isaca m 09 heberer - Law Seminars International

Unique Issues and Trends in
Online and Electronic Contests
and Games
By William Heberer
Manatt, Phelps & Phillips LLP
The Basics
• Lotteries are illegal under federal and all
state laws
• Lottery: a promotion containing all
three elements of
– Prize
– Chance
– Consideration
• Prize
– Anything of tangible value, no matter
how nominal
• Chance
– Random selection of winner
• Consideration
– Product purchase
– Any payment (except postage)
– Substantial expenditure of effort
Sweepstakes v. Contests
• Sweepstakes:
– Prize and chance are present
– Legality depends upon eliminating
• Contests:
– Prize and skill are present
– Consideration may be required except in
a few states provided skill is bona fide
Eliminating Consideration: “AMOE”
• Availability of a viable AMOE eliminates
consideration element
• AMOE must:
– Be a free mechanism
– Have “equal dignity” with pay
method of entry
– Be clearly and conspicuously disclosed
The Hypothetical
The New Low Fat Carb Candy:
Lose Weight While You Snack!
Skinny Dip Campaign
• Fully integrated marketing campaign
targeted to adults
– On pack instant win game
– Daily text message sweepstakes
– Music video contest
On Pack Instant Win Game
• Five digit code inside specially
marked packages of Skinny Dip
• Codes entered online or via text
message to S-K-I-N-N-Y to find out if
you are an instant winner
• Free game codes available online
(only) - limit one game code per day
• Bonus game codes awarded for
e-mail referrals
On Pack Instant Win Game
• Prizes range from $5.00 gift cards to
grand prize trip to Final Four
• Online and text message entrants must
accept promotional emails from
marketing partners
Daily Text Message Sweepstakes
• One text message entrant
randomly selected each day
• Must respond within fifteen minutes
of winner notification
• Standard text messaging rates apply
Music Video Contest
• Consumers invited to submit 3-5
minute music video showing folks
enjoying Skinny Dip
• 5 proofs of purchase required to enter
• Entries posted online
• Public judging and cash prizes to
entries with highest scores
The Issues
Internet Access Issues
• On pack game entrants must use
Internet to enter codes
– Only way to find out whether you’ve
won other than text messaging
• Internet is being used as sole AMOE
for on pack game
– Only way to obtain free game pieces
Internet as AMOE
• Skinny Dip On Pack Game uses
Internet as sole AMOE
– Only way to obtain a game piece
without purchase
• Can Internet be relied on as AMOE?
Internet Access as Consideration
• Requirement that consumer have (pay
for) Internet access = consideration?
– Early view: Internet access could be
deemed to constitute consideration;
offline AMOE required
– Today: Internet access as consideration
not seen as an issue
• While no definitive ruling, fully integrated
promotions are common
• Lack of enforcement activity
Internet Access Issues
• Disclosure of Internet Access
– Internet access is a material condition
of participation
– If Internet access is required for
promotion offered offline, must
disclose prior to purchase
• On packaging
• In all advertising materials
Internet as AMOE
• AMOE Requirements:
– Must be a Free Mechanism
– Must Have Equal Dignity with Payment
Method of Entry
• Absence of consideration
satisfies the “free” requirement
– Issue is Equal Dignity
Internet as AMOE
• Equal Dignity means free entrants have
same opportunity to compete on same
basis as pay entrants
– AMOE universally available to all who
would otherwise sign up via pay method
– Parallel deadlines
– Same odds of winning
– Free entrants not disadvantaged in
any way
Internet as AMOE
• Last year NYS AG challenged similar
Tylenol promotion where “free”
game pieces only available online
– New York AG: AMOE must be
“universally” available – Internet is
widely but not universally available
– Other problems with promotion so
unclear if AG would have challenged
on AMOE issue alone
Internet as AMOE
• Where are we today?
