Sweeps Limits Continue to Mount

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Two recent events may spell even more trouble for sweepstakes marketers. The first, the passage of the Texas Sweepstakes Act, sets a new high-water mark on restrictions. The second, Publishers Clearing House's 26-state, $34 million settlement, continues to add increasingly onerous restrictions.


The Texas law. The Texas Sweepstakes Act was signed into law June 17 but does not take effect until Nov. 1. Though the law has numerous exemptions that are discussed below, for promotions to which the law applies, compliance seems nearly impossible.


The law applies to any sweepstakes conducted through the mail. Whether "through the mail" includes e-mail is not known, but most think that the law applies only to U.S. mail-type promotions. Moreover, the law expressly provides that it does not apply to sweepstakes whose only connection to the mail is that it is used to return an entry.


While every state prohibits requiring a purchase to enter, Texas now goes well beyond by prohibiting automatically entering a consumer into a sweepstakes because he made a purchase or promised to do so in the future.


The law seems focused on eliminating any perceived advantage from purchasing. It prohibits using a combined entry/order form, i.e., prohibits using an order form that has any role in a sweepstakes or using an entry form that allows one to order, though there are narrow exemptions for single-page mailings that use perforations. The law prohibits using an entry form that is in any way different for purchase/nonpurchase entries or using different addresses for purchase/nonpurchase entries.


Texas also prohibits using an entry form that does not contain the following fact message in at least the same font size otherwise found on the entry form: "Buying will not help you win. Your chances of winning without making a purchase are the same as the chances of someone who purchases something. It is illegal to give any advantage to buyers in a sweepstakes."


The law has unique timing requirements. For example, it prohibits offering another sweepstakes, skill contest, gift or premium giveaway for 30 days after the conclusion of a sweepstakes.


Exclusions. The law has a plethora of exclusions. Indeed, it has so many, some think it may be challenged as unconstitutional on equal-protection grounds. The most notable is for sweepstakes whose largest prize (based on retail value) is less than $50,000. The sum of the prizes is not at issue; only the largest prize is considered.


Other important exclusions include:


• Sweepstakes conducted through magazines, newspapers or catalogs sent through the mail. Each of these terms is carefully defined in the law.


• Companies regulated by certain other regulatory bodies, including the Texas Alcoholic Beverage Commission; air carriers and public utilities; those promoting food products regulated by the Food and Drug Administration or the U.S. Department of Agriculture; and cable networks.


• Companies that derive 75 percent of their income from the sale of audiovisual entertainment products.


Given the complexities of the law and some surprising exemptions, any marketer considering mailing into Texas must review the law carefully to ensure compliance. Moreover, even if a sweepstakes is not subject to this specific law, it may be subject to the federal sweepstakes legislation, along with state and federal advertising laws prohibiting false and deceptive advertising.


Publishers Clearing House. A 26-state (including Texas), $34 million settlement of the remaining multistate lawsuits and investigations against Publishers Clearing House was recently announced. The settlements are subject to individual state court approval.


Under the settlements, PCH must include various sweepstakes fact messages, including the "Buying will not help you win" statement required by the Texas law, and statements including "You have not won yet," "Enter for free, you don't have to buy anything to enter." PCH is precluded from using various common creative devices, including misrepresenting supposed personal feelings of its employees toward the consumer (i.e., employee Bob Smith really wants you to win).


Also prohibited are simulated press releases, asking the consumers' whereabouts at a particular time and using the terms "urgent attention," "guaranteed winner," or "tiebreaker." PCH is prohibited from using different entry forms for purchase and nonpurchase entries. PCH also is prohibited from making false representation, regardless of how immaterial or insignificant the statement. Also included is a $1 million penalty payment and an apology for PCH's past business practices.


While the PCH consent decrees are not binding on other marketers, the prohibitions and disclosure requirements should be reviewed as they provide great insight into regulators' mind-sets. In fact, there are similarities between the PCH consent decree restrictions and the Texas law. These similarities likely hold a crystal ball for what other states are considering.


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