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Sweepstakes, contests and giveaways are attractive marketing tools for small business, easily adaptable to the online world. You should know, however, that they are heavily regulated. The Federal Trade Commission and every irate non-winner (aka “loser”) may have something to say. The Federal Communications Commission, the Department of Justice and the United States Postal Service are also tangentially involved. More to the point, these promotions must comply with the laws of every state and every foreign country in which they are offered. If you’re having trouble staying awake at night, think about class action suits. Spooked? Good.

Some technical legal terms

Let’s wade in by taking a look at four definitions.

  • Sweepstakes are prize giveaways where the winners are chosen by luck.
  • Contests choose a winner based on some merit (real or imagined).
  • Lotteries are prize drawings where people must part with something of value (traditionally money) to buy a chance to win. Your first important task is to avoid having your giveaway classified as a lottery because they are even more regulated, and your scheme is nearly certain to be illegal. Recent thinking has focused on what a “thing of value” might be in the online world.  Does it include a “Like”? Given the state of metadata, does it include requiring a contestant to log onto your site?  This could be tricky.  That’s why many giveaways also allow consumers to participate by mailing in a physical form.  That, of course, brings in the Postal Service.
  • Collectively, these three are termed giveaways.

So Many Laws

Roughly speaking, the FTC focuses on consumer protection, with a particular emphasis on truth in advertising.  If you’ve advertised a prize, there really must be one.  Irate non-winners, however, might sue you under a provision of state law, and state laws governing these giveaways are all different.  In California, the Business and Professions Code governs the promotion of the sweepstakes.  In New York, if the value of the prize offered is more than $5,000 the sweepstakes be registered and bonded 30 days before it begins. Canadian law prohibits sweepstakes but permits contests.

Minors are a Special Concern in the Online World

Of course you have no way of knowing who’s entering your contest.  But let’s suppose that you’ve carefully specified, as required by state law, that participants in your giveaway must be 18 or older.  You would be shocked, shocked to learn that minors sometimes falsify their ages.  Have you done enough?

Under the Children’s Online Privacy Protection Act, marketers must have an age-screening mechanism to determine when a child under 13 enters. COPPA prohibits mechanisms that appear to entice children to lie about their age and recommends the use of a technological tool, such as a session or timed cookie, to prevent underage entrants from hitting a back button and changing their age.

Three Hot Tips

Contests, sweepstakes and giveaways are too valuable to give up on.  Let’s figure out how to go forward.  Here are three important ideas.

  • Limit the scope of your promotion.  “This promotion is available only to residents of California over the age of 18” is a good start, but consider technological screens to prevent the participation of minors.
  • Disclose, disclose, disclose – terms, conditions, nature of prize, time frames, if you want to reserve the right to alter the prize.   It would be nearly impossible to say too much.
  • Don’t try this by yourself.  It is in the nature of start-ups to minimize the cost associated with professional advice, but this is not the place.  There is too much risk here for even the best of intelligent amateurs.

Legally Sound | Smart Business Episode 14

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