Deal or No Deal

As consumers have embraced mobile devices and communicating via text message, mobile marketing promotional campaigns have followed.

As a result, sweepstakes have become popular mobile promotional tools because the chance of a prize motivates consumers to interact with the sponsor. However, because sweepstakes and contests are heavily regulated by states, mobile sweepstakes and contests must comply not only with mobile-messaging laws and regulations, such as the federal Telephone Consumer Protection Act (47 U.S.C. '227) that requires express consent from a consumer before a marketing message can be sent via text to the consumer, but also with those regulating sweepstakes, lotteries and gambling.

New Means, New Questions

Mobile sweeps also have raised legal questions regarding the sufficiency of the traditional approach to making a promotional sweepstakes legal ' the free alternative method of entry (AMOE). A set of class action lawsuits consolidated in federal court in the Southern District of California that many had hoped would ultimately result in greater clarity recently has failed to do so with the announcement of the settlement of the cases. The legal uncertainty is not likely to change soon, particularly given that marketers face a patchwork of 50 state laws, and some prior decisions predating mobile technology are unclear or unfavorable.

Texting

Text messaging as a sweepstakes-entry method has brought much consumer litigation in recent years. Class-action plaintiff's lawyers purport to represent all allegedly affected consumers and thereby position themselves to extract significant fees by bringing these cases. Marketers, especially big brands with deep pockets, present a tempting target for these actions. Thus, marketers that run mobile sweeps should consider structural approaches that mitigate risks. Also, courts, attorneys general (AG) and state legislatures that eventually may clarify the rules for mobile sweeps should adopt a permissive approach that permits, rather than fetters, the mobile promotions industry.

Lottery and Gambling Laws

To understand the legal complexities confronting mobile sweeps promoters, one must understand the history of lottery and gambling laws in the United States. Lotteries are exclusively government-run (or sanctioned), where permitted, and are prohibited outright in many states. A lottery essentially has three key determinative elements:

1. Prize;
2. Chance; and
3. Mandatory consideration.

Lotteries Reserved for States

In short, one cannot create a lottery as part of a legal promotion and, accordingly, sponsors must remove one of the three lottery elements to conduct a legal promotion. In addition, care also must be taken to avoid laws against gambling, generally defined as payment of consideration for a chance to win something of greater value.

Considering Consideration and
Alernative Methods of Entry

Consideration can come in forms other than cash wagers or product purchasing, such as short messaging-service (SMS) text or 900-number phone charges, service fees, collection of consumer contact information for marketing purposes or engaging in activities that require substantial time or effort. A sweepstakes is a legal promotion that awards a prize to a winner (or winners) selected by chance, but which lacks consideration.

Flexible Participation

Most states have generally exempted promotional prize-gaming activities that have an AMOE ' also known as flexible participation ' from prohibitions, because no reason exists to be excessively protectionist if players do not have to exchange consideration for participation.

This is where the “No Purchase Necessary” condition comes from. However, some states have, at least in past years, taken a narrow approach to flexible participation, particularly when promotions are revenue-generating schemes as premium text sweepstakes are, and it is this vulnerability that is being exploited by the class-action plaintiff's bar.

The Couch Cases

Indeed, on Dec. 11, 2007, the well known New York-based plaintiff's firm Milberg Weiss filed a class-action suit against NBC and others regarding an SMS-text game related to the TV show America's Got Talent (Glass v. NBC Universal Inc., Case No. CV07-0844-JFW (C.D. Cal.)), which was consolidated with a number of similar cases involving other TV show text promotion cases (hereafter the Couch cases), and became lead counsel in the consolidated cases.

The promotional marketing industry was anxiously awaiting a federal appeals court decision in the Couch cases that had gone up to the Ninth Circuit Court of Appeals following the federal trial court's ruling that plaintiffs had stated a claim under state laws regarding SMS text sweepstakes campaigns that were offered in connection with the American Idol, Deal or No Deal, 1 vs. 100, and The Apprentice television programs.

The trial court had denied the defendant's motion to dismiss the illegal-lottery/gambling-based claims, finding: “Defendants' offers of free alternative methods of entry do not alter the basic fact that viewers who sent text messages paid only for the privilege of entering the games. They received nothing of equivalent economic value in return.” Couch v. Telescope Inc., Case Nos. CV 07-3916, 3537, 3643, 3647-FMC (C.D. Cal., order filed Nov. 30, 2007). The defendants then requested, and the trial court certified, an interlocutory appeal seeking a certification to the California Supreme Court as to whether a claim had been properly stated under state law. The Ninth Circuit rejected that petition in July 2010 on technical grounds, finding that the legal standard for an appeal and certification ' a substantial ground for difference of opinion resulting from conflicting judicial opinions ' had not been shown. Couch v. Telescope Inc., Case Nos. 08-56357, 08-56360 (9th Cir., order filed July 8, 2010).

