Key Sweepstakes, Ecommerce and Contract Issues…For Right Now

 

By Jamie Rubin

Did you miss my webinar; the one where I, along with my some of my partners, discussed what we’re seeing in our practice areas right now? I discussed sweepstakes, ecommerce and, yes, contracts. We had some clients who could not make it ask if we recorded the session. We did not. But below I put together some of the key takeaways on the topics I discussed. You can check out the key takeaways from Justine Young Gottshall’s and Mark Paulding’s privacy and data security discussion HERE and you can read the key points from Heather Nolan’s charitable program discussion HERE.

SWEEPSTAKES

Here are the top 3 questions we’ve received since Covid-19 really started to set in here in the U.S.:

  • Can I extend my sweepstakes?

  • Can I cancel my sweepstakes?

  • What do I do with this trip prize I was supposed to award?

Thankfully, we’ve dealt with many of these questions before. Over the years, plenty of marketers have asked to extend their sweepstakes merely because the promotion was not going as well as planned. Maybe they were not seeing a lot of entries.

Here’s the analysis we go through when asked about any of these questions:

  • First, what do the rules say?

    • In the sweepstakes world, we have the law applicable to sweepstakes and then we have the contract that governs the sweepstakes – the official rules.

    • So while the language you include in your official rules cannot change the requirement of a statute, there is much you can do in the rules to plan for the “what-ifs” that is in line with the law

      • Do your rules include an explanation of what the sponsor will do if something happens that makes the sweepstakes difficult to complete as-is or a prize difficult to award (for example, unavailability).

      • Do your rules include a force majeure provision? Examine it. Not all are created equal and they are rarely the “get out of jail” free card you think they are.

      • The sponsor will be held to follow the procedures in the rules, so that’s where we look first.

  • Second, how will this affect people who already entered or, in the case of a prize winner, the prize winner?

    • The cardinal rule is that you cannot change a sweepstakes in a way that impacts the odds of winning.

    • If you extend a sweepstakes beyond its original end date, you are necessarily messing with the odds for people who entered in accordance with the originally published dates.

    • All people affected count, but if you have very few entries at the time you want to make a change, the risk is different than making the change after 100s of people have already entered.

  • Third, what does the law say?

    • State laws exist that require a sponsor to award all prizes offered.

    • NY will reject games of chance registrations if the rules allow the sponsor to cancel the sweepstakes altogether without language indicating how the prize will still be awarded.

    • FL has a long standing rule that registration can be modified up until 7 calendar days prior to the start of the sweepstakes, but any changes thereafter will incur fines and be deemed a late filing.

      • NOTE: FL recently relaxed this in light of the pandemic. FL has advised that if a sponsor must cancel their promotion due to COVID-19, there will be no refunds of the filing fees. But FL has agreed to waive late penalties if and only if revisions to the Official Rules are due to COVID-19. Further, if a sponsor/operator must substitute a trip/sports related prize for another prize due to COVID-19, this will be acceptable.

  • Fourth, for instances where prizes no longer make sense or are no longer available (e.g., travel or availability of a meet and greet), what do we have to consider:

    • What are you going to communicate to winners? What options are you going to provide?

    • How are you going to ensure you are giving away a prize of equal or greater value (which is likely the language in your official rules)?

    • What do your prize provider agreements say? Many of our clients partner with prize providers. Look to the prize provider agreement. It may not account for a substitute prize. Imagine a cruise line agreeing to contribute 50 cruises to a sweepstakes. Now the sponsor wants to provide a substitute prize of equal or greater value. Is the cruise line going to come up with cash. What does the agreement say? For future sweepstakes, consider updating your prize provider agreements to account for these issues outside of the force majeure clause.

ECOMMERCE

It is no secret that many companies are trying to reposition themselves – maybe temporarily or maybe permanently. For those doing so, the name of the game is speed. Like sweepstakes, we get questions all the time about various business models. Here’s what we’ve addressed in the past several weeks.

