Did the Pre-Paid Phone Cards That Offered Prizes Which Could Be Obtained Without Buying the Card Constitute An Illegal Lottery ?
In American Treasures, Inc. v. State of North Carolina, 173 N.C. App. 170, 617 S.E.2d 346 (N.C. App. 2005), pre-paid phone cards were sold for $ 1 each, entitling the purchaser to two minutes of pre-paid long-distance calls.
The cards, however, also contained a rub-off area in which prizes were offered in amounts up to $ 50,000 or prizes such as a Corvette.
As to the prize promotion portion, consumers could obtain a free "game piece" without purchasing the phone card simply by writing to a designated address and including a stamped self-addressed envelope.
Evidence was adduced that some 11,664 individuals had received such "free" game pieces.
Based on this record, the trial court concluded that the game was "incidental" to the sales of the phone cards and did not constitute an illegal lottery and enjoined the State from interfering with the placement of phonecard dispensers in convenience stores selling alcoholic beverages.
The Court of Appeals affirmed, noting, however, that the phonecard case differed significantly from earlier cases in which patrons paid more than the value of the item in order to secure a change to win something of greater value, such could be construed as a lottery. Id. at 351.
Significantly, the trial court in American Treasures found that the payment of $ 1 for two minutes of pre-paid long distance service was not "merely competitive, but one of the best in the industry." Id.
The North Carolina Court, however, noted that where the legal product offered for sale is a "mere subterfuge" for an otherwise unlawful gambling activity, the Court will "strip the transaction of all its thin and false apparel and consider it in its very nakedness and look to the substance and not to the form of the transaction in order to disclose its real elements . . . ." Id. at 350 (citing State v. Lipkin, 169 N.C. 265, 84 S.E. 340 (N.C. 1915)).