Contests and Sweepstakes Update
During the first half of 2015, the federal government demonstrated its willingness to apply traditional enforcement principles to new media marketing practices. The Department of Justice (DOJ) collected $2.7 million in forfeited fees from the World Triathlon Corporation (WTC) for its Ironman lottery, and the Federal Trade Commission (FTC) released new FAQs for its Endorsement Guide that focus heavily on social media marketing practices.
The Ironman Settlement
In May, the World Triathlon Corporation (WTC), operator of the famed "Ironman" race, forfeited $2.7 million in fees to DOJ to settle claims that it had been operating an illegal lottery in various forms since 1989, including online in recent years, although the forfeited fees only represented lottery proceeds since 2013. WTC offered athletes who did not otherwise qualify to participate in the Ironman World Championships in Kona, Hawaii, the opportunity to pay between $35 and $50 per entry in a drawing to participate in the race. Winners were then allowed to pay for a space in the Kona World Championships ($850 in 2015).
The DOJ asserted that the Kona race scheme amounted to an illegal lottery under Florida state law (and an "illegal gambling operation" under federal law) because it contained the three requisite elements of chance, consideration, and a prize. WTC chose the winners randomly, which satisfied the element of chance. Lottery winners paid money for an entry to win the right to participate in the race, which satisfied the element of consideration. And, finally, lottery winners won, ironically to some, a "prize": the opportunity to compete in the grueling Ironman World Championships and complete a 2.4-mile swim, a 112-mile bicycle race, and a marathon in less than eighteen hours.
New FTC Endorsement Guide FAQs
Also in May of this year, the FTC significantly updated the Frequently Asked Questions portion of its Endorsement Guide (FAQs). The updates, among other things, clarified requirements for social media contests and rewards programs, including guidance based on the FTC's 2014 Cole Haan closing letter regarding social media hashtag contests. In the Cole Haan contest, Pinterest users pinned five of their favorite Cole Haan shoes with "#WanderingSole" for a chance to win $1,000 from Cole Haan, but did not disclose the contest or their relationship to Cole Haan in the hashtag. The FTC disapproved of this practice and warned Cole Haan to discontinue it. In the updated FAQs, the FTC explicitly addressed this practice by requiring all marketers to brand their hashtag contests by including "#contest" or "#sweepstakes" as part of the contest or sweepstakes entry hashtag. The FTC also cautioned against using vague or ambiguous hashtags such as "#Sweeps."
The FTC's updated FAQs also make clear that social media users who like, pin, or share links in order to receive benefits from a brand as part of a sponsored marketing or rewards campaign need to disclose their affiliation with the brand. Furthermore, according to the updated FAQs, "advertisers shouldn't encourage endorsements using features that don't allow for clear and conspicuous disclosures." Federal Trade Comm'n, The FTC's Endorsement Guides: What People Are Asking (May 2015). Although the FTC does not require specific wording for disclosures, it recommends as an example, "Company X gave me this product to try …" Id.
These developments offer several immediate lessons for advertisers:
- Long-established programs can still fall under scrutiny: Even though WTC had operated the problematic Kona Ironman lottery in various forms since 1989, it still faced significant sanctions in 2015. Contests and sweepstakes that contain chance, consideration, and a prize are always at risk for an enforcement action, and advertisers should remove at least one of these three elements—usually, consideration—to comply with the law.
- Keep social media campaigns transparent: The FTC's Endorsement Guide FAQs emphasize the importance of transparency in grassroots and crowdsourced marketing. Businesses may continue to promote products using consumer-based social media activities, but the involvement of the business cannot be concealed. When consumers receive incentives, such as free products or rewards, those incentives must be disclosed in a meaningful way.
- Tailor disclosures to the social media platform used in the campaign: The FTC has explicitly signaled to marketers that meaningful disclosures are required even when the circumstances—such as Twitter's 140-character limit—make disclosure challenging. Advertisers must be transparent about incentives, including through the use of an appropriate hashtag.
- Consumer-driven content does not preclude advertiser liability: The FTC's actions signal that advertisers cannot avoid liability simply by encouraging consumers to develop their own content. Grassroots marketing that is created by consumers may still subject advertisers to liability if the advertiser attempts to influence the consumers' behavior in any way, including by initiating a campaign, suggesting phrases or hashtags, or providing incentives or rewards to participants in a campaign.
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