Extracted from: Internet Gambling in Nevada: Overview of Federal Law Affecting Assembly Bill 466,
Courtesy of Liebert Publishing, Gambling Law Review

Lotteries played a unique role in our country’s early history, which included “financing the establishment of the first English colonies.” [205] In the colonial-era, America funded public works projects through the use of lotteries. [206]  In the eighteenth century, lotteries were used to underwrite the construction of buildings on the campuses of Harvard and Yale. [207]  Following the Civil War, the Southern states utilized lotteries as a simple means by which to raise revenue. [208]  With the proliferation of state lotteries came an increase in the number of scandals, most notably the Louisiana State Lottery in the late nineteenth century. [209] In response to the public outcry, Congress made “a brief foray into the field of gambling legislation, . . . [then] resumed its hands-off approach to gambling.” [210]  During this period in 1890, Congress exercised its postal powers [211] and prohibited the use of the postal service for transportation of lottery paraphernalia. [212]  In 1895, Congress, acting under the Commerce Clause for the first time, extended the ban to all interstate commerce with the passage of Federal Anti-Lottery Act. [213]  The Act was intended to:

[S]upplement the provisions of prior acts excluding lottery tickets from the mails and prohibiting the importation of lottery matter from abroad, and to prohibit the causing [of] lottery tickets to be carried, and lottery tickets and lottery advertisements to be transferred, from one State to another by any means or method. [214]

In 1909, the Act was revised and codified at 18 U.S.C. § 387. [215] In turn, the Act was replaced by 18 U.S.C. § 1301 in 1948. [216]

For a period of time state lotteries fell out of favor. In 1964, New Hampshire was the first state to reintroduce the state lottery to the American landscape. [217]  By 1999, thirty-seven states had followed New Hampshire’s lead. [218] In 1994, Congress made significant revisions to section 1301 in light of a federal district court ruling.

In Pic-A-State PA, Inc. v. Commonwealth of Pennsylvania, the federal district court held that a Pennsylvania statute that prohibited the selling of interests in another state’s lottery was unconstitutional under the Dormant [219] Commerce Clause. [220]  Subsequent to the district court’s decision, but prior to arguments before the Third Circuit, Congress amended 18 U.S.C. § 1301 [221] to close an apparent loophole [222] in the statute and preserve a state’s right to sell its own lottery tickets to the exclusion of other states. [223] As a result, the court of appeals reversed the district court and held that the Pennsylvania statute in question was constitutionally consistent with the newly enacted federal law that prohibited the interstate sale of lottery interests. [224]

As amended, section 1301 provides:

Whoever brings into the United States for the purpose of disposing of the same, or knowingly deposits with any express company or other common carrier for carriage, or carries in interstate or foreign commerce any paper, certificate, or instrument purporting to be or to represent a ticket, chance, share, or interest in or dependent upon the event of a lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance, or any advertisement of, or list of prizes drawn or awarded by means of, any such lottery, gift enterprise, or similar scheme; or, being engaged in the business of procuring for a person in 1 State such a ticket, chance, share, or interest in a lottery, gift, enterprise or similar scheme conducted by another State (unless that business is permitted under an agreement between the States in question or appropriate authorities of those States), knowingly transmits in interstate or foreign commerce information to be used for the purpose of procuring such a ticket, chance, share, or interest; or knowingly takes or receives any such paper, certificate, instrument, advertisement, or list so brought, deposited, or transported, shall be fined under this title or imprisoned not more than two years, or both. [225]

The 1994 amendment sought to expressly prohibit lottery ticket messenger services in the absence of a compact between the states in question. [226]

Pic-A-State involved a corporation that conducted business through retail stores in Pennsylvania, where customers participated in the legal and authorized lotteries of other states by placing orders for tickets. [227]  In turn, the retail stores transmitted the orders to purchasing agents in the other states by way of a computer terminal. [228]  The retail store charged one dollar for each ticket purchased and the customer received a computer-generated receipt, rather than a lottery ticket (i.e., no interstate transport of lottery tickets and thus, the pre-1994 loophole). [229]

In a subsequent challenge to the constitutionality of the 1994 amendment, the Third Circuit held that:

