pdf

Don't Take Chances: Emerging Trends in Promotion Marketing Law that Every Sponsor Should Know

Date: Aug 13, 2014

We know that social media and mobile marketing offer creative and cost-effective ways to conduct contests, sweepstakes, and other promotions and spread the word about new products and services.  In addition, social media platforms, like Facebook, Instagram, Twitter, and Pinterest, enable companies to acquire photos, videos, recipes, and other user-generated content that can be valuable for advertising.  New media also pose new challenges for marketers. 

Promotions using text messaging and social media platforms, are subject to many - and varied - federal and state (not to mention international) laws, rules, and regulations.  Platform-specific policies, terms, and guidelines, which are constantly changing, also apply.  Technical considerations, like patent rights, must also be considered.  Even when promotions are only open to residents of one or a few states, understanding all of the applicable laws is a must, and the legal landscape gets complex when promotions are open to residents of all 50 States and the District of Columbia, and possibly U.S. territories and possessions, Canada, Mexico, and other foreign jurisdictions as well. 

This article describes some recent trends in promotion marketing law that can affect a sponsor’s legal liability, consumer relationships, and ultimately, brand integrity.  A detailed overview of the different types of promotions and the legal landscape is outside the scope of this article, but those topics are covered in our previous articles, Structuring Online Sweepstakes and Contests: New Challenges for Marketers and "Likes" and "Tweets" for a Chance to Win: Conducting Sweepstakes and Contests in a Digital World.

USING SOCIAL MEDIA AND TEXT MESSAGING AS A METHOD OF ENTRY

Does the Method of Entry Create Unlawful Consideration?

You may have considered conducting a promotion with one or more of the following methods of entry:  complete an entry form on a Facebook page; upload a photo to Instagram; “tweet” an entry on Twitter; “pin” an entry to Pinterest; or send an SMS text message to a short code.  An initial consideration for any promotion is whether winners will be determined by chance through a random drawing or by skill based on their efforts or the quality/content of their entries.  This is a key question that affects whether the promotion is a sweepstakes (game of chance) or a contest (game of skill).  There are three important elements that determine how to categorize the type of promotion: chance, consideration, and prize.  A promotion that involves all three is generally deemed an illegal lottery.  Since most promotions involve a prize, the difference between a contest and sweepstakes turns on the elements of chance and consideration.  One must be eliminated to avoid categorization as an illegal lottery.

To constitute a lawful sweepstakes, the entry method cannot involve any type of consideration or payment; if there is consideration, a free alternative method of entry (AMOE) must be provided.  Consideration can take many forms other than payment.  For example, requiring entrants to do something more than completing and submitting an entry form could be deemed unlawful consideration for a sweepstakes. 

Contests, in contrast to sweepstakes, do not predominantly involve selection by chance.  Instead, winners are selected based on demonstrated skills, such as submitting an original entry to be judged or competing in a game.  By eliminating chance, consideration can generally be required.  Keep in mind, however, that some states prohibit requiring a purchase or payment as a condition of entering, even for a contest.  In addition, for promotions that involve elements of both chance and skill (such as photo contests with public voting, which may be characterized as popularity contests without objective voting criteria), different states apply different tests for determining which element is dominant and how much chance is too much for a contest that involves consideration to be legally deemed a game of skill. 

Since many sponsors want their promotions to be conducted nationwide (and possibly outside of the United States), careful consideration must be given to the method(s) of entry and applicable laws.  It may be necessary to exclude residents of certain jurisdictions from participating, or to revamp the structure to address legal requirements.        

Communicating the Official Rules

Using social media and text messaging as both a means of publicizing a promotion and a method of entry also creates another challenge:  how to effectively communicate the Official Rules and ensure that entrants acknowledge and agree to them as a condition to entry.  Many state laws require that all promotional materials for a sweepstakes or contest (such as e-mail messages, web pages, banner ads, and Facebook or Twitter posts that mention prizes or chances to win) incorporate either the complete Official Rules or abbreviated rules that reflect the material terms of the promotion and a link to the complete Official Rules.  Traditional entry methods, such as completing an online entry form, make it easy to communicate the Official Rules and obtain consent, as entrants can be required to check a box to acknowledge their agreement.  New media makes this more difficult.  For example, Twitter has a 140 character limit.  Banner ads have character and space limitations.  In addition, social media platforms are not conducive to obtaining acknowledgement of the Official Rules at the time an entry is submitted. 

