Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

This month, the Seventh Circuit Court of Appeals ruled that the method the NCAA has used to distribute Final Four tickets since at least 1994 could constitute an unlawful lottery.

According to the complaint, each person who applied for tickets had to submit an application with up to ten entries. Each entry was a chance to win up to two tickets and required payment of a $6 non-refundable handling fee. An applicant could win only once but was required to submit the full face value of the tickets for each entry. In order to maximize the chances for winning a pair of tickets, an applicant would have to submit $3,060 (the face value of ten pairs of tickets plus a $6 handling fee for each entry). A successful applicant would receive a pair of tickets and a $2,700 refund (the total ticket price for the remaining nine entries). The $60 in handling fees would not be refunded. An unsuccessful applicant would receive a $3,000 refund (the price of the tickets minus the handling fees).

Under Indiana law, an unlawful lottery consists of three elements: (1) prize; (2) chance; and (3) consideration. The NCAA argued that its ticket distribution process only granted an opportunity to purchase tickets at full price, which was not a prize.  The court rejected this argument, holding that the plaintiffs alleged all elements of a lottery. The plaintiffs allegedly paid a per-ticket or per-entry fee (consideration) to enter a random drawing (chance) in hopes of obtaining scarce, valuable tickets (a prize). Accordingly, the Seventh Circuit reversed the lower court’s dismissal and allowed the case to go forward.

Be careful about any promotion in which people have to pay money for the chance to win something of value. Lottery laws across the country are similar in scope to the law in Indiana, so a promotion that includes prize, chance, and consideration is vulnerable to challenge in all jurisdictions. In most cases, it is essential to ensure that consumers have a way to participate without paying any money.

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Last year, KFC introduced its Kentucky Grilled Chicken, a healthier alternative to the restaurant chain's fried chicken, and promoted it heavily on the Oprah Winfrey show. As part of the promotion, Oprah invited consumers to download online coupons for a free Kentucky Grilled Chicken meal.  KFC was soon overwhelmed with requests for free meals and prematurely ended the promotion.

According to a class action lawsuit filed against the company, KFC “began almost immediately to refuse to honor the coupons” and stopped the promotion after only two days, advising customers to apply for an online rain check, instead. Less than half of the 10.2 million coupons that were downloaded were ever redeemed.  Among other things, the plaintiffs charged KFC with breach of contract, common law fraud, and violation of consumer protection statutes. This month, the court denied KFC’s motion to dismiss and allowed the case to move forward.

Marketers need to think carefully about how to structure coupon offers and take steps to anticipate redemption rates. Everyone loves a “free lunch” -- in this case, literally -- so online coupons for free products usually enjoy very high redemption rates. And once a coupon goes viral, it can be very difficult to control. These issues need to be addressed before the coupon is launched. As KFC’s experience shows, it can be difficult, if not impossible, to address them after problems start to arise. At that point, complaints and lawsuits are almost sure to follow. 

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On May 21, 2010, Virginia Governor Bob McDonnell signed into law a gambling bill that also regulates games, contests, and other promotions. The law provides that companies sponsoring promotions must meet the following requirements: (1) consumers may not be asked to pay any money to participate, other than to purchase a product; (2) consumers must also be able to participate for free; and (3) consumers who play for free must have equal chances of winning as consumers who make a purchase, if applicable.

Companies must make various disclosures in official rules for the promotion, all of which are fairly standard. In addition to the disclosures required in rules, all advertisements for promotions must also include the following disclosures: (1) the name of the sponsor; (2) a statement that no purchase is necessary; (3) the start and end dates; (4) the eligibility requirements; and (5) a disclosure of where the promotion is void.

The law goes into effect July 1, 2010.
 

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On March 10, Kelley Drye will host an encore presentation of the seminar, "A New Legal Frontier for Social Media," at our New York office.

