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Launching Sweepstakes or Contest – What You Need to Know (Part 1)

As we proudly admit on this blog’s “About Us” page, we’re passionate about all things brand related – and what better way to promote your brand than by running a sweepstakes or contest?  At a time when we are seeing the “gamification” of every part of our lives, it should come as no surprise to see that many brands now include prizes and rewards as a significant component of their consumer outreach.  Where once upon a time this was a niche explored by only a handful of large companies or fly-by-night operators, today, prize promotions are seen by many of our clients as among their most effective forms of advertising.

The concept is wonderfully simple: in a prize promotion, someone enters the promotion, and someone wins a prize.  Yet this basic formulation encompasses a nearly endless number of variations, including sweepstakes, contests, games, trade promotions, sales incentives and viral engagement.  Some of these variants are legal; some are not.  And because we have been so passionate about sweepstakes and contests for so long, we’ve decided to explain the basics in a helpful, multi-post series on the topic.  There’s a lot of nuance, and it would be impossible to cover it all in one place, but we think that once we’re done you’ll be as excited about this area of the law as we are.

So while we will get into the weeds next time, we’ll leave you with one important thing, and some definitions.  The starting point for any discussion of promotion law is this nation’s long-standing prohibition on illegal lotteries, the most basic form of gambling.  All 50 states and the federal government currently prohibit lotteries, except those chartered by the states.  Historically, an illegal lottery had three components: prize, chance and consideration.  By removing any one of these three items, an “illegal lottery” can be rendered a legal promotion, sweepstakes or contest in most states.

So what did any of that mean?

  • “Consideration” generally refers to payment or money, although it can refer to anything of value.  In this context, it is important to remember consideration can refer to both monetary and non-monetary things of value.

  • “Chance” exists when a winner is chosen based on random selection (i.e. a random drawing or winning game piece).

  • “Prize” can be anything of value (monetary or non-monetary) going beyond that which is awarded to every entrant.

  • “Lottery” is an activity that requires consideration to participate for a chance to win a prize.  Unless you are a regulated gaming company, or a government entity, conducting a lottery is illegal in all 50 states and under federal law.

  • “Sweepstakes” is an activity similar to a lottery, except consideration is not required to participate.

  • “Contest” generally refers to a skill contest, which is an activity similar to a lottery, except the element of chance is eliminated and winners are instead selected by either bona fide skill OR chosen by qualified judges based on clearly defined criteria.

  • “Promotion” is an umbrella term that includes both sweepstakes and contests, as well as perhaps other types of activities that further a company’s goals.

As you’ve probably gathered from reading the definitions above, it’s very important to make sure your sweepstakes or contest is structured in such a way that it avoids characterization as an illegal lottery.  Doing this can be tricky, and even if you succeed, there are additional laws and regulations governing the operation of legal sweepstakes and contests, as well as best practices to help avoid issues that arise during administration of the promotion. Sound complicated? After we’re done, you’ll feel much better!

Here’s a look at some things future posts on this topic will cover:

  • Drafting the promotion’s “official rules” and “short form” rules;

  • Implementing a “free alternative method of entry” for sweepstakes;

  • Determining what types of contests really qualify as “skills contests”;

  • Determining a what types of payments really qualify as “consideration”;

  • Special rules when running social media and mobile promotions;

  • Special rules when running promotions in which user-generated content is submitted;

  • State registration and bonding requirements;

  • And more!

Part 2: Let Games Begin – But Only After Rules Are In Place 

©2020 Drinker Biddle & Reath LLP. All Rights Reserved


About this Author

Darren Cahr, Intellectual Property Attorney, Drinker Biddle, Chicago

Darren S. Cahr counsels clients and litigates disputes relating to intellectual property and marketing practices. He provides critical advice and representation in connection with infringement claims, the protection of intangible assets, competitive positioning, branded communications, and the legal implications of new technology. Darren litigates and tries cases in courts around the nation and before administrative agencies, dispute resolution forums and self-regulatory bodies. In addition, Darren serves as co-chair of the firm's Advertising and...

Tore DeBella, IP Attorney Drinker Biddle

Tore Thomas DeBella advises clients on legal issues involved in branding, marketing, and privacy as they relate to consumer promotions, advertising, social media use and/or abuse, website policies and terms, trademark infringement, domain name registration and more.

Tore manages trademark portfolios through the entire brand “life cycle” – from selection and adoption of a brand through registration and enforcement. Tore has handled cases before the Trademark Trial and Appeals Board and in federal courts. He manages all sizes of portfolios, both domestic and international, and is accustomed to working closely with clients to develop cost-effective brand strategies that work. Tore is a regular contributor to DBRanding, Drinker Biddle’s blog about brand protection.

Mita Lakhia, Intellectual property lawyer, Drinker Biddle

Mita K. Lakhia handles a variety of matters across the spectrum of intellectual property litigation and counseling. Mita’s practice focuses on trademarks, advertising, and data security and privacy – and the unique intersect of these overlapping fields. Mita has experience with trademark counseling, prosecution, litigation, TTAB proceedings and portfolio management. Mita advises clients in matters related to advertising, promotions, and social media, and the impact of data collection and use related to advertising practices. Mita also has experience with...