Complying with Social Media Guidelines

In addition to ensuring compliance with applicable federal and state laws, you must ensure that all promotions, including the methods of entry, comply with any policies, terms, and guidelines for the social media site where the promotions will be conducted.  Those guidelines are constantly changing.  For example, Facebook currently only allows promotions to be administered through company pages or Facebook apps, and not users’ personal timelines (e.g., you cannot require entrants to share their entries on their own timelines).  Twitter discourages entry methods that permit or encourage multiple duplicate updates (e.g., whoever retweets the most wins) or the creation of multiple Twitter accounts to submit multiple entries.  Pinterest prohibits sweepstakes where each Pin, board, like or follow represents an entry, where Pinners are asked to vote with Pins, boards, or likes, and where the promotion requires a minimum number of Pins.  Tumblr prohibits contests, sweepstakes, and giveaways with a prize value over $1,000, and individuals must be 18 or older to enter.  That site also prohibits using Tumblr’s social features (e.g., following, reblogging, and liking) as entry methods. 

For all of these platforms, sponsors must not state or imply that the platform sponsors the promotion or otherwise endorses the sponsor.  It is also prudent to consult each site’s brand guidelines before referencing trademarks owned by the platforms in marketing materials.

Entries as a Form of Endorsement

Allowing people to enter promotions by submitting content via Pinterest, Instagram, and Twitter with promotion-specific hashtags has a lot of appeal, especially for companies that want to generate content for their own advertising purposes.  In addition to getting appropriate assignments or licenses from entrants to use their content, sponsors must consider whether the user-generated content could be deemed an endorsement or testimonial.  If so, and if the “material connection” between entrants and the sponsor is not adequately disclosed, the sponsor faces potential liability under Section 5 of the Federal Trade Commission (FTC) Act.  In March of this year, the FTC addressed for the first time whether a contest entry constitutes a “material connection” between a marketer and endorser that must be disclosed under Section 5 of the FTC Act.  In a closing letter to Cole Haan, the FTC concluded that Pinterest “pins” by contest entrants, which consisted of images of Cole Haan products, constituted an endorsement of the sponsor that required disclosures.  According to the FTC, the #WanderingSole hashtag that entrants were required to use for entries did not adequately communicate the material connection and the fact that the pins were made in connection with a contest. 

The FTC’s analysis of why Pinterest pins constitute endorsements highlights the importance of identifying applicable legal requirements and developing and effectively communicating clear guidelines for contest entries to ensure adequate disclosures.  As brands seek to engage with consumers on social media sites, it is reasonable to expect them to leverage current relationships with consumers to develop new ones.  After all, “word of mouth” recommendations are one of the oldest forms of advertising.  But the line between mere engagement and soliciting endorsements can be blurry, especially on social media that offer new ways of connecting with consumers and promoting brands through leveraging relationships with consumers.  Because a determination of compliance with the FTC endorsement and testimonial guidelines is highly fact-specific, companies should carefully analyze each element of an advertising campaign or promotion conducted on social media sites, including required hashtags and disclosures for user-generated submissions.  

SPECIAL LIABILITY CONSIDERATIONS FOR TEXT MESSAGING PROMOTIONS

Text messaging promotions raise special legal issues.  First, sponsors must consider the Telephone Consumer Protection Act (TCPA), which prohibits sending SMS messages to a wireless phone without prior consent.  Lawsuits- class actions in particular- alleging TCPA violations are on the rise, and the Federal Communications Commission (FCC) has also been actively engaged in TCPA enforcement.  Second, due to the inherent consideration involved with accepting entries via text message, it is advisable to provide a free AMOE if winners will be determined by chance.  Third, the Official Rules and promotional materials for a text message promotion should include relevant disclaimers about applicable carrier-messaging and data charges and lack of service in certain geographic areas.  Finally, accepting entries via SMS text messaging for promotions that are open to children triggers the Children's Online Privacy Protection Act (COPPA) (described in more detail below) to the extent that the process involves online collection of personal information through entries.  Thus, sponsors must ensure that text message promotions purely involve mobile to mobile communications only, or consider appropriate age screening mechanisms and/or ways to obtain parental consent when conducting text messaging promotions with an online component that are open to children. 

