Conducting Online Sweepstakes, Contests and Promotions: What You Should Know

Transcription

1 Conducting Online Sweepstakes, Contests and Promotions: What You Should Know Association of Corporate Counsel Luncheon February 26, 2013 Presented by: Kate Lowenhar-Fisher Andrew D. Moore 1 *

2 Avoiding the lottery label and structuring a legal promotion Lottery = Consideration + Chance + Prize Lotteries, with the exception of those that are state-sanctioned, are illegal under state law. Federal lottery/gaming laws are designed generally to aid enforcement of state laws. 2

3 Consideration Element Consideration is anything of value that an entrant must give up in order to participate. It may be either monetary (e.g., purchase a product or pay an amount to enter) or non-monetary Non-monetary consideration is present if the entrant expends substantial time or effort which benefits the sponsor of the promotion in some way Determining whether effort required to enter constitutes consideration is a fact-specific inquiry (e.g., traveling to a retail store may not be consideration but waiving legal rights such as the right to opt out of receiving solicitation may be consideration) Some states have determined that providing contact information is consideration if the information is to be used for marketing purposes 3

4 Chance Element A lottery is clearly a game of chance: winner selected at random = game of chance Games of chance range from those that do not require any skill, such as a lottery... to those such as poker or blackjack which require considerable skill in calculating the probability of drawing particular cards. (New York v. Turner, 629 N.Y.S.2d 662 (N.Y. Crim. Ct. 1995).) States apply different tests to determine whether a game constitutes a game of chance Predominance or Dominant Factor Test (lowest risk) Material Element Test Any Element of Chance Test (highest risk) Who The Heck Knows What That State Might Do Test 4

5 Prize Element A prize is anything of value offered as an inducement to participate For sweepstakes/contests, the prize may be money, travel, tickets to show, etc. Prize could be partial or full reimbursement of amounts paid Some states define something of value to include extension of a service, entertainment or a privilege of playing at a game or scheme without charge (See, e.g. N.Y. Penal Law (6), N.J. Stat. Ann. 2C:37-1(D)) 5

6 What needs to be done in order to avoid conducting an illegal lottery? Eliminate one of the three elements! Chance + Prize = Sweepstakes (use of alternative method of entry) Consideration + Skill + Prize = Contest (winners should be selected based on skill, merit or other objective criteria) Consideration + Chance = No Participation *General note: Promotion is a generic term used to refer to both sweepstakes and contests* 6

7 Alternative Method of Entry ( AMOE ) for Sweepstakes Allows entry without having to pay consideration or performing the underlying activities that could be deemed consideration Settlement of class action related to Deal or No Deal text message promotion (illegal lottery claim because of text messaging rates) AMOE must have equal dignity with the purchase method of entry Any material disparity between paid method of entry and alternate method of entry may render alternate method of entry invalid AMOE must be clearly and conspicuously disclosed in all advertising/promotional materials 7

8 Drafting Sweepstakes Rules: Key Considerations Your Official Rules or Terms and Conditions are your contract with the consumer You may not change terms after launch You may not unilaterally change terms You may not reserve the right to change the terms at any time 8

9 Sweepstakes: Drafting Official Rules The $64,000 Statement: NO PURCHASE NECESSARY PURCHASE DOES NOT ENHANCE CHANCE OF WINNING Explain all methods of entry, including AMOE 9

10 Contests: Drafting Official Rules... Skill involved needs to be known to participants at time of entry and skill must control the final result Be sure that judging criteria are clear (e.g., for an essay contest, could have judges determine best essay on percentage basis with 40% attributable to theme, 40% on originality, and 20% on spelling and grammar) and that judges know how they are determining winners For smart practices purposes, sponsor should keep judging scorecards/ballots to show how winner was determined based on objective criteria 10

11 Items to Include in Official Rules for Both Sweepstakes & Contests Eligibility Age restrictions (Nature of prize? COPPA compliance?) You may discriminate (just not illegally; e.g., may eliminate specific states because of their registration/bonding requirements or limit entries to those that own single family homes, etc.) Employees of Sponsor (How embarrassing!) Limit entry to U.S. residents (note specific state requirements; void in certain states?) 11

12 Items to Include in Rules, cont. Start date/time and end date/time Prize details (if necessary, what is not included important for prizes involving trips) Regulated prizes Odds of winning Approximate retail value (ARV) = value to consumer, not cost to sponsor Rules prominently displayed with conspicuous link to privacy policy Sponsor information (identity and contact information) Procedures if error/disruption/mishap Winner notification procedure Winner liable for taxes Availability of Official Rules Winners List (available for 90 days following promotion end date) 12

