Consumer Advertising Law Blog

UK ASA: Pint Sized Prizes

Last week the UK’s advertising regulator, the Advertising Standards Authority (ASA), criticised beer-maker Carlsberg UK Ltd for running a prize promotion promising that “everyone who buys a promotional pack will also be eligible to send off for a free pair of Carlsberg pint glasses...”.  The promotion’s main prizes were fourteen 47” 3D TVs with accessories.  Carlsberg had estimated the redemption rate for the pint glasses based on its previous promotion for England World Cup glasses, which proved to be a fivefold underestimate.  The ASA acknowledged that the promotion stated “glasses available while stocks last”, but found that this did not relieve Carlsberg of their obligation to do “everything reasonable to avoid disappointing participants”.  It considered that the previous competition had not been a sufficiently similar promotion to provide a reasonable basis for estimating demand, because the England World Cup glass promotion had been run in isolation from any other main prize; Carlsberg should have taken account of any uplift that the offer of the main prizes could have on sales and redemptions.

 

This decision demonstrates that advertisers running prize promotions should take care to properly estimate demand; the common caveat that the prizes were subject to stocks was clearly not enough to protect Carlsberg from breaching UK advertising rules on sales promotions and availability when its glass promotion proved to be far more popular than it expected.

- Richard Dickinson

The Madness! Over Final Four Tickets Ends

The Supreme Court of Indiana, in a unanimous decision, has ruled in favor of the NCAA, dismissing a class action lawsuit challenging the NCAA’s Basketball Tournament ticket-distribution contest.(For background, we previously blogged about this case here and here). The Court determined that the NCAA contest, whereby the NCAA randomly allocated Final Four tickets to applicants who had offered to purchase tickets by submitting the face value of the tickets along with a non-refundable handling fee, was not an illegal lottery under Indiana law because no prize was awarded to those applicants who received the opportunity to purchase tickets.

In determining that the NCAA contest was legal, the Indiana Supreme Court made the following observations: (i) under Indiana law a lottery is defined as “a scheme for the distribution of prizes by lot or chance among those who provided or promised to provide consideration”; (ii) “in this case, there was no ‘prize’ and hence no ‘lottery’ because, at the time applicants submitted to the NCAA their offers to purchase tickets, the market value equaled the face value of the tickets”; and (iii) the decision “would not prevent a prosecutor or plaintiff from attacking a similarly structured scheme that is merely a ruse for a traditional lottery.”

The Indiana Supreme Court’s decision follows the decision issued in October 2010 by the US Court of Appeals for the Seventh Circuit, in which the Court of Appeals reversed its earlier ruling that the lawsuit could proceed and certifying issues to the Indiana Supreme Court. In issuing that decision, the Court of Appeals noted that the question of whether the NCAA’s

“ticket-distribution system constitutes a lottery under Indiana law is a close one, and our holding could have far-reaching effects on sports-ticket distribution systems utilized by the NCAA and others. At this juncture, we believe that affording the Indiana Supreme Court the opportunity to interpret the application of the Indiana statutes involved here appears to be the most prudent course of action.”

Prior to its October 2010 decision, the Court of Appeals, in July 2010, had reversed the decision of Judge William T. Lawrence of the Southern District of Indiana dismissing the case — determining that the plaintiffs had sufficiently pled a cause of action for violation of Indiana’s illegal lottery law by claiming that the NCAA’s contest involved the distribution of a prize, by chance, among persons who were required to pay valuable consideration to enter.

The Indiana Supreme Court’s unanimous decision, in addition to upholding the NCAA’s ticket-distribution contest, could have far-reaching effects on sports ticket distribution schemes, as well as other non-sport related ticket-distribution contests involving the payment of indirect fees to enter.

- Alan Veronick

Going, Going, Gone — Court Dismisses Complaint Challenging Furniture Promotion

On April 18, 2011, the Massachusetts Appeals Court affirmed the judgment of the Superior Court dismissing a lawsuit brought by a customer of Jordan’s Furniture  alleging that its Monster Sweep promotion was an illegal lottery under Massachusetts law.

In 2008, Jordan’s ran the Monster Sweep promotion, promising customers who purchased certain furniture products from March 25, 2008 through April 27, 2008 that their purchase would be free if the Boston Red Sox swept the 2008 World Series.  The Monster Sweep promotion was a follow-up to the popular Monster promotion  Jordan’s ran in 2007 — where an estimated 30,000 customers received free furniture after the Rod Sox won the 2007 World Series.  Unfortunately for Red Sox fans, and all of the customers who participated in the Monster Sweep promotion, the 2008 Red Sox were not so fortunate, as the World Series was won by the Philadelphia Phillies.

