A settlement has been reached in a proposed class-action suit filed over the use of premium text messaging as a channel for promoting games built around two very popular TV shows.
Two suits filed separately in federal court in California in 2007 and combined in 2008 alleged that NBC Universal and Fox Broadcasting were running SMS promotions for "Deal or No Deal" and "American Idol" respectively that constituted illegal lotteries.
The games, promoted on-air in TV spots during their respective shows, promised prizes of $10,000 or more to entrants who texted their answers to questions about the shows to mobile codes that were displayed on the TV screen. In each case, those mobile codes involved sending premium rather than standard text messages. Premium SMS messages cost much more—99 cents compared to pennies or fractions of pennies for standard messaging—and are usually reserved for services that send news alerts, sports scores and other time-sensitive content.
In each promotion, the messager was asked to perform some function to qualify for entry—answering a multiple-choice trivia question for the “American Idol Challenge” or choosing one of six briefcases for the “Deal or No Deal Lucky Case Game”. The winner of the cash award was then selected from among the group that texted back with the correct answer.
The suit claimed that these campaigns constituted illegal lotteries under California state law, since entrants were being asked to spend money for an entry fee—the 99-cent premium charge—in a prize promotion governed by chance, without receiving anything of economic value in return. Those elements are the basic description of a lottery in California statutes, and could therefore render those games illegal.
Since entrants were also charged 99 cents to receive a premium message thanking them for their entry and a further 99 cents if they messaged in a request to stop receiving text messages from the game administrators, the actual cost of entering the game via premium SMS could be closer to $3.
Each contest also offered viewers the chance to enter and play for free online, but according to the lawsuit, those free options were poorly publicized.
Under terms of the settlement reached last week, NBC Universal and Fox will refund the text fee to the millions who entered either promotional game without winning a prize. Lawyers for the plaintiffs in the class action maintain that up to 2 million people played the “American Idol Challenge” and as many as 600,000 played the other game.
The settlement also calls for the defendant companies to pay plaintiffs’ legal fees of more than $5.2 million. They have also agreed not to run similar promotions involving premium SMS without a promise of a return of comparable value for the next five years.
Both “Deal or No Deal” and “American Idol’ stopped the games soon after the class action suits were filed in 2007. Other similar TV-based text games for shows such as “1 vs. 100” and “The Apprentice” were also allowed to die off.
While the case didn’t go to a judgment, the plaintiffs did get pretty much everything they were asking, points out Joseph Lewczak, a partner in the advertising, marketing and promotions department of Davis & Gilbert LLP. While the defendants will have to reimburse every contest entrant making a claim for the cost of their premium text, it’s uncertain how many of those who entered and did not win a prize will make such claims.
The fact that these suits were settled rather than proceeding to a verdict should be good news for marketers, says Lewczak, and should point the way to how premium messaging can be incorporated into a game or sweepstakes promotion.
“For the industry overall it’s good, because we don’t have a decided case that says these tools are illegal,” he says. “The answer lies in the injunctive relief, which talks about what the defendants can’t do for five years: that is, offer premium text messaging programs unless the people who enter that way receive something of comparable value to the premium text charge.” Marketers who want to steer clear of similar lawsuits will need to make sure that players who choose to enter a game via premium SMS receive something of 99 cents’ value in the course of that entry.
“Marketers need to structure these games in a way consistent with other promotions that involve a purchase and a free alternate means of entry,” says Lewczak. “I always use the McDonald’s Monopoly game as an example [of a game entry done right]. When you buy a Big Mac, you’re entered automatically into the game. With a premium text-message promotion, you might be buying a ringtone and getting an entry. The game can’t just be for those who choose to pay 99 cents to enter.”
The class action lawsuit targeted by the proposed settlement also names as defendants some of the producers, distributors and content developers of the programs and the mobile channels used for the promotions, including Fremantlemedia North America, Endemol USA, M-Qube Inc. and Telescope Inc.
Notably not named in the combined class action were wireless carriers involved in the text-to-win games, AT&T Mobility, Verizon Wireless and Sprint Nextel. Carriers commonly receive a sizeable share of the revenue from premium text messaging.
A California district court denied a motion by defendants to dismiss the class action suit, and that decision was upheld by a Ninth Circuit Appellate Court in July 2010.
In 2007 the “Deal or No Deal” game was also challenged in a Georgia state court under that state’s gambling laws, and specifically under the “qui tam’ laws that permit gaming losers to recover losses from gambling winners. But in 2008 the Georgia Supreme Court found that the game did not qualify as gambling and thus was not governed by those statutes.
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