Contests represent an excellent method for both engaging with and generating new followers for a business. Many people are surprised to learn that contests are highly regulated legal events. In most cases, the issue is whether the contest constitutes an illegal lottery. The FTC, however, recently raised a new question few had considered concerning contests, to wit, are certain contests actually a form of endorsement?
Cole Haan is a high-end fashion firm selling shoes, bags, and other fashion accessories. With companies of this sort, it can be a bit of a challenge to engage with potential customers through social media. A time-tested approach involves holding a contest in which participants are potentially rewarded for sharing images of the companies brand, trademark or actual products in a specified type of scene.
Cole Haan recently held such a contest. Individuals were offered the prospect of a $1,000 shopping spree with the company. In exchange, participants had to create a board on their Pinterest account containing at least five pins of Cole Haan products. Each pin then needed to include the hashtag “#wanderingsole”.
This type of campaign has been run by numerous companies over the last five years. You can then imagine the surprise of the management at Cole Haan when they received a letter from the FTC claiming the contest violated the endorsement guidelines issued by the Agency.
In the opinion of the attorneys at the FTC, the boards and individual pins of Cole Haan products created by contestants constituted an endorsement of the company’s products. Pursuant to the “.com disclosure” requirements of the FTC, the attorneys were of the opinion that anybody participating in the contest would need to disclose the fact they were creating the pins in hope of winning a contest.
If the position of the FTC appears to be new, it is. The FTC had previously stated that “likes” and other social signals did not require an endorsement disclosure because they were general in nature. To this end, the FTC did not seek a formal prosecution of Cole Haan. Instead, the Agency attorneys noted this was a case of first impression and let the company off with a mere warning letter. [March 20, 2104 Letter, FTC File No. 142-3041] Unfortunately, other businesses running afoul of this problem will not receive warnings first should the FTC take action.
Contests in General
The actions of the FTC in the Cole Haan matter should certainly be troubling to anyone considering holding a contest online. The question is where is the dividing line between somebody who “likes” a site in general versus a social signal the FTC may claim is an endorsement that requires a formal disclosure? There is no universal answer, which means each contest must be reviewed individually to make the determination.
Prior to holding contests online, it is highly advised that you speak to legal counsel to avoid running afoul of these rules. With FTC fines starting at $16,000 per violation, the potential damages associated with a contest found to violate the endorsement guidelines could run into the millions of dollars. Since every contest has more than a single entrant, the fines can add up quickly.
Contact me today for a free legal audit of your website or to discuss the new position of the FTC when it comes to contest rules.
Richard A. Chapo, Esq