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This article will focus on sweepstakes promotions offered online.
Sweepstakes and contests have been used by marketers to attract
customers for decades. Now, they are popping up everywhere on the
Net as companies vie for new "eyeballs". Sweepstakes promotions
promise visitors a chance to win a myriad of prizes in exchange
for visiting a website, registering for a service, or downloading
a product. Companies offer these prizes to increase brand awareness
and drive traffic to their web sites - and these on-line promotions
appear to be working. Nevertheless, while online sweepstakes promotions
appear to be a very effective marketing tool, sweepstakes and contests
are heavily regulated activities in the United States (at both the
federal and state level) and abroad. Failure to comply with all
the applicable rules and regulations may lead to both civil and
criminal penalties. Therefore, such promotions should be structured
properly to ensure compliance with both federal and state laws prohibiting
and Federal Regulations
Sweepstakes promotions in the United States are regulated by numerous
federal and state laws and agencies. Federal agencies with jurisdiction
to regulate sweepstakes promotions include the Federal Trade Commission
("FTC"), the Federal Communications Commission ("FCC"),
the United States Postal Service, and the United States Department
of Justice ("DOJ"). Sweepstakes promotions may also be
regulated by state attorney generals and, in some states, district
attorneys. And, sweepstakes promotions may be the subject of a private
lawsuit brought directly by a consumer.
If a sweepstakes promotion allows nationwide participation, the
promotion must comply not only with federal regulations, but also
the regulations of each state. For example, in California, the Penal
Code sets forth the definition of a "lottery," and the
Business and Professions Code governs the promotion of the sweepstakes.
In New York, the law requires that consumer sweepstakes be registered
and bonded 30 days before the commencement of the sweepstakes, if
the value of the prize offered is more than $5,000.00.
Sweepstakes or Illegal Lottery
While sweepstakes promotions are generally permitted in most states,
lotteries are not. Unlike lotteries, "sweepstakes" promotions
do not require the participants to pay anything for the chance to
win. Thus, a promotion that conditions the chance to win on subscribing
for a service, purchasing a product or, in some states, visiting
a physical store, may be deemed an illegal lottery.
A lottery consists of a prize, chance, and consideration (defined
below). Lotteries are generally prohibited in each of the fifty
states unless legislatively exempted (i.e., state run lotteries).
Therefore, sweepstakes promotions must omit one of the three elements
of a lottery (prize, chance, or consideration) to avoid being deemed
an illegal lottery. Generally, a sweepstakes promotion will include
a prize and chance but no consideration.
So what is consideration?
The definition of consideration varies from state to state and whether
a sweepstakes promotion will be found to include an element of consideration
will depend on various factors, such as:
(1) how easy or difficult
it is to participate in the sweepstakes and
(2) whether an alternative
method of entry (e.g., entry by mail or fax) is present. Examples
of consideration include conditioning entry on the participants:
(1) purchase a product; (2) monetary payment;
(3) visiting a store, or
(4) provision of detailed
consumer information. It is unclear whether requiring on-line
access to participate in a sweepstakes constitutes valid consideration.
We therefore suggest that any online promotion provide an alternative
method of entry (e.g. via fax or mail). Please note, however,
that regulators have found the certain promotions containing an
AME to be an illegal lottery.
To Consider When Designing An Online Sweepstakes Promotion
Online promotions create certain issues not present in traditional
media. Accordingly, special rules should be followed when structuring
an on-line sweepstakes promotion. Those responsible for the design
of an online sweepstakes promotion should consider the impact of
the following eight (8) issues:
1. International Considerations
An online sweepstakes promotion is potentially available throughout
the world in every country. In many countries, the conduct of
sweepstakes is prohibited or involves complex registration and
approval requirements. For example, federal law in Canada requires
the inclusion of a skill element in all sweepstakes conducted
in Canada. In addition, for sweepstakes promotions open to Quebec
residents, there are additional procedural and registration requirements.
In other countries, sweepstakes promotions considered legal in
the U.S., may be banned outright. We therefore suggest that participation
in a sweepstakes promotion be restricted to U.S. residents
If a company chooses to allow entries from residents of other
countries, care should be taken to specify the countries from
which participation is allowed and the rules for the sweepstakes
should be cleared with counsel located in the relevant foreign
country. If a company chooses to restrict eligibility to U.S.
residents as suggested, the web site should clearly and conspicuously
say: "OPEN TO U.S. RESIDENTS ONLY".
2. Technical Considerations
Companies sponsoring an on-line sweepstakes promotion should reserve
the right to suspend or cancel the promotion if a computer virus,
bug, or other technical problem corrupts the administration or
security of the sweepstakes. Additional technical considerations
! Incomplete, garbled, misdirected, or delayed electronic entries.
! Limitations on liability in the event information downloaded
from a company's web site causes damage.
! Ensuring that off-line entrants are treated with "equal
dignity" as those who enter on-line. For example, allowing
five on-line entries per day may result in an unfair disadvantage
to those entering by mail. To increase fairness between on-line
and off-line entrants, companies should consider allowing mail-in
entrants to include five entries per envelope mailed.
3. Risk Factors: Criminal
and Civil Fines & Public Relations Nightmare
Due to the sheer number of online sweepstakes and other promotions,
companies may be tempted to cut corners on sweepstakes clearance.
