September 10, 2012
September 10, 2012
Many suppliers are trying to attract a greater after-market for their products. To do this they use marketing tools to focus people on their products and endeavor to get information to consumers through a sweepstakes. If not structured correctly, these sweepstakes can run afoul of lottery laws and, to a lesser extent, gambling laws, and leave you liable for fraud claims or in violation of consumer protection laws.
The states and the federal government have outlawed lotteries, excluding those run by the states themselves. The definition of a lottery in most states is broad and consists of any game or giveaway that contains the following elements: (1) chance, (2) consideration, and (3) a prize. The most problematic of the elements is consideration. Consideration is more than a monetary exchange, it also includes no-monetary exchanges. Non-monetary exchange can happen when a consumer has to exact extra-normal effort in order to enter the sweepstakes. An example is requiring consumers to visit multiple stores in order to enter a sweepstakes.
Typically, in order to make a sweepstakes legal you need to get rid of one of the elements of a lottery. Most typically the element that is deleted is the consideration. This is done by allowing people a free method of entry. (Think of commercials where you hear the announcer say “no purchase necessary to enter”). But in order for a free method of entry to be legitimate, it must be put on equal footing with the entry by way of consideration (i.e. you cannot limit the amount of entries or time period to something different than the entries using consideration).
In today’s marketing world, most of the entries for contests are done online. While previously a requirement for online entry into a contest may have been seen as consideration, it seems now that requiring someone to go online to enter a contest is not consideration due to the easy accessibility of the Internet. But using the Internet raises a host of other issues, such as privacy and entry by minors, as well as hacking, manipulation and automated entries.
Before starting a sweepstakes you should draft complete rules that will control the sweepstakes. The rules for the sweepstakes will be the contract with the consumers entering the sweepstakes. The rules should cover all potential liabilities concerning the giveaway and liabilities of the prizes to be won. This is especially important when dealing with automotive prizes because if there is a liability to the third party from a use of the prize by the winner of a giveaway, you as the sponsor of the giveaway may be the focus of a lawsuit.
So when thinking about a new marketing program that will involve a prize giveaway, consider the issues above and seek counsel before you get too deep in the process.