September 16, 2015

Re-Gramming, Hashtagging, and Like-Gating: Sweepstakes in the New Digital Age, and How New Laws May Actually Improve Your Promotions

Tsan Abrahamson

The basic tenets of promotions and advertising law have remained relatively static for decades. The widespread use of handheld digital devices and social media as a contest and sweepstakes delivery platform, however, is a proverbial game-changer, opening companies to both new and exciting ways to reach consumers, but also to potentially greater legal liability (and perhaps even social suicide) if they don’t set up their promotions properly. State attorneys general, the FCC, the FTC, and social media platforms are catching up to creative marketers who are using new technologies, and we are all reinterpreting the old statutes. Even for the seasoned sponsor, the new world order can mean encountering new barriers to creating platform-compliant and legally sound promotions.

The concern over new legal developments in a changing world is not new. With each development in technology comes the initial hysteria around how companies can comply with new “outrageous” rules. And while new rules often result in frantic responses from marketing departments, history tells us the sky isn’t actually falling, and won’t. In fact, navigating through the myriad new guidelines may be tedious, but the new landscape may actually facilitate increased participation in promotions. Moreover, compliant companies who think critically and creatively about how to manage promotions and adhere to new guidelines may actually increase customer satisfaction, and drive sales.

The Old Rules Still Apply

The new digital paradigm has left standing the same old rules on contests and sweepstakes. A contest remains a game of skill, which means chance elements must be minimized or eliminated for the contest to be legal. A sweepstakes is still a game of chance, meaning the winner must be drawn randomly, and – effectively – without a measure of skill or significant forms of consideration (some states confine consideration to monetary payment, but many states construe consideration more broadly to include a benefit to the sponsor or a detriment to the entrant). The digital world did not change the basics, but as new technologies emerge, the rules require new interpretation and clarification.

Adapting to a Smartphone World

The issue of consideration has resurfaced in the new age of smartphones and social media. In the late 90s when the World Wide Web began to appear on desktops everywhere, and Internet connectivity was largely available (but not ubiquitously utilized), lawyers debated whether allowing only online entries constituted a form of consideration because the enticement of the prize would compel a consumer to buy a computer. Most attorneys recommended to their clients that Internet-only sweepstakes also offer an alternate method of entry (AMOE), such as a call-in number or a mail-in option.

The issue of Internet connectivity being a form of consideration is largely now put to rest, and the pervasiveness of Internet availability to all through low-priced in-home connections and public locations like libraries means companies no longer have to provide a mail-in alternative to the Internet promotion. Nevertheless, smartphones and social media have raised new questions about consideration.

Consumers without Internet connectivity can walk into any library and use a computer for free to enter an online promotion, but if a promotion is offered through an app, or if the promotion requires the entrant to take a photograph using his or her smartphone, does a company have to offer an AMOE? Additionally, some social media platforms, like the immensely popular Instagram and Snapchat, only allow consumers full use capacity through an app on their smartphones.

And while Internet connectivity can be attained for free, many smartphone owners have data plans that charge for connectivity. Does the cost to the consumer of entering the contest or sweepstakes from a smartphone constitute consideration sufficient to warrant an AMOE? What about the requirement – by itself – that the consumer own a phone, or download the app to his or her smartphone in order to enter? Would such an act be considered consideration under state law? The devil is often found in the details of the promotion.

While reasonable minds can differ on the answers to these questions, many promotions attorneys counsel their clients that the mere taking of a photograph, the downloading of an app, or the use of some of a consumer’s data is not likely to trigger consideration concerns in most cases, and thus, an AMOE is not warranted. There are some notable exceptions to this general rule.

If a promotion sponsor receives a direct financial benefit from smartphone data use (such as a telecommunications or phone company), an AMOE should be considered. Promotions requiring a paid app should also offer an AMOE, or should be limited to entrants who downloaded the app prior to the start of the promotion. If a promotion requires the download of an app plus a substantial sign-up procedure, has a lengthy unsubscribe process, or requires consumers to enter a credit card in order to complete the sign-up, offering an AMOE is appropriate.

Companies also frequently fail to align their smartphone promotions with their online privacy policies. Many smartphone promotions require consumers to take a picture (such as a “selfie”) that the sponsor may store and use in subsequent advertising, yet the company’s privacy policy often provides that no personal data will be used or kept. Similarly, in geofencing promotions where location data from an entrant will be taken by the sponsor, consumers often need to opt-in to terms specific to the promotion, because most privacy policies do not cover this option.

The nature of the promotion can trigger multiple issues. For example, selfie promotions, especially those that require an entrant to take a picture with the sponsor’s product could trigger consideration issues as well as privacy issues. And some people just don’t want their face plastered on a company website, notwithstanding their loyalty to the brand. Companies can respect consumer privacy concerns and eliminate the potential consideration element by offering – as an AMOE – the option of taking a photograph of the product in a store, or lifting it from the sponsor’s website.

Vote Farming, Incentives, and Texting: Inadvertently Creating an Illegal Promotion

Sponsors want social engagement. Consumers want legitimate promotions. The two can clash.

