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JULY 2014
Legal Focus
59 Sweepstakes and Contests
The value of reaching an audience and potential new customers using social media continues to grow exponentially every year. Savvy corporations are continually looking to exploit and capitalize upon the information that can be gleaned about their customers from these sites, as well as tap into their customers’ social networks. An increasingly popular (and efficient) means of accomplishing this goal is by way of a contest or promotion that has a social media element or component. However, there are number of pitfalls in running these types of contests that need to be kept in mind and avoided. Lawyer Monthly benefits from an article by John L. Kreiger, Shareholder at Gordon Silver.
GAMBLING PROHIBITIONS/RULES Contests are easily susceptible to being deemed “illegal lotteries” if care is not paid to their construction. In the United States, gaming regulation is primarily a function of state law. Most states look for three elements to be present: (1) payment of consideration (usually cash); (2) the ability to win a prize; that is (3) the result of a chance-based activity. So long as one of these three elements is missing, the contest or promotion will generally be legal.
Generally, the method of entry and element of chance are most at risk of scrutiny in social media based contests. Contests involving a seemingly “free” entry (e.g., vote, rate, “like,” “share,” post) should incorporate an alternative method of entry (e.g. mail in entry). Contests based upon submission of user-generated content intended to be judged (e.g., poem, photograph) are more likely to be deemed “skill based” and not subject to chance.
The contest or promotion should be governed by a set of rules. Practitioners skilled in the area should be consulted. They will be a good source of information in developing appropriate contest parameters.
ENDORSEMENTS What constitutes an “endorsement” in the context of social media? Celebrity endorsements are usually the first thing to come to mind when people think of “endorsements.” However, according to the Federal Trade Commission (“FTC”), the definition is much broader. The FTC is charged with, among other things, protecting the public from false
and deceptive trade practices. Bloggers and/ website owners who ostensibly give “unbiased” encouragement to purchase a product or service, but, in all reality, are receiving compensation in exchange for the positive review or testimonial have raised the ire of the FTC and must disclose the relationship. Cole Haan recently received a “warning” letter from FTC in response to its “Wandering Sole” campaign wherein it encouraged consumers to create Pinterest boards using its shoe images. The FTC concluded the “pin” was an “endorsement” made only for the purpose of trying to win a prize from Cole Haan. The motivation for a “pin,” “like,” or “share” requirement in a contest needs to be disclosed to the consumer.
PRIVACY Consumers are becoming increasingly aware of privacy issues and “valuing” their privacy. Email addresses and/or the information surrendered to join or enter a promotion is becoming increasingly valuable. Furthermore, state lawmakers are passing laws requiring stricter observance and/or disclosure of how personally identifiable information is collected and used. For example, effective January 1, 2014, California began requiring privacy policies to include information about how a company responds to “do not track” signals across its own website, as well what it collects about consumers over time and across third party websites. If a contest is designed to harvest this type of information, the company will need to re-evaluate and amend its privacy policy.
CONTENT If the company relies upon an outside service (e.g., graphic artist, software designer, marketing agency) to create images, graphics, software, photographs, movies, or otherwise to be used in the contest, it must ensure rights are properly transferred to the company. Under U.S. copyright law, copyrights vest with the person or entity that actually created it, not the person or entity that paid for it. Once copyrights vest, they can only be transferred in writing.
For contests involving user-generated content, the company should ensure the contest rules provide for a royalty-free, non-exclusive, irrevocable right and license “to use, exhibit, broadcast, copy, reproduce, publish, distribute, encode, compress, encrypt, incorporate data into, edit, rebroadcast, transmit, record, publicly display, and create derivative works from” the uploaded content. LM
Contact:
John L. Krieger Shareholder Gordon Silver
Tel: 702.796.5555 Email: JKrieger@gordonsilver.com