One of the disappointed customers filed suit against Jordan’s alleging that the Monster Sweep promotion was an illegal lottery.  Under Massachusetts law, a promotion is illegal if it includes: (i) the payment of a price, (ii) a prize, and (iii) some element of chance.  There was no dispute that the Monster Sweep promotion involved a prize (free furniture) and chance (customers would win only if the Red Sox swept the 2008 World Series) — the sole issue was whether the price element was present.

On this issue, the Massachusetts Superior Court held that Plaintiff’s complaint did not “claim that any part of the purchase price of the furniture was paid for the chance to win the rebate,” concluding that the Plaintiff had “fail[ed] sufficiently to assert the element of price,” and therefore “the Monster Sweep [did] not qualify as an illegal lottery.”  The Appeals Court affirmed and, adopting the reasoning of the Superior Court, determined that Plaintiff’s complaint was “bereft of language alleging that any portion of the purchase price was paid in anticipation of the Monster Sweep rebate and, accordingly, the complaint was properly dismissed.”

This decision makes clear that in Massachusetts companies can run promotions where the chance of winning the prize is conditioned on the purchase of a product, so long as no part of the purchase price for the product was paid for the chance to win the prize (even where no alternative means of entry exists).  The applicability of this decision outside of Massachusetts, however — where the lottery statute is more narrowly tailored than the lottery statutes in other states — is suspect.

- Alan Veronick

UK: High Court Rules Prize Draw Promotions ‘Misleading’

The English High Court has ruled that UK prize draw promotions distributed by five companies have flouted consumer protection law and misled consumers. The Court has indicated that it will make enforcement orders addressing future conduct against the five connected companies and a number of their directors. The decision marks the first substantive ruling on the Consumer Protection from Unfair Trading Regulations (CPRs) since they came into force in the UK in 2008 to implement the EU Unfair Commercial Practices Directive. The CPRs aim to protect consumers from unfair, misleading or aggressive selling practices.

Proceedings were brought by the UK’s consumer protection authority, the Office of Fair Trading (OFT), using its enforcement powers under section 215 of the Enterprise Act of 2002. The OFT claimed that the five companies, which are subsidiaries of the same holding company, were engaging in ‘unfair commercial practices’ which misled consumers in breach of Regulation 3 of the CPRs. Each company was involved with the promotion of prize draws which took the form of direct mailings and inserts in newspapers and magazines inviting consumers to claim ‘prizes’. This was not the first time the OFT has raised concerns over the practices of prize draw promoters. In 2007, it secured undertakings from the same five companies over the terms, conditions, and wording that could be used in their prize promotions. However with the passing of the more stringent CPRs in May 2008, and the OFT’s failure to secure new undertakings from the companies to take account of the CPRs, the OFT decided that enforcement action was the best recourse to prevent the companies from distributing the prize promotions to consumers.

The OFT was concerned that the promotions breached Regulations 5 ‘misleading actions’ and 6 ‘misleading omissions’ of the CPRs as well as Schedule 1, which contains a blacklist of 31 prohibited practices. In particular, the OFT considered that the companies flouted a rule against:

‘creating the false impression that the consumer has already won, will win or will on doing a particular act win, a prize or other equivalent benefit, when in fact either there is no prize or claiming the prize is subject to the consumer paying money or incurring a cost’.

By way of illustration, one of the promotions considered was a direct mailing sent to 357,703 consumers. It informed recipients that they had won one of six prizes, however 356,578 (99.68%) of the ‘winners’ were pre-allocated a ‘4 day Mediterranean Cruise’ including travel, transfers and accommodation for four people. After parting with £14.95 to retrieve the ‘prize’, winners received a holiday voucher. The voucher entitled them to reserve a three day holiday in Corsica and Sardinia, with overnight travel on a ferry, two nights in a hotel in Sardinia and a ferry trip to Corsica, at a cost of £159 per person, not including food/drink or port fees.

The judge (Mr. Justice Briggs) found that each of the prize promotions breached the CPRs, including the promotion above. He considered that the promotions created the impression that the consumer had won a prize when in fact they were simply being offered the opportunity to purchase a low value item. Secondly, the promotions deceived consumers as to the geographical region of particular products, or misled consumers into believing they had won a holiday, when, in fact, they had only won a holiday voucher, and would need to pay a significant sum to actually go on that holiday. Thirdly, the companies played down the costs to consumers of phoning the premium numbers to find out what they had won, and in some cases, the cost of insurance and delivery to receive the items. The judge also found that in most cases the cost to the companies of providing the ‘prize’ was considerably less than was paid by the consumer to retrieve the item. Overall, the judge was convinced that the infringements of the CPRs had been ‘amply satisfied’ by the OFT.

The decision clarifies how UK consumer law (in particular the CPRs) applies to what is a common form of prize promotion found in many national newspapers and magazines. It confirms that prize promoters must not mislead consumers by omitting information which would enable them to make an informed choice whether or not to ‘purchase’ the prize offered and illustrates that the OFT is keen to flex its muscles under the CPRs to prevent unfair commercial practices.

