The use of promotions and contests in connection with online and mobile marketing can be a dynamic and cost-effective way to increase conversions, build a database of engaged consumers and increase brand awareness. However, businesses must be aware that government entities, including the Federal Trade Commission (FTC), Federal Communications Commission (FCC) and various state attorney generals, are tasked with regulating, investigating and sanctioning non-compliant marketing practices. So, what legal issues surrounding the promotion-related online and mobile marketing space should your enterprise address and be aware of?
The appeal of promotional contests, games and sweepstakes is obvious: The opportunity to win prizes attracts consumers. Despite the allure of the sweepstakes model, there are specific state and federal laws that apply to promotional games, as well as platform rules for marketing on social media websites, such as Facebook, Instagramand Twitter. Enterprises not closely following these laws and platform rules could incur substantial liability.
In assessing your liability risk, the baseline question to ask is whether the promotion is a game of chance or skill. Games of chance are considered illegal lotteries, unless there is a free means of entry, with no strings attached. Alternatively, games of skill are an enticing option, but depending on the structure of the prizes awarded and the degree of participation of the entity running the promotion, certain anti-gambling laws may still apply.
When running such contests, it is important that the associated marketing approaches employed complies with other applicable laws and guidelines (e.g. intellectual property laws). This is especially true when an enterprise offers the opportunity to win a prize that carries a registered trademark, such as an iPhone¬¨¬®‚àö√ú, or when you are marketing a contest within a social media environment, such as Facebook¬¨¬®‚àö√ú, and use of the Facebook ¬¨¬®‚àö√ú name and/or logo in your marketing material is required.
Although a slightly different approach to contests and games, several businesses have recognized the promotional advantages of incorporating their branded messages within various blogs and websites. Some have even begun creating fictitious blog/social networking pages masquerading as review sites and posting misleading articles that include paid testimonials.
While potentially rewarding, this conflation of marketing with blogs/social networking media carries significant liability risk. Because of the historical nature of the Internet as a place for the public to voice their opinions, there is an expectation that the blogger/site member in question is not a paid spokesperson. But when a blogger/site member is engaged in marketing products for a fee, or when that person is an employee of a company that is selling products on the blog, there is an inherent conflict of interest when these relationships are not properly disclosed. Under those circumstances, the blog/website can amount to a form of deceptive marketing.
In fact, the FTC recently updated its "Guides Concerning the Use of Endorsements and Testimonials in Advertising" (wsm.co/11SnXbZ) to address these issues. The essence of the guidelines is that online marketing material must prominently display a disclaimer that informs the reader of any financial interests that the bloggers or writers have in connection with the products being featured/ discussed. Similarly, the author of a fictitious article must disclose 1) that the article is not real, but rather, a marketing device and 2) what the author stands to gain in connection with writing and posting it.
The FTC guidelines also strictly prohibit fictitious testimonials, and when using an authentic testimonial, the blogger or writer must not alter it from the original in any material way. Finally, what the provider of the testimonial stands to gain by providing the testimonial, must be disclosed to the reader.
The "daily deal" business model, which is most closely associated with industry leaders Groupon and LivingSocial, offers a unique way for businesses to promote their brands and attract customers through "daily deal" coupons, discounts and other rewards. However, many businesses are unaware that state and federal laws may apply to these offers. Problems arise because the discount offers expire after a certain amount of time. Because consumers must pay a fee for these "daily deals," the offers may be considered gift certificates and, therefore, fall under the purview of the Credit Card Accountability, Responsibility and Disclosure Act ("CARD Act").
The CARD Act, and its state law counterparts, requires that all gift certificates have an expiration date at least five years from the purchase date. While Groupon, LivingSocial and their competitors maintain that the discount offers in question are coupons, and not gift certificates, attorney generals in multiple states have begun to scrutinize this business model to determine the nature of the offers. Additionally, multiple class action lawsuits have been filed alleging violation of the CARD Act and corresponding state laws.
Games, contests and other promotional vehicles, such as those provided by daily deal vendors, are valuable marketing opportunities, but email and mobile marketing should not be neglected, as they serve as another way businesses can monetize their client databases. Many companies do not take full advantage of these marketing options, however, because they are unfamiliar with the federal and state laws that govern email and mobile marketing and, thus, do not want to risk the significant penalties that may be incurred if they unwillingly violate those laws. If a company does choose to engage in email and/or text message marketing, or to use the services of a third party to manage and market to its databases, the company should ensure that it and/or the third-party marketer is complying with all applicable laws, as well as its own privacy policies.
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Additionally, the federal CAN-SPAM Act of 2003 sets forth specific requirements that must be followed when marketing to consumers via email. Under CAN-SPAM, use of false or misleading header and sender information is prohibited and the applicable email subject line should accurately reflect the products/services that are being advertised in the subject email. CAN-SPAM mandates that when sending a commercial email message, businesses must clearly identify the email as an advertisement, include a valid physical postal address for the sender and provide consumers with a mechanism for opting out of future email marketing.
While the use of promotions, gaming, consumer reviews and blog posts in connection with online and mobile marketing can garner great benefits for businesses, it is also necessary to be cognizant of the associated pitfalls, which may put your enterprise at legal risk.
About the Author: David O. Klein is the managing partner of Klein Moynihan Turco LLP in New York, NY, where he practices Internet Marketing and Promotions Law.