  • FIRST, some business who have traditionally not sold directly to consumers are moving to do just that. And that triggers some brand new concepts that do not necessarily lend themselves to speedy launch. We’re talking about:

    • Establishing a payment processor relationship

    • Crafting return, refund and cancellation policies

    • Addressing taxes for consumer purchases

    • Establishing shipping policies and dealing with the morass of laws affecting shipping, including the FTC Mail Order Rule (yes, it governs online purchases). Not only are companies who are jumping into ecommerce for the first having to get familiar with the FTC Mail Order Rule, but many companies have never experienced problems with shipping on time. The FTC Mail Order Rule covers everything from what promises you can make about the timing of shipping, what happens if you can’t ship on time, the communications you must send to your customers and how quickly you must give refunds in the event of a missed shipping deadline.

  • SECOND, subscription based programs were all the rage before Covid-19 and now we’re seeing even more brands jump into the fray (for example, on demand movies). Compliance here is detailed, but not insurmountable. The trick is knowing the landscape:

    • Various state laws have subscription program laws that are very specific on necessary disclosures, cancellation procedures, how you must get consent from consumers to charge their card on a recurring basis, what communications must be sent immediately after signing up and what communications must be sent on a periodic basis throughout the subscription term.

    • On the federal level, the FTC enforces ROSCA (the Restore Online Shopper Confidence Act), which has many of the same requirements as the states, but also addresses partnership programs. You’ve seen these whenever you buy a concert ticket. After the transaction, the site serves you up a bunch of partner offers. Due to ROSCA, there are strict prohibitions on sharing customer payment data with those partners.

    • Visa and MasterCard also have new rules impacting subscription programs.

    • And with Free Trials you are no longer able to do a one size fits all free trial program that coverts to a paid subscription. D.C. now has a law that restricts this and requires re-consent before the free trial converts to a paid program.

  • THIRD, we are already working with businesses on what their brand position is going to be once the quarantine ends?

    • Are you going to re-brand in a way that attempts to make consumers feel safe about interacting with your place of business or good or service? [The cleanest theater?]

    • The FTC and FDA have already sent over 60 letters to companies about unsupported claims that products can treat or prevent the Coronavirus.

    • There are a myriad of ways that companies will reposition themselves that will trigger the need to also invest in substantiation for the claims being made. And health and safety claims are the highest priority for the FTC (always have been).

CONTRACTS

Everyone is talking about force majeure and you’re probably sick of hearing or being asked about it. Here’s our quick breakdown on the contract issues coming up for us daily and some practical pointers:

  • FIRST, if you’re in the middle of negotiating a contract right now, a force majeure clause is likely not going to help you in connection with issues that arise due to Covid-19. Likely the same for a contract signed in February of this year.

    • Instead, you’re going to need to get creative when it comes to termination provisions and maybe even tiered obligations. Make commitments subject to future successful business events (e.g., physical stores reopening)

    • Consider if adding (or for a contract already signed – if you already have) a “material assumptions” section in your agreement or the SOW. Courts have allowed companies to be excused for non-performance of contractual obligations if one of the stated material assumptions in the contract fails.

    • You have to follow the procedures detailed in the contract to avail yourself of the protections included in the contract, whether that is a force majeure clause, a general termination provision or language setting out the material assumptions of the contract.

  • SECOND, regarding force majeure:

    • Like most things in contract law, the specific language matters.

    • Boilerplate force majeure clauses typically reference acts of God, natural or weather disasters, labor strikes and war.

    • “Acts of God” is the catch-all force majeure event, but don’t rely on this to cover every event/disaster that might occur, as courts do not like to extrapolate every unforeseen event as being covered by vague “Act of God” language.

    • It is better to list specific types of events. Courts typically will look for clauses that are aimed narrowly at events that neither party could have foreseen or guarded against in the agreement.

    • Consider including language that goes beyond possibility of performance (e.g., “inadvisable, commercially impracticable, illegal, or impossible” to perform)

    • Mere economic hardship due to an event might not be enough for a force majeure event to save you for non-performance. For example, if an event makes it difficult/more expensive to obtain certain products in the supply chain, that may not be enough. However, if an event makes it impossible to get that product – e.g., the only supplier for widgets is located in China, and impossible to import those items because of government shut down / pandemic, there’s more of a case to be made for enforcing the force majeure clause.

There are some other helpful contract law doctrines to consider in the face of events like this pandemic (whether or not spelled out in the agreement), like the doctrines of impossibility, impracticability and frustration of purpose. But I will leave those for a future post.

Jamie Rubin