Legal Issues in Cause-Related Marketing
Cause-related marketing is frequently used by businesses to bolster sales, improve brand reputation, and improve public relations. Under the laws of a number of states, when a business advertises that it will make a charitable contribution to a charity when a consumer purchases a product, the business becomes a commercial co-venturer with the charity. Successful commercial co-ventures include Bono’s Red campaign, which has generated more than $300 million to fight HIV and AIDS through consumer purchases of (RED) merchandise branded through the campaign and sold by companies such as Apple and Starbucks.
As businesses and charities continue to increase their cause-related marketing activities, there are increased opportunities for state regulators to enforce laws that vary widely from state to state and do not necessarily contemplate the next biggest idea from a business’s marketing department.
State law in this area is hard to navigate. Sometimes state law simply requires registering as a commercial co-venturer in each state where advertisements appear. More often, the business must take other steps to comply with state law, including obtaining a bond, filing a copy of the contract governing the co-venture with the state, or obtaining an accounting at the end of the co-venture. Understanding and complying with the requirements of all states can be time-consuming.
The frequency of these types of promotions is growing as retailers increasingly incorporate “cause marketing” into their marketing efforts. Examples of where these requirements may apply include:
“Buy this special hat and $1 will be donated to the Children’s Cancer Center.”
“Send in five yogurt caps, and we’ll donate $10 to breast cancer research.”
“St. Mary’s Hospital and Acme Grocery are proud to offer a special holiday ornament.”
Commercial co-venturing statutes are consumer protection statutes meant to protect the public from unscrupulous businesses taking advantage of a consumer’s charitable impulses.
States take these statutes seriously and may pursue businesses that violate the rules or don’t register. Perhaps the best known violation occurred in 1999, when the parent company of Yoplait yogurt advertised that it would donate fifty cents to the Breast Cancer Research Foundation for every foil lid customers sent to the company. Customers sent in more than eight million lids, which would have led to a contribution of over four million dollars. However, the contract contained a cap on the contribution to $100,000. The Georgia Attorney General investigated and Yoplait was required to make an additional contribution to the Breast Cancer Research Foundation.
State Requirements. More than half of the states have requirements for commercial co-venturers, including the following:
Registration and Reporting. Some states require the co-venturer to register with the state (there is usually a form available for this purpose). If registration is required, the co-venturer is usually required to file an annual report with the Attorney General or the state department or agency that oversees consumer protection.
Written Contract. A number of states require that the co-venturer enter into a written contract with the charity and further require that certain provisions be included. Other states require only that the co-venturer file the written contract between the co-venturer and the charity with the state.
Reporting by Charities. A number of states require the charity itself to file a statement before beginning the sales promotion or to include the sales promotion in its annual reporting.
Accounting. A common provision in the state statutes is to require the co-venturer to complete an accounting at the end of the sales promotion and retain records for three years.
Disclosures. Some state statutes also require the co-venturer to include certain information in advertising materials, including the specific dollar amount or percent per unit of goods purchased benefitting the charitable organization or purpose.
State co-venturer statutes are usually codified as part of the state’s consumer protection statutes (in many states, a violation of the co-venturer requirements is treated as a deceptive trade practice). These statutes are intended to prevent companies from making misrepresentative statements intended to mislead customers, even if those statements are strictly true. It is important that all commercial co-venturing arrangements meet the general consumer protection requirements, including not misrepresenting the arrangement to the public. State enforcement agencies (generally, the state’s Attorney General) may take a broad approach to the interpretation of these statutes. In addition, organizations such as the Better Business Bureau and the press have taken a growing interest in perceived abuses of cause-related marketing promotions. The biggest risk from non-compliance is probably the unwanted negative publicity for the retailer.
Enforcement of commercial co-venturer requirements can be sporadic. A number of businesses fail to comply with state co-venturer statutes (despite fitting squarely within the definition) without legal or public relations repercussions.
Businesses engaged in “cause marketing” may also consider the Better Business Bureau’s Standards for Charity Accountability #19, pertaining to co-venturers. These standards mirror the requirements in many state laws (although some state statutes have additional or more specific requirements). These standards require that advertising regarding charities include:
The actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to abc charity for every xyz company product sold)
The duration of the campaign (e.g., the month of October)Any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000)