Jay S. Newman, Esq.

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Promotions That Make the Grade Sweepstakes Law
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Presented by Jay S. Newman, Esq. Fish
Richardson P.C. 1425 K Street, N.W. Suite
1100 Washington, DC 20005
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Win Big Prizes!

• Enter by texting A to 703-963-5761 from your
  cell phone
• One grand prize winner and one runner-up prize
  winner will be randomly selected
• Standard text messaging fees will apply
• Or, enter online by sending an e-mail to
  newman_at_fr.com with Make the Grade! in the
  subject line and A in the body of the message
• Or, enter by mail by sending a 3½? x 5 ½?
  postcard to me at my work address
• All entries must be received tonight

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Issues to Consider

• Lottery laws
• Clear disclosure of material terms
• Unique state requirements
• Oops! . . . Promotions that did not make the grade

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Avoiding Lottery Laws

• Lotteries consist of the following three
  elements
• A prize
• Awarded by chance
• For consideration
• State-run lotteries are generally legal
• Non-profit raffles may be legal
• Commercial entities generally cannot conduct
  lotteries
• One of the three lottery elements must be
  eliminated for a commercial entity to conduct a
  lawful promotion

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What is Consideration?

• Payment to participate
• Purchase of a product or service
• Substantial effort
• Multiple store visits?
• Fill-out lengthy survey?
• Disclosure of personal information? (commercial
  benefit theory)

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What is NOT Consideration?

• Examples of entry methods that are not
  consideration
• Mail-in entry
• Calling a toll-free number
• Watching a TV show
• Completing a brief survey
• Online access?????
• Standard text messaging charges????? (Definitely
  not premium billed charges)

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How Do You Offer a Legal Game of Chance?

• Offer free method of entry
• Clearly disclose existence of free method of
  entry
• Comply with Equal Dignity Rule

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Equal Dignity Doctrine

• All paid entries and free entries must be
  treated equally
• Same entry limit for all entrants
• Same deadlines for all methods of entry
• Same prize pools
• No appearance of favoring paid entries over
  free entries
• Special concerns regarding instant win games
• Consider text messaging example

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Contests

• Examples Trivia contest, essay contest, photo
  contest, etc.
• Winner is selected based on skill, not chance
• Skill must be bona fide
• In many states (not all) consideration is allowed

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Skill Criteria

• Entrants must have opportunity to exercise skill
• Class of entrants must possess the skill
• Skill must sufficiently govern the result
• Ties must be broken on the basis of skill
• Judging criteria must be clearly disclosed
• Judging criteria must be objective
• Judges must be qualified to apply criteria
• Entrants must compete on equal playing field

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Recap Skill vs. Chance

• Skill
• Talent contest
• Cooking contest
• Writing contest
• Spelling contest
• Math contest
• Art Contest

• No Skill
• Guessing number of jelly beans
• First 50 to respond
• Predicting the result of a game or event
• Random draw sweepstakes

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Additional Issues Related to Consideration

• Post consideration may be acceptable
• FTC has ruled that consumers may be required to
  provide consideration to claim prizes they have
  already won
• Many states have special prize pre-notification
  statutes (disclosure requirements)
• Potential concern in some states
• Preexisting consideration is generally
  permissible
• Sweepstakes limited to existing customers
• Should limit the frequency of these sweepstakes
• Make no representation that customer-only
  sweepstakes will be offered

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Disclosure of Material Terms and ConditionsAd
Copy and Official Rules

• Not misleading or deceptive re nature of prize,
  conduct of promotion, chances of winning
• Key disclosures
• No Purchase Necessary
• Free method of entry
• Entry deadlines
• Subject to Official Rules
• Basic geographic and age eligibility requirements
• Odds of winning
• Identification of sponsor
• Voided states

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Ad Copy Where, When and How to Disclose

• Some states have specific requirements for
  advertising
• Requirements may vary depending on medium
• Print (e.g. Florida)
• Television/Radio (e.g., FCC and network
  requirements)
• On-site
• Telemarketing
• Direct Mail (e.g., Deceptive Mail Prevention and
  Enforcement Act)
• Advertising must be consistent with, and disclose
  key elements of, Official Rules
• Disclosures must be clear and conspicuous

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Official Rules

• Official Rules are a binding contract between
  Sponsor and participants and should be easily
  accessible and available without purchase
• Elements
• Identification of Sponsor(s)
• Eligibility Requirements
• Start and End Dates (Specific time, time zone)
• Entry Particulars methods of entry, deadlines,
  limits
• Odds of Winning
• Prize Descriptions number awarded, values,
  restrictions, taxes

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Prize Description

• Automobiles
• Year, make, model and all options
• ARV
• Drivers license and insurance
• Trips
• Days/nights
• ARV
• Hotel accommodations, meals, activities
• Travel documents
• To/from
• Age of companion

