Robert Almquist
Author Archives: Robert Almquist

Video Conferencing

video_conference

UPDATE (September 10, 2020): In recent days, I have been going through past news articles posted here, and have been deleting or archiving those that are no longer relevant or current. 

I wrote the article below on August 2, 2018, long before our lives were upended by the COVID-19 pandemic. At that time, the norm in the legal world was to conduct meetings, conferences, court appearances, seminars, etc. physically, in person. Doing these things via video conferencing, although not unheard of, was rare. Many months later, however, as restrictions imposed by the pandemic set in, law firms made a rapid transition to meeting and providing legal services virtually. Now video-conferencing technology has become essential for law practices and is the new norm (which I believe will endure even after the pandemic has subsided).

I have always been "ahead of the curve" when it comes to incorporating technology into my practice, and I sometimes found that a degree of "technophobia" made a small number of clients a bit skeptical and resistant to abandoning the old way of doing things. For that reason, I felt it would be helpful to explain why I had embraced video conferencing technology. 

Today, the following explanation is no doubt unnecessary, as everyone - lawyers and clients - have accepted the "new norm". However, I decided to keep this article online, even if the value of most of it may only be as an "historical artifact". However, I encourage you to read the portion of the article explaining the platform that we use for video conferencing.

Why I've Embraced Video Conferencing Technology

I have long enjoyed the "digital nomad" lifestyle. 

In recent years, I have worked from hotel rooms, apartments, shared work spaces, coffee shops, and other places in Singapore, London, Hong Kong, Miami, Berlin, Saigon, Belfast, Amsterdam, Tokyo, Panama City, Paris, Buenos Aires, San Francisco, Liverpool, Guadalajara, and Vancouver - among many other places -  (as well as from my homes in Scottsdale, Arizona, and on the North Pacific coast of Costa Rica). Modern technology has allowed me to be "paperless". Work-related communications are conducted via email, telephone, or through my firm's client portal. The use of electronic signatures relieves me of reliance on postal or courier services. My mobile phone works anywhere in the world. Client files are securely kept on my client portal online (and I carry an encrypted backup on a 1 TB micro SD card the size of my little fingernail). Legal research is all done online. Invoices for legal services are sent electronically and are payments are submitted online. What once required expensive office space with support staff, a file room, library, telephone equipment closet, desktop computers and monitors, printers, photocopier, fax machine, network server, storage space for paper, printer toner, file folders, etc. now all fits in a laptop computer that is .33 inches thick and weighs only 1.7 lbs.

Years ago, before I decided to become untethered from the traditional "office" paradigm, a client would meet with me by first calling my receptionist and scheduling an appointment. Then, at a time dependent on the distance between respective offices, either I or the client would have to put aside whatever we were working on at the time, pack up all the relevant paper files needed for the meeting, and travel to the office of the other person. After checking in with a receptionist, I or the client would sit in a reception area and thumb through an old Time magazine waiting to be called for the conference. When finally invited in to the office or conference room, several minutes of "pleasantries" would be exchanged, before we would get to the real subject matter of the conference. Following the "meat" of the conference, we would pack up our files, exchange more pleasantries and say our "goodbyes", before traveling back to our respective offices to make notes of the meeting. This might take all day - or all afternoon - just to accomplish 30 minutes of actual productive meeting time. At a lawyer's rate of $400 per hour or more, a conference that should have cost only $200 may actually cost the client $1,600 or more in fees, plus travel expenses, parking charges, and so on.

Today, most of my work-related communications are conducted via email, telephone, or through my firm's client portal. However, in many cases, there are benefits to "face-to-face" conversation.

For that reason, for situations that warrant it, I encourage video conferences. A video conference facilitates a "face-to-face" conversation and all the benefits that go along with it, without the associated time, cost and expense.

