WisBar News: Scratch-Off Cards: Seventh Circuit Rejects Company’s Security Breach Claims:

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  • August
    23
    2018

    Scratch-Off Cards: Seventh Circuit Rejects Company’s Security Breach Claims

    Joe Forward

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    Scratch-Off

    Aug. 23, 2018 – It’s called “candling,” using bright lights behind scratch-off cards to read numbers or symbols that might reveal a winning prize. Recently, a federal appeals court ruled that a Wisconsin-based company met the security standard for anti-candling.

    Yemen-based Sabafon, a telephone company, wanted to provide customers with prepaid phone cards with scratch-off games for the chance to win prizes. Scratch off coating would block the phone code and the symbols representing the prize.

    A German-based company, Emirat, promised Sabafon 25 million scratch-off phone cards, and contracted with Ohio-based High Point LLC to print the cards. High Point, in turn, engaged Wisconsin-based WS Packaging Group Inc. to do the contracted work.

    WS Packaging security-tested the cards using high-intensity light and found no problems. But Emirat wanted extra assurances and sent the cards to Denmark-based Force Technology, which used sunlight, florescent tubes, infrared light, x-rays, and lasers to test the cards, concluding those techniques did not reveal the symbols.

    Emirat sent Force Technology a second set of samples with the same result. But Sabafon insisted that some cards could still be candled by removing them from the plastic, bending them to crack the scratch-off layer, and then back-lighting them.

    Emirat sent a third batch of cards with instructions on bending the cards around a pencil to slightly crack the scratch-off layer before shining a bright light behind it. Indeed, using that technique, Force Technology reported that “some” symbols could be revealed

    Emirat rejected the card prints and demanded a refund on the contract, under which High Point had received $700,000, some of which was paid to WS Packaging.

    Ultimately, Emirat sued both High Point and WS Packaging, although High Point was defunct and insolvent by then. The lawsuit for breach of contract and breach of warranty, among other claims, alleged the printed cards were defective.

    The U.S. District Court for the Eastern District of Wisconsin, applying Wisconsin law, granted summary judgment in favor of High Point and WS Packaging.

    And in Emirat AG v. WS Packaging Group Inc., No. 17-1893 (Aug. 21, 2018), a three-judge panel for the U.S. Court of Appeals for the Seventh Circuit affirmed, concluding a reasonable jury could not conclude the cards fell below security norms for scratch-offs.

    The panel noted that Emirat promised Sabafon a “high level” of security, which wasn’t defined, but the contracts with High Point and WS Packaging were silent on candling. Assuming WS Packaging was bound by High Point’s contracts, it was silent.

    Thus, the panel looked to the World Lottery Association security standards for scratch-offs. “Security suffices if it prevents practical kinds of cheating,” wrote Judge Frank Easterbrook. “[A] scratch-off card is a security risk only if it can be candled in five minutes or less. This is the norm from which contractual negotiations can begin.”

    The panel explained that if a buyer wants more advanced scratch-off security, it can contract for that extra layer. But that was not what the parties contracted for in this case.

    One of Emirat’s experts said it took almost 14 hours to acquire the “torch-light” skill of bending the card with no damage detection, in order to successfully candle it, thus conceding that the cards were not security risks under the five-minute standard.

    “That is dispositive against Emirat, for neither High Point nor WS Packaging promised any higher level of security,” Judge Easterbrook wrote.

    “Multiple witnesses testified that cards’ security … normally is specified by contract. This implies that there is no off-the-rack standard, no usage of trade read into every contract, requiring more than the trade association’s five-minute standard.”




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