Starting next week, businesses running contests and sweepstakes on Facebook will not be allowed to require users to “like” their pages as a condition of entry to a promotion. This practice, known as “like-gating,” has been one of the many benefits of running a promotion on Facebook for businesses old and new looking to increase their fan base. However, after November 5th, Facebook rules will require that promotions be open to fans and non-fans alike. Under the new rules, “it remains acceptable to incentivize people to login to your app, checkin at a place or enter a promotion on your app’s Page.” Facebook’s reasoning is simple:
To ensure quality connections and help businesses reach the people who matter to them, we want people to like Pages because they want to connect and hear from the business, not because of artificial incentives. We believe this update will benefit people and advertisers alike.1
But the rules for Facebook contests and sweepstakes don’t stop there. Facebook and most other social media sites, including Twitter, Instagram, Pinterest, and Tumblr, each have a small, but comprehensive set of rules to follow when running a social media promotion on their sites. Some sites restrict who can enter and others restrict what you can give away, but all of them dictate that the responsibility to follow applicable laws and regulations lies with the sponsor running the promotion and not the social media website. So whether you are running a Twitter-based sweepstakes, an essay contest on Facebook, a simple giveaway on your own website or even a business card raffle in your store, there are a lot of rules to keep straight. While breaking Facebook’s rules might only get your promotion shut down or your brand’s account suspended, violation of applicable legal rules could create larger problems with state and federal authorities.
Contest and Sweepstakes Law
In the United States, contests and sweepstakes are generally governed by state law, but certain federal laws are also applicable, so businesses may be responsible for complying with more than 50 different sets of laws when they run promotions on social media that are open to U.S. residents. Promotions that carry across international borders are subject to even more, and possibly conflicting, laws and regulations.
Contests vs. Sweepstakes vs. (Illegal) Lotteries
Promotions generally fall into two categories: contests, which are games of skill, and sweepstakes, which are games of chance. In order for contests and sweepstakes to be compliant with U.S. law, they cannot include all three of the following elements: (i) consideration, (ii) chance, and (iii) prize. If any one of these elements is absent, then the giveaway is likely to be permissible as a general matter. For example, if participants in a promotion do not have to pay to enter, or do anything beyond submitting their name and address as part of the entry process, then the element of consideration is likely absent. However, promotions that involve all three elements –consideration, chance and a prize – are considered lotteries, and are likely illegal when conducted by anyone other than the government. That’s why many states require sponsors to include and abide by the following disclaimer: NO PURCHASE IS NECESSARY TO ENTER OR WIN. A PURCHASE WILL NOT IMPROVE YOUR ODDS OF WINNING.
Official Rules – Don’t Forget Them
When running either a sweepstakes or a contest, whether online or in a store, a set of official rules is generally required to spell out how to enter, when to enter, and what is being given away. Such rules are very important for insulating the sponsor from potential liability, and many states require particular disclosures or provisions that are commonly found in these rules. All official rules should include the name and address of the sponsor or sponsors. Many states also require that sponsors include a statement about the odds of winning and directions for how to request a copy of the official rules and a list of the winners’ names. Facebook specifically requires that sponsors include a complete release of Facebook in the official rules as well as an acknowledgement that the promotion is in no way sponsored, endorsed or administered by, or associated with, Facebook.
Sponsors should also think through the following questions when setting up a promotion and drafting a set of official rules:
Eligibility by Age: Will the promotion be open to minors under the age of majority or children under the age of 13? If so, additional rules may apply, including The Children’s Online Privacy Protection Act of 1998 (“COPPA”).
State Registration and Bonding Requirements: Does the contest need to be registered with any state authorities and does the sponsor need to post a bond? New York, Florida and Rhode Island all require registration and/or bonding in certain circumstances.
Use of Entries: As the sponsor, do you want to use the participants’ entries for promotional purposes? If participants are submitting photographs, videos or essays, for example, do you want to post the winning entries on your website or social media page? If so, the rules will need to address the intellectual property rights of the entries.
Advertising: How is the promotion going to be advertised and where? Do the advertisements fairly describe the contest and include the necessary disclaimers as well as a link to the official rules?
Selection of Winners in Contests of Skill: How will the winner(s) be determined in your contest of skill? To avoid categorization of the promotion as one of chance, the criteria should be objective.
Trips or Tickets as Prizes: If you are giving away a trip or tickets as a prize, does the prize include travel expenses and all meals? Does the prize have a maximum value? Specificity is the key in these situations and will help sponsors avoid being stuck with unplanned costs incurred by winners or a dispute over what costs are covered.
Prize Value and IRS Requirements: How much is the prize worth? Under current IRS rules, if the prize is worth more than $600, the sponsor must issue the winner a 1099 Form.
Disputes: In the unfortunate event of any disputes, would you rather arbitrate the dispute or go to court? Sponsors should also think about what state law should control the rules and in what jurisdiction should the arbitration or lawsuit be filed?
Liability: Who is liable if the promotion goes awry and is there a cap on the amount of liability? As noted above, Facebook requires that all participants release Facebook from any liability. Should sponsors also include a release of promotion partners? What happens if the prize itself causes harm to the winner?
Promotions in the form of sweepstakes and contests of skill are subject to a variety of rules and regulations. Sponsors also need to consider intellectual property, advertising, privacy and liability issues when setting up promotions. As a result, before any contest or sweepstakes is launched, legal counsel should be consulted to ensure that a proper set of rules, appropriate for the particular contest or sweepstakes, is in place and that the sponsor has taken steps to protect itself from unnecessary legal risks.