Sweepstakes and Prize Offers Create Interdisciplinary Legal Risks for Marketers

Consumers love prizes, but they hate being deceived by illegal and false promises of prizes. They especially hate when they have been lured into giving away personal information or spending money needlessly. Sweepstakes and contests require detailed legal vetting, but so do the advertising and marketing messages that accompany these prize promotions.

Once again, the FTC has released its annual list of Top Consumer Complaint areas. In 2012, “Prizes, Sweepstakes and Lotteries” ranked fifth with 98,479 complaints. While the category fell from third place in 2011, the number of actual complaints remained similar, hovering around 100,000 complaints, a dramatic increase in the number of complaints from 2010 that saw about 64,000 complaints. (The sweepstakes category ranked fourth in 2010.) While identify theft remains the number one source of consumer complaints to the FTC, there can be no doubt that prize promotions continue to be a source of aggravation for consumers, and the FTC continues to take their complaints seriously. (For a more in-depth look at the FTC’s annual list on this blog, click here.)

Indeed, this week, the FTC announced that it had filed eight complaints against 29 affiliate marketers, including individuals, who have allegedly sent millions of unwanted spam text messages to consumers falsely promising “free” gifts or prizes. The FTC asserted concerns that these messages violated the Telephone Consumer Protection Act as text spam. The messages also allegedly deceptively advertised that the items were free and misused people’s personal information for marketing purposes. While the FTC did not offer detailed analysis of the consumer complaints it received this year, it is likely that those associated with text message spam may have fallen into multiple categories in the FTC’s Top Consumer Complaint list, including identity theft, impostor scams, internet services, and telephone and mobile services.

Undoubtedly, the FTC’s latest enforcement action demonstrates the increasing interdisciplinary risk associated with prize offers. Sweepstakes and contests can violate 50 states’ lottery laws as well as telephone marketing laws, and deceptive advertising laws simultaneously if not structured appropriately. When structuring a prize promotion, whether it is a sweepstakes,contest, or a premium offer, marketers should work with their legal team early and remember the following best practices:

• review the structure of the promotion to ensure it is not an illegal lottery
•  vet the advertising/marketing for the promotion
• ensure that all affiliate marketers are using approved and legal advertising and marketing techniques
• safeguard consumers’ personal information

Copyright 2013 Kyle-Beth Hilfer, P.C.