Canada’s Competition Bureau recently announced that Manitoba-based Elkhorn Ranch & Resort Ltd. agreed to pay $170,000 to settle charges that it conducted misleading promotional contests. The company used the contests to promote its time share business and consumers were solicited for participation by phone, at trade shows, and at time share presentations.

The Competition Bureau found that Elkhorn Ranch & Resort failed to fairly disclose the accurate odds of winning, failed to ensure that winners were selected on a random basis, failed to disclose the number and value of prizes, and failed to disclose the end dates and drawing dates. Additionally, the Competition Bureau concluded that the company overstated the value of the grand prize in its contests.

For example, the company advertised that the grand prize was a new SUV, when the prize was actually a one or two-year lease on an SUV for which the contestant was required to pay a security deposit and pledge to return the SUV in “immaculate condition.” In addition, certain participants were contacted and told that they had won a prize, and although the advertising indicated that there was no obligation to do anything in order to claim a prize, the participants had to attend a sales presentation in order to find out the prize they won.

In addition to the $170,000 penalty, Elkhorn Ranch & Resort is required to publish corrective notices in newspapers and on its website and maintain a Corporate Compliance Program. The order also lays out specific requirements with which Elkhorn Ranch & Resort must comply. These requirements serve as useful reminders of some of the key aspects of contest and sweepstakes rules that can help ensure that promotional contests and sweepstakes are run legally and fairly. Specifically, the Consent Agreement requires that Elkhorn Ranch & Resort: i) fairly and adequately disclose age and income requirements; ii) award all contest prizes offered; iii) determine winners on the basis of skill or as the result of a random draw; iv) provide a fixed closing date; v) have contest rules accompany entry materials at all points of entry; and vi) indicate the true value and benefits of the prizes.

–Rob Newman, Esq.

These materials have been prepared by Winston & Strawn for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Facebook recently released a revised policy for administering sweepstakes and contests through Facebook. The new policy sets different rules for publicizing contests and sweepstakes on Facebook pages than administering such promotions. Promotions which are administered on a website separate from Facebook (e.g., on the company’s main website) can be advertised on a company’s Facebook page without the need to obtain written consent from Facebook. However, promotions can only be administered through a company’s Facebook page if the company: (1) obtains Facebook’s prior written consent and (2) if the promotion is administered through a platform application.

The new policy prohibits promotions which use “native” Facebook functionality to collect entries. For example, sweepstakes which allow consumers to enter by becoming a “fan” of a company on Facebook are prohibited. Similarly, a contest whereby entrants post a photo on the company’s Facebook page wall would also be prohibited since it uses the Facebook wall function.

If a promotion is administered through a company’s Facebook page, entries may only be collected through a platform application. Thus, a photo contest which allows users to upload photos through a platform application on Facebook is permissible (provided the company secures Facebook’s prior written consent).

Facebook’s policy also prohibits companies from contacting Facebook members for winner notification purposes through Facebook messages, chat or posts on user profiles. Companies may use contact information collected through platform applications to notify winners.

Finally, Facebook has stated that companies are not allowed to post their own terms and conditions applicable to pages, however they may link to a policy which outlines what user actions are permissible with respect to a company’s Facebook page. Such policies may not reserve rights to use a consumer’s posted content or threaten legal action against a user for failure to comply.

TIP: If you are considering administering a promotion through your Facebook page in which you will allow users to enter through the Facebook website itself and not by going to a separate website, you will need to use a platform application to collect user entries and contact information and must contact Facebook to obtain prior written permission. If you plan on using content from users for advertising purposes, only do so if the content was collected through a platform application and you clearly disclose to users that their content may be used for such purposes.

–Monique Bhargava, Esq.

These materials have been prepared by Winston & Strawn for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.