My previous post provided an overview of gambling concerns associated with a promotion. This post is an extension of that topic and addresses the need for official rules, some of the necessary provisions to include in such rules, and state registration and bonding requirements.
Quality official rules are critical for a promotion. At a minimum, official rules should include: (i) promotion start and end date; (ii) eligibility restrictions; (iii) entry methods; (iv) winner selection details (including judging criteria if a skill-based contest); (v) description and retail value of the prize(s); (vi) odds of winning; (vii) where to obtain a winners' list; (viii) limitations of liability; (ix) name and address of the sponsor; and (x) dispute resolution provisions. Consider having entrants check a box affirming they have read the official rules and agree to be bound by such rules.
A company must also be careful to avoid any potential misinterpretation of its intent and must anticipate foreseeable issues, such as, ties, prize unavailability, prize damage during shipment, and cheating by participants when drafting official rules. It is essential to clearly state all aspects of the promotion as courts will not be kind to operators that mislead participants. Claims for breach of contract, fraudulent misrepresentation, and violation of false advertising statutes may arise if prize interpretation is in dispute.
With this in mind, companies should understand that official rules are like any other binding contract, except that instead of contracting with another sophisticated company, the company is potentially contracting with thousands of users. Detail, clarity and accuracy are therefore crucial in drafting rules. This is evidenced by attorney general enforcement actions and substantial fines levied by the Federal Trade Commission against companies found to be promoting fraudulent schemes and engaging in other forms of false or deceptive advertising on the Internet (i.e., official rules that do not accurately reflect the promotion). Two companies that attempted to make a joke out of their promotions ended up having the joke backfire. Instead of a Toyota, a restaurant awarded a toy Yoda (Star Wars) and instead of a Hummer H2, a radio DJ awarded a toy version. Both promotions resulted in lawsuits which could have been avoided.
When utilizing social media, a company also must be aware of the applicable social media platform's restrictions and draft the promotion's rules in compliance therewith. This is important because a promotion could be terminated prematurely for noncompliance with the platform's restrictions, which may lead to a violation of the law because the promotion did not follow the course as set forth in its official rules.
Finally, several states require registration and bonding of the promotion if the prizes awarded exceed a set amount. To register with a state, among other items, the promotion's official rules and registration fees are required. In addition to registration requirements, separate bonds/trusts based on the total approximate retail value ("ARV") of all prizes are required for Florida and New York. Sufficient time for registration and bonding should therefore be given when contemplating offering a promotion. Failure to do so may result in the promotion being postponed to allow for the necessary registrations or result in the blocking of such states in order to proceed in the timeframe initially proposed.
Utilizing counsel intimately familiar with these issues to develop and vet proposed promotions is a valuable strategy to avoid, at a minimum, embarrassing delays in promotional offerings or in more severe circumstances, criminal penalties resulting from improperly implemented promotions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
