WSR 98-03-069

PROPOSED RULES

GAMBLING COMMISSION

[Filed January 20, 1998, 4:03 p.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 98-01-091 dated December 15, 1997.

Title of Rule: WAC 230-12-330 Availability of gambling equipment and related products and services--Prices--Contracts--Discounts--Restrictions--Exceptions.

Purpose: Housekeeping. This rule was last amended when the manufacturer and distributor rules package passed in September 1997. The commission voted to delete a more specific exception to the prohibition against exclusive contracts in subsection (2)(b). This amendment deletes this specific exception.

Statutory Authority for Adoption: RCW 9.46.070(11).

Summary: See Purpose above.

Reasons Supporting Proposal: This amendment corrects oversight in previous filing; specific exception for manufacturers of pull tab dispensing devices who have patent was found to be unnecessary.

Name of Agency Personnel Responsible for Drafting: Soojin Kim, Lacey, (360) 438-7654 ext. 310; Implementation: Ben Bishop, Lacey, (360) 438-7654 ext. 302; and Enforcement: Carrie Tellefson, Lacey, (360) 438-7654, ext. 373.

Name of Proponent: Staff, private.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: See Purpose and Reasons Supporting Proposal above.

Proposal Changes the Following Existing Rules: Currently, in WAC 230-12-330, a general exception that holders of proprietary rights shall be allowed to enter into license agreements with manufacturers that restrict the ability to manufacture or distribute products or services if all other requirements of this section are met. This amendment deletes the more specific exception in subsection (2)(b) that states that manufacturers may offer for sale pull tab dispensing devices that are designed to use specifically developed pull tab series if the manufacturer has a patent.

No small business economic impact statement has been prepared under chapter 19.85 RCW. Proposal is exempt under RCW 19.85.025(2); therefore, a small business economic impact statement is not required.

RCW 34.05.328 does not apply to this rule adoption. This agency does not choose to make section 201, chapter 403, Laws of 1995 apply to this rule adoption.

Hearing Location: Holiday Inn Sea-Tac, 17338 International Boulevard, SeaTac, WA 98188, (206) 248-1000, on March 13, 1998, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Susan Green by March 1, 1998, TDD (360) 438-7638, or (360) 438-7654 ext. 302.

Submit Written Comments to: Soojin Kim, Mailstop 42400, Olympia, Washington 98504-2400, FAX (360) 438-8652, by February 28, 1998.

Date of Intended Adoption: March 13, 1998.

Soojin Kim

Rules and Policy Coordinator

AMENDATORY SECTION (Amending WSR 97-20-026, filed 9/22/97, effective 1/1/98)

WAC 230-12-330 Availability of gambling equipment and related products and services--Prices--Contracts--Discounts--Restrictions--Exceptions. Manufacturers and distributors shall make their products and services available to all licensees without discrimination. Except as authorized by this section, gambling equipment, devices, related paraphernalia or supplies, and services shall be offered to any licensee wishing to purchase such, for the same price and terms. The following restrictions, procedures, and exceptions apply to prices and terms related to sales of gambling-related products or services:

What are the restrictions on prices of gambling products and services?

(1) Discriminatory prices are prohibited. Prices are considered discriminatory when identical or similar items or services are offered to different persons for a different price or under different terms or conditions: Provided, That prices set under the following criteria shall not be considered discriminatory:

(a) Prices that are established in advance and available for review by the commission and customers prior to accepting a sales order utilizing such. For purposes of this section, prices are deemed to be established and available when they have been mailed or transmitted by facsimile to the commission at least forty-eight hours prior to completing sales transactions or accepting orders for products or services;

(b) Separate and different price schedules established by manufacturers or distributors for transactions conducted with licensees at different marketing levels when such prices are progressively lower at each marketing level above the operator level;

(c) Prices that are based upon the delivery location of an item or service. If the price of an item or service is based upon "free on board" (FOB) terms at a specific location, such price may be varied based upon delivery at a different location, if such is justified by objective evidence. The burden of proof regarding such price differentiation is borne by the seller. Such prices are subject to all other requirements of this section; and

(d) Short-term price reductions or "sales" by manufacturers or distributors are authorized when every licensee is afforded an opportunity to participate. For purposes of this section licensees will be deemed to have been afforded an opportunity to participate when:

(i) All prices and terms are clearly posted at all sales outlets for the benefit of operators and provided to all customers serviced by mobile sales representatives;

(ii) Manufacturers provide full details of the sale to all licensed distributors, including prices and terms, at least forty-eight hours prior to accepting orders for products or services being offered at a sale price. Such notice shall be by mail or telephone facsimile; and

(iii) Any limitations or conditions of the sale are clearly stated in advertisements or notices for such sale.

Can licensees enter into contracts that either require or restrict use of gambling-related products or services?

