Recent Sweepstakes Enforcement Actions Illustrate Legal Pitfalls

SweepstakesAlthough numerous prior posts have addressed the various perils and pitfalls companies face when promoting sweepstakes and contests, companies still routinely fall victim to them, as illustrated by several recent cases.

The Better Business Bureau’s Children’s Advertising Review Unit (“CARU”) recently instructed Discovery Girls Magazine (a publication directed to children age 8 and up), to modify its advertising for a sweepstakes directed to children based on privacy concerns and a lack of sufficient disclosure of the odds of winning.  The sweepstakes required participants to enter an email address and complete a lengthy survey to be entered for a chance to win an iPod Nano.  CARU determined that the website collected personally identifiable information (PII) from children without first obtaining prior verifiable parental consent in violation of the FTC’s COPPA rule.   Discovery Girls Magazine agreed to modify its sweepstakes and advertising going forward.

The FTC filed a case against a company that allegedly sent millions of personalized letters to consumers informing them that a $2 million prize was reserved just for them.  All they had to do was return a form and pay a $20 or $30 “acceptance” fee.  Not surprisingly, those hapless consumers who paid the fee did not win the advertised prize.  The letter included a minuscule disclosure stating that the consumer had not won, but because it directly conflicted with direct statements to the contrary, the FTC persuaded a federal court to freeze the operation’s assets while the FTC proceeds with its enforcement action.

This past June, the New York Attorney General’s office took took action against A&P Supermarkets for violating state law by failing to properly inform customers that they could enter a sweepstakes its “Frozen Food Month Sweepstakes” without having to make a purchase.  Any customer who purchased more than $50 in frozen food products was automatically entered; and, although the Official Rules disclosed a free alternate method of entry, that wasn’t prominent enough to avoid the wrath of the AG’s office.   A&P paid $102,000 to settle the case and promised to advertise the free method of entry in larger signage, to include copies of the official rules in the stores, and to advertise the free method with “equal prominence” to the paid entry.

Last spring, the FCC took action against a Boston radio station for promoting a contest that failed to disclose material terms and conditions as required by FCC rules.   The contest offered listeners the opportunity to win their choice of three cars, but the on-air promotion failed to mention that the winner would not actually own the car, but would only be given a two- year lease IF he or she passed a credit check.  Though the official rules on the promotion’s website disclosed all these terms, the FCC fined the station $4,000 for not broadcasting the disclosures on the air.

Regulators love to pounce on sweepstakes promoters for any minor or technical violations that may occur during the course of their promotion, regardless of whether consumers are actually harmed.  Worse still, a sponsor could face a consumer class action over problems in running the promotion, and even modest prize values may be challenged by consumers who feel that a promotion is unfair.

The best way to avoid any of these sorry outcomes can be boiled down to one simple word:  DISCLOSE.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.
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