The legal landscape for social media and user-generated content is changing. Make sure you understand the risks and rewards. Companies engaged in blogs, social networking, and other types of interactive marketing campaigns face increased scrutiny in light of recent cases and sweeping changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. These developments have increased the scope of activities and content for which advertisers may be liable.

Join the Association of Corporate Counsel and Kelley Drye for a discussion about the important legal issues and best practices for leveraging social media. Topics will include:

• Ways that companies are using social media in the form of sweepstakes, contests, blogs, wikis, and other promotions involving user-generated content;
• Legal risks and the impact of recent cases and the FTC Guides on your advertising and marketing campaigns; and
• Practical advice on how to minimize legal liability associated with social media websites and campaigns with user-generated content.

SPEAKERS:

David J. Ervin
Partner, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Gonzalo E. Mon
Associate, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Josephine Belli-Marinos
Associate General Counsel & Litigation Counsel
Combe Inc.

Reginald M. Rasch
General Counsel
LinkShare

WHEN:  March 10, 2010, from 3:00 - 5:00 PM

WHERE:  Kelley Drye, 101 Park Avenue, 27th floor, New York, NY, 10178

REGISTER:  email admin@accgny.com
 

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RegHardware reports that Apple recently changed the terms of its iPhone Software Development Kit ("SDK") to allow companies to offer certain promotional games on apps. Although some reports circulating online suggest that Apple is allowing companies to run "lotteries" on the iPhone, that is not exactly right.

Section 3.3.17 of the SDK states: "Your Application may include promotional sweepstakes or contest functionality provided that You are the sole sponsor of the promotion and that You and Your Application comply with any applicable laws." In addition, developers must "clearly state in binding official rules for each promotion that Apple is not a sponsor of, or responsible for conducting, the promotion."  (As we discussed in a previous post, Facebook included a similar requirement in its Promotions Guidelines.)

Keep in mind that laws in the United States -- and laws in most foreign jurisdictions -- prohibit private parties from running lotteries. In general, a lottery includes the following three elements: (1) a prize; (2) awarded on the basis of chance; (3) to people who were required to pay consideration. Therefore, you can't require people to pay money to enter a chance-based promotion.

Although Apple's SDK does give developers more flexibility, it doesn't permit them to violate laws.

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This week, the New York Attorney General announced a settlement with PlasmaNet, the owner of FreeLotto.com, for using deceptive and misleading advertisements. Consumers can enter sweepstakes on FreeLotto.com for free if they agree to receive e-mails from PlasmaNet and visit the site every day. Consumers do not have to visit the site daily if they purchase the “FreeLotto Automatic Subscription Ticket” (“F.A.S.T.”) service, for $14.99 per month. With the F.A.S.T. service, consumers can program PlasmaNet to automatically enter the sweepstakes for them.

The Attorney General alleged that PlasmaNet sent misleading e-mails to FreeLotto.com players notifying them of “pending” prizes and directing them to claim their winnings. The players had not actually won these prizes -- instead, they were unwittingly led to purchase the “F.A.S.T.” service. The Attorney General also alleged that PlasmaNet ran banner ads that falsely stated that a consumer had already won a prize. PlasmaNet did not, however, disclose that the consumer had to register with FreeLotto.com and agree to receive advertising from PlasmaNet in order to collect it.

Under the agreement, PlasmaNet will pay $1.5 million in penalties, costs, and fees and will make refunds available to eligible consumers over the next six months. PlasmaNet must also significantly reform its advertising practices.

This settlement serves as a good reminder that companies need to clearly and conspicuously disclose the material terms and conditions of their offers and that they cannot hide costs in the fine print. Also remember that consumers cannot be required to pay money to enter sweepstakes and that it is unlawful to give any advantage to people who enter by making a payment.
 

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On February 9, Kelley Drye will host the seminar, "A New Legal Frontier for Social Media," at our New York office.