What are the benefits of "face-to-face" communication? Here are six:


1. Shows body language
According to research, more than 90% of human communication consists of body language. When you see the way that the person you are talking to reacts, you are able to better understand how they are feeling. You get live feedback translated through the body language and facial expressions. You can also hear the tone of voice which makes it easier to interpret the person’s feelings, and you are able to show your own reactions and emotions.

2. Builds relationships
Another benefit of face-to-face communication is that it helps in expanding your network and enhancing future communication. It provides a "feel" of friendliness which can have the effect of boosting the success of your business and personal relationships. Email and phone conversations don't give you the same opportunity to build camaraderie.

3. Values the other person
When you make the effort to actually see the other person, and when you show them through your expressions that you are listening and that you care about what they are saying, you show that you value the other person and what they have to say. 

4. Boosts effectiveness
Efficiency is so important, especially in the business world. Imagine having to explain a whole project through an email and then spend the whole day responding to questions. A face-to-face meeting between people allows the issues to be all be addressed at once, and boosts overall creativity and energy.

5. Enhances confidentiality
Although (with limited exceptions) all communications between attorney and client are confidential and privileged, face-to-face communication eases the revelation of sensitive or delicate information to a trusted person in a private setting. 

6. Enhances trust and credibility
With face-to-face communication, you can explain clearly and answer questions with integrity. You are able to actually see how your words and actions align. This enhances credibility and helps build trust.

There are disadvantages to physical face-to-face meetings. 

As described above, the scheduling, traveling to, and participating in a physical face-to-face meeting is inefficient, time-consuming, and expensive. Also, some people find it uncomfortable or anxiety-inducing to communicate physically face-to-face.

These disadvantages can be overcome by scheduling a video conference.

The Video Conferencing Platform We Use

I've spent considerable time trying and testing various platforms, including the common ones, like Zoom, Skype, Webex, Hangouts, etc. and the lesser known 24sessions, eyeson, and others. Although, most of these can get the job done, none of them had all of the features that I needed or wanted. 

We ultimately chose our own branded platform (based on "Vectera") for the following reasons:

1. Security. It is essential that communications between lawyers and clients be confidential and secure. Our platform facilitates a secure handshake to connect all parties to the conference. All audio and video livestreams between the parties are delivered peer-to-peer by means of WebRTC. As the leading web communication technology WebRTC streams are DTLS end-to-end encrypted. No audio and video data are sent to, or stored on, the Vectera servers. (If peer-to-peer fails due to restrictive firewalls, the TURN servers kick in. The underlying streams stay end-to-end encrypted while they pass through the TURN servers to reach the final receiver). Any documents, notes, shared whiteboards, uploaded during a session can be permanently deleted at any time. Any uploaded that the parties wish to retain in the "meeting room" is stored on ISO 27001 Certified EU servers, subject to strict EU data protection regulations and 24/7 physical site surveillance.

2. "Meeting Rooms". We create a unique persistent video "room" for each of our clients, so that we and the client can keep track of all content and communication in one single place. The client is provided with a unique link to his or her virtual meeting room. All notes, documents and meeting recordings remain available in this virtual meeting room, and the client can come back to the virtual room any time to revisit the previous conversations. When we meet with the client again, we can pick up the conversation where we left off.

3. Ease of Use. The only thing a client needs to join a video conversation is a browser (and all browsers are supported). There is no need to download (or update) software packages or installers. A video meeting is started with one click from mobile, tablet or desktop. The user interface is very intuitive and easy to navigate.

Electronic Signatures

electronic_signature

An electronic signature is an “electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” In simpler terms, it is a signature that you can use electronically, either by inserting a preformatted signature into a document, or by using a third-party tool that allows you to sign something from your computer.

Electronic signatures are legally binding in most business and personal transactions in almost every country in the world.

There are clear advantages to electronic signatures over "pen on paper" signatures.  Even for traditional "brick and mortar" law practices, electronic signatures dramatically cut turnaround time for documents, and they eliminate the hassle of dealing with paper, printers, scanners, postal services, and couriers.

