Generally speaking, when a sales promotion in which a for-profit business represents to the public that the purchase or use of goods or services will directly benefit either a named charity or a charitable cause purpose, the for-profit business that makes the representation is considered to be a commercial co-venturer (CCV).

State Laws on CCV Promotions

Twenty-three states have statutes governing CCV promotions that are advertised in their state, and one more (Illinois) purports to regulate CCVs administratively even though there is no specific statute. CCV statutes arose in the consumer protection context and are heavily oriented toward ensuring that consumers receive accurate and timely information about charitable sales promotions in which they may choose to participate.

Both the precise definition of CCV and the requirements imposed on CCVs vary from state to state, but the statutes generally have three common elements that are particularly important.

First, all states regulating CCVs require the commercial co-venturer to enter into a written agreement with any charity specifically named in the CCV promotional materials. Most states require that the written agreement, at a minimum, include the following elements:

• A description of the promotion including the goods or services involved, the start and end dates, and the charitable purpose to be benefited;
• A specific statement of the financial terms of the CCV, including a percentage or fixed amount that will go to the charity from each sale and any applicable minimum or maximum donation amounts; and
• A requirement for the CCV to provide an accounting to the charity at the promotion’s conclusion.

Second, most states regulating CCVs require that the CCV conspicuously disclose to the public the amount per unit (as a percentage of revenue or a dollar amount) that will benefit the charity or charitable purpose.

Third, 10 states require either the commercial co-venturer or the charity to register and disclose the CCV arrangement, which usually includes submitting a copy of the agreement and can also involve burdensome financial/accounting disclosures. These states are Alabama, Arkansas, Connecticut, Hawaii, Illinois (by regulation only), Massachusetts, Mississippi, New Jersey, New York, and South Carolina. Alabama and Massachusetts further require the CCV to obtain a bond in the state’s favor, in case of noncompliance. These registrations must be complete at least seven to 15 days before the start of the promotion.

State Enforcement Practices

Enforcement of CCV statutes is typically done by the state’s charity regulator, either the attorney general or secretary of state. The regulator may impose civil penalties directly; go to court to seek injunctive relief or damages; or in some cases refer to criminal prosecutors (typically only for knowingly fraudulent conduct). Civil penalties generally range from $5,000 to $20,000 per violation. Also, CCV statutes often treat violations as per se violations of state consumer protection laws which may give rise to private rights of action or give regulators power to seek additional remedies.

Further, regulators have been rather uneven in their approach to enforcement, but some states (particularly New York, California, Massachusetts, and Illinois) have been somewhat aggressive, particularly when a CCV attracts substantial press attention. It is usually the commercial co-venturer, not the charity, which is the target of enforcement.

In light of all these requirements on CCVs, what is a winery, brewery, or distillery to do?

CCV Options for Compliance

One option is to move forward with creating a CCV compliance plan for each of the states in which you plan to advertise your promotion. Because the requirements for and duties imposed upon CCVs vary from state to state, make sure you leave plenty of time before advertising your promotion to come up with this plan and work closely with your legal advisor along the way.

Another option is to try to craft the message in such a manner that it does not trigger a CCV designation under the relevant state laws. Keep in mind that this is necessarily a fact-dependent exercise that varies from state to state based on how they define what constitutes a CCV.

Whether deciding do move forward with putting together a multi-state CCV compliance protocol or trying to avoid triggering a CCV designation, it is generally advisable to:

• Have a written agreement in place between the winery and the charitable organization describing the intended relationship between the parties and how the winery, brewery, or distillery will be promoting its products in association with the charitable organization;
• Maintain and preserve detailed records of the sales activity associated with the promotion AND the amounts ultimately donated to the charity; and
• Seek advice and counsel from your attorney before engaging in a sales promotion that has any charitable component.

NYSLA CCV Compliance Issues

It is also important to note some recent news coming out of the state of New York and to distinguish that situation from these CCV compliance issues. It has recently come to our attention that the New York State Liquor Authority is actively enforcing one of its laws that prohibits a non-licensee charity from "availing" themselves of a NYSLA license that is held by a NYSLA licensee.

Under longstanding NYSLA rules, it is impermissible for an alcohol beverage licensee to provide a non-licensed party a specified portion of a sale of alcoholic beverages because that would amount to the non-licensed party "availing" itself of the license. NYSLA recently indicated that this prohibition also extends into the charitable promotions context as it would be impermissible for a NYLSA licensee to advertise "5 percent of our sales will go to Charity Y."

While this particular consumer messaging may or may not implicate CCV compliance concerns in New York, wineries, breweries and distilleries located in any state should be on notice that this type of direct tie between alcohol sales and an amount that will be donated to charity does implicate NYSLA’s prohibition on one party availing itself of a NYSLA license held by another.

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