Rules <-- Legal Stuff

by WarriorForum.com 37 replies
There are legal requirements you must comply with before starting a contest.

To help you stay out of legal trouble, what follows are guidelines copied from my membership site. Please read and apply them.

Keep in mind the Warrior Forum is not running the contests, but is merely a communication / advertising platform. Legal compliance is strictly your responsibility. Do not ask me, Allen, or a mod if what you are doing is legal.



How to Comply with Contest, Lottery, and Sweepstakes Laws



Contests are all over the Internet, and have recently been highlighted as a means of attracting super-affiliates who will send numerous customers to your business.

Ensuring legal compliance is important, especially given the worldwide nature of the Internet. Failure to comply with legal requirements can result in not only expensive civil litigation, but there is also the potential for criminal proceedings.


Three key definitions and concepts must be understood so that your business practices are legal:

1. Prizes.
2. Chance.
3. Consideration.


Lottery: All 3 elements (prize, chance, and consideration) must exist for a lottery. Generally, private lotteries are illegal in the United States. You will typically only see lotteries run by the states.

You do not want to do anything that has a prize, chance, and a payment involved.

A critical element to understand is 'consideration.' This is usually the payment of money. If you pay money for a chance to win a prize, the money you pay is called consideration.

Consideration does not have to involve money. Providing a service can be consideration. Providing detailed personal information can be consideration. Having to purchase a product is consideration.

Tip: Requiring that affiliates or JV partners purchase your product before becoming part of your program is consideration.


Providing an email address to enter is not consideration. Before the Internet people had to provide their physical address or some other way they could be contacted if the won. Obviously! The Internet is no different. Arguably, an email address is less intrusive than a physical address as email addresses can be temporary.

Note: it is one thing to request an email to communicate about the contest. It could be another to request an email as something of value to be used for other purposes, such as being sold to other marketers.

What is 'consideration' can vary from state to state but if you understand the underlying concept - it is something of value - you will probably be fine.

The goal is to avoid being classified as running a lottery. Lotteries are illegal.


Contest: Where there is a prize and consideration, but no chance, you have a contest.

For example - if you pay ten dollars to provide an essay, and the best essay wins a hundred dollar prize, this is a contest. There is no chance because skill is involved in writing the best essay.

Tip: Giving prizes to affiliates who bring in the most sales is a legal contest because the prize is based on the affiliates' skill and not chance. However, giving all affiliates who generate a minimum number of sales a chance to win a prize could be considered a lottery.



Sweepstakes: Where there is a prize and chance, but no consideration, there is a sweepstakes.

Most everyone has heard of the Publisher's Clearinghouse Sweepstakes. A chance to win a million dollars. Simply complete a form and you are entered. While it was hoped people would subscribe to offered magazines, no purchase was required to enter. That is the key for a sweepstakes - no purchase can be required.

Tricky Legal Compliance: You need to comply with US federal law, and the laws of each state if nationwide participation is allowed. If anyone can enter worldwide, be aware that what is legal in the US may not be legal in other countries.

Every state, and every country from whom residents can enter creates the possibility of government authorities from that state or country filing a lawsuit in their jurisdiction.

Tip: That is why you see 'Void Where Prohibited' as a term. Use it.


Tip: Many companies limit eligibility to residents of the United States. That is why you see terms such as 'Open to US Residents Only.'



Miscellaneous Issues:

Leave yourself an out for technical or security problems. If you get hacked, have a virus, etc, it could affect the validity of the contest. If it happens make sure you have the right to cancel the event. If consideration has been paid for an entry it will need to be returned.

Restrict eligibility to those 18 years old or older. All types of complications can arise if minors can enter your contest.

Avoid any appearance of a conflict of interest. Exclude from eligibility anyone associated with your company and any sponsors.

For a sweepstakes, state the odds of winning if there are a set number of entries. If the number of entries is open-ended state that the odds of winning will depend on the number of valid entries that are received.

Also for a sweepstakes, state up front, in large print, "NO PURCHASE NECESSARY TO ENTER." Be clear from the outset that your event does not meet the definition of a lottery.

Include Void Where Prohibited language.


Basic California Law:

While these rules are based upon California law, compliance with these provisions will in many situations be sufficient to comply with the laws of other states:


California Contest Rules:

No contest may be held if winning a prize is conditioned on a minimum number of entries being received.

Clearly and conspicuously disclose the deadline for entering.

Disclose the date on or before which the contest will terminate and upon which all prizes will be awarded.

Clearly and conspicuously disclose all rules, , terms, and conditions of the contest.

Disclose the exact nature and approximate value of the prizes being offered.

Award and distribute all prizes of the value and type represented - even if you didn't get as many entries as hoped for.

Obtain the express written consent of individuals before their names are used for a promotional purpose.

Refund all consideration to someone if they ask for it, in writing, within one year of payment, if they were unable to participate in any part of the contest for a reason that is not their fault. For example, Bill pays $100 to enter a contest but before being able to compete he is hospitalized for cancer and cannot participate. If Bill asks for his entry fee back, give it to him.

At the conclusion of the contest send to all entrants upon their request the names of all winners and the prize or prizes won by each.

If your contest involves solving a puzzle, there are many other rules that will apply.

Keep for at least two years after all prizes are awarded all of the following:

(1) Copies of all contest advertising and solicitations.

(2) All correspondence sent by a contestant and any responses.

(3) Adequate records which disclose:

A. The names and addresses of all contestants,
B. The approximate date each contestant was sent eachcontest,
C. The number of prizes awarded,
D. The method of selecting winners,
E. The names and addresses of the winners, and
F. The facts upon which all representations or disclosures made in connection with the contest are based and from which the validity of the representations or disclosures can be determined.




California Sweepstakes Rules:

Do not imply that a person has won a prize unless that is true. This takes into account contextual factors such as:
emphasis,
print,
size,
color,
location, and
presentation of the representation and any qualifying language, that a person is a winner


There must be a clear and conspicuous statement of the no-purchase-or-payment-necessary message

The no-purchase-or-payment-necessary message included in the official rules shall be set out in a separate paragraph and be printed in capital letters in contrasting typeface not smaller than the largest typeface used in the text of the official rules.

Sweepstakes entries not accompanied by an order for products or services shall not be subjected to any disadvantage in the winner selection process.

Advertising materials shall not represent that an entry in the promotional sweepstakes accompanied by an order for products or services will be eligible to receive additional prizes or be more likely to win.

Advertising materials shall not represent that a person has been specially selected in connection with a sweepstakes unless it is true.

The official rules for a sweepstakes shall disclose information about the date or dates the final winner or winners will be determined.
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