Companies, however, should not be lulled into a false sense of
"safety in numbers." While it may be true that many
"suspect" sweepstakes promotions escape detection, be
mindful that companies may face criminal and monetary sanctions
as a result of running a sweepstakes promotion found to be an
illegal lottery. In addition, some states are extremely aggressive
in policing promotions and the fines can be significant. In California,
for example, the damages assessed may depend upon the number of
violations, which can be significant in an online sweepstakes
promotion. Companies should also consider the potential public
relations nightmare that may result from a regulator finding that
a sweepstakes promotion runs afoul of state regulations prohibiting
There are several trademark issues that should also be considered.
First, the name of the promotion should be cleared by qualified
trademark counsel to ensure that use of a mark does not infringe
on the trademark rights of third parties; Second, if a sweepstakes
promotion includes a reference to a third party's trade name or
trademark, such use should be factual and accurate. Third, care
should be taken to avoid creating a false sense of association
or sponsorship between the sponsor of the sweepstakes and a third
party. Thus, for example, if a sweepstakes offer includes as a
prize a Ford Thunderbird automobile, it may be permissible to
recite this fact. However, it may not be permissible to prominently
feature the Ford logo.
If a sweepstakes promotion includes an image of a particular prize,
such use may raise copyright issues that must be resolved prior
to posting such image on the Internet.
On-line sweepstakes promotions advertised in traditional media
may also be subject to state regulations governing promotional
advertisements. Some states require disclosure of certain information
in connection with promotional advertisements.
7. Special Registration Requirement
For Certain Prizes.
Depending on the value of the prizes offered, some states require:
(1) the sweepstakes rules be registered with a state office, where
the rules will be made publicly available, and/or (2) the posting
of a bond in the amount of the prize value.
8. Special Regulations For
In addition to the above concerns, sweepstakes promotions
in some industries (alcohol, tobacco, health) are subject to special
rules. Companies offering sweepstakes in these industries may
be required to comply with additional federal and/or state regulations.
your Sweepstakes Promotion Rules
It is helpful to think of a sweepstakes promotion as a contract
with the each and every participant. A complete set of rules should
be drafted for each sweepstakes promotion and made available to
participants. Set forth below is a checklist for drafting sweepstakes
rules. This checklist should only be used as a starting point, because
each sweepstakes promotion is unique, and the rules governing each
promotion should be reviewed independently by competent counsel
aware of your particular needs and risk tolerance levels.
Any online sweepstakes promotion
rules should, at a minimum, clearly provide the following:
1. No Purchase Necessary
Stating that it is not necessary to purchase a product should
be set forth clearly and conspicuously at the beginning of the
2. Identification of Sponsor(s)
The sweepstakes rules should provide the name of the sponsor as
well as the sponsor's address.
3. Eligibility Requirements
Participation in sweepstakes may be restricted by factors such
as age, residence, and occupation. Employees of the sponsor, sponsor's
agents, and members of the sponsor's household should be excluded
from participation to remove any appearance of bias. A restriction
to those 18 years or older may also be helpful since promotions
targeted to children under the age of 13 may be subject to greater
4. How To Play
Instructions for participation in an on-line sweepstakes should
be set forth in a clear and concise manner.
The sweepstakes should have a definite start and ending date,
and as it is important to treat those who enter on-line and off-line
in a fair manner, ending dates for mail-in or facsimile entries
may need to be adjusted to allow equal participation by off-line
The number and nature of the prize(s) should be described in detail
in the sweepstakes rules.
7. Odds of Winning
The odds of winning should be stated. If the number of entries
is restricted, the rules should state the exact odds of winning.
If the number of entries is unrestricted, the rules should say
the odds of winning will depend on the number of eligible entries
8. Selection and Notification of Winner
The sweepstakes rules should set forth: (a) the date on which
winners will be selected and announced, (b) the manner in which
winners will be selected and notified, and (c) provide a mailing
address where entrants may request a list of winners.
9. Affidavit of Eligibility and Release of Liability
The sweepstakes rules should include a provision requiring prize
winners to execute an affidavit that the winner meets all of the
eligibility requirements set forth in the rules and that includes
a release of liability.
10. Limitation of Liability
The sweepstakes rules should include a limitation of liability
in connection with misdirected or incomplete entries, electronic
or computer malfunctions, and for any injuries or losses caused
by a prize awarded in the sweepstakes or by participation in the
11. Void Where Prohibited
While every effort should be made to ensure your sweepstakes promotion
complies with federal and state regulations, the rules should
say that the promotion is "void where prohibited."
Due to the effectiveness of sweepstakes promotions, the number of
on-line promotions are bound to increase. However, this increase
will likely trigger additional regulations and enforcement of these
promotions. Accordingly, the rules governing online sweepstakes
promotions should be carefully reviewed to ensure compliance with
all past and newly enacted federal and state regulations.
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This article has been prepared by Melissa C. Marsh for the
benefit of clients and friends. Although prepared by a professional,
this article should not be used as a substitute for legal
advice because your specific factual circumstances may differ,
the laws of your jurisdiction may differ, your specific
situation may require different advice, or the laws may
have changed. Readers should not act upon the information
contained in this article without first seeking the advice
of a local licensed and practicing attorney.
If you have questions
relating to this article, please call (323) 655-1002 or