Published by LawTechie - October 13, 2011 - LawTechie

Business LawMany online businesses, particularly e-commerce retailers, see internet sweepstakes games as a useful tool to increase site traffic and, hopefully, ROI. You have an inventory of goods, or access to discounts, why not invest in a bit of internet marketing with some well designed sweepstakes sites, right?

Well, there are a couple of legal issues that make legal representation by a qualified gaming or internet lawyer paramount:

State Legal Issues

Each of the 50 US states has its own set of laws dealing with traditional and internet sweepstakes games. Some call them lotteries (and make them illegal) if they do not follow certain rules. Others, like New York, Rhode Island, and Florida require sweepstakes games sponsors to register with the state and post a bond if the sweepstakes prize value is over a certain amount ($5,000 for New York and Florida, $500 for Rhode Island).

Federal Legal Issues

Federal law characterizes certain games of chance as lotteries and makes them illegal. Per Federal law, a prize giveaway is considered a lottery if:

(1) Consideration is required to participate;

(2) The chances of winning the prize are random and not based on skill; and

(3) There is a prize (which is self-evident here).

With regard to #2 and #3, sweepstakes games are definitely games of chance rather than skill, and there are surely a prizes involved. To avoid classification as a lottery under Federal law, internet sweepstakes sponsors need to remove the consideration elements (#1) from their rules.

Consideration

Consideration in the gaming context is something of value given by the game participant in order to participate.

A broad approach and, arguably, a pretty good approach taken by most sponsors is to make it clear that “NO PURCHASE IS NECESSARY TO ENTER SWEEPSTAKES.” Indeed, some states, like California, require that exact language at the very top of sweepstakes contest rules.

Of course, when it comes to the internet sweepstakes, defining consideration becomes a bit tricky. For example, does requiring a user to register on a site as a means of entering the contest constitute consideration? The user is, after all, providing the sponsor with value in the form of site traffic and/or private information about him or herself.

This is, fortunately or unfortunately, where legal representation is a must. The sponsor and their attorney need to sit down and develop a strategy of achieving the sponsor’s business goals without running afoul of the various state and federal laws. (This is a type of website audit.)

Attorneys tend to be outside the box thinkers, so it’s up to them to think of every scenario where one of the sponsors’ plans for running their internet sweepstakes games might potentially bring an element of consideration into the game (e.g., is allowing a user to enter multiple times asking the user to “pay in” his valuable time for an extra chance to win?).

In the end, after the strategies are sufficiently audited, the relevant legal terms need to be drafted.

The Legal Terms

As far as legal terms go, Contest Rules would be the obvious first step. It needs to state all the rules, the eligible participants, how the winner is selected, the date when the winner is selected, the sponsor name, a description of the prizes and values, etc…

Then, the experienced internet lawyer should insist on a Privacy Policy which will make clear that personal information provided by entrants will not be sold to outside companies (e.g., marketers). This is to confirm that submitting an entry form is not a type of consideration paid by the user.

In the end, drafting effective legal terms is a complicated process. This article is only meant to advise the reader that, yes, competent legal representation ought to be retained and, no, do not just do whatever you want on your website.

Final Notes about Promoting Internet Sweepstakes Games (Communications Legal Issues)

Once the sweepstakes games are ready to launch, sponsors should be aware of the “Big Four” federal communications rules governing promotions:

The CAN-SPAM Act of 2003 governs promotions sent by email.

The Deceptive Mail Prevention and Enforcement Act and the Telemarketing Sales Rule govern mail and mobile marketing respectively.

The Children’s Online Privacy Protection Act (COPPA) requires websites who direct their services at children and collect personal information from children to provide notice of what personal information is collected, how it is used, and the website’s disclosure practices. Parental consent is also required by this one.

The above all require their own set of legal terms depending on the type of marketing used to promote the promotion.

LawTechie is a blog focusing on trends in tech and digital media. Areas covered include intellectual property, cyberlaw, venture capital, transactions and litigation as they relate to the emerging sectors. The blog is edited by the firm's partner Tim Bukher with contributions from the firm's experts in their respective areas of law.

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