Avoiding Legal Pitfalls in Cause-Related Marketing

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Marketers are increasingly looking to affiliate with charities in cause-related marketing efforts, such as arrangements in which a charitable donation is built into the cost of purchase of a good or service, to both raise donations and corporate image. After two years of decline, charitable giving as a whole is increasing, according to a recent survey conducted by the Chronicle of Philanthropy, and marketer may be even more interested in cause-related marketing campaigns.1 However, as seen by the recen class-action lawsuit filed against Lady Gaga over charity wristbands for Japanese earthquake victims,2 good intentions are not enough to prevent scrutiny and legal trouble.

The suit filed against Lady Gaga (whose real name is Stefani Germanotta) alleges that in selling $5 wristbands that say “We Pray for Japan,” Lady Gaga violated federal racketeering and consumer protection laws and engaged in unfair and deceptive advertising by stating that “all proceeds go the Japan Tsunami Relief.” According to the complaint, a class action filed by an attorney with 1-800- LAW-FIRM (a Michigan-based legal network) on behalf of consumers, this statement was misleading in that it did not account for taxes and shipping fees on its wristbands.3

While the legal merits of the claims are yet to be evaluated, this case serves as a reminder for any marketer seeking to enter a cause-related marketing relationship with a charity to pay attention to potential legal issues prior to embarking on a marketing or advertising campaign. Below we highlight a few of the key issues to be considered. We note that this article does not address federal tax requirements and considerations under the Internal Revenue Code, such as the charitable tax deductibility of donations, required charitable contribution notices and disclosures, and the taxability of income earned by the charity, among others. These are very important issues for charities, but are beyond the scope of this article.

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