This is Part Two of a two-part blog posting outlining ten legal pitfalls to avoid when sponsoring a contest or sweepstakes. See Part One for legal pitfalls, numbers one – five. Here are numbers six – ten.
6. Taking Online Entries from Children in Violation of Privacy Laws.
Accepting entries from children in an online contest or sweepstakes requires compliance with the Children’s Online Privacy Protection Act (COPPA), applicable to children under thirteen, as well as compliance with state privacy laws, some of which apply to all minors under eighteen.
COPPA compliance requires parental notice and consent before collecting personal information from children under the age of thirteen. Personal information one may not collect online from a child without parental notice and consent includes name, email address, physical address, image of child, and other information. Federal regulators take kids’ privacy rights very seriously and have issued fines of up to $3,000,000 for COPPA non-compliance.
There are FTC-sanctioned workarounds – known as the one-time contact exception and the multiple-time contact exception – that let sponsors of online promotions collect certain personal information from a child before obtaining parental consent.
7. Using Entrants Names, Images, and Materials without Permission
Sponsors should obtain permission prior to using the names and pictures of winners and entrants in any advertising and marketing materials. Sponsors can often obtain such permission through their official rules or through winner affidavits.
In the worst case scenario, failure to obtain such permission can result in a right of publicity lawsuit against the sponsor. Review this cautionary tale of a sponsor who did not obtain the necessary permissions.
8. Ignoring Email Solicitation Laws
Sponsors planning to use email as part of their promotions must comply with the federal anti-spam law, CAN-SPAM, and with other state anti-spam legislation. These concerns are relevant for promotions that include Refer a Friend or Forward to a Friend features.
9. Failing to Protect Itself from Potential Mishaps
Ideally, sponsors should structure and administer their contests and sweepstakes in a manner that minimizes the risks of problems from printing and other inadvertent mistakes, winner disputes, ties, copyright issues, public relation mishaps, and fraud. For complicated promotions, these are areas in which a competent contests and sweepstakes attorney can be valuable.
10. Ignoring Tax Issues
Contests and sweepstakes winners must pay taxes on the prizes they win. The sponsor of a promotion offering an expensive prize such as a car should consider the tax implications on the winner and might consider other prize alternatives that do not trigger a significant tax obligations for the winner. Also, for any prizes valued at over $600, the sponsor must make an informational filing with the IRS (and potentially state tax regulators).
For More Information on Contests and Sweepstakes Law
Contests and Sweepstakes Law: A Guide Through the Legal Jungle Practice Manual provides marketing, business, and legal professionals with understandable answers and guidelines to their questions about contests and sweepstakes law. This 498-page book provides best practice suggestions for maximizing the operational success of contests, sweepstakes, and promotions while minimizing the risk of legal problems. It includes an overview of federal law as well as a separate, detailed legal synopsis for each state. Get a complimentary 40-page excerpt of the book here.