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Additional Elements of Official Rules

• Winner Selection/Prize Claim Requirements
• Limitations on Liability
• Ownership of Entries
• Use of Winner Image/Intellectual Property
• Instructions to Obtain Winners List/Copy of
  Official Rules
• Additional requirements for skill contests

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Unique State Laws

• Registration and Bonding Requirements
• Advertising Requirements
• Other

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State Bonding and Registration Requirements

• Registration
• Florida and New York if prize in game of chance
  exceeds 5,000
• Rhode Island if retail establishment offers a
  prize in a game of chance valued at more than
  500
• Arizona if intellectual skill contest requiring
  purchase to enter
• Bonding
• Florida and New York for games of chance with
  prizes exceeding 5,000

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Advertising Requirements

• Advertising Disclosures
• e.g., California requires special disclosures for
  contests and sweepstakes when a store visit is
  required
• Posting Rules at Retail (FL, MA, MI, NY, RI, TX)
• Publication and Distribution of Winners List
  (NY, FL, Others)
• Awarding of All Prizes (FL, Others)
• Retain Records (NY, FL, Others)

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Other Unique State Law Requirements

• No SASE for Official Rules or Entry (Vermont)
• No required publicity release (Tennessee)
• No entry fee for games of skill (Florida,
  Maryland, Delaware, others)

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Oops . . . Problem Promotions

• Daily News
• Kraft
• McDonalds

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Daily News Fiasco (March 2005)

• Scratch N Match in-paper game
• News published numbers to be scratched on game
  pieces
• 13 was published instead of 12
• Printing error resulted in thousands of players
  thinking that they had won the 100,000 prize
• Employee of sweepstakes administrator hit the
  wrong key and mistake was not caught
• News refused to honor prize claims, but offered
  to hold drawing for 1 million in prizes for
  claimants

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Daily News Fiasco The Fallout

• Protests from angry players at News building
• Meet the Match Coalition
• Organized by angry players to increase payouts,
  supported by Councilman Charles Barron
• Threatened to approach News major advertisers,
  boycott News and stop newspapers delivery trucks
• Rival New York Post published critical articles,
  editorials and cartoons sent 1 million peanuts
  to News building (claimed News offer of 1
  million drawing was peanuts)
• Lawsuits filed by prize claimants alleged breach
  of contract and negligence

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Daily News Fiasco Lawsuits

• Dismissed by two NY courts, upholding Official
  Rules
• Breach of contract Official Rules made it clear
  that
• No more than stated number of prizes would be
  awarded
• Chance of winning was very remote
• In event of error, winner would be determined by
  random drawing from all claims received
• Negligence Official Rules provided that neither
  News nor administrator would be liable in event
  of printing, production or other error
• Court A party may contractually absolve itself
  from negligence

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Kraft Ready to Roll Sweepstakes (June 1989)

• Game cards placed inside packages of cheese
  slices
• Odds of winning Grand Prize (car) 1 in
  15,160,000
• Mistakenly printed and seeded far too many
  winning game pieces, resulting in virtually all
  pieces being winners
• Attempts to cancel contests resulted in class
  action lawsuits and regulatory attention
  (potential exposure of 270 million)
• Ultimately settled disputes for 10 million
• Now, Official Rules include Kraft clause
  protecting Sponsor/administrator in event of error

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McDonalds Monopoly Sweepstakes

• Since 1995, security chief of sweepstakes
  administrator (Simon Marketing) stole 13 million
  worth of winning game pieces, distributed them to
  others and received kick-backs from winnings
• On receiving a tip, FBI initiated investigation,
  with cooperation of McDonalds
• Simon Marketing lost accounts of McDonalds, then
  Kraft and Philip Morris (77 of its business)
• McDonald's conducted Instant Giveaway awarding
  10 million in prizes over five days through
  visits to 55 randomly chosen locations

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The Ultimate Nightmare . . . KDND-FM (Sacramento,
CA)

• Death of contestant in radio stations
  water-drinking contest
• Wrongful death suit, Sheriff investigation result

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Affidavits/Releases

• Collect from winner before awarding prize
• Function
• Affidavit Affirmation that winner has met
  eligibility requirements
• Liability/Publicity Release
• Releases Sponsor from liability in connection
  with Sweepstakes, prize
• Gives Sponsor right to use winners name,
  likeness, etc. in promotions
• Addresses intellectual property rights when
  entrant-generated content is at issue
• If winner may be accompanied by guest(s), collect
  Affidavits/Releases from guest(s) as well

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Other Potential Issues/Laws to Consider

• Online Promotions
• Contests Involving Participant-Generated Content
• Security
• COPPA and other laws applicable to privacy
• Direct Mail

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Questions?

• newman_at_fr.com
• [phone]