Staking Out the States
Sweepstakes are subject to constantly evolving regulation by federal and state entities. Various attorneys general have successfully sued and settled with companies for allegedly misrepresenting sweepstakes offers to consumers — most notably, the June settlement with Publishers Clearing House for $26 million dollars. We hope the resolution of that case will help bring current state legislative efforts to a swift conclusion.
The first major sweepstakes law to cast its net is the “Federal Deceptive Mail Prevention and Enforcement Act,” effective since April 2000 and prompted by consumer complaints about direct-mail sweepstakes for magazines. It sets forth numerous requirements for sweepstakes mailings, including clear disclosure in three places of “no purchase [is] necessary” and “purchase does not improve one’s chance of winning.” The law lists prohibited practices and requires marketers to have a name removal system.
When the federal law passed, promotion legal experts feared a “domino” effect would prompt significantly more sweepstakes legislation at the state level. That hasn’t happened. Only a few states have passed laws conforming their existing laws to the federal legislation, and even fewer have attempted to craft full-scale statutes with restrictions greater than the federal law.
Here are some key state legislations the marketing industry should keep an eye on.
Colorado: The Colorado Prize Notification Law (effective since Oct. 1, 2000) imposes numerous restrictions and disclosure requirements on sweepstakes and contests conducted by direct mail. The law tracks many of the federal law’s provisions, but goes further in prohibiting consideration in a bona fide skill contest. It also requires disclosure be presented next to the first listing of the prize or in a separate section marked “Consumer Disclosure” in at least 12-point type. There are several exemptions, including one for negative option clubs and mail-order merchants who derive at least 40 percent of revenue from catalog sales.
Texas: Texas bill H.B. 2530 (effective Nov. 1) is onerous, complex, and subject to challenge on various grounds. It applies to sweepstakes conducted through the mail (but may not have been intended for e-mail). Sweepstakes conducted through newspapers and magazines as specified and sweeps with a grand prize worth less than $50,000 are excluded from the act. There are also various exemptions for particular industries. The numerous prohibitions include one against using an order form that is connected to a sweepstakes entry, unless it can be detached. The law also prohibits any mailing that offers a premium (or non-sweepstakes prize) or another sweepstakes prize within 30 days after the last day of the most recent sweeps mailing.
The bill could have silenced sweepstakes in Texas. But the promotion marketing industry responded to proposed legislation, helping to limit the bill and make it more equitable.
The Promotion Marketing Association and the Incentive Federation Sweepstakes Trust Fund worked together to persuade the legislators to significantly amend the bill’s language. Testimony and support from attorneys Linda Goldstein and Michael Barkow of Hall Dickler Kent Goldstein & Wood, New York City, was pivotal in guiding lawmakers away from many burdensome provisions, including the requirement that certain disclosures be in type 400 percent larger than the otherwise largest font. There was also no exemption for any level of prizes below a specified dollar amount, or any significant industry exemptions.
Illinois: The Illinois Prizes and Gifts Act, signed into law on Aug. 17 (effective Jan. 1, 2002), will apply to written promotional offers (not just direct mail) and will regulate disclosure more like the federal law does (and less onerously than Texas). It was introduced as a limited amendment to the Illinois Fraud and Deceptive Business Practices Act, then amended as its own bill requiring much more detailed disclosure. The statute exempts negative option and continuity programs. It also excludes from liability any advertising media used to disseminate a promotion, unless the publisher is aware of the violation or has an economic interest in the promotion.
Michigan: A bill introduced in May and sent to committee in mid-June would require disclosure in 14-point type on the outside of envelopes summarizing the terms and conditions of the sweepstakes offer inside. Although the bill was just introduced and does not have a significant legislative history at this time, as a matter of general caution the promotion marketing industry has been watching very closely since the legislature reconvened in September.
While the promotion marketing industry has not seen a blizzard of state legislation since the federal law passed, it needs to remain attentive about the legislative calendar in the future. It must continue to be proactive in publicizing the legitimate business and consumer interests in the proper continuation of this valuable marketing tool.
Edward Kabak is director of legal affairs for the Promotion Marketing Association, New York City. Reach him at [email protected].