– No new/recent challenges, but some
risk remains, particularly in NY
• Assess risk tolerance level: if risk averse
offer second offline AMOE
- Practical risk may be lower for
certain promotions:
- E.g., fully integrated promotion where
Internet access is required anyway
Internet as AMOE
• Equal Dignity: Equal No. of Chances
– Skinny Dip cannot limit game pieces
via AMOE to one per day
– Those who enter for free must be
afforded same number of chances as
those who purchase or pay
• Limit of one free game piece per day is
fatal, although a common mistake made
by marketers
Text Message Fees as Consideration
• Skinny Dip Daily Instant Win
– Open to text message users only
– Daily winner randomly selected and
notified via text message
– Winner must claim prize within
15 minutes
Text Message Fees as Consideration
• Text Message/SMS charges clearly
constitute consideration
– Unlike Internet access, each
entry incurs a separate charge
– Third party consideration is no
defense (900 # sweeps)
– Cost of text message is irrelevant-If its
not a postage cost its consideration
Text Message Fees as Consideration
• Thus, text message/SMS sweepstakes
require AMOE
– Internet can be the AMOE
– Internet as AMOE is lower risk here than
for offline game with product purchase
• Issue is “universal availability”
• Vast majority of mobile users have Internet
Text Message Fees as Consideration
• Text messaging technology can create
a challenge in structuring an AMOE
with equal dignity
– AMOE players can’t be disadvantaged
– If it’s a daily game with daily prizes you
must be able to enter for free every day
• Snail mail won’t work
Text Messages and Gambling Laws
• Text message sweeps with a “premium”
charge may raise gambling issues
• Game-for-games sake and AMOE
– Some regulators have suggested that
those who “pay” to play receive no
product or service in exchange other
than chance to win may be engaged in
gambling – even if there is an AMOE
– Recommendation: offer a premium item
to those who “pay” to play
Issue: Refer a Friend Program
• Additional instant win game pieces
earned for e-mail referrals
• Key issue:
– Can Spam- Is the referral e-mail a
commercial solicitation subject to
requirements of Can-Spam Act?
Refer a Friend Program
• Can-Spam applies to any commercial
e-mail message whether solicited or
– Status of Refer-A-Friend e-mails was
originally unclear
– Status was clarified in recent FTC
Refer a Friend Program
• Refer-A- Friend e-mail message
WILL be considered a “commercial”
message subject to Can-Spam if any
inducement is provided by the seller
– A sweepstakes entry IS an inducement
– Can-Spam applies whether the “refera-friend” email is sent by seller or set
up as E-Card that consumer sends
Can-Spam Requirements
• Must provide Internet based opt-out
mechanism-directed to seller
– Must include seller’s name and
– Must honor opt-out within 10 days
• Must clearly disclose that it is an
Waiver of Opt-Out Rights
• Skinny Dip instant win games requires
entrant to accept promotional e-mail/text
– Does this constitute consideration?
• Under traditional lottery law analysis
answer is NO
– No purchase
– No payment
– No substantial expenditure of effort
Waiver of Opt-Out Rights
• However, entrant is giving up something
of personal value - a “privacy” right
– NY AG indicated that waiver of rights
under DNC is consideration
– Query whether this is the emergence of a
new “consideration theory -- the giving
up a legally protected right?
• Proposed bill in NJ would prohibit waiver of
opt-out rights as a condition of entry
Prize Issues
• Types of Prizes
– $5 Gift Cards as Prizes
• Gift Card Legislation
• Post Consideration
– Final Four Trip
Types of Prizes - Gift Cards
• Gift Card Legislation
– State regulation of gift cards is steadily
• Over 16 states currently regulate issuance
and terms of gift cards
– Most states prohibit dormancy fees or
expiration dates
Types of Prizes - Gift Cards
• Post Consideration
– Many states prohibit conditioning a prize
on the purchase of a product or service
– Value of gift card awarded as prize
should be high enough to permit
redemption of at least some items in
the store
Types of Prizes – Final Four
• NCAA and professional sports leagues
aggressively enforce IP and other rights
– Refer to event generally
– Avoid prominent use of marks
Advertising of Instant Win Game
• Two disclosure issues
– Disclosure of AMOE
– Full Rules Disclosure
Advertising: Disclosure of AMOE
• General Rule: AMOE must be clearly and
conspicuously disclosed
• NY AG challenged AMOE disclosure in
Tylenol promotion and CVS/A&P ads
– Ads prominently highlighted purchase
method of entry with “no purchase
necessary” disclaimer in smaller type
– Tylenol settlement requires disclosure of
AMOE with “equal prominence” if
product purchase is mentioned
Advertising: Disclosure of AMOE
• NY AG: not looking to change standard;
all 3 promotions had other problems:
– A&P- promotion was not registered
– CVS- website directed consumer to store
for free entry-no entry forms were
available in store
– Tylenol- Internet used as the AMOE
• Standard remains “clear and
conspicuous” not “equal prominence”
Advertising: Disclosure of AMOE
• Where are we today?