- Richard Dickinson and Jake Marshall

And the Madness Over Final Four Tickets Continues

Yesterday, the U.S. Court of Appeals for the Seventh Circuit, in an about face, reversed its earlier ruling that a class action lawsuit against the NCAA over a contest involving the distribution of tickets to its wildly popular NCAA Basketball Tournament could proceed.

In July, the Court of Appeals — reversing the decision of Judge William T. Lawrence of the Southern District of Indiana dismissing the case — determined that the plaintiffs had sufficiently pled a cause of action for violation of Indiana’s illegal lottery law by claiming that the NCAA’s contest involved the distribution of a prize, by chance, among persons who were required to pay valuable consideration to enter. The Court of Appeals also found that the District Court had erred in ruling that the plaintiffs were equally at fault for their participation in the NCAA’s contest.

Following that decision, the NCAA filed a petition for rehearing with the Court of Appeals arguing that the case involved issues of “exceptional importance” and that the decision of the Court of Appeals “directly conflicts” with an Indiana Court of Appeals decision. Upon consideration of the NCAA’s petition, the Court of Appeals vacated its July opinion and certified three questions for determination by the Indiana Supreme Court, namely,

1. Whether the NCAA’s contest allocating tickets to its basketball tournament was an illegal lottery under Indiana law?;
2. If so, whether the NCAA’s contest falls within Indiana’s “bona fide business transaction” exception to its illegal lottery rules?; and
3. Whether plaintiffs were equally at fault for their participation in the NCAA’s contest?

In vacating its prior decision and certifying these questions to the Indiana Supreme Court, the Court of Appeals noted that the question of whether

the NCAA’s “ticket-distribution system constitutes a lottery under Indiana law is a close one, and our holding could have far-reaching effects on sports-ticket distribution systems utilized by the NCAA and others. At this juncture, we believe that affording the Indiana Supreme Court the opportunity to interpret the application of the Indiana statutes involved here appears to be the most prudent course of action.”

Not only could the determination of the legality of the NCAA’s contest have “far-reaching effects on sports ticket distribution systems”, but it may also have consequences on whether non-sport related contests involving the payment of indirect fees to enter are legal.

- Alan Veronick

Madness! Over Final Four Tickets

The Court of Appeals for the Seventh Circuit, in George v. National Collegiate Athletic Ass'n., No. 09-C-3667, 2010 WL 2788452 (7th Cir. July 16, 2010) , determined that a class action lawsuit against the NCAA over a contest involving the distribution of tickets to its wildly popular NCAA Basketball Tournament can proceed  — reversing the decision of Judge William T. Lawrence of the Southern District of Indiana dismissing the case.

The Complaint, filed in May 2008, alleged that the NCAA was operating an illegal lottery by giving applicants who submitted a $6-$10 handling fee along with the face value of the tickets the chance to win NCAA Basketball Tournament tickets.  If the applicant was selected, he or she would receive the tickets in the mail.  If the applicant was not selected, he or she would be reimbursed for the face value of the tickets, but the handling fee would not be refunded.

The NCAA moved to dismiss the suit claiming that the contest was not an illegal lottery and that, in any event, dismissal was appropriate because plaintiffs participated in any “illegal” conduct that took place.  The District Court agreed and dismissed the Complaint with prejudice.  The class action plaintiffs appealed to the Seventh Circuit.

In its decision, the Court of Appeals determined that the plaintiffs had sufficiently pled a cause of action for violation of Indiana’s illegal lottery law by claiming that the NCAA’s contest involved the distribution of a prize, by chance, among persons who were required to pay valuable consideration to enter.  In so holding, the Court noted that it was troubled by the fact that the NCAA retained the handling fee it received from individuals who were not selected to receive tickets.  The Court also found that the District Court had erred in ruling that the plaintiffs were equally at fault for their participation in the NCAA’s contest.

This case underscores the need for companies to proceed with caution when structuring their contests, especially when the contest involves any monetary payment to enter.  As the Court of Appeals noted in its decision, if the NCAA had simply set up its contest so that the handling fee was repaid to those participants who did not receive tickets, the contest would have been legal.

Alan Veronick

New Media Giveaways Still Must Follow Old School Laws

You may have wondered why there was a mob scene surrounding Jet Blue personnel in Lower Manhattan earlier this month, or why people were chasing JetBlue employees through the streets of New York City. Well, as it turns out, it was all part of JetBlue’s moving target promotional giveaway — part of its 10th anniversary celebration — in which JetBlue gave away one thousand free airline tickets at three undisclosed locations in Manhattan for a round-trip flight between any destination that JetBlue flies. JetBlue announced the locations at which the tickets would be given away on its Twitter account, notifying those seeking the free tickets that they had to bring something with them to each of the giveaway locations, including, at the first stop, a birthday card for JetBlue; at the second, an item of blue clothing and something related to planes; at the third, a postcard depicting the tenth city out of which JetBlue started operating flights (i.e., West Palm Beach). The free tickets — with about 300 available at each location — were gone within about 20 minutes of each Twitter posting.