For my practice, the ability to use electronic signatures is essential. I am a "digital nomad" and when I require a signature on a document, I am just as likely to be in Costa Rica or Singapore as I am to be in Scottsdale, Arizona. I am able to get a document signed by multiple parties, each of whom might be on opposite sides of the globe, within minutes, without leaving my desk. 

We utilize the "Docsketch" electronic signature system which fully complies with:

  • The Uniform Electronic Transactions Act, also known as UETA of 1999;
  • The Electronic Signatures in Global and National Commerce Act, which is commonly known as the ESIGN Act of 2000; and 
  • The EU Electronic Identification and Authentication Services Regulation (910/2014/EC), commonly referred to as eIDAS, which took effect on July 1, 2016 and replaced both EU Directive on Electronic Signatures 1999/93/EC and other EU member state laws that were inconsistent with eIDAS.

Each of these acts reinforces the validity of electronic agreements. According to the ESIGN, for example, a contract “may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation." In Arizona, as in at least 46 other states that have also adopted the UETA, electronic signatures are recognized the same way as “ink” signatures if they meet the requirements of the UETA. (*Click HERE for a boring discussion of the details of these requirements).

Docsketch allows us to not only collect digital signatures but also to authenticate each signature, including recording the time and date when the electronic signature is provided, recording the IP address of the signatory, and recording the email address utilized by the signatory to provide the digital signature. These precautions ensure the signature can be defended against any challenge of authenticity.

If and when you receive a document to be signed, you will be guided through the simple steps required.

Under the UETA, an “electronic signature” must consist of “an electronic sound, symbol or process … executed or adopted by an individual with the intent to sign the record.” Simply using email to communicate and transmit documents does not trigger the UETA. The UETA does not supplant common law principles of contract formation. The circumstances surrounding the electronic signature must show that it was adopted with an intent to do a legally significant act. The UETA still retains the logical common law rule that a signature is only valid if the signer intends to sign something.

Also, the electronic signature must be “linked to, or connected with, the electronic record being signed.” (UETA § 2, official cmt. 7). The official comments to the UETA illustrate the concepts in play. “In the paper world, it is assumed that the symbol adopted by a party is attached to or located somewhere in the same paper that is intended to be authenticated, e.g., . . . the classic signature at the end of a long contract.” UETA § 2, official cmt. 7. In the digital world, such “tangible manifestations do not exist.” Id. Thus, the record or documents attached to an email need to be logically associated with an electronic signature to evidence a similar level of connection.

Finally, the UETA applies only when the parties to a transaction have agreed to conduct it by electronic means. A.R.S. § 44-7005(B). Parties, however, do not have to expressly agree for an electronic signature to be effective. The UETA allows consent to be implied by the actions of the parties in transacting electronically. Whether the parties impliedly agree to conduct a transaction by electronic means will be determined from the context and surrounding circumstances of the transaction, including the parties’ conduct. Therefore, where parties have been negotiating a contract only through email correspondence or have agreed to all of the terms over email, the courts will more likely find the parties have impliedly agreed to transact under the UETA.

Enter to Win!

raffle_ticket

Contests, giveaways, etc. are popular tools for businesses to attract customers to their websites, stores, or shopping centers, to sell products or services, or to obtain personal information to be used for marketing purposes. It is very important that marketers, particularly online marketers, be aware of the legal pitfalls that may be encountered when using these tools.

Sweepstakes . . . Contests . . . Raffles . . . Lotteries . . . Gambling?  What’s the Difference?

Prize giveaways where the winners are chosen by luck are typically called “sweepstakes”. Prizes can range from t-shirts to cars, houses, and millions of dollars in cash. An example that most everyone is familiar with is the Publishers Clearing House Sweepstakes.