The legal landscape for social media and user-generated content is changing. Make sure you understand the risks and rewards.  Companies engaged in blogs, social networking, and other types of interactive marketing campaigns face increased scrutiny in light of recent cases and sweeping changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. These developments have increased the scope of activities and content for which advertisers may be liable.

Join the Association of Corporate Counsel and Kelley Drye for a discussion about the important legal issues and best practices for leveraging social media. Topics will include:

• Ways that companies are using social media in the form of sweepstakes, contests, blogs, wikis, and other promotions involving user-generated content;
• Legal risks and the impact of recent cases and the FTC Guides on your advertising and marketing campaigns; and
• Practical advice on how to minimize legal liability associated with social media websites and campaigns with user-generated content.

SPEAKERS:

David J. Ervin
Partner, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Gonzalo E. Mon
Associate, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Josephine Belli-Marinos
Associate General Counsel & Litigation Counsel
Combe Inc.

Reginald M. Rasch
General Counsel
LinkShare

WHEN: February 9, 2010, from 3:00 - 5:00 PM

WHERE: Kelley Drye, 101 Park Avenue, 27th floor, New York, NY, 10178

REGISTER: email nycle@kelleydrye.com

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Last month, we posted an entry that discussed the new Promotions Guidelines issued by Facebook. The Promotions Guidelines specify what types of promotions can and cannot be run on the Facebook platform, as well as what types of activities will require companies to obtain prior written approval from Facebook.

This month, Metropolitan Corporate Counsel published an article by Gonzalo E. Mon, Christopher M. Loeffler, and David J. Ervin that discusses the Guidelines in more detail. Click here for a PDF copy of the article.

If your company wants to take advantage of Facebook to publicize or administer a promotion, you need to make sure that you comply with the Facebook Promotions Guidelines, as well as all applicable laws. Failure to do so can result in termination of your company’s rights on Facebook.
 

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As Facebook continues to grow in popularity, more companies have started to run various types of sweepstakes, contests, and other promotions on the Facebook Platform. Whenever a company runs — or even advertises — a promotion on a third-party platform, such as Facebook, the company must ensure that the promotion complies not only with applicable laws, but also with the platform’s terms and conditions. Up until recently, though, there wasn’t any clear guidance on what companies could or could not do on the Facebook Platform. That all changed in November when Facebook issued a detailed set of Promotions Guidelines.

The Promotions Guidelines specify what types of promotions can and cannot be run on the Facebook platform, as well as what types of activities will require companies to obtain prior written approval from Facebook. If your company wants to take advantage of the popularity and reach of Facebook to publicize or administer a promotion, you need to make sure that you comply with the Facebook Promotions Guidelines, as well as all applicable laws. Failure to do so can result in termination of your company’s rights on Facebook.

Click here for a summary of the Promotions Guidelines and here for a copy of the Promotions Guidelines themselves.
 

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Companies that offer sweepstakes in the United States usually exclude residents of Puerto Rico from participating. In most cases, the decision to exclude residents of Puerto Rico have been driven by the onerous requirements that have been imposed on sweepstakes sponsors in that jurisdiction. For example, Puerto Rico has required sponsors to do the following: (a) translate rules into Spanish; (b) publish rules in newspapers or magazines; and (c) have a notary public certify drawing and game pieces. In addition, the regulations had contained some ambiguities about what activities constituted impermissible consideration.

Effective November 27, 2009, most of the requirements that have led companies to avoid running promotions in Puerto Rico have been eliminated. For example, the new regulations issued by the Puerto Rico Department of Consumer Affairs only require rules to be in Spanish if the sweepstakes is advertised in Spanish. Rules may now be published online, rather than in print, and a notary is not required to certify any aspect of the promotion. In addition, the regulations now limit consideration to include a payment or some other act that financially benefits the sponsor.

These changes make it a lot easier for companies to run sweepstakes in Puerto Rico. Although there may be cases in which a company has to exclude Puerto Rico, most of the legal barriers have been removed.

Click here for a copy of the new regulations.

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