Internet Sweepstakes Changes The Landscape Of Traditional Sweepstakes
Web based Internet sweepstakes are one highly economical and highly effective way that a company can generate interest in their products and services. With a well-marketed web-based sweepstakes promotion a company can drive more customers to their website and can generate buzz regarding the launch of a new product. In addition, web-based sweepstakes are a great way to collect information about current customers and potential customers. Sweepstakes that are conducted via direct mail, print media or broadcast media have much higher costs; thus the number of businesses that use the Internet for cost-effective marketing continues to grow. This has led to a significant increase in the amount of sweepstakes that are currently promoted via commercial websites.
Lottery, contest or sweepstakes?
For in-house counsel, structuring a sweepstakes game requires careful drafting of sweepstakes rules. In addition, statutes mandate certain disclosures. The goal is to prevent the sweepstake from being classified as a private lottery, because such lotteries are illegal in all of the 50 states. Simply defined, sweepstakes games are no more than marketing promotions that award winners with a prize which can be monetary or nonmonetary in nature, based on chance. In contrast, lotteries require both chance and an awarded prize, with the additional requirement of ‘consideration.’ Thus, in-house counsel have to avoid the consideration component, as may be the only thing separating an illegal lottery and a legal sweepstakes game.
There is some variation within states regarding how consideration is legally defined. It usually requires that the participants buy a product or pay some type of fee in order to participate in said promotion. Additionally, various state courts have held that consideration is present in some non-monetary.
While the legal definition of consideration can vary from state to state, consideration in this context generally requires entrants to pay a fee or purchase a product to participate in the promotion. In addition, state courts have found consideration to be present in certain nonmonetary expense, like those that require consumers to travel to a physical store or to complete a lengthy marketing questionnaire.
Some individuals have expressed their fears that the requirement of computer access or Internet access to enter sweepstakes games may be
There has also been some concern that requiring computer or Internet access to enter a sweepstakes could be regarded as consideration. However, so long as the promotions do not require consumers to buy Internet access or a personal computer in order to participate in such a promotion, it is probably not likely that any court would hold that an Internet sweepstakes game is a lottery on that foundation alone.
Contests are another category of marketing promotions, and they are not considered lotteries or sweepstakes games because winners are chosen due to skill, knowledge, ability, judgment, creativity or expertise. Writing, photography, cooking, athletics and video games are a few examples of contests. Those who enter in a contest are evaluated using criteria that are objective and that is predetermined by qualified judges.
Rules of the ‘games’
All sweepstakes games of course are subject to the regulations set forth by the Federal Trade Commission, but it is essential to consider state laws in addition. Those that are designed for the regulation of false advertising and deceptive advertising are particularly important. Internet sweepstakes games are principally borderless, which means that they need to be in compliance with the relevant laws of all of the 50 states. If the promotion is not limited only to residents of the U.S., it needs to be in compliance with international laws as well. Some states are taking major steps for sweepstakes regulation. In Colorado for example, sweepstakes laws require a disclosure of “No purchase necessary” that must appear bold-face type that is at least ten-point.
Additionally, a few states have taken steps recently to create legislation that is directed towards online sweepstakes games, or have made amendments to their existent sweepstakes games legislation. This indicates that attorney generals in such states are taking a closer look at the way sweepstakes games are enforced. The Court of Appeals in North Carolina ruled in March that the 2010 NC law that stated that online sweepstakes were illegal is an unconstitutional law and was thrown out of the statues govorning that state. The decision may be appealed to the NC Supreme Court.
In addition, any Internet sweepstakes game that allows children who are younger than the age of 13 to enter needs to comply with COPPA (the Children’s Online Privacy Protection Act). Depending on how the sweepstakes game is structured, the ways that it is promoted and implemented and the various prizes or products that are involved, it may also be subject to consumer protection and disclosure requirements set forth by the federal Deceptive Mail Prevention and Enforcement act, requirements from the FDA, IRS, ATF and other regulations as well.
Companies are also required to create official rules and to make set disclosures necessary for promotion of an Internet sweepstakes game, and must make them available to any potential entrants. The rules usually require the disclosure of eligibility, the name of the sponsor, the address of the sponsor, methods of entry, methods used to determine winners, odds of actually winning, the dates when the sweepstakes will end and begin and the location where the winner’s list will be posted. Certain states like New York, Rhode Island and Florida require the sponsors of sweepstakes to register with their state if the total value of prizes to be awarded is above a specific monetary threshold that is set forth within statutes. As such, it is imperative that sponsors of sweepstakes in those states retain their documents appropriately.
At the end of the day, any in-house counsel tasked with drafting official rules to define a sweepstake must be sure to take all state legislation and relevant case law into consideration. That is the best way to prevent an argument that the sweepstakes promotion contains the illegal element of consideration or is not in accordance with the regulations regarding sweepstakes.
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