United States: Promotional Marketing Concerns Associated With Online And Mobile Media

Last Updated: October 8 2013
Article by David O. Klein

The use of promotions and contests in connection with online and mobile marketing can be a dynamic and cost-effective way to increase conversions, build a database of engaged consumers and increase brand awareness. However, businesses must be aware of the fact that governmental entities, including the Federal Trade Commission (FTC), Federal Communications Commission (FCC) and various state attorneys general, are tasked with regulating, investigating and sanctioning non-compliant marketing practices. In this article we address the legal issues surrounding the promotion-related online and mobile marketing space.

Online and Mobile Sweepstakes Marketing

The appeal of promotional contests, games and sweepstakes is obvious: consumers are attracted by the opportunity to win prizes. Despite the allure of the sweepstakes model, there are specific state and federal laws that apply to promotional games, as well as platform rules for marketing on social media websites, such as Facebook®, Instagram® and Twitter®. You could incur substantial liability if these laws and platform rules are not closely followed.

In assessing your liability risk, the baseline question to ask is whether the promotion is a game of chance or skill.  Games of chance are considered illegal lotteries, unless there is a free means of entry, with no strings attached. Alternatively, games of skill are an enticing option; but, depending on the structure of the prizes awarded and the degree of participation of the entity running the promotion, certain anti-gambling laws may still apply. 

When running such contests, it is important that your associated marketing approach comply with other applicable laws and guidelines. For example, you must at all times comply with intellectual property laws. This is especially true when you are offering the opportunity to win a prize that carries a registered trademark, such as an iPhone®, or when you are marketing your contest within a social media environment, such as Facebook®, and you wish to use the Facebook® name and/or logo in your marketing material.

Blog and Social Media Website Marketing

Although a slightly different approach to contests and games, several businesses have recognized the promotional advantages of incorporating their branded messages within various blogs and Internet web pages. Some have even begun creating fake blog/social networking site pages masquerading as review sites, and posting fake articles that include paid testimonials.

While potentially lucrative, this conflation of marketing with blogs/social networking media carries significant liability risk. Because of the historical nature of the Internet as a place for the public to voice their opinions, there is an expectation that the blogger/site member in question is not a paid spokesperson. But when a blogger/site member is engaged in marketing products for a fee, or when that person is an employee of a company that is selling products on the blog, there is an inherent conflict of interest when these relationships are not properly disclosed. Under those circumstances, the blog/website can amount to a form of deceptive marketing.

In fact, the FTC recently updated its Guides Concerning the Use of Endorsements and Testimonials in Advertising to address these issues. The essence of the guidelines is that online marketing material must prominently display a disclaimer that informs the reader of any financial interests that the bloggers or writers have in connection with the products being featured/discussed. Similarly, the author of a fake article must disclose: 1) that the article is not real, but rather, a marketing device; and 2) what the author stands to gain in connection with writing/posting same.

The guidelines also make clear that fake or fictitious testimonials are strictly prohibited and, when using an authentic testimonial, the blogger or writer must not edit or change it from the original in any material way. Finally, where the provider of the testimonial stands to gain by providing the testimonial, this fact must be disclosed to the reader.

Daily Deal Website Marketing

The "daily deal" business model, which is most closely associated with industry leaders Groupon® and LivingSocial®, offers a unique means for businesses to promote their brand and attract customers through "daily deal" coupons, discounts and other perks. However, many businesses are unaware that state and federal laws may apply to these discount offers. Problems arise due to the fact that the discount offers expire after a certain amount of time. Because consumers must pay a fee for these "daily deals," the offers may be considered gift certificates and, therefore, fall under the purview of the Credit Card Accountability, Responsibility and Disclosure Act ("CARD Act").

The CARD Act, and its state law counterparts, requires that all gift certificates have an expiration date at least five years from the date of purchase. While Groupon®, LivingSocial® and their competitors maintain that the discount offers in question are coupons, and not gift certificates, attorneys general in multiple states have begun to scrutinize this business model to determine the nature of the offers. Additionally, multiple class action lawsuits have been filed alleging violation of the CARD Act and corresponding state law.

E-mail and Mobile Marketing

While games, contests and other promotional vehicles are valuable marketing tools, e-mail and mobile marketing should not be neglected as another way that businesses can monetize their client databases. Many companies do not take full advantage of these marketing options because they are unfamiliar with the federal and state laws that govern e-mail and mobile marketing and, thus, do not want to risk the significant penalties that may be incurred if they unwillingly violate those laws. If a company does choose to engage in e-mail and/or text message marketing, or to engage the services of a third party to manage and market to its databases, the company should ensure that it and/or the third party marketer is complying with all applicable laws, as well as its privacy policies.

Please be aware of the fact that the FTC and FCC require that you obtain prior written consent from consumers before sending any auto-generated or pre-recorded text messages to cell phones. The consumer's express informed consent to the receipt of text message marketing and e-mail marketing, as well as the privacy policy and website terms and conditions should always be obtained from consumers at the time of sign-up.

Additionally, the federal CAN-SPAM Act of 2003 (CAN-SPAM) sets forth specific additional requirements that must be followed when marketing to consumers via e-mail. Under CAN-SPAM, use of false or misleading header and sender information is prohibited and the applicable e-mail subject line should accurately reflect the products/services that are being advertised in the subject e-mail. CAN-SPAM mandates that when sending a commercial e-mail message, businesses must clearly identify the e-mail as an advertisement, include a valid physical postal address for the sender, and provide consumers with a mechanism for opting out of the receipt of future e-mail marketing.

Conclusion

While the use of promotions, gaming, consumer reviews and blog posts in connection with online and mobile marketing can garner great benefits for your business, you must also be cognizant of the associated pitfalls, which may put you at legal risk. As such, businesses should always consult with a knowledgeable attorney before commencing any online or mobile marketing campaign.

Original published in Website Magazine

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