Online competitions or promotions must be vetted carefully to prevent businesses inadvertently exposing themselves to significant financial penalties and reputational damage.
Facebook, Pinterest, Instagram, LinkedIn, Twitter – they're all platforms that businesses are using to engage directly and quickly with their existing customer bases and to win new customers. One popular marketing strategy that can add significant value is to use a social media platform to undertake a competition or promotion.
However, there are potential pitfalls about which businesses need to be aware when running a social media promotion or competition, or risk significant financial penalties and reputational damage.
Trade promotion regulations
If the online promotion or competition provides a chance to win a reward or prize then it may be caught by the regulations applying to trade promotions in each of the States and Territories of Australia.
In essence, the trade promotion regulations will apply to online competitions where the lottery or competition involves an "element of chance", including any kind of draw. An element of chance may be involved even if some skill is also required. It is only where a promotion involves a competition or game that is solely a "game of skill" (for example, where all entries are judged and the "best" is declared the winner) that the regulations will not apply.
If the trade promotion regulations apply, you must:
- develop terms and conditions for the promotion;
- get permits to conduct the promotion, which are required in at least some States and Territories; and
- meet various requirements for conducting the promotion, including specific terms and conditions, advertising, record-keeping and managing privacy issues.
Significant penalties exist for non-compliance with trade promotions regulations, including fines and/or imprisonment and inevitable reputational damage. The penalties vary in each State and Territory of Australia.
Terms of social media platforms
Whatever social media platforms you use for the promotion will generally require you to:
- comply with applicable State Government trade promotion regulations, including obtaining permits where required;
- ·obtain a complete release of the social media platform by each entrant or participant;
- acknowledge that the promotion is in no way sponsored, endorsed or administered by, or associated with, the social media platform;
- follow its rules on running promotions (for example, Facebook terms state that personal timelines and friend connections cannot be used for promotions); and
- acknowledge that a person using the social media platform to run a promotion does so at their own risk.
It is also common for a social media platform's terms and conditions to contain terms discouraging:
- participants creating multiple accounts to enter promotions;
- businesses from inaccurately "tagging" or "liking" content (which could give rise to misleading or deceptive conduct claims); and
- business from posting multiple, or duplicate, updates or links to promotions.
Social media platforms' terms and conditions have been known to change, so it is important to check them both when you are creating the promotion and running it.
What other issues need to be considered?
Misleading and deceptive conduct
Promotional materials must be clear and not misleading or deceptive in any way. Given the limitations of social media platforms in layout and length of messages, particular care needs be taken in this respect, because the Court will look at the overall impression given by a posting. Misleading or deceptive conduct in respect of a competition or promotion which breaches the Australian Consumer Law can lead to potential penalties of up to $1.1 million for companies and $220,000 for individuals.
The case of Australian Competition & Consumer Commission v Clarion Marketing Pty Ltd  FCA 1441 provides an example of what can go wrong. In that case, Clarion distributed 10 million scratch and win cards, which invited consumers to scratch to see if they had won a prize by revealing 3 matching symbols. Prizes ranged from a Mercedes-Benz car to electronic goods and a holiday voucher worth $1.00. To claim the prize, a consumer had to text into a mobile premium number. In doing so they found themselves signed up to a premium rate mobile subscription service. However, all the cards were winning cards, but no major prize was won. The Federal Court of Australia found that Clarion had misled consumers. Amongst other problems, "There was ... no luck or chance involved in matching the three symbols. Everyone who played was bound to win a prize".
Many businesses will need to comply with Australian privacy principles if they collect and handle any personal information about individuals entering an online competition or promotion.
Any competition or promotion that allows entrants to post a photo, video or some other form of user generated content needs to be carefully managed because of the risk that use of the material may infringe intellectual property or moral rights of the entrant or some other person.
Similar care will need to be taken where a competition or promotion allows entrants to post online comments or information about individuals so as to prevent defamatory material being published in a way that exposes the business to potential liability.
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.