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Published: 2008-03-26

Beware: Old Sweepstakes Laws Are Getting Renewed Attention!



It's time to brush up on your sweepstakes laws! Three recent actions have placed sweepstakes in the spotlight. While the actions described below focus on the adequacy of "no purchase necessary" and the sufficiency of sweepstakes disclaimers, there appears to be a significant trend of looking closely at sweepstakes. Accordingly, sweepstakes sponsors will want to ensure that all of their promotions comply fully with the various state and federal laws governing sweepstakes and the advertising of these promotions.

Sweepstakes Must Make Available A Reasonable Free Method of Entry

A promotion runs afoul of lottery laws if prize, chance (winners are selected at random) and consideration (a purchase requirement) are present in the promotion. To avoid violating the lottery laws, a sponsor simply needs to remove one of those elements. Typically, the easiest element to eliminate is the purchase requirement and sponsors normally accomplish this by offering a free alternate method of entry to consumers.

In May of this year, an in-store sweepstakes sponsored by CVS Corporation and CVS Pharmacy (together, "CVS") caught the attention of the Attorney General of the State of New York. As a result, we know that sweepstakes that do not adequately and accurately address the non-purchase alternate method of entry are on the regulator radar screen. Here's what happened:

CVS' advertisements for its sweepstakes indicated that customers would be automatically entered into a sweepstakes to:

"Win a Funjet Vacations trip of a lifetime to Oahu Hawaii…….Every time you make Prints from your Digital Camera and show your CVS ExtraCare Card….."

In addition, the bottom of each advertisement for the sweepstakes included:

"No purchase necessary. Go to CVS.com to enter and view official rules and regulations."

However, when a consumer actually went online to enter without a purchase, the rules and regulations posted at CVS.com stated that entry forms were available at CVS stores, and when consumers requested information on how to enter the sweepstakes at certain CVS stores, the consumers were directed to make a digital print purchase. According to the New York Attorney General's complaint, there were no entry forms available in stores.

To settle the matter, CVS agreed to pay $77,000 in civil penalties and costs. In addition, among other things, CVS agreed:

  1. For any promotion that has an automatic in-store method of entry for purchasers, to post at all participating CVS stores the promotion rules and regulations and entry forms in a conspicuous and prominent location ;
  2. ensure that CVS' staff are informed of the rules for the promotion and are able to direct consumers to the non-purchase method of entry; and
  3. cause all advertisements to disclose the alternate non-purchase method of entry with equal prominence to the offer.

A similar settlement was reached earlier this year with certain local A&P Food Stores in New York for their failure to provide an alternate non-purchase method of entry to consumers.

Sweepstakes Advertising Must Adequately Disclose The Free Method of Entry

More recently, McNeil Consumer & Specialty Pharmaceuticals Division of McNeil-PPC, Inc., the manufacturer of Tylenol (together, "Tylenol"), entered into a settlement agreement, also with the New York Attorney General's Office, arising out of its "Survivor All-Stars – Tylenol Push Through The Pain Game." According to the Attorney General's Office, the advertisements for the sweepstakes made it appear that a purchase of Tylenol was required to enter. The advertisements for the sweepstakes stated in large bold print "Buy Tylenol" as the first step to entering. The words "No Purchase Necessary" appeared in fine print at the bottom of the advertisements. The television advertisements for the sweepstakes stated "For your chance to win just buy any Tylenol product," although the words "No Purchase Necessary" appeared briefly in the television advertisements (in small type at the bottom of the screen).

This investigation resulted in a settlement with Tylenol that requires Tylenol to pay $52, 000 in civil penalties and costs and, among other things, Tylenol now must:

  1. not make any representation that a consumer must purchase a product in order to enter a sweepstakes (this requirement is already mandated by many statutes);
  2. clearly and conspicuously disclose in its advertisements that no purchase is necessary; and
  3. in any advertisement that refers to entry through the purchase of a product, clearly and conspicuously -- and with equal prominence to the language that refers to the product purchase --disclose the availability of the non-purchase alternate method of entry.

Thus, all sweepstakes sponsors should pay close attention to their obligation to clearly and conspicuously disclose the availability of a free method of entry, as well as all other material terms of the sweepstakes. This last point was recently made clear by the example set forth below involving QVC.

Sweepstakes Advertising Must Prominently Disclose All Material Terms And Restrictions

This inquiry came out of the National Advertising Division (NAD) of the Council of Better Business Bureaus, which is a voluntary self-regulatory organization that monitors and assists in advertising disputes. The decision was published in the July 2004 NAD/CARU Case Reports. QVC offered readers of the QVC Insider magazine (the "Magazine") a chance to win a $5,000 shopping spree. An advertisement was placed in the Magazine that contained entry instructions in large font with the full official rules for the promotion in small print at the bottom of the advertisement. The third paragraph of the official rules stated that the $5,000 prize would be added to the winner's QVC Member Account and that the dollars were valid for one year from the date the prize was issued. The winner received his $5,000 shopping spree and within one year from receipt of the prize had only redeemed $3468 of the prize. After the year was over, he tried to redeem the rest of his prize and was told that he had no money in his QVC Member Account. The winner challenged the adequacy of the disclosure of the one-year time limit and QVC cited to the official rules indicating that his prize had expired.

The winner argued that QVC hid a critical term and condition of the prize by burying it in the official rules and that the disclosure was not clear, conspicuous or prominent. NAD stated that "disclosures like those appearing in challenged advertisements (i.e., that are too small, too difficult to read and too distant from the claim they are intended to modify) have generally been held to be inadequate to convey material information to consumers." NAD found that the one-year limit disclosure was too distant from the main claim, was buried in other text and difficult to read, and therefore, was inadequate to convey material information to consumers.

Thus, according to NAD, even though the full official rules are available with the initial offer, a sponsor must still comply with traditional advertising rules to ensure that the material terms of the offer are clear and conspicuous. This is an important consideration for agencies and sponsors that create the materials for a promotion. While QVC did not agree with the decision, it agreed to review its promotion practices.

Conclusion

In light of this increase in settlements and inquiries for sweepstakes, sponsors are advised to review their marketing and promotion practices to ensure full compliance with the provisions of the numerous laws governing sweepstakes and similar promotions.

Careful review by an attorney experienced in sweepstakes, contests and marketing prior to launching a promotion should not only avoid a potential regulatory or similar action, but also the negative PR associated with a public inquiry, settlement or lawsuit, which can impact not only the sponsor, but also any co-promotion partners or agencies involved in the promotion.