On the other hand, in what is commonly known as “contests”, the winner is chosen based upon some merit or element of skill. The person with the most delicious recipe, funniest joke, most moving essay, best beach body - or whatever the criteria - will be chosen as the winner. (For example, in National Geographic Traveler magazine has held a contest in which contestants submitted digital photographs of in one or more specific categories (Travel Portraits, Outdoor Scenes, Sense of Place, and Spontaneous Moments). The photographs were judged on published criteria and the winner was awarded, among other things, a 10-day Galápagos Expedition aboard a ship called aboard the National Geographic Endeavour).

Now, to the one that all marketers must be especially aware of: “lotteries” and “raffles are prize drawings where people must pay money or give some other “consideration” to “buy” a chance to win. (Examples of "lotteries" that most Americans know are Powerball and Mega Millions. Europeans will be familiar with EuroMillions).

What we commonly refer to as “raffles” are often run by non-profit organizations, such as a local Boy Scouts troupe raising money for a camping trip.

Why is it important for marketers to be aware of  lotteries and raffles?

Lotteries are highly regulated, are considered "gambling", and are usually only legal if they are run by the government (or in accordance with a tribal-state gaming compact or otherwise in accordance with the requirements of the Indian Gaming Regulatory Act). 

Virtually every jurisdiction has criminal penalties for running “Illegal lotteries” or "gambling" . These penalties can include hefty fines, forfeiture of any property offered for distribution through the illegal lottery, and even imprisonment. In Arizona, promotion of gambling is a class 5 felony.

So, what defines a “lottery” or "gambling"? California Penal Code § 319 provides a good example of a definition of a "lottery":

A lottery is any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known.

In Arizona, an illegal lottery is called a "gamble". Pursuant to A.R.S.  §  13-3301(4), "Gambling " or "gamble" means one act of risking or giving something of value for the opportunity to obtain a benefit from a game or contest of chance or skill or a future contingent event ..."

Put simply, a “lottery” or (in Arizona) "gambling" consists of three elements: (1) a prize or benefit, (2) providing consideration or something of value, and (3) distribution of the prize by chance.

Let’s say that an affiliate marketer makes the following offer:

“If you buy Product X through my affiliate link, you will be entered to win an iPhone through a random drawing!”

This is clearly an illegal lottery and constitutes gambling, as the three elements of prize (an iPhone), consideration ("buy Product X through my affiliate link”) and, of course, chance (the random drawing), are present.

Now, if you remove any one of the three elements from the scenario, you no longer have an illegal lottery. Sounds easy, right?

Let’s start with the "prize". A prize is anything of value awarded to a winner of the contest. As consumers likely would be uninterested in a contest that did not offer a prize, this element is difficult to eliminate.

"Consideration" is giving something of value to the contest sponsor that the consumer provides as a prerequisite to participating in the contest. Consideration may be monetary (an entry fee or a purchase requirement) or non-monetary (a significant amount of time or effort that the participant expends to the benefit of the sponsor).

It is relatively easy to remove consideration from a promotion. The most common way to eliminate consideration is to provide an alternate method of entry, commonly known as an “AMOE” - Alternate Method of Entry (or Alternate Means of Entry). This is usually manifested with the “no purchase necessary” language that you often see. (Publishers Clearing House is very careful to advise that purchasing a product will not improve your odds of winning its sweepstakes).

Going back to our affiliate marketer example, the element of consideration could be eliminated if consumers were permitted to enter the iPhone drawing by way of an AMOE - perhaps by sending in a postcard, calling a toll-free number, or filing out a simple free online entry form. 

The random drawing in our example is a common game of chance. Chance may be eliminated by awarding a prize to every entrant. In the example, chance could be eliminated by awarding an iPhone to every person who buys Product X through the affiliate marketer’s link. Alternatively, the marketer could eliminate chance by conducting a game of skill in which winners are selected on the basis of some sort of ability, knowledge, creativity, judgment, or expertise.

If winners are selected based upon some skill or merit, it eliminates the element of chance, allowing a sponsor to impose an entry fee or other consideration without creating an illegal lottery. Skill contests can involve photography, essay writing, athletics, cooking, or mathematics. Skill contests must have objective criteria upon which entries are judged, and the judges must have sufficient qualifications to apply such criteria.

