Internet Ticket Sales

New Jersey Law Journal                 November 14, 2005             Copyright 2005 ALM Properties, Inc.

HEADLINE: Internet Ticket Sales

BYLINE: Jonathan Bick; Bick is of counsel to WolfBlock Brach Eichler of Roseland and is an adjunct professor of Internet law at Pace Law School and Rutgers Law School. He is also the author of 101 Things You Need To Know About Internet Law [Random House 2000].

E-businesses, by forming networks of season ticket holders and contracting with entertainment venues, provide Internet customers with entry passes for concerts, sports and other spectator events. Generally, Internet ticket providers are in the business of buying and selling tickets to such events, above the face value. Some have equated such Internet ticket providers with ticket scalpers and claim that they are acting unlawfully. In particular, some state anti-scalping laws have been applied to Internet ticketing transactions, resulting in both criminal and civil sanctions. However, the application of proper Internet notices and appropriate Web site access limitations may render such state anti-scalping laws moot.

Twenty-nine states have anti-scalping laws, including New Jersey, New York and Pennsylvania (see N.J. Stat. Ann. 56:8-33, 56:8-34 (2005); N.Y. Arts & Cult. Aff. Law 25.03, 25.05 (2003); and Pa. Stat. Ann. tit. 18, 6910 (2004)). Anti-scalping statutes typically have restrictions on time, location, price and the types of events for which tickets may be sold. For example, under New York Arts and Cultural Affairs Law, it is illegal to resell tickets "within one thousand five hundred feet of a place of entertainment having a permanent seating capacity in excess of five thousand persons."

While traditional anti-scalping laws have been challenged, courts have consistently recognized the nuisances associated with ticket scalping, upholding anti-scalping legislation as being within the "police power" of the sovereign. However, since e-ticket sellers make their deals over the Internet, they do not pose the same types of nuisances associated with traditional ticket scalping. Thus the application of the existing anti-scalping precedent may not be applicable to Internet ticket providers, such as the New York statute noted above.

Yet, in addition to eliminating the face-to-face nuisance associated with traditional scalpers, the anti-scalping statutes usually require licenses for ticket brokers to ensure acceptable business practices, including the payment of taxes. Such elements of existing anti-scalping statutes are equally applicable to traditional and Internet ticket providers.

Internet ticket providers, like traditional ticket resellers, may take advantage of exemptions in the statutes that regulate or prohibit scalping. The exemptions principally are implemented by allowing for authorized or licensed ticket agents. Ticketmaster and Ticketron are examples of authorized ticket Internet agents. As authorized agents of an event, these companies generally sell tickets through a contractual arrangement with the promoter. Additionally, rather than selling tickets at above face values, authorized ticket agents by and large make their profit by receiving a percentage of the ticket price and adding a service charge, thus complying with anti-scalping statutes.

Ticket brokers, unlike authorized ticket agents, may sell tickets for greater than face value. Ticket brokers are required by statute to be licensed in states where they do business. To comply with the licensing requirements set forth in anti-scalping statutes, an Internet ticket broker must either obtain a license in each state that authorizes ticket brokers or employ blocking software, which rejects offers to buy tickets from Internet buyers physically located in states where the Internet ticket broker is not licensed.

Internet blocking software may be manual or automatic. Tickets from Internet ticket brokers usually require filling out a form on the Internet. This process will generally yield certain information about a potential buyer before the Internet ticket sales transaction is completed. Such information is used to "weed out" persons who reside in certain states with troublesome anti-scalping laws. The automatic software blocking relies on tables which associate specific Internet addresses with certain physical locations.

Internet ticket sellers may also take advantage of the travel agent exemption found in some anti-scalping statutes. Some states, such as Florida, allow such exemptions to help promote tourism in the state. Internet travel agents may sell tickets in excess of the face value only if the ticket is part of an arrangement that includes travel or accommodations. Rather than employing any of the aforementioned exemptions, some Internet ticket sellers simply decline selling tickets into a state that prohibits ticket scalping.

