Action by Disgruntled Contestants
Don’t Be Cute. Two companies that attempted to make a joke out of their contests ended up having the joke backfire. A restaurant in Florida ran a contest in which the winner thought she was winning a new Toyota car. However, the restaurant, as part of an April Fools’ Day joke, actually intended to give away a new toy Yoda (the character from Star Wars). In settlement of the dispute, it appears the restaurant did give the winner a new Toyota. Similarly, a radio DJ in Los Angeles offered a Hummer H2 in a weeklong on-air “contest” in which listeners were supposed to follow how many miles two Hummer H2 vehicles traveled. After hiring a baby-sitter so that she could go to the station to receive her prize, the “winner” was presented (on April Fools’ Day) with a radio-controlled model. The winner filed suit for $60,000—the cost of a real H2.
Action by Government Entities
Be Conspicuous. Tylenol held a sweepstakes entitled “Survivor All-Stars—Tylenol Push Through the Pain Game.” Consumers were confused by the advertisements for the sweepstakes and thought that they had to purchase Tylenol to enter. Only at the bottom of the advertisement, in fine print, was there a statement that no purchase was necessary to enter. In a suit brought by the New York State Attorney General, Tylenol settled by paying $52,000 in civil penalties and costs. It also agreed to (1) refrain from saying that consumers must purchase a product in order to enter a sweepstakes, (2) clearly and conspicuously indicate that no purchase is necessary to enter the sweepstakes, and (3) disclose the method of entry that does not require a purchase.
“No” Purchase Means No. In a series of sweepstakes offering big-ticket prizes, A&P Food Stores automatically entered customers who made purchases using its “Bonus Savings Card,” but otherwise failed to provide customers with a free method of entry at its retail locations. In addition, the company failed to post official rules conspicuously in the stores (including number and value of prizes and states in which residents could participate) and failed to register the promotion. A&P entered into a settlement with the New York State Attorney General in 2004 under which A&P agreed in future promotions to make entry forms readily available at its retail locations, regardless of whether the consumer makes a purchase, and to correct the other deficiencies. It also agreed to pay $38,000 in civil penalties and costs.
Don’t Discriminate. Publishers Clearing House got into trouble for its promotions, allegedly by suggesting that a direct-mail recipient had won when he had not and that purchasing products increased a recipient’s chances of winning. In 2000, Publishers Clearing House agreed to refund $16 million to customers in 23 states and the District of Columbia. In addition, it agreed to modify its promotions practices by inserting in all mailings a clear and conspicuous “sweepstakes fact box” that contains (1) a statement that purchases do not increase the chances of winning, (2) a statement that the consumer has not won, (3) a statement that the consumer does not have to buy anything to enter the sweepstakes, (4) the odds of winning the sweepstakes, and (5) a statement that the consumer can enter as many times as desired. In that same year, Publishers Clearing House agreed to pay $30 million in settlement of a class-action lawsuit. However, not all states agreed to the terms of the $16 million settlement. In 2001, 26 states that rejected the earlier settlement entered into a settlement with Publishers Clearing House in which the company agreed to pay $34 million, consisting of $19 million in restitution to customers, $1 million in civil penalties, and $14 million for the states’ litigation and administration expenses. The company also agreed not to make any false statements in its promotions and to treat all entrants the same, regardless of whether they purchased magazines.
Do What You Say. In 2004, CVS Corporation ran a sweepstakes in which customers could win a trip to Hawaii. The advertisement for the sweepstakes indicated that customers would automatically be entered into the sweepstakes if they made prints from their digital cameras and used their CVS ExtraCare Cards. They also indicated that no purchase was necessary to enter and that anyone could enter online at CVS.com. However, when customers went online to enter, they were told that they could pick up an entry form in CVS stores. When customers went to CVS stores to enter, no entry forms were available, and they were told to make a digital-print purchase to enter. CVS settled with the State of New York for $77,000 in civil penalties and costs. Additionally, CVS agreed (1) to post the rules, regulations, and entry forms in conspicuous locations in its stores, (2) to inform staff members of the rules of the sweepstakes so that they would be able to inform customers of the proper way to enter without making a purchase, and (3) to disclose the nonpurchase method of entry on all advertisements as prominently as the purchase method of entry.
Apparently CVS persisted in its haphazard sweepstakes practices, for in 2006 it once again was investigated by the New York State Attorney General for failing to provide an adequate means for customers to enter a sweepstakes without a purchase and was required to pay a $152,000 civil penalty for violating the previous settlement. In addition to the requirements listed in the previous settlement, CVS agreed to start a training and compliance program for employees involving placing signs and entry forms in CVS stores.
Don’t Use Mice Type. Both Tylenol and CVS were criticized for having failed to disclose prominently enough that no purchase was necessary to win. Avoid using “mice type” in making mandatory disclosures (i.e., type that is distant from the main claim, buried in other text, or difficult to read).
Sweepstakes and contests are heavily regulated by federal and state laws. Sponsoring companies should not try to devise rules and run promotions without expert legal advice. Legal counsel should be involved in developing a promotion from start to finish—from creating the structure of the promotion to assisting in making any post-promotion governmental filings. Sponsors and their counsel must consider state-specific requirements (e.g., prohibitions on monetary consideration for contests, registration and posting of bonds, advance filing of official rules, and special direct-mail disclosures) and modify the proposed structure to fit the company’s desired timing and tolerance level for the burdens of compliance. Basing official rules on those from third parties or a company’s own previous promotions is only a starting point; the rules themselves, their presentation (e.g., web site, store display, direct mail), and all collateral materials should be reviewed for conspicuousness of disclosures and general legal compliance.
Such advice does not need to be expensive in the long run. Over time, marketing personnel will absorb the themes touched on above and will be better able to structure promotions and their rules initially; however, each promotion tends to be somewhat different from the last, and different sets of laws may apply. Thus, legal counsel should always be consulted before each promotion.
For further information, please contact your principal Firm representative or one of the lawyers listed below. General e‑mail messages may be sent using our “Contact Us” form, which can be found at www.jonesday.com.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our web site at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.
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