If you were to look at the rules for the National Geographic Travelers Photo Contest referenced above, you would find the following: 

"This is a skill-based contest and chance plays no part in the determination of winners” ...  “Judging consists of two (2) rounds of evaluation. In Round One, each judge in a panel of photographic experts (at least one of whom will be independent of Sponsor) ("Judges") will select ten (10) entries from among all eligible entries based on the following criteria ("Judging Criteria"): (1) Creativity 50%; (2) Photographic quality 50%. The entries selected in Round One will proceed to Round Two. In Round Two, the Judges will collectively select a Winner for each prize level based on the Judging Criteria.”

That All Sounds Pretty Simple, Doesn’t It?

Don’t be fooled! If everything were simple, there’d be no need for lawyers . . . and wouldn’t that be a wonderful world! (Just kidding). 

The reason why the whole illegal lottery/gambling thing is not simple is primarily because terms such as "consideration", "chance", "skill", "merit", etc. are somewhat ambiguous and open to interpretation.

To illustrate how complicated and confusing this can get, let’s look at another hypothetical. Suppose, ABC Company runs a “Refer-a-Friend” contest in which, for every friend they get to sign up for the company’s newsletter, contestants receive an entry in a drawing for an iPhone. Is this an illegal lottery?

You might be quick to say, “No. There is no consideration. Participants don’t have to pay an entry fee, buy a ticket, or purchase a product”.

However, it’s not a clear cut as that. It is true that there is no monetary consideration; however, consideration can be non-monetary, as well. Common examples of non-monetary consideration include filling out a lengthy registration form as a prerequisite to entering the contest, or providing the sponsor with personal information.

Generally, courts have decided that requiring a nominal degree of effort is not deemed to constitute consideration (e.g., telephoning a toll-free number, completing a short survey, or visiting a store).

In our example, getting friends to opt-in on ABC Company’s website may or may not constitute consideration, depending on such things as the length of the registration form and the type of information the friends must provide.

To be safe, ABC Company could allow consumers to enter the drawing without referring their friends to the company’s Website. This could be accomplished by adding an AMOE (mailing in a postcard, calling a toll-free number, etc.)

More about AMOEs

In general, AMOE entrants must have the same chances of winning as purchasing (or consideration-giving) entrants. They must also have equal deadlines and equal prizes.

Additionally, it goes without saying that the AMOE cannot itself rise to the level of consideration, and it must be clearly and conspicuously disclosed in all advertising materials for the contest. In short, the AMOE must not be seen as disadvantageous or burdensome with respect to the purchase entry method. For online contests, sponsors must be particularly careful to ensure that the AMOE provides the same opportunities to entrants as online entries. (For example, if ABC Company’s "Refer-a-Friend" contest awarded a prize to the first 100 people to respond, it would be problematic, as the AMOE responders clearly would be at a disadvantage if they only way they could enter was by mailing a postcard, whereas the other entrants could immediately enter via the Website.)

Strange as it may sound, the question has arisen as to whether needing Internet access in order to enter an online contest constitutes consideration. Some state regulatory authorities previously answered this question in the affirmative, and contest sponsors had to provide mail-in methods of entry. However, this position has now been generally reversed. State regulatory authorities no longer consider the mere requirement of having Internet access as constituting consideration. (The sponsor does not directly benefit from the consumer’s payment of fees for Internet access. Moreover, it is unlikely that the consumer was induced to purchase Internet access for the purpose of participating in the sponsor’s promotion.) Therefore, online contests that do not require any other consideration to enter generally do not require an AMOE.

When it comes to bloggers, vloggers, Instagramers, pod-casters, and their ilk, there are few things more valuable than "followers". As such, requiring someone to "like" you or "follow" you could be construed as consideration. 

Even more important, asking an entrant to go to a third-party site, navigate to find a product or service and then report back to your site is even more likely to be deemed consideration, thus placing your giveaway into the classification of illegal lottery.

