Often, a great marketing campaign includes surprise, anticipation, and customer interaction. Giveaways can be a great way to stir up those attributes, but the details of the giveaway must be worked through carefully into insure compliance with federal and state laws. Because Law On The Runway is located in California, we’re going to focus on California and Federal laws. As with all our posts, this is just general information, not legal advice. Each situation is different, and so it is best to consult with an attorney before making decisions on how the laws will affect your desired giveaway structure. When you are creating a campaign, particularly one online where anyone in the US may enter, please remember that you must comply with all states’ laws.

To help us to explore the laws surrounding giveaways, I would like to share three common scenarios:

Scenario #1:   A beauty entrepreneur wants to return goodwill to her new customers. She decides to offer a “giveaway” where she will raffle off a bag of cosmetics, only open to customers who have already purchased cosmetics from her company. Is this legal?

Scenario #2: A fashion blogger wants to run a contest for a designer beach bag. The blogger requires each contestant to write a short essay on the contestant’s dream beach vacation. The blogger will choose her favorite essay, and reward the author with the bag. Is this legal?

Scenario #3: A style icon has a Facebook page for her fans. She is raffling off a necklace to new followers of new Facebook page. A fan can enter be eligible for the giveaway by “liking” her page in exchange for chance to win. The necklace was given to her by the jewelry company to be used in this raffle as a promotion for the jewelry company. Is this legal?

The three scenarios above describe common “giveaways” that Law On The Runway sees for online marketing campaigns. We’re going to give you the basics of giveaways and then explain the legal analysis of each of these scenarios. It is important to think about giveaways in three categories: Lottery, Contest, Sweepstakes.

Lotteries

Potentially, the most important rule of all is that you never want to be running a lottery from your blog or website. Lotteries are highly regulated.  In California, the Business and Professions Code governs the promotion of the sweepstakes while the Penal Code (criminal law) sets forth the definition of a lottery:

“A lottery is any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known.” (CA Penal Code Sec. 319)

Essentially, if you have a chance, consideration, and a prize, you are conducting a lottery.

But how do you know if you have those things? To break down these components a bit further:

Chance: When you are picking a winner at random, and no merit or skill is involved in winning.

Consideration: In this definition of Lottery, consideration can be money, property, or even significant time or general effort. Additionally, when you require the contestant to purchase a product or service before the contestant is eligible for a giveaway entry, courts see this barrier as consideration. Consideration doesn’t necessarily have to be a payment. It can be giving up anything valuable, including significant time. Filling out a simple form is unlikely to be enough effort to constitute consideration. However, watching a video and then filling out a form may be considered consideration by various states, likely dependent on the length of video.

Prize: Anything valuable that is given to the winner. In regards to a prize, it is important to note that almost all jurisdictions do not allow the prize to be a pool of the entry fees.

In case you are curious about penalties, unless you are conducting a “raffle”  for a charitable organization, by following CA Penal Code Sec. 320.5, if you have chance, consideration, and a prize, you could be found guilty of a misdemeanor for running a “lottery” in California, under CA Penal Code Sec. 320.

In Scenario #1, we have a prize, chance and consideration. The prize is the gift bag of cosmetics. The winner is chosen at random, satisfying the element of chance. Finally, we have consideration because in order to be eligible for the giveaway, a contestant must have made a purchase. Unfortunately, this beauty entrepreneur would be running a lottery, and therefore her marketing idea is illegal.

In Scenario #3, we may also have consideration. Consideration as we mentioned before does not require a monetary exchange. It can also be a significant effort, or something else of value. Right now, there are no judicial opinions on if “liking a page” or other small social media endorsements, such as a “retweet” of a promo message, on Twitter or an email referral to friends is enough for to meet the threshold definition of consideration.  The action itself is small, much like filling out a simple form, but the component that may make it consideration is the public endorsement nature of the act. This style icon should proceed with caution.

For Scenario #2,  we do not have the element of chance, so long as the contest is truly judged on the merits of the essays. Therefore, we do not have a lottery.

Contest

As alluded to above, Scenario #2 is likely to be considered a contest. The giveaway based on the merits of the entry can be legal, but each state and federal laws have requirements for disclosures and contest instructions.

Required disclosures for contests in California:

• amount of money winner will pay for postage and handling (it can be no more than $1.50 & actual cost of postage)
• max number of games for determining a winner
• number of contestants
• a detailed description of how the contest timeline

Additionally, California also requires that the contest will occur regardless of the number of contestants. Remember, if you company is in California, but you are opening the contest up to residents of other states, you must follow the state laws for every state that are allowing residents to enter.

Understanding the state laws is just the start, you also need to look into applicable federal rules.  FTC ( Federal Trade Commission)  has several rules regarding Sweepstakes. In general, you must never be conducting any deceptive practices. FTC requires specific information to placed in your official contest rules including:

• The name and address of the sponsor (the entity that is conducting the contest)
• Dates that the contest will begin and end
• Prizes & retail value of prizes
• Statistical odds of winning each prize
• Eligibility requirements of winner (ex: age or state of residence)
• Barriers or requirements for entry, including a detailed description of how winner will be determined.
• Anything else that might limit  participate from winning

Sweepstakes

If Scenario #2‘s “liking” of the Facebook page requirement is not considered consideration, we have three elements of sweepstakes: prize, chance, and free entry. Because the necklace came from a jewelry company looking it promote itself with the help of the blogger, we need to look back to our required FTC disclosures.The fashion icon will have to disclose that she is providing the necklace, and her endorsement of the necklace in exchange for getting the necklace as a free gift to raffle.  Please review our previous post on FTC Disclosures of Native Advertising for more info.

The style icon will also be required to have the same disclosures and rules as contests for a sweepstakes, as listed above. The only differences will be that she will describe her giveaway as a game of chance, and the entries will be picked at random, not on merit.

These are the basics to help you get started with planning a giveaway campaign. Please consult with an attorney before making any decisions on the legality of your giveaway campaign. If you have any questions on this blog article, or questions about giveaways in general, feel free to contact Rachel, at [email protected].