Online sweepstakes and contests are an effective way to create excitement about your brands and products and increase traffic and sales. The number of sweepstakes and contests conducted over the Internet has grown exponentially over the last decade. Internet marketing enables companies to conduct sweepstakes and contests in a timely, relevant, personal, and cost-effective manner.
Even when conducted in a purely traditional manner, contests and sweepstakes subject marketers to a host of U.S. state and federal laws and regulations, to say nothing of the foreign requirements. In general, the requirements offline are well-understood. Sweepstakes and contests conducted online, in particular those that are open to children under age 13, create even more obligations for marketers. With a growing array of laws surrounding personal privacy, including the Children's Online Privacy Protection Act (COPPA) and Federal Trade Commission's (FTC's) implementing rules, and self-regulatory programs, such as the Children's Advertising Review Unit (CARU) Self-Regulatory Program for Children's Advertising, companies should be sure that contests and sweepstakes directed to children in particular meet applicable requirements. The landscape has become even more problematic as a result of the recent adoption of a privacy law in the State of Maine that purports to limit the ability to collect personal information from minors under 18. The design and formulation of an Internet sweepstakes or contest therefore requires care and specialized knowledge of all the regulatory challenges to limit legal exposure and develop proactive legal and compliance strategies.
With the emergence of personal privacy as a seminal issue, partly in response to the explosion of online activities and growing concern about the ease with which enormous databases of information can be consolidated, marketers who conduct contests and sweepstakes must be informed as to how and under what circumstances they can collect personal data, what they can do with personal data when they collect it, and what they must tell consumers about their data collection, handling, and storage procedures. Posting a privacy policy, developing website terms and conditions, and implementing appropriate security to protect personal information collected online is a must in today's online environment.
While a complete review of all of the applicable requirements governing sweepstakes, contests and promotions is beyond the scope of this article, we summarize below some of the relevant laws that should be considered in any online contest or sweepstakes, and offer some practical tips to minimize legal liability, promote consumer confidence, and ultimately, protect your brands.
All fifty states have statutes that prohibit illegal lotteries. An illegal lottery is characterized by three elements, all of which must be present: (1) a prize; (2) chance; and (3) consideration. Eliminating the element of chance creates a game of skill or a contest, and eliminating consideration (anything of value to participate) is commonly employed to avoid conducting illegal lotteries and create a legal sweepstakes. Traditionally, marketers have eliminated consideration by simply stating "no purchase necessary," and offering a free method of alternative entry, such as mailing in a postcard. However, eliminating the element of consideration in the Internet environment poses new challenges to marketers. That is because consideration can be anything of value, even the increased time it takes a person to enter the sweepstakes, if the difference is found to be significant. Consideration may be found if a marketer requires an entrant to provide too much personal information, possess specialized software to access the sweepstakes, test drive a car or travel to a store location, subscribe to a marketer's website, or license a marketer's (or anyone else's) software to participate.
Another issue is whether the fact that a consumer must access the Internet in order to participate in a sweepstakes constitutes consideration, since Internet access is not universally available, and access to the Internet generally requires a fee to the user. Consequently, as a precaution, some marketers continue to routinely allow for an alternate means of entry, and this appears to be a prudent precaution for sweepstakes and contests sponsored by subscription-based sites, and for sites that promote the contest or sweepstakes both online and offline.
In addition, states may regulate sweepstakes depending on the value of the prizes. Some states require marketers to post bonds (such as New York and Florida, when the total value of prizes exceeds $5,000), and some require pre-registration (for example, New York and Florida require registration when the total value of prizes exceeds $5,000, and Rhode Island requires registration of retail promotions when total value of prizes exceeds $500). Many states also require specific disclosures in specified font types in immediate proximity to a sweepstakes headline, and some require disclosures on the envelope. Nor does liability end at the U.S. borders; because the Internet is global, promoters also are required to comply with the laws of foreign countries.
If navigating all of these legal minefields is not complicated enough, a host of privacy issues abound to plague an unwary marketer, particularly privacy issues that relate to sweepstakes in which children participate. Under COPPA, web operators are required to post a privacy policy at their sites, and the FTC's Final Rule outlines the specific requirements of web notices and notices to parents when a child enters a sweepstakes online. A growing number of companies, including those that market only to adults, post web privacy policies and allow consumers to at least opt-out of further sharing or sale of their personal information.
If direct mail is used to promote a sweepstakes or contest, then sponsors must ensure compliance with the federal Deceptive Mail Prevention and Enforcement Act (DMPEA), in addition to state laws. The DMPEA applies to sweepstakes mailings, skill contests, facsimile checks, and mailings made to resemble government documents, and requires some specific disclaimers and statements on entry forms, rules and the like. For example, under the DMPEA, sweepstakes mailings must: disclose that no purchase is necessary to enter and will not improve the chances of winning; include the sponsor's name and contact information; provide the estimated odds of winning each prize; include the quantity, estimated retail value, and nature of every prize; and clearly state the payment schedule for any prize. In addition, such mailings may not state or imply that a person may not receive future mailings if he/she fails to make a purchase, require that an entry be accompanied by an order or payment, state that an individual has won a prize if she/she has not, or contradict or limit the sweepstakes rules. Mailings for skill contests or promotions must state all terms and conditions, including rules and entry procedures in language that is easy to find, read and understand, and include the sponsor's name and contact information. Such mailings must also disclose the number of rounds or levels of the contest and the cost to enter each level, whether subsequent rounds will be more difficult, the maximum cost to enter all rounds, the estimated number or percentage of entrants who may win, or have won the sponsor's last three contests, qualifications of the judges, the method used in judging, the date and number of prizes that will be awarded, the nature and estimated value of each prize, and payment schedule. For many marketers, administrative convenience will dictate adherence to these requirements in online activities to assure corporate consistency. Moreover, for certain promotions where both direct mail and online targeting is used, confusion would exist if differing standards apply.
The heart of any sweepstakes promotion is the "Official Rules." These rules constitute the contract between the marketer and the consumer, and must be drafted with great care and precision. By accepting the Official Rules and agreeing to be bound by them, a participant enters into a binding contract with the marketer. While it is not possible to discuss here all issues that relate to Official Rules, as rules differ among states and foreign jurisdictions, the items listed below should always be included:
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