Hest Technologies, Inc. v. State ex rel. Perdue
366 N.C. 289
N.C.2012Background
- North Carolina enacts § 14-306.4 banning electronic machines that conduct sweepstakes with an entertaining display to curb gambling-like activities.
- Plaintiffs market prepaid products and sell electronic sweepstakes systems that reveal sweepstakes results via game-like displays.
- Participants obtain entries from a finite pool; prizes may be claimed in cash or used to obtain more entries.
- Trial court found § 14-306.4 unconstitutional only for the catch-all provision; injunctions were issued then modified.
- Court of Appeals held the statute overbroad, protecting speech in both the result announcement and the video games.
- This Court reverses, holding the statute regulates conduct, not protected speech, and is constitutional.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 14-306.4 regulate conduct or speech? | Plaintiffs argue the law targets video games and speech (result announcements). | State argues it regulates the conduct of operating sweepstakes machines. | Regulates conduct |
| Is § 14-306.4 facially constitutional under the First Amendment? | Speech related to the sweepstakes result or video games is protected; overbroad. | Law targets conduct with incidental speech; no overbreadth. | Constitutional; regulates conduct with incidental speech burden |
| Does Sorrell or Brown require protection for the sweepstakes result or games? | Sorrell and Brown extend First Amendment protection to speech in similar contexts. | Those decisions do not apply because the law targets conduct, not speech content. | Not applicable |
| Does the statute pass O’Brien intermediate scrutiny or rational basis? | The speech components are restricted; high level scrutiny applies. | Regulation satisfies O’Brien because it furthers an important interest unrelated to expression and is narrowly tailored. | Law passes O’Brien scrutiny; no greater burden than necessary |
| Is the statute overbroad in restricting protected speech beyond conduct? | Overbreadth invalidates the statute. | Statute has a limited sweep targeting gambling-like sweepstakes; not substantially overbroad. | Not substantially overbroad |
Key Cases Cited
- State v. Lipkin, 169 N.C. 323 (N.C. 1915) (focus on substance over form to prevent evasion)
- Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447 (U.S. Supreme Court, 1978) (conduct can be illegal despite language involved)
- United States v. O’Brien, 391 U.S. 367 (U.S. Supreme Court, 1968) (intermediate scrutiny for conduct with substantial government interest)
- Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (U.S. Supreme Court, 2011) (content/speaker-based restrictions; incidental burdens on speech allowed)
- Brown v. Entm’t Merchs. Ass’n, 131 S. Ct. 2729 (U.S. Supreme Court, 2011) (video game protection; not applicable where law is not content-based)
- Posadas de Puerto Rico Assocs. v. Tourism Co., 478 U.S. 328 (U.S. Supreme Court, 1986) (legislative regulation of gambling with substantial state interest)
- There to Care, Inc. v. Comm’r of Ind. Dep’t of Revenue, 19 F.3d 1165 (7th Cir. 1994) (bingo-like activity not inherently speech; regulatory analogy)
- United States v. Davis, 690 F.3d 330 (5th Cir. 2012) (Internet cafés as gambling in disguise; regulation upheld)
- Calcutt v. McGeachy, 213 N.C. 1 (N.C. 1938) (police power to regulate gambling against moral hazards)
- Adams v. N.C. Dep’t of Natural & Econ. Res., 295 N.C. 683 (N.C. 1978) (regulation may address specific evils without banning all)