Advertising Law Tool Kit - Ninth Edition | 2021

Venable / 73 72 / Venable Sweepstakes and Contests Melissa Landau Steinman mlsteinman@Venable.com +1 202.344.4972 When developing a sweepstakes and contests strategy, marketers should consider the following factors to mitigate legal, regulatory, and reputational risk: • Official rules should disclose eligibility, how to enter, the number of winners and how they are chosen (with odds if applicable), the identity and value of prizes, and the deadline for entry. Other specific rule requirements vary from state to state. • An alternative method of entry (AMOE) can help marketers avoid violating the lottery laws, particularly if sweepstakes entries are given to consumers purchasing a certain product. Clearly disclose the AMOE and enter purchasers and non-purchasers on equal terms in all advertising. • When running online promotions, comply with all promotions laws and regulations, but also include disclaimers for IT-related issues in the rules, and reserve the right to terminate, suspend, or modify the promotion if it is compromised. Rules should also disclaim all implied warranties and responsibility for printing, production, and typographical errors. Consider international laws, unless the official rules expressly limit participation to U.S. residents. • Promotions targeting children require clear and conspicuous disclosures in language that children will understand, such as “Many will enter, few will win,” to describe the child’s chances of winning, and “you must ask your parents for permission to enter.” The free alternative method of entry must also be clear and described in a way that children will understand. Promotions targeting children under 13 must also comply with the Children’s Online Privacy Protection Act. • Some states require sweepstakes promoters to register in advance. New York and Florida require promoters to establish a trust or escrow account, or provide a surety bond to cover the total retail value of all prizes. These states also require advance registration if the total value of all prizes is more than $5,000. Prize awards in excess of $500 trigger a similar requirement in Rhode Island for promotions run through retail outlets. Arizona requires contest sponsors to pre- register certain games of skill. • Promotion sponsors that require entrants to tweet or post in order to enter must require that the entrant disclose they are entering a promotion in the post, for example by including #contest or #sweepstakes. Whether running a random-draw sweepstakes or a skill contest, prize promotions are an essential aspect of most companies’ marketing strategies. Federal and state laws prohibit illegal lotteries, or promotions that include the following three elements: (1) a prize or award; (2) the element of chance; and (3) the giving of something of value, known as “consideration” (e.g., a purchase or entry fee). Legally compliant promotions eliminate one of these three elements. Promotions must always have a set of easily understandable “official rules,” and advertising should include a basic “rules summary” with material terms and instructions for how to obtain full rules. U.S. federal laws regulate sweepstakes and contests conducted by mail or broadcast, and there are additional laws and requirements that often vary widely from state to state and country to country (that may include registration and bonding requirements, prize restrictions, and rules translation requirements). Failing to consider these differences when structuring promotions may create significant (and even criminal) legal risk. Digital media promotions, which often solicit user-generated content (UGC), have made legal compliance in this area even more challenging. Soliciting UGC may create significant risk, for example when intellectual property owned by (or featuring) third parties is collected. Moreover, third-party social media platforms have their own rules for prize promotions—and may shut down those that don’t comply. Because a violation of the relevant laws may trigger criminal penalties, it is important to plan your promotion carefully before running your giveaway or user-generated content contest.