Moving target giveaway promotions — like JetBlue’s — have been used by other companies, including the Los Angeles based Kogi BBQ, with resounding success. But are these promotions legal? Well, it might just depend on how the promotional giveaway is structured.

Just about every state has enacted laws regulating games of chance used to promote a business or its products. These states are uniform in defining an illegal game of chance as one that involves the elements of chance, a prize, and consideration. There are, however, considerable differences in how state courts have interpreted these elements, and in particular the consideration component. The majority of state courts have found that consideration must involve a direct payment to participate in the promotional game. On the other hand, a few state courts have viewed consideration more broadly, some going so far as to find consideration in the act of visiting a store to pick up a free entry blank.

Given the uncertainty in the laws governing games of chance in many jurisdictions, companies who are contemplating promotional giveaways, including moving target promotions, should assess state law carefully to make sure the giveaway does not create potential legal issues in a state with an undefined or broad view of consideration. After all, the media buzz which often surrounds these promotions can make them an enticing target for an enterprising district attorney.

- Alan Veronick

Is Lawsuit Over Beer Sponsored Football Sweepstakes All Wet?

A class action lawsuit was recently filed in the United States District Court in Chicago against the makers of Coors Light for allegedly printing invalid official entry codes in connection with its “Coors Light Silver Ticket Sweepstakes.”

The “Coors Light Silver Ticket Sweepstakes” promotes the opportunity for 256 grand prize winners to receive two tickets to a 2009 NFL regular season game and 125 first place winners to receive a $100 NFLShop.com gift certificate. According to the contest rules, a contestant must obtain an official entry code — either from purchasing a Coors Light product or by receiving a code by mail free of charge from Coors — and enter the code via text message or on the Internet to see if he or she is a winner.

According to the Complaint, plaintiff purchased a Coors Light product “for the sole purpose of entering into the sweepstakes.” When plaintiff attempted to enter his official code, however, he was informed that the code was invalid. The Complaint alleges this was not an isolated problem but instead claims that defendants received several hundred complaints of invalid codes but continued operating the contest without disclosing the fact that invalid entry codes had been printed.

The official rules for the “Coors Light Silver Ticket Sweepstakes” contain a limitation of liability clause that covers printing errors. It could be an interesting question as to whether this would cover the fact pattern alleged by plaintiff — that up to 5 million official entry codes were invalid. More interesting questions in the case will likely include whether there was any injury, as the defendants provided a means of obtaining entry codes free of charge. Are there any other putative class members like plaintiff who allegedly only bought beer for the chance to enter the sweepstakes (sounds like something we might have said to our parents when we were 18) and if so, how do you identify those consumers as distinct from those who enjoy the Silver Bullet with or without a valid contest entry code? 

- Alan Veronick and Amy Mudge 

Federal Court Refuses To Redeem Gift Card Complaint

In an important win for companies that issue gift cards in California, a United States District Court recently threw out a class action complaint alleging that it was a violation of California law to refuse to redeem a gift card for cash. The plaintiff had sued under California’s notorious Unfair Competition Law, which allows a plaintiff to sue for any “unlawful” business practice by “borrowing” violations of other laws, even if the underlying law does not provide for a private right of action. The law that plaintiff “borrowed” to try to support his claim was California Civil Code section 1749.5(b)(1), which provides that “any gift certificate…is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder.”

 

The Defendant, a consumer product company that issues gift cards, filed a motion to dismiss, and the court granted it for two reasons. First, the court rejected plaintiff’s argument that the consumer had the option of either getting cash back or a replacement card, and instead held that the issuer had this option. Second, the court held that even if plaintiff could establish a violation of the statute, he lacked the injury necessary to maintain a claim under the UCL. The court held that plaintiff did not lose any money or property due to the claimed violation, because he still had a gift card with which he could buy merchandise in an amount equal to the full value of his gift card.

 

The court’s ruling, while not binding on other courts, should nevertheless be helpful to other consumer companies. It resolves in defendants’ favor the previously unresolved question of whether section 1749.5(b)(1) requires companies to essentially act as ATM machines for anyone holding a gift card. And it provides a federal court’s view on an important UCL issue: Whether a person suffers a loss of money or property sufficient to bring a claim under the UCL whenever he parts with money due to a UCL violation, or whether he must also establish what plaintiff could not prove here, which is that he did not receive a product of equal value in return for his money. This issue is currently before the California Supreme Court in Kwikset.

- James Speyer