on
"chance" or "other outcome of operation unpredictable by" the
patron, win cash prizes.
Recent law enforcement actions and corresponding litigation . In
December 2012, the Attorney General's Bureau of Gambling Control
issued a law enforcement advisory stating that Internet cafés
that offer the type of sweepstakes described above are illegal
gambling operations. Among other things, the Bureau said that
it "will assist California law enforcement agencies working
toward prosecution or pursuing civil or administrative actions
in connection with Internet Café gambling operations.
Assistance may encompass advice, Bureau personnel and equipment,
search and arrest warrants examples, and other experienced
assistance with enforcement operations."
Some jurisdictions in the state have filed civil actions under
the Unfair Competition law seeking to enjoin several Internet
café businesses from continuing to engage in practices that
allegedly violated the gambling prohibitions on unlawful
lotteries and/or slot machines or devices. Defendants in
consolidated Kern County cases recently appealed from trial
court orders granting the preliminary injunctions against their
businesses.
The reviewing appellate court upheld the injunctions, holding
that an unlawful slot machine was involved in each of the
defendants' businesses. Among other things the court in the
People v. Grewal (2014) 224 Cal.App.4th 527case said that the
customers in the Internet cafés may become entitled to win
prizes under the software systems implementing defendants'
computer sweepstakes games based on "hazard or chance or of
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other outcome of operation unpredictable" to the user? Thus,
the court agreed that the "chance" element of illegal slot
machine law is satisfied. Since customers playing the computer
sweepstakes games can exert no influence over the outcome of
their sweepstakes entries by means of skill, judgment or how
well they play the game, it follows that we are dealing with
systems that are based on chance or luck.
The defendants in the Grewal case have petitioned the California
Supreme Court for review (or de-publication of the opinion)
because it reached a result that is in conflict with an earlier
slot machine case involving the State Lottery. The differences
between the cases involve the description of the manner in which
the chance element must be realized in order to constitute a
slot machine or device under Penal Code Section 330b. Among
other things, the Grewal held that the element of chance is to
be determined from the user's perspective, and it is immaterial
that the machine itself did not determine the element of chance.
Thus, an illegal slot machine is found whenever "upon the
payment of money (i.e., the purchase of phone cards or Internet
time), patrons can activate computer sweepstakes games on the
terminals, and based on 'chance' or 'other outcome of operation
unpredictable by' the patron, win cash prizes."
Comments
According to the author's office, a loophole in the law has
permitted Internet gambling sweepstakes to operate in a "gray
area" and evade law enforcement. The author's office states
that these Internet sweepstakes are thinly veiled gambling
operations, and the law must be updated to prohibit these
activities and provide authorities with necessary enforcement
tools to regain local control of the public safety issues that
arise because of illegal Internet gambling sweepstakes.
The author's office further states that local business owners
have voiced concerns about the negative consequences of these
business activities, which have been proliferating in the state,
including many reports of increased crime. As a result, nearby
businesses are hurting as their customers seek to avoid the
crowd and crime that these illegal gaming cafes attract. The
author's office states that this bill will close the loophole
that has allowed these illegal cafés to operate.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/22/14)
California Police Chiefs Association (source)
Attorney General Kamala D. Harris
Agua Caliente Band of Cahuilla Indians
Association for Los Angeles Deputy Sheriffs
Association of California Cities Allied with Public Safety
Bakersfield Downtown Business Association
Barona Band of Mission Indians
Bicycle Casino
California Association of Code Enforcement Officers
California College and University Police Chiefs Association
California Contract Cities Association
California District Attorneys Association
California Nations Indian Gaming Association
California State Sheriff's Association
California Statewide Law Enforcement Association
California Tribal Business Alliance
Cities of Avenal, Bakersfield, Barstow, Concord, Delano,
Fairfield, Hayward, Hesperia,
Irvine, McFarland, Oakland, Sacramento, Southgate, Tulare,
Vacaville, and Wasco
Commerce Casino
Communities of California Cardrooms
Habematolel Pomo of Upper Lake
Hawaiian Gardens
Hispanic Chamber of Commerce, Alameda County
Inaja-Cosmit Band of Mission Indians
Kern County Board of Supervisors
Kern County District Attorney
League of California Cities
Los Angeles Police Protective League
Oakland Metropolitan Chamber of Commerce
Oakland Police Department
Pala Band of Mission Indians
Paskenta Band of Nomlaki Indians
Ramona Band of Cahuilla
Riverside Sheriff's Association
San Diego District Attorney
San Mateo County Police Chiefs and Sheriff Association
Solano County District Attorney
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Southern California Tribal Chairmen's Association, Inc.
Viejas Band of Kumeyaay Indians
Yocha Dehe Wintun Nation
OPPOSITION : (Verified 8/22/14)
Prepaid Telconnect, Inc.
World Poker Tour
ARGUMENTS IN SUPPORT : The author and supporters believe that
Internet sweepstakes cafés are by their very nature an abuse of
sweepstakes as a legitimate means to promote the sale of goods
and services. Thus, this bill adds provisions to false
advertising, unfair competition and unlawful business practices
laws that prohibit a person from operating a gambling-themed or
simulated gambling electronic video monitor in a business that
gives cash or other prizes of value. In so doing, the Attorney
General, district attorneys and city attorneys have an
additional predicate act to form a basis on which they can
commence civil lawsuits to seek penalties and other relief
against Internet café operators. The author and supporters
contend that this bill will enhance the ability of law
enforcement to curb illegal gambling activities and associated
crimes by explicitly prohibiting a business from offering
electronic video monitor gambling simulations or gambling themed
games that utilize a sweepstakes prize experience - without
regard to whether or not the operations are using illegal slot
machines.
ARGUMENTS IN OPPOSITION : Opponents believe that this bill
criminalizes sweepstakes unfairly. They contend that this bill
prevents legitimate businesses from utilizing lawful method of
sweepstakes marketing to promote the sale of products and
services. Opponents contend that the Grewal case has already
transformed their legitimate business promotional activity from
a legal sweepstakes, where a standard desktop computer revealed
a pre-determined prize, to a legal sweepstakes that would be
lawful if not delivered on a computer, but is now illegal
because it is delivered on a computer, as that computer now
constitutes an illegal slot machine.
ASSEMBLY FLOOR : 75-0, 5/27/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
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Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gray,
Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Perea, John A. Pérez, V. Manuel Pérez,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, Atkins
NO VOTE RECORDED: Donnelly, Gorell, Patterson, Quirk-Silva,
Vacancy
MW:e 8/22/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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