13 Recordkeeping for Sweepstakes/Contests Records should be maintained for 2 years Maintain copies of entries, official rules correspondence with participants (if any), description and value of prizes offered, number of prizes awarded, method of selecting winners, and names/addresses/telephone numbers of winners 13

14 Determining Eligibility of Winner Consider having potential winner sign Affidavit of Eligibility confirming eligibility requirements Also, consider having winner sign Liability and Publicity Release if sponsor intends to use winner in promotional campaigns Generally, sponsor may condition receipt of prize on winner executing these documents Be sure to have alternate winner selection process detailed in rules because all prizes should be awarded 14

15 Specific Considerations for Online Promotions Given the widespread use of the internet, internet access does not constitute consideration Increased privacy concerns in online arena; given regulatory attention devoted to privacy, requirement to accept future s may invite scrutiny (e.g., NY Attorney General determined that requiring persons to accept a telemarketing call constitutes consideration (2005)) Risk of worldwide exposure Need to be sure that entries are limited to people located in the United States so as to not potentially violate laws of other countries 15

16 Specific Items to Include in Official Rules for Online Promotions Link to privacy policy; be sure to update website s privacy policy to ensure language is included as to how sponsor will use information obtained from entrants in online promotion Choice of law/venue provisions Strong disclaimers of liability for mechanical equipment malfunction Provisions specifying that in the event of a dispute, entry will be deemed made by the holder of the account Include box for entrants to check that entrants have affirmatively reviewed, accepted and agreed to official rules 16

17 Rights to Submissions Online contests raise concerns about sponsor s rights to submissions and raise issues related to liability of sponsor for user-generated content If sponsor intends to use submissions for promotional purposes, rules should include a provision that entrants grant license for sponsor to use submission Sponsor should also include language granting sponsor right to use entrant s name and likeness if sponsor will use entries in promotional campaigns (sponsor should obtain written consent from entrant to ensure compliance with various states rights of publicity laws) 17

18 Content Liability Concerns User-generated content contests can trigger claims for Copyright and trademark infringement Defamation/libel Right of publicity/privacy violations False and misleading advertisement claims Include language in rules noting that entries must be original works of authorship and have participants represent and warrant that the entry does not violate any third party s IP rights; include indemnification language Sponsor should monitor and screen submissions for obvious infringement and reserve broad right to disqualify noncompliant entries 18

19 Specific Rules for Promotions Conducted on Facebook Facebook s promotion guidelines All promotions administered through Facebook must be administered within Apps on Facebook.com; promotion shouldn t be administered through Company s Facebook Wall page Facebook features and functionality (e.g., the Like button) cannot be used as means of entry; sponsors may not condition registration or entry upon the user liking a Wall post, or commenting or uploading a photo on a Wall (also, could raise consideration problem under commercial benefit theory) Official rules must contain the following disclosures -Complete release of Facebook by each entrant -Acknowledgement that promotion is not sponsored, endorsed or administered by Facebook -Disclosure that participant is providing information to sponsor and not to Facebook 19

20 Guidelines for Promotions Conducted on Twitter Twitter encourages businesses to host promotions on Twitter Promotion guidelines note: Contests and sweepstakes on Twitter may offer prizes for tweeting a particular update, for following a particular user, or for posting updates with a specific hashtag. Twitter s guidelines provide that promotions should not be run in a manner requiring participants to violate Twitter s rules of use; promotions should not encourage the following activities: Creation of multiple accounts Posting the same Tweets repeatedly (do not base winner on number of tweets); include rule stating that multiple entries in a single day will not be accepted Using hashtags for updates that are not relevant to the subject matter of the promotion Twitter guidelines suggest that promotion require mention so that sponsor will be able to see all of the updates related to the promotion so that sponsor can keep track of eligible entries 20

21 Remember... Be VERY clear, honest, and accurate Anticipate issues BEFORE launch There are no guarantees 21

22 Questions? Kate C. Lowenhar-Fisher Shareholder Brownstein Hyatt Farber Schreck, LLP 100 North City Parkway, Suite 1600 Las Vegas, NV tel Andrew D. Moore Associate Brownstein Hyatt Farber Schreck, LLP 100 North City Parkway, Suite 1600 Las Vegas, NV tel The information provided in this presentation is for research and educational purposes only and does not constitute legal advice. This presentation is intended to provide general information about promotions, including sweepstakes and contests. If you have any questions regarding the contents of this presentation or if you need legal advice regarding an issue, please contact attorneys Kate Lowenhar-Fisher or Andy Moore directly. This communication may be considered advertising in some jurisdictions. 22