Running a promotional sweepstakes is an innovative and creative way to attract and retain new customers. However, promoters and administrators must be sure to follow state and federal regulations when crafting their sweepstakes contest rules or risk legal action. One of the most important factors to consider is what is necessary to enter a given contest: would-be participants must not be required to pay any sort of fee as a condition of entry. In fact, there must be a "Sweepstakes AMOE" or an "alternative free means of entry" available to all prospective entrants. According to a recent California Court decision, it may not matter whether the participant was actually aware of the AMOE, so long as the opportunity to enter via this mechanism in fact existed.

Illegal Lottery Claims and the Sweepstakes AMOE

In Suski vs. Marden-Kane, Inc., Plaintiffs each purchased a certain amount of the cryptocurrency Dogecoin on the Coinbase exchange to enter a Coinbase-sponsored sweepstakes. Plaintiffs filed a purported class action against Coinbase, as well as Marden Kane, the administrator, alleging violations of various California State deceptive marketing laws. Plaintiffs argued that the Dogecoin sweepstakes was an illegal lottery within the meaning of the California Penal Code. Specifically, Plaintiffs claimed that not only were they unaware that a sweepstakes AMOE existed, but also that "the ordinary, reasonable consumer could not be expected to have known" that people would be able to enter the contest without buying or selling Dogecoin.

The Court granted Defendants' motion to dismiss the illegal lottery claims, pointing out that no California court has held that being unaware of a sweepstakes AMOE is enough to satisfy the required Penal Code consideration element.

Consumer Legal Remedies Act Claims (the "CLRA")

In addition to the Sweepstakes AMOE claims, Plaintiffs alleged that Defendants' actions violated the CLRA. The CLRA prohibits certain "unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer [emphasis added]." Although both parties agreed that Dogecoin is a cryptocurrency (an intangible good) that does not fall within the purview of the CLRA, Plaintiffs claimed that the statute applies to Coinbase's services because they facilitate the ability of others to trade in Dogecoin (like that of a stockbroker). The Court disagreed, seeing no reason to make a distinction between an entity selling the cryptocurrency itself versus offering the same services for others (Coinbase). Accordingly, Plaintiffs' CLRA claims were dismissed.

Lessons Learned from the Coinbase Decision

As we mentioned in a blog concerning earlier proceedings in this case, failing to include certain necessary promotional disclaimers and disclosures can land your sweepstakes contest in hot water. Some specific disclosures that all sweepstakes promotions should incorporate include:

  1. a sweepstakes AMOE, i.e., language explaining thatno purchase is necessaryfor entry, and that any such purchase will not increase the consumer's odds of winning a prize;
  2. start and end dates;
  3. eligibility requirements, such as minimum age and states where entry is prohibited; and
  4. the odds of winning a prize.

Consult a Sweepstakes Attorney

Sweepstakes advertising is a highly regulated area that may appear simple at first glance. Unfortunately, as many sponsors have learned throughout the years, this is anything but the case. As such, businesses should seek counsel before running any contest promotion to avoid potential regulatory and legal challenges.

Related Blog Posts:

Coinbase Sued For Misleading Sweepstakes Advertising

What Is An NFT Sweepstakes AMOE?

So You Want To Run A Discord Sweepstakes? Be Careful!!!

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.