Sweepstakes and contests have arguably been in existence from the time of early human civilization as an incentive-based mechanism to produce a strategic objective. For example, in 1809 Napoleon Bonaparte offered a prize of 12,000 francs to the person who invented a more effective method of storing food. The winner, Nicolas Francois Appert, submitted the method of boiling and sealing food in glass bottles (which soon were replaced with tin cans), which made food portable and killed microbes that would cause spoilage, enabling Napoleon’s army to continue their conquests across central Europe.

To engage audiences, marketers have used sweepstakes and contests as a means to build brand loyalty and recognition, so that consumers are not only induced to try new products but to maintain the customer loyalty and sell-through rates at retailers. By using incentive-based marketing methods such as sweepstakes and contests, more people are inclined to purchase the product because they have experienced a positive active engagement with the brand.

In the modern phenomenon of social media, brand managers are scrambling to find new ways to interact with consumers and produce a relevant experience with their brand because consumer attention span and loyalty are becoming more divergent. Facebook, Twitter, MySpace, Linked-In, Four Square and more segmented niche social networks are now integral parts of marketing strategies for some of the world’s top consumer products because these platforms are where the audiences now are aggregated and interacting.

In light of the challenge for marketers to marry social media with traditional incentive- based programs, such as sweepstakes and contests, marketers are faced with new legal and business threats that they had not previously encountered. The following list depicts the top five issues marketers face when using social media as a method for executing contest and sweepstakes promotions.

1. Conflict with Privacy Rules and Terms and Conditions of Social Networks

When collecting online and mobile data regarding consumers, marketers have seen the opportunities to identify not only general demographic and behavioral patterns of their customers, but actual specific information to make relevant offerings to individuals and cross-sell new products and services. However, the social network rules governing data privacy and accessing information and profiles pose a limitation on data access and use. Therefore, marketers need to incorporate and consider the social network’s privacy policies and terms of service in designing their sweepstakes and contests (this also applies to distribution of online casual games through social networks) and how they collect and use data, or they could lose the privilege of accessing the aggregated market and may face significant legal exposure under US and International data privacy laws.

2. Online User Voting

Using consumer voting as the sole mechanism to determine a contest winner (e.g. voting on the best user generated video submissions for a jingle) creates not only issues related to contest rigging by participants, but may likely cause significant PR damage to the brand. For example, the Pepsi Refresh contest to donate funds to community causes has had some issues with allegations among contestants where the winners allegedly hired overseas firms to essentially cast thousands of votes in their favor to win the prize. Of course, there are ways to establish more objective methods for determining the winner of online contests using user-generated that can mitigate this exposure and ensure that the process is fair, unbiased and complies with state contest laws.

3. Viral Marketing Techniques and Conflicts with CAN SPAM and TCPA

Every marketer loves the “invite a friend” feature or a promotion that enables viral marketing, and so the ease of email and SMS functionality seems a pragmatic approach to facilitate this objective. However, marketers should be aware of the implications and restrictions of two major US laws involving unsolicited communications: the CAN-SPAM Act of 2003 (15 USC §7701 et seq.), which deals with unsolicited emails, and the Telephone Consumer Protection Act of 1991 (47 USC §227 et seq.), which covers unsolicited text messages, phone calls and faxes. Both these laws prescribe for statutory damages and private causes of actions, so brands seeking to avoid class action lawsuits need to have their internal or outsourced legal counsel advise them in how to ensure that they remain compliant.

4. Administration of Rules

Many marketers do not spend sufficient time in designing their rules. Contests and Sweepstakes are governed by different rules for all 50 U.S. states. There are some fundamental requirements required by all states (e.g. odds of winning disclosure, name of sponsor, no purchase required for a sweeps, records retention disclosure, etc...), but there are nuances from state-to-state that are too numerous to depict in this article. Generally speaking, however, there are bonding requirements in Florida, New York and Rhode Island, the age of majority is NOT 18 in several states (e.g. Alabama, District of Columbia, Mississippi and Nebraska have different ages of majority, so agreeing to official rules and agreeing to liability releases are not legally binding if they are not of majority age), and publicity releases are not enforceable in Tennessee. Additionally, social media marketing and user-generated content add another dimension of complexity to the preparation and design of rules. As such, there are varied pragmatic legal considerations that must be addressed in the rules to provide maximum legal protection, mitigate participant misconduct, and avoid ambiguity and PR backlash for the brand.

5. DMCA and CDA Safe Harbor

When marketers are using user-generated content (“UGC”), specifically online video, as a means to engage audiences and personalize the brand for their customers (e.g. video entries for consumers to state what they like most about the brand), there are various considerations regarding claims substantiation, defamation, invasion of privacy, trademark infringement, and probably the most likely risk, copyright infringement and defamation/invasion of privacy. Consumers are likely to include background music, branded clothing, or other articles depicting the copyrighted or trademarked materials of others in their video submissions. They may also include statements about third parties or disparaging remarks regarding other people or companies. Under the Digital Millennium Copyright Act of 1996 (17 USC § 512) (“DMCA”) and the Communications Decency Act of 1996 (47 USC §230)(“CDA”) prescribe for safe harbors to online publishers of UGC from any liability attributed to copyright infringement and defamation/invasion of privacy respectively, provided they exercise no editorial control over the UGC. Compliance with DMCA requires the publication of specified take down procedures and filing of agent information with the US Copyright Office, while the CDA simply requires no editorial control over the content. Different marketers have different policies regarding allowing consumers to directly post their UGC directly onto the brand’s website, while others would rather filter submissions for their contests and other promotions to ensure that no objectionable materials or derogatory submissions would taint the brand image. In either regard, the rules have to be very clear, and the marketers need to know the tradeoffs between the two strategies and the implications to their safe harbor protections.