Contests with Consumer Generated Content Pose Risks as well as Rewards

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		March 2009, Issue 61

Lead-Generation Best Practices
Contests with Consumer-Generated Content Pose Risks as well as Rewards
By Gonzalo E. Mon, Attorney, Kelley Drye & Warren's Advertising and Marketing Law Practice

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This article is reprinted with permission from the Sales & Marketing Executives International (SMEI) newsletter, Marketing Times.

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A growing number of companies are running contests in which consumers are invited to create videos, commercials, or other content for the chance to win prizes. Although many of these contests have been extremely successful, for every success story, there are many contests that have been plagued by missteps. A few of these missteps have been highly publicized or resulted in lawsuits. And many others have gone unreported due to skillful damage control on the part of companies running the contests.

These types of contests can offer many benefits, including publicity and increased sales for a relatively small investment, but they can also pose a number of challenges. In addition to the legal requirements that apply to all types of contests, there is an inherent risk in putting so much power in the hands of consumers. The more control that is given to consumers, the less control the company running the contest will have. Fortunately, there are strategies companies can employ to reduce these risks.

Promotions Laws

All 50 states prohibit companies from running chance-based promotions in which consumers are required to make a payment or purchase. And although it may be lawful in many states to require a purchase or payment for a skill-contest, there are a number of states with broadly worded statutes that could restrict such a requirement. Therefore, companies should pause and evaluate these restrictions before offering any promotion in which consumers are required to pay money or purchase a product.

In a contest, it is important to ensure winners are selected on the basis of skill (as opposed to chance). It may be easy to do this if you select winners, but it's harder to ensure skill controls with public voting because members of the public may try to manipulate the outcome. This often results in complaints and forces companies to engage in damage control. If public voting is important, you may be able to reduce risks by combining public voting with internal judging and by limiting the number of times a person can vote.

Liability for Content Posted by Consumers

Although a company can usually ensure its own content complies with the law, it is harder to ensure that content submitted by consumers is compliant. Often, materials submitted by consumers will contain content—including music, images, and shots of other people—that could violate a third party's rights. If a third party finds that its intellectual property or publicity rights have been violated by content posted on a company's website, that party may take action against the company, rather than against the person who posted the content.

The first line of defense is a good set of disclosures in the contest rules and advertisements. Companies should clearly disclose that entrants may not submit content that contains, for example, any elements that violate a third party's copyrights or trademark rights and that content should not depict any individuals that have not granted permission to be in the submissions. In some cases, it may be beneficial to screen submissions, but whether that is possible may depend on the resources at the company's disposal, the technology used, and the number of submissions.

Companies can take some comfort in laws that provide immunity for content that is posted by others. For example, the Digital Millennium Copyright Act provides a safe harbor to companies that, among other things, promptly take down content after they are informed that it infringes a third party's copyrights. And the Communications Decency Act provides some protection from liability for publishing false or defamatory material provided by another party. The limits of protection offered by these laws are currently being tested in various lawsuits, however.

Planning a Successful Promotion

Many promotions don't run smoothly because companies fail to identify risks and plan accordingly. You can reduce your risks by taking the steps outlined above and responding promptly to complaints. Also keep in mind that because these promotions are relatively new, there are still a lot of legal uncertainties. Pay close attention to changes in the legal landscape and be prepared to respond quickly.

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Gonzalo E. Mon is an attorney in Kelley Drye & Warren's Advertising and Marketing Law practice. You can reach him at gmon@kelleydrye.com or 202.342.8576.

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