Companies that offer skill contests on social media often run afoul of both the law and consumer confidence when public voting determines the winner. Most states require contest entries to be judged by qualified judges, and the general public may not satisfy the requirement.

Public voting, therefore, often means the winner is chosen by popularity (which is not the skill being tested; in fact, it’s not a skill at all). Winning by popularity also encourages “vote farming.” Vote farming is defined as soliciting, or farming for, votes using social media, e-mail, and other means, without regard to the judging criteria. Indeed, if the prize is significant enough, some entrants will hire third-party search engine optimization companies to solicit even more votes.

Many companies have felt both the legal and perhaps worse, the social wrath of vote farming. The perception by legitimate entrants that they never got a fair shot to win can lead to resentment of the brand, which can go viral and reduce the credibility of a company quicker and with more devastating consequences than an attorney general’s investigation. Recently, the Coca-Cola Company stripped an adjudicated winner of his prize when it discovered that he had been vote-farming. The winner (an attorney) did not dispute he had engaged in the practice, but argued that the rules of the promotion were ambiguous and therefore allowed the practice. While the company risked being sued by the winner, it chose to take that chance in favor of its fan base.

Companies who want to involve public voting in a skill contest have a number of options to avoid potential liability. At the outset, all promotions rules should have a clause prohibiting unfair play and specifically, vote farming. Public voting can be used, but only for a “people’s choice” award that gives the winner bragging – not significant financial – rights. Another solution that can help to reduce liability is to sandwich a public voting round between a sponsor’s initial screening round and a final round, also conducted by the sponsor (and, thereby, qualified judges). In this way, the public round does not determine the either the finalists, or the final winner.

Such adaptations greatly reduce the likelihood of an illegal lottery or a PR problem, and they also can serve to give the sponsor a better outcome, because it has a say in the winner. The makers of Mountain Dew found out the hard way what total consumer choice means. The company was determined to give their loyal fans full control over the name of the company’s new soda flavor. Without corporate intervention, the edgy consumers chose “Hitler Did Nothing Wrong” and “Diabeetus” as the winning brand names. Had the sponsor limited the public voting to names the company considered reasonable by conducting an initial screening process and/or determining the final winner, it would have gotten more useful submissions.

Smartphones and the Telephone Consumer Privacy Act Trigger

Smartphones opened the door to text messaging promotions, and marketing teams went crazy for them. Text promotions allow companies to instantly offer a promotion, pop-up style, and directly connect with their consumer base to deliver promotions, coupons, and other marketing material. Marketers took advantage of a legal ambiguity that allowed sponsors to reach out later via text to entrants for marketing purposes. On October 16, 2013, the ambiguity was clarified and the loophole closed.

The FCC clarified that auto text message communications are not like e-mail communications. Auto-text messages (those generated by a machine, like a “call to action” to enter a promotion or to receive a coupon) fall under the Telephone Consumer Privacy Act (TCPA). Under the TCPA, companies must have prior written consent from a consumer in order to send a commercial text. The FCC also made clear that mobile numbers collected prior to the clarification were not grandfathered. The week before the effective date of the clarification, consumers received a flurry of text opt-in requests. Those companies that did not know about the change and who failed to text such requests in time were forced to clear their collection of mobile numbers completely and use another format (like e-mail) to contact consumers for the opt-in. This single change has not only brought about significant federal enforcement and class action activity in the past year-and-a-half, but also changed the face of promotions on smartphones.

To be clear, the FCC does not consider a consumer to have opted-in to receiving text messages if a company merely changes its privacy policy and then requires a consumer to accept the change, or if it merely adds texting language to its sweepstakes rules and requires the consumer to accept the terms. Specifically, the FCC requires the opt-in to be specific to receiving text messages, and will not allow companies to use text in order to get that permission.

As a result of the foregoing, some companies have resorted to using push notifications within an app to administer promotions. Push notification do not at this time qualify as text messages. Companies who want to continue to use text technology for promotions should as a threshold matter allow entry online and use the online medium to get consent to text at a later date. The FCC recently settled a TCPA violation case for a record-setting $75 million, and the reports of increasing policing in this area continue to grow.

Hashtagging is the New Astroturfing

The social media promotions craze is not likely to slow down soon, largely because millennial consumers prefer social media brand recommendation of friends over standard corporate advertising, and utilizing consumer recommendation is far less expensive than corporate media campaigns. Indeed, the value of a consumer recommendation is so great, most companies have influencers hawking their brands on social media.

An influencer is a regular consumer sponsored in some way by a company (paid in merchandise, product discounts, VIP treatment, or otherwise) to tout the virtues of a product or brand. But if a consumer is getting paid to spread the gospel, is the message genuine, and does a fellow consumer have a right to know? What if a company is more concerned with positive online reviews than genuine ones, and is willing to pay for them? The concept of creating a disingenuous positive review is called “astroturfing.” State and federal bodies believe it’s the newest form of false advertising, and believe the practice damages legitimate businesses and dupes consumers.

