Avoiding Legal Limbo
Taking unnecessary chances could earn your promotion a booby prize.
Do you understand the veritable web of federal, state, and local regulations addressing proper disclosures in official rules copy, including topics such as the most appropriate statement of the odds of winning prizes? How about compliance with federal and state lottery laws? What about restrictions on representations and claims made in advertising? Is that your final answer? Before you speak, you better think again. Numerous, seemingly ever-changing laws require that sponsors and their partnering agencies have a comprehensive knowledge of promotion marketing and advertising law, as it is currently and generally interpreted and enforced. And, if one cannot lay claim to this store of knowledge, the marketer must at least have the good sense to seek legal advice before proceeding further. Neglecting this step may at first blush appear to save the sponsor and agency those two most precious commodities: time and money. However, this is the proverbial fool’s gold, as the “gains” achieved by such short-cuts may quickly unravel if the promotion confuses a consumer, or draws the unwanted interest of a regulatory official and/or one of the sponsor’s competitors.
Legal problems can – and sometimes do – arise at various stages in the life of a promotion, so marketers would be wise to consider the possible legal consequences of an idea right at the outset. Clearly, few things are more embarrassing than successfully pitching a program concept to a client, investing the time and resources in the implementation of the project, and only then sheepishly advising the client of some previously unforeseen legal glitch, says Martin J. Cohen, a founding partner of Cohen & Silverman, LLP (New York City), a law firm whose practice focuses principally on matters of promotion and marketing law.
Perhaps, the first lesson of promotion marketing law is that all 50 states, plus the District of Columbia, each have their own set of consumer protection regulations, deceptive trade practice laws, and prohibitions on lotteries. And, generally speaking, the state attorney general is responsible for enforcing these laws. While the various states’ laws overlap somewhat, generally restricting and/or prohibiting similar conduct, there are rather pivotal distinctions in a number of areas. Suffice it to say, no two states’ laws are exactly the same and these nuances evade easy categorization, often varying with the type of promotion utilized. For example, a sponsor of an instant-win game promotion may not require Vermont residents to submit a self-addressed stamped envelope in order to obtain a game piece without purchase.
As if the patchwork of state regulation weren’t enough to grapple with, there are also federal authorities to consider. Generally, the U.S. Postal Service is in charge of the new federal sweepstakes law, the Deceptive Mail Prevention and Enforcement Act, regarding certain types of direct-mail sweepstakes and contests; the Federal Trade Commission overlooks the fairness and fullness of statements and disclosures in advertising; and the Federal Communications Commission aims to keep lottery activities off the airwaves. Moreover, in certain circumstances, promotions may fall within the jurisdiction of the Consumer Products Safety Commission and the Bureau of Alcohol Tobacco and Firearms.
Now that we’ve met the regulators, the question becomes what types of things really concern them. Conducting an illegal lottery presents perhaps the greatest potential pitfall. Generally speaking, a lottery is a promotion with winners determined by chance in which three elements exist: prize, chance, and consideration. Since promotions almost always feature a prize, the major issue for marketers usually is “consideration” – or what someone is required to do to enter.
Above all else, conditioning receipt of a sweepstakes entry or game piece on the purchase of the sponsor’s product is a form of consideration. To remain legal, the sponsor must provide an “alternate” non-purchase method of game play in the official rules. All participants must have an equal shot of winning the same prizes, regardless of whether one buys the sponsor’s product. Even the slightest advantage for the product purchaser can be problematic.
While a required purchase is clearly unsound, the legality of other types of consideration is much more ambiguous. To illustrate, consider a sweepstakes where one must complete a set of 10 “short” market research questions to enter a random drawing. Are 10 questions too many? Just right? How short is “short?” And, just what kind of information is the sponsor after?
Beyond the lottery issue, the official rules can’t be too complicated, either. In reading the rules copy, an average consumer should be able to readily understand the key elements of a program. Generally speaking, “they simply want to know how to play, and we want to make certain that they learn this and a variety of other salient points in a very distinct, clear manner,” Cohen explains. “Then, while doing so, we build in safeguards, components, or disclaimers that allow the program to go forward without violating the existing laws or regulations.” One particularly important aspect of the rules is the eligibility statement. To avoid confusion later on, sponsors/marketers must assure that the persons who will participate in the promotion are indeed the intended target audience. As a related point, the level of difficulty of game play and the suitability of the proposed prizes for the class of eligible persons should also be considered.
Much of this planning may be common sense, suggests Shelly Rowan of Cohen & Silverman’s Boulder office, but such subtleties can often inadvertently be ignored. For example, an alcohol beverage marketer may want to offer a prize that might be attractive to minors, which could draw the ire of regulators concerned about the industry promoting under-age drinking. “[The prize] may not hurt them,” Rowan says of the unintended minor recipients, but the legal consideration is whether there is already an established market for the product among minors, making it an inappropriate prize in an alcohol beverage promotion.
With the benefit of long-range planning, marketers can rather easily sidestep another familiar problem: the logistical as well as financial headaches created when certain types of prizes must be shipped to winners in remote, exotic locales. “If you’re not willing to deliver a prize to Hawaii or Alaska, and you are not willing to offer a cash alternative, you’d better avoid those states,” Rowan warns. While the financial repercussions of legal snafus are often minor in scope, a mistake still has the potential to be devastating. Without restating them, chapter and verse, here, one need only recall Hoover’s offer of airline tickets with a vacuum purchase and Pepsi’s “mock” offer of a Harrier jet in its points program. In both situations, a seemingly slight miscalculation overwhelmed what was originally believed to be a good idea. Although admittedly rare, these doomed promotions are perhaps most memorable not for their ultimate financial burden on the sponsor, but rather for the ensuing public relations debacle.
Another common legal trouble spot is failure to properly register a chance promotion where required by law. If the total value of the available prizes exceeds $5,000, registration (including a surety bond or escrow account in the amount of the prize package) is required in both Florida and New York. Rhode Island also features a registration law for promotions offered in conjunction with retail establishments, where the prize package is over $500; however, a bond is not required.
Governmental bodies, including the respective authorities of Florida, New York, and Rhode Island, regularly conduct inquiries of one type or another into certain aspects of promotional programs although, as Cohen notes, “You only hear about the disastrous ones.”
“There is also the consumer out there,” he adds, “who these days is much more savvy and does not necessarily accept things at face value. He is aware that he has certain rights, and that the sponsors of a lot of these programs can’t trample those rights.”
Whether it’s a consumer, a competitor, or an attorney general, there are forces out there laying legal traps for game sponsors. The best way to avoid them is to remain equally savvy, plan ahead, and follow the letter of the law.
