Reposted from Corporate Counsel Magazine

By Radiance Walters and Debbie Rosenbaum

In 2012, marketing teams will spend less time defining the term “social media” for corporate executives and more resources justifying increased expenditures in cyber platforms that have questionable returns on investment. Despite the unknown value of social media, conventional wisdom seems to suggest that companies require some form of social media presence. Frankly, a lack thereof sends red flags to consumers that a brand is unsophisticated or out of date.

Dialogue between brands, existing consumers, and potential customers has evolved in these online social spaces. The increased convenience for consumers to share images, videos, and status updates through mobile devices has made social media extremely resource-efficient by providing customer satisfaction survey tools, customer acquisition mechanisms, and grass-roots marketing platforms. In an effort to increase social media participation, some of the more creative marketing teams have begun to engage consumers or lure new customers with promises of prizes.

While the marketing teams may not give much thought to product giveaways or contests, corporate counsel must be vigilant in overseeing how these campaigns are conducted. Such contests, sweepstakes, and giveaways in the social media space involve heightened responsibilities and potential pitfalls that can often be overlooked due to lack of experience or available resources.

Federal and State Laws Apply

It is important to understand the difference between contests and sweepstakes: contests are games of skill; sweepstakes are games of chance. This distinction is fundamentally important, because what a state might require for contests might be different from what it would require for sweepstakes. (Note that lotteries are prize drawings where people must make a purchase for a chance to win. Lotteries are highly regulated and are usually only legal if they are run by the state.)

Just like traditional sweepstakes and contests, social media promotions are still governed by federal and state laws, which can require registration, prohibit certain practices, and carefully define the limits of permissible promotions. Companies must be familiar with these laws and regulations, and ensure their careful compliance with them.

For example, some states require sponsors of a contest or sweepstake to register with the state before conducting the contest. Specifically, New York and Florida require registration with the Secretary of State where the approximate retail value of the prize exceeds $5,000. Similarly, in Rhode Island registration is required where the retail value of the prize exceeds $500 and the contest is run by a retail store. Other states, such as California, have laws or regulations that restrict sweepstakes in highly regulated industries including, but not limited to, alcohol, tobacco, weapons, motor fuel, and time-shares.

If you have neither the time nor resources to become familiar with these laws and regulations, it is imperative to hire or find someone with this expertise. For instance, in light of the recent question as to whether Twitter followers have “value,” requiring a user to “retweet” a tweet or “like” a brand on Facebook in order to win a prize could be construed as an illegal lottery. Unfortunately, ignorance of the law could result in government inquiries, civil enforcement actions, or—even worse—criminal penalties.

Respect Your Platform’s Terms of Use

Social media platforms, such as Facebook, Twitter, and Google+, each have their own set of strict promotion rules and guidelines. For instance, Twitter’s guidelines forbid “the creation of multiple accounts” and “posting the same tweet repeatedly,” while Facebook’s Promotions Guidelines prohibits using the “like” function as a method of entry in contests and requires that promotions be administered “within Apps on Facebook.com, either on a Canvas Page or an app on a Page Tab” and not on the wall of one’s Facebook Fan Page. Violating these guidelines could get your company banned from the platform and/or expose your brand to bad publicity.

Always Include Official Rules

Most importantly, official rules are a must. To accompany their social media contests, companies must properly develop detailed and written official rules, which must be available prior to entry and cannot be changed once the promotion begins. The official rules should include the following information:

  • Promotion start and end date
  • How to enter
  • Who is eligible
  • How the winner is selected
  • Description and retail value of the prize(s)
  • Odds of winning
  • Where to obtain a winners’ list
  • Judging criteria (if a skills-based contest)
  • Limitations of liability
  • Name and address of the sponsor

In addition, since social media contests can include various components, including sharing user-generated content (e.g., video contests, photo contests, and text submissions), companies should be sure to include representations and warranties in their official rules to protect themselves from liability exposure due to privacy, publicity, security, and intellectual property issues. On any Web site that displays user-generated content, best practices include not only having a prominently featured “report abuse” functionality, but also Digital Millennium Copyright Act (DMCA) procedures and policies in place.

Conclusion

Giveaways, sweepstakes, and contests can be an innovative way for marketing teams to engage consumers and introduce new customers to their products and services. Just be careful not to let the excitement sweep you off your feet.