Internet ticket auctions are another way in which vendors provide tickets. An Internet ticket provider may simply ask for a bid for the available tickets. If the Internet ticket provider avoids asking for a price above the face value of the ticket, the seller avoids an element necessary to violate anti-scalping laws. However, if the "bid" is displayed and that bid is greater than the face value of the ticket, such activity amounts to an invitation to make a higher bid in excess of the face value of the ticket, which is a violation of anti-scalping laws. Thus, only blind auctions are completely immune from anti-scalping prosecution.

Some Internet ticket sellers attempt to avoid liability via the use of a notice. In particular, they attempt to avoid liability by posting disclaimers that state the purchasers of the tickets are responsible for following the laws of the state in which they reside. Typically, they permit the resale of event tickets, as long as sellers abide by the applicable state and local laws of the place where the event is located.

Such a disclaimer might require the following: the location of the event (venue, city and state); the date of the event; the face value of the ticket; and that a third party has reviewed that transaction and has certified that it complies with the following anti-scalping laws: Ala. Code 40-12-167 (2005); Ariz. Rev. Stat. 13-3718 (2004); Ark. Code Ann. 5-63-201 (2004); Cal. Penal Code 346 (2005); Conn. Gen. Stat. Ann. 53-289 (2001); Del. Code Ann. tit. 11, 918 (2005); Fla. Stat. Ann. 817.36 (2004); Ga. Code Ann. 10-1-310 (2004); Haw. Rev. Stat. Ann. 440-17 (2004); 720 Ill. Comp. Stat. 375/1-4 (2004); Ind. Code Ann. 25-9-1-26 (2004); Ky. Rev. Stat. Ann. 518.070 (2004); La. Rev. Stat. 4:1 (2004); Md. Code Ann., Bus. Reg. 4-318 (2005); Mass. Gen. Laws Ann. ch. 140, 185A, (2005); Mich. Comp. Laws Ann. 750.465 (2004); Minn. Stat. Ann. 609.805 (2004); Miss. Code Ann. 97-23-97 (2004); Mo. Ann. Stat. 578.395 (2004); N.J. Stat. Ann. 56:8-33 (2005); N.M. Stat. Ann. 30-46-1 (2005); N.Y. Arts & Cult. Aff. Law 25.03 (2003); N.C. Gen. Stat. 14-344 (2004); Ohio Rev. Code Ann. 715.48 (2005); Pa. Stat. Ann. tit. 18, 6910 (2004); R.I. Gen. laws 5-22-26 (2004); S.C. Code Ann. 16-17-710 (2004); Va. Code Ann. 15.2-969 (2004); and Wis. Stat. Ann. 42.07 (2004).

A disclaimer will not protect the seller, however, if it can be shown that the Internet ticket providers knowingly or negligently facilitated unlawful ticket sales. Thus, Internet ticket resellers are advised to secure an indemnification from those actually selling the tickets, as well as an appropriate errors and omissions insurance policy.

It is well established that an attorney general has clear authority to restrain illegal business practice by a local business in reaction to complaints from both in-state and out-of-state residents, notwithstanding that these practices occur on the Internet. However, will such efforts be fruitful?

Prior to the application of an anti-scalping statute, jurisdiction must first be exercised over the defendant before any action may proceed. Application of state long-arm statutes is one method in which to obtain jurisdiction and enjoin Internet ticket provider liable for civil penalties.

As in the case of Inset v. Instruction Set, Inc., 937 F. Supp. 161 (D.Conn. 1996), where a Connecticut court had jurisdiction over a Massachusetts defendant for contacts made solely on the Internet, courts have found that a sufficient amount of Internet contact yields jurisdiction. However, what amount is sufficient in the case of Internet ticket providers?

In State v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (Minn. App. 1997), the Minnesota attorney general brought an action seeking injunctive and declaratory relief for allegedly illegal Internet gambling activity. The court found defendant's Internet advertising resulted in sufficient minimum contacts as to purposefully avail itself of benefits of doing business in Minnesota, thus satisfying Minnesota's long-arm statute.

This case illustrates that nearly all Internet advertising and activity can be considered sufficient to warrant the application of jurisdiction. Thus, anti-scalping laws would likely be applied to Internet ticket providers.