Sunday, October 2, 2011

Is That IPad Giveaway Legal?

Sweepstakes, contests, and giveaways have become increasingly popular among dealerships. These promotions can be a great way to get word out about your company, increase your social media presence and develop leads. However, entry into a poorly considered sweepstakes or contest can be a trap for the unwary dealer. These promotions are governed by a variety of federal and state laws as well as social networking sites’ terms of service. The FTC receives thousands of complaints from consumers each year regarding the abuse of contest promotions. Failure to follow pertinent statutes and regulations regarding promotions can lead to government inquiries, civil enforcement actions, adverse publicity, and even criminal penalties.

Following is a basic overview of the guidelines for running lawful promotions, but you should always consult knowledgeable legal counsel before starting a campaign. And remember, it’s dangerous to assume that outsourcing responsibility for the promotion to a marketing firm or other service provider will result in a legal compliance. Understanding the rules and running your promotions by your legal team can guard against potential problems and may help shield the dealership from liability.

So, what’s the difference between a contest, sweepstakes and lottery? A "contest" offers prospective participants the opportunity to receive or compete for gifts or prizes on the basis of skill or skill and chance, and which is conditioned wholly or partly on the payment of some value. A "sweepstakes" is any procedure for distributing anything of value by chance (e.g., a drawing). The main differences between a sweepstakes and a contest are that the contest participants must use at least some skill to win the prize and may pay some value to participate in the contest while sweepstakes participants win solely by chance and are not required to pay value.

To avoid classification as a lottery, which is generally illegal unless run by the state, a sweepstakes promotion must not require an entrant to pay or promise to pay value for the chance to win the prize. This is known as consideration. The most easily identified or typical form of consideration is a requirement of a purchase or payment to enter the sweepstakes. However, in some states consideration may also be found to exist when an entrant must exert substantial effort or time to participate in the promotion. For example, completing a simple entry form or “liking” a page may not be considered steps that involve consideration, but requiring an entrant to fill out a lengthy marketing questionnaire might constitute substantial effort. These determinations vary from state to state, so it’s advisable to get a legal opinion.

The operator of the sweepstakes must treat entries that are not accompanied by orders the same as entries that are accompanied by orders. In other words, someone who purchased a car cannot be more likely to win a prize then someone who didn’t.

Each state has a different set of laws governing promotions, and some states require that sweepstakes offering prizes over a certain value to be registered. This amount can be as low as $500 (Rhode Island). Attention to the rules in all jurisdictions where the promotion will be available is essential.

Many states have passed specific laws or regulations that identify information that must be disclosed to potential entrants. Generally, such disclosures contain a “no purchase necessary” statement, an explanation of entry procedures, the identity of the company conducting the promotion, eligibility requirements, prizes and their estimated value, method of determining a winner, the odds of winning, the beginning and ending dates of the contest, and where a winners list may be obtained. These disclosures must be clear and conspicuous (and that doesn’t mean “see dealer for details”).

To conduct a promotion through a social networking site, a company should comply with the particular site’s terms. For example, Facebook has very specific criteria for running promotions:

So, go ahead and give away that IPad - just be sure to dot your ‘I’s and cross your ‘T’s.