Time is exceedingly valuable!

What about a requirement that special software be downloaded to the consumer’s computer in order to participate in a contest? I would submit that this could rise to the level of consideration and, therefore, an AMOE would be recommended.

Class Dismissed? ... Not Even Close!

Once you’re confident that your promotion does not constitute an illegal lottery or gambling, you must still comply with the laws and restrictions of each jurisdiction in which the promotion is conducted.

(Bear in mind that, in the USA, Internet contests are accessible in all 50 states and therefore must comply with the laws of all 50 states as well as federal laws and regulations.)

Federal agencies with jurisdiction to regulate sweepstakes promotions include the Federal Trade Commission (‘FTC’), the Federal Communications Commission (‘FCC’), the United States Postal Service (“USPS”), and the United States Department of Justice (“DOJ”).

As you might expect, the laws of each jurisdiction can vary significantly from those of others, and they often impose very different procedural requirements.

Complying With US Laws

Providing exhaustive information concerning every federal and state law applicable to online contests is way beyond the scope of this article . . . and would be a never-ending task.

TIP: Avoid Certain Prizes.
Some things are more tightly regulated than others and prizes that include tobacco, firearms, alcohol, or items valued at over $600, will get more scrutiny. You can avoid that by simply offering other prizes.

If you are promoting a contest in the USA, there are a number of rules that have general applicability across the 50 states and should be included in the official rules of all contests. These include:

  • entry instructions,
  • the sponsor’s name and address,
  • eligibility and geographical limitations,
  • odds of winning,
  • prize descriptions and their approximate retail value,
  • contest duration and entry deadlines,
  • how and when winners will be selected,
  • limitation on the sponsor’s liability, and
  • a disclaimer for lost, late, or damaged entries.

A few states also require publication of the winners’ list and awarding of all prizes, so these elements should be included in nationwide promotions as well.

To complicate matters, several states have special procedural requirements for certain types of contests. In Arizona, skill contests that require a purchase to enter must be registered with the state attorney general’s office.

In Florida and New York, games of chance with prizes totaling over $5,000 must be registered and a bond must be posted, and Rhode Island requires registration of games of chance conducted through retail outlets with prizes in excess of $500. For many sponsors, it is simpler to exclude residents of these states from participating in their contest rather than comply with these extra, somewhat burdensome procedural requirements; hence the commonly seen limitation in many contest rules, "Void where prohibited”, or more specifically, "Void in Florida, New York, and Rhode Island."

What about the Rest of the World?

Internet contests - which are technically accessible worldwide - must comply with the laws of not only the 50 U.S. states but also each country in which someone could access the promotion. The laws and regulations of contests and sweepstakes vary widely from country to country. For instance, certain countries (Belgium, Malaysia, Norway) prohibit sweepstakes altogether, while other countries (including France and Spain) require registration and payment of fees.

Even Canada has laws that differ greatly from those of the United States, particularly in Quebec, where foreign language requirements apply.

International compliance would entail hiring local counsel in every country to provide an analysis of the proposed contest rules and confirmation that they do not violate particular local laws. This is not only prohibitively expensive but also too time-consuming to be a plausible option for most contest sponsors. This is why US sponsors of online contests are better off limiting participation to US residents only (and perhaps a handful of select foreign countries in which they have checked the rules with local counsel).

The key here is to clearly and prominently disclose any geographic limitations to entry in the official rules and in all advertising materials.

Other Concerns

Intellectual Property Issues

All sponsors of contests and promotions must, of course, exercise caution not to infringe upon the trademark, copyright, or patent rights of others when running their promotions; however, this is an issue of particular concern for online marketers. Promotions over the Internet generally are more high profile and involve greater exposure for the sponsor than more traditional media contests.

