Promotions and Specialized Product Marketing

• Pages: 343-416

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CHAPTER III

PROMOTIONS AND SPECIALIZED

PRODUCT MARKETING

A. Introduction

Promotions are designed to drive sales and induce particular

behavior by offering consumers a reason to interact with a brand.

Examples of promotions include an instant win game, a loyalty program

that offers gift certificates as rewards, and a contest involving user-

generated content launched to promote a television show or video game.

Promotions are subject to several federal laws and a vast array of state

statutes, some of which are criminal in nature. With regulation coming

from so many directions, promotions are often considered a subspecialty

of advertising law requiring particularized concentration.

As media change and multiply, the ability of marketers to interact

with consumers on a personal level becomes even more potent.

Consequently, new sets of laws as well as new applications of existing

laws come into play. Privacy has become a central issue relating to

promotions because of the amount of personal data that modern online

and mobile promotions often gather. With the reexamination of the

Federal Trade Commission (“FTC”) Guides Concerning the Use of

Endorsements and Testimonials, marketers have had to take a closer look

at the way they approach word-of-mouth, or so-called viral, marketing.

The interactivity and personal nature of this type of marketing make

promotions a dynamic area of advertising law and require the practitioner

to monitor laws and regulations beyond those strictly intended to protect

consumers in a promotional context.

B. Sweepstakes and Contests

Sweepstakes and contests are marketing promotions in which prizes

are awarded. These types of promotions often go by names such as

“giveaway,” “scratch-and-win,” or “instant win.” No matter what name

is used, whenever the elements of chance, prize, or consideration are

combined, the marketer must make sure that he has not inadvertently

created an illegal lottery. In addition to requirements going to the

structure of the promotion, in certain circumstances many states (and the

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344 CONSUMER PROTECTION LAW DEVELOPMENTS

federal government) may require that certain disclosures be made in

advertisements and that certain procedural requirements be met, such as

bonding and registration. A variety of program types have come under

increased scrutiny, and the factors that have triggered investigations

change over time. To avoid potential problems, marketers must ensure

that their promotions are structured properly and follow applicable

regulatory requirements.

1. Structuring a Sweepstakes or Contest

Promotions that give away prizes to a select few individuals

generally fall into one of two categories: those where winners are

selected through chance (a sweepstakes) and those where winners are

selected through the demonstration of superior skill (a contest). Both of

these scenarios can avoid compliance problems if the promotion is

structured properly and meets procedural requirements.

The first and most important consideration in structuring a

sweepstakes or a contest is to avoid creating a lottery. Lotteries are

regulated heavily in almost all U.S. jurisdictions and are illegal for

private parties to conduct.1 Lotteries generally are associated with three

identifying three elements: (1) the award of a prize or prizes to a limited

number of entrants; (2) those prizes being awarded wholly or largely on

the basis of chance, as opposed to superior skill or other nonrandom

factors; and (3) provision of consideration by the entrants to qualify for

winning the prize.2 Generally, marketers avoid creating a potentially

illegal lottery by eliminating one of the latter two characteristics.3

1. See, e.g., CAL. PENAL CODE §§ 319, et seq.; N.Y. PENAL LAW

§§ 225.00 et seq.; TEX. PENAL CODE ANN. §§ 47.01 et seq.; 815 ILL.

Comp.. Stat. 525/1 et seq.

2. See, e.g., U.S. Postal Serv. v. Amada, 200 F.3d 647, 651 (9th Cir. 2000).

3. See, e.g., Fed. Commc’ns Comm. v. Am. Broad. Co., 347 U.S. 284, 293-

94 (1954) (radio broadcast give-away program held not to be a lottery

because participants paid no consideration for the chance to receive a

prize); Commonwealth v. Lake, 57 N.E.2d 923, 925 (Mass. 1944) (a

game is not considered a lottery if the element of skill predominates).

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PROMOTIONS AND SPECIALIZED PRODUCT MARKETING 345

a. Sweepstakes

Sweepstakes are not illegal lotteries if the element of consideration is

not present or is removed, leaving only chance and prize.4 If the

sweepstakes is associated with an entry fee, purchase or payment,

consideration issues may be avoided by providing a free alternative

method of entry (or “AMOE”). However, a payment or purchase

requirement is not the only type of consideration. Indirect monetary

consideration, such as paying to enter a venue for an event when the

sweepstakes has been promoted prior to the event may also be an issue in

some states.5 Nonmonetary consideration also may exist if the participant

must exert considerable effort to enter the sweepstakes.6 While activities

such as dialing a toll-free number, visiting a store, or filling out a short

survey have been held not to be consideration, requiring multiple store

visits or the disclosure of excessive sensitive personal information (e.g.,

requiring provision of a Social Security number) may bring the

consideration element into play.7

If a marketer employs an AMOE in a sweepstakes, simply having the

AMOE, standing alone, is not enough to avoid scrutiny. The alternately

submitted entries must be given “equal dignity” in all respects to the

other entries. This means that the AMOE entrant should be able to

submit the same number of entries as paying participants, and all the

4. We note, however, that in a 2011 class action lawsuit involving a NCAA

promotion, the issue before the Indiana Supreme Court was whether the

promotion included a “prize” such that it ran afoul of state lottery laws.

See George v. Nat’l Collegiate Athletic Ass’n, 945 N.E.2d 150 (Ind.

2011). The promotion at issue allowed persons to enter by submitting a

$6-$10 handling fee along with the face value of the tournament tickets.

If an entrant was selected as a winner, the entrant would receive the

tickets in the mail, and if not selected as a winner, the entrant would be

reimbursed for the face value of the tickets, but the handling fee would

not be refunded. The Supreme Court of Indiana determined that a prize is

something of more value than the amount invested. In this case,

consumers invested the price of the tickets plus a handling fee, and would

receive in exchange either the tickets or the price of the tickets minus the

handling fee. Thus, because those receiving tickets would not get

anything of greater value than those who received refunds, the tickets

were not prizes. Because there was no prize, there was also no lottery. Id.

5. See, e.g., United-Detroit Theatres Corp v. Colonial Theatrical Enter., 273

N.W. 756 (Mich. 1937).

6. See, e.g., People v. Brundage, 162 N.W.2d 659 (Mich. 1968).

7. See, e.g., id.

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