Playing By the Rules

MARKETERS HAVE LONG used promotional games to draw attention to their products. Some, known variously as “games of chance,” “sweepstakes” and “lotteries,” select winners in a random drawing. Others, called “skill contests,” push purchase by engaging consumers in a task associated with the product. By understanding the legal restrictions that govern these two strategies, marketers can choose the approaches that best meet their objectives.

Legal games of chance are subject to three well-known elements: chance (winners are chosen randomly), a prize (some object with tangible value) and consideration (payment of a fee or purchase of a product to enter). For example, if you provide for a method of entry by proof of purchase, you must also provide a free method of entry (“no purchase necessary”) that is equal to any paid method of entry. In addition, you must describe the prizes with specificity, list their average retail values, provide the odds of winning and state the criteria for eligibility to enter. If New York and Florida residents are eligible to enter and the total value of the prizes exceeds $5,000, you must also register the game and provide surety bonds. If the game will be run in a retail establishment and the prizes exceed $500, you must register the game in Rhode Island.

There are times, however, when marketers want to limit contest eligibility to those who purchase a product or pay a fee. In these circumstances, you can circumvent the legal guidelines that make purchase requirements or entry fees illegal in every state by structuring the promotional game as a skill contest. In most states, you can lawfully charge an entry fee or require a product purchase to participate in a photography, essay, recipe, puzzle or other contest where skill is the main requirement.

Just as with games of chance, however, skill contests must comply with a number of well-defined legal requirements. In order to run a valid skill contest, you must satisfy the following tests:

• Clear, objective and carefully defined judging criteria. Judges must know what objective standards to apply to the contest entries and those standards must be clearly communicated to the entrants.

• Qualified judges The judges must be qualified to apply the criteria and determine the winning entries.

• A real skill is at issue The contest must test a real skill. Guessing the number of nuts and bolts in an oil drum or predicting the outcome of a sporting event are not considered to be true tests of skill.

• No portion of the contest is controlled by chance. You cannot resolve ties or choose any winners by a random drawing or the contest turns back into a game of chance.

• No test of skill to pre-qualify entrants for a drawing. The skill displayed must be the dominant element in determining the winners.

Once you have decided on the type of contest you want to run and have developed specific judging criteria, decide what to do about running the contest in those states that prohibit an entry fee and/or that require registration of the contest. For example, Vermont and Maryland, among other states, do not permit a fee to be charged. One of your options is to exclude residents from these states from your contest.

Then there is Arizona, which requires that intellectual contests be registered and that no fee be charged other than or in addition to the regular price of a product. If you are running a puzzle contest and you want Arizona residents to participate, you must submit the Amusement Contest and Raffle Registration Form. For example, you are running a contest where entrants must buy certain designated jigsaw puzzles, put them together, discover clues in the finished puzzle that do not appear in the box cover art and answer correctly questions based on those clues. You have to register the contest in Arizona and provide the name and address of an Arizona resident to serve as your agent for service of process.

Arizona defines as lawful “amusement gambling” a game or contest played for entertainment if:

• The players actively participate in the game or contest;

• The outcome is not in the control to a material degree of any person other than the players;

• The prizes are not offered as a lure to separate the players from their money; and

• The event is an intellectual contest, the money paid to enter is part of an established purchase price for a product, no increment has been added to the price in connection with the contest and no drawing or lottery is held to determine the winners.

If you register the contest in Arizona, you must file a winners list within 10 days following the awarding of all prizes, along with an affidavit that no increment has been added to the purchase price for the product in connection with which the contest was run.

Your contest must have a set of rules that clearly sets forth all of the requirements for entry and eligibility and that does not mislead the potential entrants. In addition to the text, you must comply with state legal requirements and create rules that protect you if something goes wrong. These include waivers of liability for computer viruses, hackers and other risks for online games or contests; injuries caused by use or misuse of the prizes; and physical problems with paper entries such as illegible, lost, mutilated and misdirected entries. Provide that you may use the winners’ likenesses and addresses without compensation, where legal. If you are giving away a vehicle as a prize, require a valid driver’s license for eligibility. State that all entries become the property of the contest sponsor and require entrants to warranty that their entries are their original work. If children under the age of 13 are eligible to enter, you will have to comply with the privacy laws relating to collecting personal information from children.

Make sure the complete fee to enter the contest is clearly set forth within the rules, including any postage charges to enter. Provide that all prizes will be awarded. If the original prize winner turns out to be ineligible, or cannot be found, have an alternate skill-based method for choosing a substitute winner that does not involve any element of chance. Don’t use a random draw to pick any new winners or break ties. Make sure the decisions of the judges can be supported if you receive complaints from disgruntled entrants.

Skill contests can be effective tools to help you develop a new slogan for your product, choose a spokesperson, attract attention to a new product or revitalize the market for a flagging product. If you take proper care in creating the contest, it should be a profitable experience for you and an enjoyable experience for your customers.

Judith Grubner is a partner in the Chicago office of Michael Best & Friedrich LLP, where she practices intellectual property law. Reach her at [email protected].