Marketers must be careful about advertising prizes by using the brand name of the prize without consent from the trademark owner. To revisit our example above, ABC Company could not name its contest ‘The ABC Company iPhone Giveaway” This would infringe upon Apple's trademark and suggest a false association. Apple would most likely have to be a co-sponsor of the promotion before it would agree to such use of its trademark in a contest name.

ABC Company could, however, identify the iPhone by name as a prize in the official rules. Contest sponsors may even be able to use brand names in promotional materials for their contests, so long as the trademarked brand is used in a factual manner (i.e., to identify the prize in the contest) rather than in furtherance of promoting the contest.

TIP: A good general rule of thumb is to identify the trademarked term in a sentence in which all the words are of the same font and prominence and avoid use of the trademark in the name of the promotion or in any other prominent way.

Copyright laws protect original works of authorship fixed in a tangible medium of expression. Thus, copyright protection may be extended to creative materials embodied in contests and promotions such as music, audiovisual works, animation, graphic designs, illustrations, works of art, or written text. Although nobody can copyright the underlying idea or concept of a contest or promotion, someone’s original expression of that contest may be copyrightable. For example, in a 1995 case, the plaintiff ran a promotional radio contest, and the defendant subsequently ran a similar contest. The court found that the defendant had infringed the copyright in the printed brochure promoting the plaintiffs contest, even though the underlying radio contest itself was not protected by copyright.

Finally, although way beyond the scope of this article, online contest sponsors should be aware of the growing number of business method patents being granted in connection with online games, particularly in the context of “instant-win” technology. It is recommended that sponsors of online “instant-win” games should seek the advice of patent counsel to ensure that their game does not infringe upon a third party’s patent.

Privacy Issues

Another area of law involved in online contests is privacy. The collection of personal information over the Internet implicates privacy laws. A hyperlink to the sponsor’s Privacy Policy should appear on the online entry form and on any page where personally identifiable information is collected.

In an effort to build e-mail lists, a common tool used by online contest sponsors is to require entrants to agree to accept future promotional email as a condition to entering the contest. Internet privacy concerns are clearly on the rise, and so is regulatory scrutiny of this practice. If an online contest is accessible by residents of the EU, the General Data Protection Regulation ("GDPR"), which was implemented in May of 2018, is a major concern because of the potential draconian penalties for non-compliance. A discussion of the GDPR is beyond the scope of this article.

Also, the concept of “viral marketing”, in which contest entrants must provide the names and e-mail addresses of others in order to become eligible to enter (e.g., “Refer your friends by submitting their e-mail addresses, and be automatically entered into a drawing to win an iPhone.”) also may raise concerns under privacy and spam laws.

Another area of concern for game sponsors relating to privacy is COPPA, the Children’s Online Privacy Protection Act. This US federal statute went into effect in April 2000 and addresses the collection of online personal information from children under the age of 13. The act requires a website operator to obtain verifiable parental consent before collecting personal information from children. Therefore, a contest or sweepstakes requiring disclosure of entrants’ names, addresses, email addresses, phone numbers, and any other information that would allow someone to contact or identify a child, must either exclude children under 13 from participating or else comply with the procedures set forth in COPPA. These procedures include requiring:

  • a clear and prominent link to the Web operator’s privacy policy, which must set forth the
    name and contact information of the entity collecting the child’s information,
  • the kinds of personal information collected and how it is collected (e.g., directly from the
    child, or passively through cookies),
  • how the Web operator uses the information (e.g., for marketing back to the child or for
    notifying contest winners only),
  • whether the operator shares the child’s information with any third parties, and
    other required statements.
  • Before proceeding to collect, use, or disclose personal information from a child, an operator must obtain verifiable parental consent from the child’s parent. This means reasonable efforts must be made (taking into consideration available technology) to ensure that, before personal information is collected from a child, a parent of the child receives notice of the operator’s information practices and consents to those practices.

