Alabama, Okay! In California, a Bust
In 1998, sweepstakes and game promotions became a hot topic in Washington, as well as in statehouses across the country. Perhaps buoyed by the interest of the news media in a number of states, including Florida and New York, legislators re-examined extant lottery and consumer disclosure laws.
As reported previously in this column, the relevant statutes were modified in some instances and had an impact on the way in which marketers conduct business. Against this backdrop, recent developments in Alabama and California present a fitting end to an eventful, if not turbulent, year for the promotion marketing industry.
First, the good news. In Alabama, the Office of the Attorney General reconsidered its earlier position regarding gamepiece promotions.
The previous approach required program sponsors to make gamepieces available without purchase, upon consumer request, at each participating location in the state. Allowing persons to mail in for a free gamepiece – a practice generally accepted by the other 49 states – was deemed legally insufficient in Alabama. The failure to make gamepieces freely available at the point-of-purchase was construed as introducing consideration, thereby transforming the promotion into an illicit lottery.
The Alabama AG’s office abolished this policy, however, in an opinion dated October 29, 1998. In considering the legitimacy of a scratch-and-win gamepiece promotion for a telephone calling card, the opinion explicitly recognized the acceptability of requiring consumers to obtain free gamepieces via mail. In reaching this conclusion, the Attorney General noted that the effort (and cost) entailed in the submission of a self-addressed stamped envelope did not constitute consideration. In other words, compliance with Alabama State lottery laws no longer requires the provision of gamepieces at retail.
The Alabama AG’s opinion represents a key victory for the promotion marketing industry. The confirmation of the permissibility of mail-in requests relieves the promotion sponsor of an onerous, nearly insuperable responsibility. To comply with the earlier interpretation of law, the sponsor was effectually required to make a series of difficult subjective determinations. If these assessments proved inaccurate, the promotion would violate Alabama’s prohibition on lottery activities.
By way of illustration, the sponsor had to somehow assure that each participating retail entity in Alabama possessed a supply of free gamepieces commensurate with anticipated consumer demand, a calculation that transcends simple arithmetic.
The lawfulness of the program also turned on a variety of factors beyond the sponsor’s control. For example, to properly distribute gamepieces, the retailer’s employees would have to read the official rules and generally understand the working of the promotion. Talk about impossibilities.
No prize in California
Now, the more troublesome news.
The California legislature recently added a new section to its Business and Professions Code to combat certain advertising practices perceived as being unlawful. Although, from its context, the new Section 17539.15 is seemingly directed specifically at sweepstakes promotions offered via direct mail, the state regulates disclosures and representations made on “solicitation materials” disseminated in conjunction with promotions, without caveat or limitation. As Section 17539.15 does not define “solicitation materials,” one must assume that the law applies to all sweepstakes promotions, regardless of the manner in which the program is offered to the public.
Of primary significance, the materials must not mislead a person into believing that he or she has won a prize. In determining whether a violation has occurred, the statute directs enforcement officials to consider the context of the winner message, as well as any qualifying language. In addition, the solicitation materials must advise the individual in “readily understandable language” that it is not necessary to make a purchase in order to participate.
The “No Purchase Necessary” disclosure must appear in a separate paragraph from the remainder of the official rules, in at least as large a typeface as the rules copy.
Finally, the added section reiterates the cardinal principles that all eligible non-purchase entries must be included in the entry pool from which the winners will be selected, and that the sponsor cannot suggest that making a product purchase will enhance one’s chance of winning.
Until California further clarifies the meaning and scope of Section 17539.15, sponsors must exercise ever more caution in advertising promotions offered in the state.
As the news from Alabama and California suggests, it is more important than ever that the marketer and sponsor alike keep a close eye on legal developments.