PROMOTIONS OPEN TO CHILDREN

Online promotions that target children under 13 present unique issues under COPPA.  (Click here for our detailed summary of the FTC's final amended COPPA rule.)  Of particular significance, the final amended COPPA rule, which took effect on July 1, 2013, defines photos, videos and audio files to be personal information. That has significant implications for user-generated promotions directed to kids, since photo and video uploads are enormously popular with kids.    Social media sites may have different ages of eligibility for users, so sponsors must also be mindful of the age restrictions for each site before conducting promotions through the site (for example, Facebook, Pinterest, and Twitter users must be at least 13 years old). 

COPPA restricts the collection of personal information online from children without express parental consent.  A mechanism to at least notify parents that a child under 13 has entered may be needed under COPPA, depending on what type of personal information may be collected and method of awarding prizes. As a practical matter, this may mean that many sponsors who target general audiences simply limit promotions to those over 13. Neutral age-screening may be a necessary component of the entry process in such instances, especially for promotions targeting "tweeners," and age-screening mechanisms that can entice children to lie about their ages should be avoided.  In addition, use of technologies, like a session or timed cookie, to prevent underage entrants from hitting a back button and changing their age, are recommended.

For websites and online services directed to children under 13, structuring promotions under COPPA’s “one time contact” exception can be an effective way to offer a promotion while complying with the COPPA requirements.  Sponsors may collect an e-mail address from entrants under age 13 and use it one time to send a notification that the child has won.  This means, however, that there can be no communication with the child entrants except to notify the potential winner(s).  In addition, all information collected from entrants under age 13 must be deleted at the end of the promotion.  If sponsors will collect any additional personal information, such as a name or cell phone number, directly from a child under 13 online, then they must notify the child’s parent or legal guardian and obtain consent. 

Sponsors of promotions open to children should also be mindful of self-regulatory guidelines developed by the Children's Advertising Review Unit (CARU).  The CARU guidelines also address privacy aspects, and provide that advertisers should recognize that children may have unrealistic expectations about the chances of winning a sweepstakes or contest or inflated expectations of the prize(s) to be won. Thus, all prizes should be clearly depicted, the free means of entry and likelihood of winning should be clearly disclosed (a phrase such as "many will enter, a few will win" should be used, where appropriate), all prizes should be appropriate to the child audience, and online promotions should not require the child to provide more information than is reasonably necessary.

CONCLUSION

U.S. federal and state laws affecting sweepstakes, contests, and other promotions are complex. When the laws of foreign countries, privacy concerns, and new media are thrown into the mix, it creates new challenges for responsible marketers. As online promotions proliferate, companies must be mindful of the new media in which they operate and keep informed about the plethora of laws, regulations, and guidelines that apply.  Marketers must keep informed of the regulatory developments and challenges to avoid conducting an illegal lottery, violating applicable requirements, or improperly collecting, using, or securing personal information from adults or children.  These emerging trends highlight the importance of having a written social media policy in place that governs use of social media not only for personal and business communications, but also for the conduct of advertising and promotions.  In a world of fast-paced technological change and evolving legal standards, periodic review of social media policies is also necessary to assess whether procedures need to be updated. 

For more information, please contact:

Sheila Millar (202.434.4143, millar@khlaw.com)

Tracy Marshall (202.434.4234, marshall@khlaw.com)

 

Related Articles Published by Keller and Heckman LLP:

FTC Determines that Pinterest Contest Entries Constitute Product Endorsements that Require Disclosures (April 2014)

"Likes" and "Tweets" for a Chance to Win: Conducting Sweepstakes and Contests in a Digital World (Feb. 2013)

Revamping Kids Privacy: FTC Finalizes COPPA Rule Changes (Dec. 2012)

Emerging Trends in Privacy and Data Security Litigation (Sept. 2012)

Structuring Online Sweepstakes and Contests: New Challenges for Marketers (Aug. 2009)