Operators must use reasonable procedures to ensure they are dealing with the child’s parent. The particular mechanisms required are based on a sliding scale, depending on the manner in which the child’s information is to be used. If the Website operator will be sharing the child’s information with third parties, it must use more stringent verification of parental consent, such as:

  • a signed form sent by postal mail or facsimile,
  • an accepted and verified credit card number,
  • a call from a parent on a toll-free telephone number staffed by trained personnel,
  • an e-mail message accompanied by a digital signature, or
  • an email message accompanied by a PIN or password obtained through one of these verification methods.

If the child’s information will only be used internally by the Web operator, then verifiable parental consent may be obtained using less stringent methods, such as e-mail from the parent plus sending either a confirmatory e-mail or confirmatory postal mail to the parent, or making a confirmatory telephone call to the parent.

Because compliance with COPPA is fairly burdensome and requires several extra steps, many contest sponsors wisely prefer to simply exclude children under 13 from participating in the contest, particularly in light of the significant penalties that may be imposed for noncompliance.

An occurrence a few years ago has caused Web operators, including online contest sponsors, to exercise extra caution with respect to children. On September 7, 2006, the Federal Trade Commission (FTC) came down hard on a social networking Website, Xanga.com, with a fine of $1 million in connection with alleged violations of COPPA. In light of this, many online contest sponsors and other Web operators understandably prefer not to undertake the risk of inadvertently violating COPPA and being hit with a stiff fine. Unless the contest is geared specifically toward children, most online promotions limit eligibility to those 13 or over.

Tax Issues

Marketers in the USA need to be aware that any giveaway with a value of $600 or more must be reported to the Internal Revenue Service. Knowing that, the marketer should not only make entrants aware of the value of the prize but also that they will need to complete a prize validation as well as be responsible for any taxes that may result from winning.

Miscellaneous Issues and Suggestions

Any material on the Internet is subject to malfunctions, errors, and viruses, not to mention hackers who may attempt to take advantage of contest offers by, for instance, inundating the contest website with entries and thereby preventing others from accessing the site. Accordingly, online promotions should always include a clause that disclaims liability for fraud, viruses, or other events that compromise the integrity of the contest and reserves the right to terminate or modify the contest in such a situation.

TIP: Notify winners by email, not social media. Facebook and Twitter are a good way to promote a contest or sweepstakes that you’re running, but many social media companies want to avoid liability too. Even if it’s not expressly banned by the terms of service, it’s best to keep social media out of it when contacting winners.

Additionally, contest rules should limit entries to a particular number, such as one-per-day, per entrant. The duration of the contest, and especially the deadline for entries, should be stated in terms of dates and precise times in a specific time zone. Contest sponsors should ensure that the how-to-play instructions are clear and that any special technical requirements are set forth in the official rules. For instance, if an entrant’s browser must be set to accept cookies in order to effectively participate in the promotion, this should be set forth in the rules. In cases in which the game is relatively complex, entrants should have to indicate their acceptance of the official rules by clicking an “I Accept” button before being permitted to enter.

Often a group of marketers will band together and offer several prizes. This phenomenon presents unique concerns. Although it is relatively uncharted territory, the legal ramifications can be far-reaching. Consideration needs to be given to the total value of the prizes given away because, as referenced above, it could require either filing for and obtaining bonds in jurisdictions that require them, or declaring their promotion void in those jurisdictions. As the giveaway is often billed as a cross-site promotion and involving many prizes, it would be advisable for the marketers involved to ensure they are all compliant to avoid potential civil and/or criminal violations.

If your prize is over $5,000.00 there will be other state laws and bonding requirements that will need to be met.

Conclusion

Steering clear of illegal lotteries, complying with myriad state, federal (and possibly international) requirements, and respecting intellectual property and privacy laws are only a small sampling of the issues facing marketers who sponsor contests.

My closing advice: Obtain proper legal counsel to ensure that your online marketing promotions do not run afoul of the law. Contests, giveaways, etc. are increasingly popular tools for companies to attract customers to their websites, sell products or services, or obtain personal information to be used for marketing. It is very important that marketers are aware of the legal pitfalls that may be encountered when using these tools.