(2) Except as set forth in WAC 230-12-230, licensees shall not enter into contracts that directly or indirectly restrict the distribution or use of gambling equipment, devices, paraphernalia, supplies, or services: Provided, That holders of proprietary rights to products or services that have been gained through patents, copyrights, trademarks, or other similar rights bestowed by state or federal law or by courts shall be allowed to enter into license agreements with manufacturers that restrict the ability to manufacture or distribute products or services if all other requirements of this section are met. The following transactions are prohibited:

(a) An operator or distributor shall not agree to deal in, purchase, sell, lease, or operate any particular brand or brands of gambling device or equipment to the exclusion of any other brand of gambling device or equipment;

(b) A manufacturer or distributor, or licensed representative or employee thereof, shall not sell or offer to sell, lease, or loan any gambling-related product, service, or merchandise if such is contingent upon the purchase or order of another product, service, or merchandise((: Provided, That a manufacturer may offer for sale in the state of Washington, pull tab dispensing devices that are designed to use specifically developed pull tab series if the manufacturer has a patent or other exclusive right to protect its distribution)); and

(c) Except as set forth in this subsection, no person shall enter into any agreement, express or implied, that prohibits a person from selling or providing any gambling-related product or service within a particular geographic area: Provided, That -

(i) Licensed manufacturers, distributors, and service suppliers may enter into such agreements with its licensed representative; and

(ii) An operator may enter into an agreement with a licensed service supplier that is supplying only management or consulting services when such agreement only restricts the service supplier from supplying the same or similar services to other operators within a specified geographic area.

Are discounts allowed?

(3) Manufacturers and distributors may offer discounts of base prices that are authorized by this section when such discounts are nondiscriminatory. For purposes of this title, discounts will be deemed to be nondiscriminatory when:

(a) Offered to all licensees on the same terms;

(b) The scheme upon which the discount is based is in writing and submitted to the commission at least forty-eight hours prior to being offered;

(c) The discount applies only to a single sales transaction and does not relate to a level of sales made over a period of time; and

(d) The level of a discount is based only upon any of the following criteria:

(i) The amount of product sold or the dollar value of the sale;

(ii) Whether the purchaser makes full payment in cash at time of sale;

(iii) Whether the purchaser makes final payment for a transaction within a predetermined time period for sales made under "trade account" terms; and

(iv) Any other structure or terms, subject to preapproval by the director. The manufacturer shall pay for the approval process and any additional requirements necessary to assure compliance with this section.

Can manufacturers or distributors elect to limit their sales to a specific market level?

(4) A licensed manufacturer or distributor may elect to limit sales of products and services to licensees at any marketing level. For purposes of this section, marketing levels are defined as manufacturer, distributor, and operator. If a manufacturer or distributor elects to make sales to any licensee at a marketing level, sales must be made to all licensees at the same level: Provided, That transactions between a manufacturer and distributor, when both are owned and operated by the same persons, are considered internal to that business. For purposes of this section, internal transactions are not considered sales at a different marketing level. All other restrictions of this section apply to such sales. For example:

(a) A licensed manufacturer may elect to sell or provide products and services only to distributors; or

(b) A licensed distributor may elect to sell or provide products and services only to operators.

Can manufacturers or distributors establish minimum purchase requirements?

(5) Manufacturers or distributors shall not set minimum purchase requirements for any product or service, except as authorized below:

(a) Minimum purchase requirements are not allowed for purchases made under prepaid or cash on delivery (COD) terms: Provided, That manufacturers may establish and charge a reasonable fee for services to handle an order for products or services below a specified level, if such policy is in writing and provided to distributors prior to accepting orders;

(b) Minimum purchase restrictions may be set for transactions between manufacturers and distributors that are conducted using trade account terms, as authorized by WAC 230-12-340;

(c) Discounts may be set based upon a minimum purchase amount as authorized by subsection (3) of this section; and

(d) Minimum purchase restrictions may be placed on products being offered for a bargain or "sale" price if a bargain or "sale" price is established for any and all levels of purchases under such terms.

Are there restrictions on the sale of nongambling products or services sold to licensees by manufacturers or distributors?

(6) A manufacturer or distributor shall not grant licensees, nor shall such licensees accept, more favorable prices, credit terms, or other arrangements than those extended to nonlicensed persons purchasing identical or similar nongambling goods or services. The price of nongambling goods or services sold to licensees shall be in conformity with the open market price in the locality where sold. The terms of such sales shall not exceed those normally granted in accordance with the customary business practice of the particular trade in the locality where such sales are made.

Do the restrictions set forth in this section apply to class III transactions?

(7) This section shall not apply to transactions conducted with tribal governments operating class III casinos under tribal/state compacts or with management companies operating such casinos on the behalf of tribal governments.

[Statutory Authority: RCW 9.46.070 (14) and (20). 97-20-026, 230-12-330, filed 9/22/97, effective 1/1/98.]

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