Legal Rules for Cause Marketing

Cause marketing is a popular technique for promoting sales. Brands frequently advertise that they donate a percentage of sales to a charitable cause, particularly using social media to spread the word of their good deeds. In so doing, brands become a co-venturer with the charity and have certain legal obligations under a wide variety of charitable solicitation laws.

At least half of the states have commercial co-venturers laws within their charitable solicitations statutes. While definitions vary from state to state, generally, a commercial co-venturer (CCV) is described as an entity regularly and primarily engaged in commerce other than in connection with raising funds for charities that conducts a charitable sales promotion. A charitable sales promotion typically represents that the purchase or use of goods or services offered by the CCV will benefit charitable organization or purpose. Some of the states, including California, specifically delineate in their definitions of CCV that a co-venturer is one who advertises that the purchase of the goods or services will benefit a charity. The Attorney General of each state enforces the CCV statutes through fines. Some statutes also authorize private rights of action, including class actions.

Here are some of the highlights of the CCV statutes:

• Most states that regulate commercial co-ventures require the filing of a written contract between the charity and the commercial entity. Some of the statutes regulate the contracts’ terms or require the CCV, rather than the charity to file.
• A small number of states require the CCV to register with the state. (See e.g. Alabama, Hawaii, Illinois, Massachusetts, Mississippi, and South Carolina.) California has a conditional registration requirement that allows the CCV to avoid this step if it takes certain steps.
• Alabama and Massachusetts require bonding by the CCV in the amounts of $10,000 and $25,000 respectively.
• Some states require the CCV to file the final accounting, although usually it is the charity that does the filing. In most instances, the CCV must keep the final accounting on file and available for a number of years.
• Many states mandate certain advertising disclosures including the expected portion of the sales price going to the charity, percentage of gross proceeds or other consideration, or per unit disclosures. Massachusetts and New York have more detailed requirements. In particular, the New York guidelines promote transparency in advertising so consumers can determine easily how their purchase affects the charity.

In 1999, the attorneys general in 16 states and the District of Columbia proposed 6 guidelines for cause related marketing. These guidelines were intended to counteract abusive charity names and have enticing for commercial products. They suggest the corporate sponsor must satisfy all applicable legal standards, including those that generally prohibit consumer deception and false advertising. The goal is to prevent the public from being deceived about the effect of their purchasing decisions on charitable contributions by the commercial sponsor. They also provide guidance on how to make representations that a charity has endorsed the brand’s products, including guidance on use of a nonprofit organization’s name and logo, and how to disclose any exclusive relationship the commercial entity may have with the charity.

Under the Multistate Guidelines, a capped donation could be problematic. How would the consumer know whether cap been reached? The advertiser would either have to construct a way to communicate that clearly to the public or limit the promotion to ensure that all or substantially all the products offered will count toward any donation.

One notable case occurred in 1999 when Yoplait ran a charitable sales promotion to benefit the Breast Cancer Research Foundation that had a capped donation. Its yogurt products did not reveal the cap but promised consumers that the company would donate 50 cents a lid. The Georgia Attorney General investigated, and Yoplait’s parent company General Mills made an additional $63,000 donation to represent the lid collection efforts of Georgia customers. The company also changed the wording on its Yoplait container to reflect a guaranteed minimum.

CHECKLIST OF CONSIDERATIONS:

1. If you decide to connect your brand with a charity, do not start promoting on social media without taking time for legal due diligence.
2. Consider the wording of any donation statements carefully. Any wording that indicates a portion of sales will go to the charity could trigger the CCV laws. Your attorney should work with marketing on the precise wording of your advertising copy on all platforms. For example, saying “We will make a donation” could be problematic, whereas saying “We are a proud sponsor” may avoid further disclosures.
3. If using space-constrained platforms, remember that the FTC’s DotCom Disclosure Guides will govern the way you connect your reader to more information.
4. If your contract with the charity requires you to pay to use its name and/or logo, additional disclosures may be required under the Multistate Guidelines.
5. Besides the CCV laws, other aspects of the charitable solicitations laws govern how you identify the charity in advertising and what contact information you need to post in retail establishments or online.
6. Advertising law principles also apply to cause marketing campaigns. Relevant statutes prohibit deceptive, misleading, and unfair advertising. So your advertising must not mislead consumers concerning your connection to the charity, the amount of your donation, or the impact of a consumer’s purchase on the donation, among other things.
7. Be careful of international campaigns. Just to the north of us, Canadian laws may require different disclosures from in the United States as well as French language advertising in Quebec.
8. Make sure you consult with a tax specialist about the tax considerations of your cause marketing and required notices or disclosures.

Have you already been promoting your connection to a cause? Or are you contemplating charitable donations as part of your business plan? Now is the time to learn about the legal requirements of being a “commercial co-venturer.”