– What constitutes clear and conspicuous
will depend on the context of the ad
– More prominent the emphasis on
product purchase, the more prominent
the disclosure of the AMOE should be:
• It’s the net impression that counts
– NY AG sued CVS for violating AVC
• Believes free entry disclosure must be
available at POS
Advertising of Full Rules
• Florida used to require, but no longer
• Material terms and conditions must be
disclosed in advertising for game:
– Start and end date of promotion
– Name of promotion and sponsor
– No purchase is necessary
– Disclosure of where promotion is void
– Age/geographic eligibility restrictions
Skinny Dip Instant Win Game:
Risk Management Issues
Risk Management: Patent
• Consult patent counsel
– Online game methodologies subject to
increasing number of patents
– Patents on wireless
technology likely to be next
Tips For Game/Contest Rules
• “Kraft Clause”
– Limit liability in the event of error to
offered prizes
– Recent DL Blair/Daily News cases – if
you follow the contingencies in your
rules, the courts will support you
Skinny Dip Music Contest
• Consumers invited to submit
music video
• Five proofs of purchase required
• Entries posted online
• Entries judged by the public
Is This a Bona Fide Skill Contest?
• Consideration is required to enter
• Status as bona fide skill contest is
critical to legality
Criteria For Bona Fide Skill Contest
• Tasks entrants are being asked to
perform must constitute bona fide skill
• Entrants must possess the requisite
skill and have opportunity to exercise it
• Standard of skill must be known
to the participants
Criteria For Bona Fide Skill Contest
• Must be objective entry criteria
• Judges must be qualified to apply
the criteria
• If there is a hybrid skill/chance game,
skill must dominate and control
Criteria For Bona Fide Skill Contest
• Examples of bona fide skill contests:
– Knowledge based games
– Essay or jingle contests, creative
– Memory games
– Athletic ability contests
– Manual dexterity games
Criteria For Bona Fide Skill Contest
• Games not general considered to
constitute bona fide skill
– Guessing Games
– Predicting the outcome of a Single event
• Distinguish from fantasy games
– Fast 50/First xxx to respond
Criteria For Bona Fide Skill Contest
• Hybrid games: review case by case
– Trivia - depends on structure of game
– Computer/video games
• Does practice improve scores?
• Are there random computer elements that
impact game play?
– Card games
• What type of game, does skill dominate
Skinny Dip Music Video Contest
• Composing music video is a skill
• Issue is in structuring the judging of
videos and selection of winners
– Objective judging criteria
• Need to set forth objective criteria by which
entries will be judged
Skinny Dip Music Video Contest
• If Public Judging is involved
– Establish criteria that public can apply
• E.g. Audience appeal, entertaining etc.
– Limit impact of public judging on final
• Remember the dominant factor test
• Limit public judging results to only
a percentage of the score
Skinny Dip Music Video Contest
• Scoring System
– Pick winners based on highest average
rather than total score
• Rewards “best in class” rather than those
who are voted on most frequently
Public Judging: Risk Management
• Limit entries to one per person to
avoid ballot stuffing
– Include strong disclaimers to deter
• Prohibit use of robotic/automated
Skill Contests: State Issues
• Skill contest requiring consideration
prohibited in certain states
• Application of state laws vary depending
on nature of contest, consideration and
– Entry fee vs. Product purchase
– Direct Mail vs. Mass media
Skill Contests: State Issues
• Arizona
– Gambling statute prohibits entry fees
for skill contests
• California
– Special disclosures for puzzle
• Florida
– Pay to play skill contests may violate
gambling laws
Skill Contests: State Issues
• Iowa
– Prohibits pay to play skill games in
which sponsor benefits
• Louisiana
– Gambling statute prohibits fee-based
skill contests
• Maryland
– Gambling statute arguably prohibits
fee-based skill contests
Skill Contests: State Issues
• New Jersey
– Appears to apply an “any chance”
standard to hybrid games
• Vermont
– Prohibits any consideration
for skill contests
Issue: User Generated Content
• Set forth clear standards for entry
• Prohibit use of 3rd party
• Strong warranties of non-infringement
• Strong rights to disqualify
• Releases
Unique Issues and Trends in
Online and Electronic Contests
and Games
By William Heberer
Manatt, Phelps & Phillips LLP