In 2014, the New York Attorney General orchestrated a sting operation against a search engine optimization company for creating fake positive online reviews in exchange for money. Most social media sites now have updated their terms of service regarding the practice of astroturfing (be it from consumers or employees). For some years, the FTC has been grappling with the online endorsement craze and created the “Dot Com Disclosures” guidelines to help companies avoid an FTC inquiry for false advertising. In 2013, the FTC applied its disclosure standards to hashtag promotions.

The FTC determined that a Cole Haan contest on Pinterest was problematic because it required consumers to create a Pinterest board using the hashtag “#wanderingsole” (the company’s tagline) but with no indicia that it was a contest. The FTC found that without any indication that the board was made for a contest, consumers would believe their friends were freely endorsing Cole Haan without incentive for doing so, which was not the case. The FTC determined hashtag promotions should include words that made clear the post was made pursuant to a contest or sweepstakes.

In 2015, the FTC further clarified its position, stating that adding the tags “#sweeps” or “#spon” were insufficient to remedy the problem, since consumers were not familiar with those terms. Companies that want to run hashtag promotions must now make certain the term “#contest,” “#ad,” or “#sweepstakes” is included in the public facing promotion entry.

Always attempting to be one step ahead of the rules, some companies have opted for entrants simply to repost (re-gram, re-Tweet) a company statement, hoping to avoid the notice requirement. While the FTC has not yet ruled specifically on whether such reposting content without a proper disclaimer or notice is acceptable, the digital writing is on the wall: if a consumer would not immediately recognize a social media action as having been taken as a result of a sponsor’s incentive, notice must be given.

This new guideline may be a blessing in disguise to marketers, notwithstanding their initial negative reaction to the mandate. Identifying Pinterest boards, Facebook, and Twitter feeds, Snapchat photos, and Instagram shots with promotions tags is likely to prompt more curiosity from viewers, and ultimately additional entries, all of which leads to a deeper relationship with the brand.

Social Media Platforms Don’t Always Play Along

Social media platforms have also gotten into the promotions game, providing their own guidelines for how promotions may be administered on their sites. Some companies, like Twitter, take a laissez-faire route, simply requiring companies to properly disclose terms and conditions. Others, like Facebook, have very specific requirements that change frequently.

Examples of such platform policy requirements abound. Facebook’s guidelines have changed several times over the past 12 months, and its current guidelines no longer allow promotion sponsors to require entrants to post commentary on their or their friends’ walls in order to receive an entry or to receive extra entries (requiring posting on the sponsor’s wall is still fine). Facebook continues to allow “like-gating” as a condition of receiving a sweepstakes or contest entry, but does not allow like-gating for app page incentives. Facebook also requires that any company creating promotions on its platform specifically and clearly disclaims Facebook’s involvement. YouTube limits eligibility for entering a promotion on its site to entrants 18 and older, despite the fact that YouTube account holders can be as young as 13. Some platforms, like Snapchat, charge for certain promotion types. The list of rules grows as social platforms grow, and while these platforms do not.

As always, the FTC and AGs are watching trends on smartphones and social media. In a recent update to its “Dot Com Disclosures,” the FTC specifically called out the practice by many companies on Twitter of inviting consumers with one Tweet to enter a promotion and using another Tweet to direct them to the rules. Pointing out that a consumer’s Twitter feed may not have the two messages side-by-side, the FTC wrote the practice violates its mandate that appropriate disclosures must be “as close as possible” to the call to action. To remedy this, some companies (like Macy’s) have a Twitter feed dedicated to promotions in which the consumer can always click on rules. The FTC has also made clear that the smaller screen size of smartphones and tablets does not excuse the requirement to disclose terms and conditions. If the size of the screen or social platform limitations do not allow a sponsor to fully disclose relevant terms to a consumer, then the platform is not appropriate for the promotion.

Don’t Counsel if You Won’t Play

The digital era brings with it one more development: the risk-taking marketer. Notwithstanding the potential hot water companies can get into for violating these consumer protection guidelines, many companies prefer to continue outdated (and potentially risky) practices because they believe the potential viral benefits of a promotion outweigh the possible liability. Lawyers should be grateful for these risk-takers, because they often refine the law for other more risk-averse clients, but they can be hard to advise. For the practitioner, it may mean working with clients to reduce – even if we cannot eliminate – potential liability, and that means practitioners must fully understand the proposed social platform. Getting one’s hands dirty at a practical level is the only way to guide clients through the potential social and legal landmines in a way that confers real value to the client.

The sky is not falling, but it will continue to cloud up from time to time. Each new technology brings with it new ways to connect with consumers and no shortage of marketing schemes to maximize a brand’s social significance. “No purchase necessary” is still the cornerstone of the sweepstakes world, and promotions will continue to push the envelope. The trick is to keep calm and ask your teenager what he or she is doing, before your client calls.

Additional Resources

For other materials on this topic, please refer to the following. 

Business Law Today 

The Promotion that Went South
A look at the hazards of product sweepstakes and contests
Volume 15, Number 6, July/August 2006
By Tsan Abrahamson

Tsan Abrahamson

Tsan Abrahamson practices at Cobalt Law, LLP, in Berkeley, California.