The Interstate Wagering Amendment regulates lotteries – an activity affecting interstate commerce. It rationally relates to Congress’ goals of protecting state lottery revenues, preserving state sovereignty in the regulation of lotteries, and controlling interstate gambling. The Amendment was a constitutional exercise of Congress’ power to legislate under the Commerce Clause. [230]

As one final point of interest, unlike PASPA, which permits its enforcement by professional and amateur sports organizations, there is no private right of action under section 1301 or the companion provisions of sections 1302 (mailing of lottery tickets), 1304 (broadcast of lottery information) and 1307 (exceptions for state lottery advertisements). [231]

End notes:

[205]    National Gambling Impact Study Commission Report, ch. 2, at 2-1 (June 18, 1999).

[206]    See id.

[207]    See supra, n. 205.

[208]    See King, 834 F.2d at 111-112 (a historical perspective of gambling regulation); see also Kristen D. Adams, Interstate Gambling – Can States Stop the Run for the Boarder?, 44 Emory L.J. 1025, 1033-1034 (Summer 1995).

[209]    See e.g., id.

[210]    King, 834 F.2d at 111.

[211]    See U.S. Const. art. I, § 8, cl. 3 (Postal Clause).

[212]    See Act of September 19, 1890, ch. 908, § 1, 26 State. 465 (codified at 18 U.S.C. §1302).

[213]    See Act of March 2, 1995, ch. 191, § 1, 28 Stat. 963.

[214]    Champion, 188 U.S. at 354.

[215]    See Act of March 4, 1909, ch. 321, § 237, 35 Stat. 1136.

[216]    See Act of June 25, 1948, ch. 645, 62 Stat. 762; see also Kristen D. Adams, Interstate Gambling – Can States Stop the Run for the Boarder?, supra, n. 208, at 1033.

[217]    See Scott M. Montpas, Gambling On-Line: For a Hundred Dollars, I Bet You Government Regulation Will Not Stop the Newest Form of Gambling, 22 Dayton L. Rev. 163, 165-166 (Fall 1996).

[218]    See id.; see also supra, n. 205.

[219]    The Commerce Clause is generally referred to as the “Dormant Commerce Clause,” because states are prohibited from regulating in a particular area that discriminates against interstate commerce or unduly burdens interstate commerce, even though Congress has not seen fit to specifically exercise its power to enact a law. See Maine v. Taylor, 477 U.S. 131, 151-152 (1986); see also Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 431 (1946) (holding that the McCarran Act expressly authorizes states to regulate and tax the business of insurance, even though such regulation and taxation might burden interstate commerce); James E. Gaylord, State Regulatory Jurisdiction and the Internet: Letting the Dormant Commerce Clause Lie, 53 Vand. L.Rev. 1095, 1106-1109 (May 1999).

[220]    See Pic-A-State PA, Inc. v. Commonwealth of Pennsylvania, No. CV-93-0814, 1993 U.S. Dist. LEXIS 12790 at *9-10 (M.D. Pa. July 23, 1993).

[221]    See Violent Crime Control and Law Enforcement Act, Pub. L. No. 103-322, § 320905, 108 Stat. 2126 (1994).

[222]    See Wenner v. Texas Lottery Comm’n, 123 F.3d 321, 323 n. 2 (5th Cir. 1997) (for an analysis of the pre-1994 loophole in 18 U.S.C. § 1301).

[223]    See Kristen D. Adams, Interstate Gambling – Can States Stop the Run for the Boarder?, supra, n. 208, at 1052.

[224]    See Pic-A-State, 42 F.3d at 180.

[225]    18 U.S.C. § 1301.

[226]    See supra, n. 208, at 1056.

[227]    See Pic-A-State, 42 F.3d at 176-177.

[228]    See id. at 177; see also Pic-A-State, 1993 U.S. Dist. LEXIS, at *4-5.

[229]    See id.; see also Champion, 188 U.S. at 354 (carriage of lottery tickets between states by an independent carrier constitutes interstate commerce).

[230]    Pic-A-State PA, Inc. v. Reno, 76 F.3d 1294, 1304 (3rd Cir. 1996), cert. denied, 517 U.S.,1246 (1996).

[231]    See National Football League, 435 F. Supp. at 1388-1389.

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