If an Ontario resident purchases a lottery ticket on a Web site hosted in Prince Edward Island, does the purchase occur in Ontario or PEI?
What if, when clicking "I agree" to the terms and conditions of the sale, the purchaser agrees to a jurisdiction clause that identifies PEI as the home to the transaction?
Moreover, what if the actual selection of the winning lottery numbers occurs off-line in a Charlottetown office that also handles all of the lottery's administrative work?
These were just some of the complex questions facing the PEI Supreme Court in a recent case involving the Earth Future Lottery, a PEI-based lottery that obtained provincial approval to operate on-line — only to have its plans derailed in court.
In a decision released last week, the court ruled that the Earth Future Lottery's plans ran counter to the Canadian Criminal Code, since it was not a lottery conducted and managed in the province.
While the court may have provided guidance to the lottery's backers as well as to provincial lottery associations nationwide, the case is a disappointment since it had the potential to accomplish much more.
As the first case to seriously consider the application of Canada's lottery and gaming laws to the Internet, the PEI court had the opportunity to clarify longstanding cyberlaw issues that have left many operating under a cloud of uncertainty.
Instead, the court resorted to simplistic dictionary definitions to decide issues that demanded a detailed consideration of the technologies that underlie the Internet.
The Earth Fund (http://www.earthfund.ca), is a "Canadian charitable organization dedicated to raising money for important environmental and humanitarian causes." In 2000, it decided to launch a fundraising lottery with plans to sell tickets to a global market through the Internet.
The Earth Fund intended to run the lottery exclusively in PEI — the computer server running the Web site, the lottery administration, the credit-card approvals, and the drawings were all to be situated within the province. Moreover, the lottery contract was to have included a clause that deemed the purchase and sale of tickets to occur within PEI.
After PEI granted the Earth Fund a licence to operate, provincial lottery administrators from across Canada challenged the decision. In response, the PEI government agreed to let the court determine the legality of the Earth Fund's plan.
While the court was faced with several legal questions, its decision ultimately boiled down to two: First, was the lottery strictly a provincial operation such that PEI was entitled to grant it a licence to operate? And second, was the lottery operated on or through a computer?
Both questions were critical, since the Criminal Code prohibits lotteries unless they meet one of several narrow exceptions, such as obtaining a provincial licence. Even if that exception is met, however, the lottery cannot be operated on or through a computer.
In considering the first issue, the court ruled that the lottery was "based in" PEI, but was not "conducted and managed in the province" as required by the law. It was convinced that the plans to sell tickets to a worldwide market meant that the lottery was not conducted strictly within provincial borders.
Moreover, it was not persuaded that the lottery's contractual jurisdiction language altered the analysis.
The second issue caused the court even less trouble. While it acknowledged that the actual draw would physically occur in PEI, it found that computers were to be used for a range of lottery activities including promotion, registration of ticket numbers, and delivery of prizes.
In fact, the court concluded that "without the use of computers the Earth Future Lottery would not be viable."
What the court missed was the chance to provide a sophisticated analysis of the Internet-based activity and its intersection with the law.
Describing the plan as based in PEI does not really address challenging issues such as where and when contracts occur on-line, as well as what indicia are used to determine which jurisdiction is home to a particular transaction.
These issues are critically important to more than just lottery operators. Similar considerations arise within the context of Internet gambling, since the Canadian Criminal Code lumps lotteries and gaming together.
With many Canadian gambling operations moving offshore to avoid the long arm of Canadian law, this case fails to provide a better sense of whether our law would view such operations as falling within the ambit of Canadian jurisdiction even if the server and operations are located outside the country.
The lack of technical analysis is also troubling because many other cyberlaw issues, such as liability for linking to illegal Web site content, turn on an appreciation for the subtleties of the Internet environment. If we are to get these issues right, the courts must begin addressing the Internet with the same technical savvy as those who use it.