As a result of the Ninth Circuit ruling, studio heavyweights including NBC Universal and Fox Broadcasting Co. agreed to settle the Couch cases, which the court approved on Sept. 19, 2011. As part of the settlement, the studios agreed to:

• Refund the premium text message fees of 99 cents paid by the millions of people who entered the “American Idol Challenge” and “Deal or No Deal Lucky Case Game” via text message and did not win a prize;
• Pay the plaintiff's attorneys' fees of more than $5.2 million; and
• Enjoin the defendants from: “creating, sponsoring or operating any contest or sweepstakes, for which entrants are offered the possibility of winning a prize, where people who enter via premium text message do not receive something of comparable value to the premium text message charge in addition to entry.”

That thing of equivalent value might be a ringtone, wallpaper or other digital items sold otherwise for 99 cents or more, a technique many text-to-win promoters have been using widely now for some time.

Mobile Sweeps and AMOE?

However, with the Couch cases settling, there remains the lingering legal uncertainty for mobile sweepstakes operators as to whether they can use an AMOE to make a mobile sweeps, especially one that uses premium charges to generate revenue, a legal venture. As one court explained the reasoning behind accepting flexible participation or AMOE in taking sweepstakes out of the prohibitions on lotteries and gambling, when a promoter expects to gain increased sales from a sweepstakes, this benefit is not consideration if consumers needn't purchase to participate (see, Pepsi Cola Bottling Co. of Luverne, Inc. v. Coca-Cola Bottling Co., Andalusia, 534 So. 2d 295, 297 (Ala. 1988), but compare, Featherstone v. Indep. Serv. Stations Assn., 10 S.W.2d 124, 125'27 (Tex. Civ. App. 1928) (inducement of patronage is consideration and AMOE is insufficient)).

In earlier years, the courts of various states struggled with AMOE (compare, People v. Cardas, 137 Cal. App. Supp. 788 (1933) (movie theater “bank night” drawing not a lottery due to free method of entry) with State v. Danz, 140 Wash. 546 (1926) (movie theater that held “bank night” prize drawing violated lottery law despite free method of entry). The Cardas court specifically disapproved of the contrary decision in Danz. By the 1970s, only Georgia, Washington and Ohio continued to produce court decisions or AG opinions hostile to AMOE. Tierce v. State, 122 Ga. App. 845 (1970) (getting card punched at supermarket register qualified consumers for prize drawing). (See also, Kroger v. Cook, 265 N.E.2d 780 (Ohio 1970) (because majority of sweeps entries got entry with product purchase, availability of AMOE insufficient since a portion of grocery product sales proceeds funds the scheme, thus resulting in some entrants paying for a chance to win), state ex rel. Schillberg v. Safeway Stores, Inc., 450 P.2d 949 (Wash. 1969) (requiring grocery store visit to get entry, even where no purchase was required, was illegal lottery), and, Op. Wash. Att'y Gen., AGLO 1971 No. 51, 1971 WL 122969 (Mar. 24, 1971) (following Schillberg)).

AMOE has become custom and practice for the industry nationwide and for good reason ' it protects consumers, does not create gambling in disguise and permits marketers to use a popular and well-established form of promotion.

AMOE Nitty Gritty

A proper AMOE must be clearly disclosed, universally available to qualified entrants and equal in dignity to entries with consideration. This is typically done by means of the free mail-in or online entry method, with the entries going into the same drawing for the same prize pool as entrants who bought products or otherwise provided a form of consideration. Because mobile-text sweepstakes may result in some participant charge (though unlimited data plans are now common), and premium-text sweepstakes absolutely result in consumer charges and generation of promoter revenue, AMOE availability as a mechanism for a promotion's legality is crucial for the viability of these promotions.

Pay-to-Play

As opposed to traditional product promotions, however, mobile-text sweepstakes present a unique challenge because some states have gambling or lottery statutes, AG opinions or case law prohibiting any “game for game's sake” where any entrant “pays to play.” Thus, an AMOE may not make the promotion legal if the entrants who paid consideration via a text charge do not receive something of value for the payment, even in states that otherwise permit flexible participation. In the case of a sweepstakes involving traditional products, the product purchaser has received a product (e.g., the hamburger or packaged good being promoted) and the AMOE entrant has paid nothing. Some courts and regulators have concluded that when the value associated with the purchase entry appears to be nothing more than a vehicle for a chance to win, that consideration is being paid for no purpose but a chance to win and is, thus, a pure wager (see, People v. Shira, 133 Cal. Rptr. 94 (Cal. App. 1962) (distinguishing California cases finding no consideration where an AMOE existed for promotions where a product other than the game itself was being merchandised; court also noted that the AMOE was not available to all)).

More recently, a class action challenging a premium-text sweepstakes under Georgia law permitting the recovery of lost gambling wagers was unsuccessful, with the Georgia Supreme Court holding that because the premium-text charge was a fee that did not “hang in the balance” between two parties, it was not “gambling consideration” under the act. See, Hardin v. NBC Universal, Inc., 283 Ga. 477, 660 S.E.2d 374 (Ga. 2008). However, the decision did not address potential claims that might be brought under the Georgia lottery laws.

1-900, Phone-Card, Coupon-Scheme
And Trading-Card Sweeps Promos

This has been addressed in the context of 1-900, phone-card, coupon-scheme and trading-card sweeps promotions. In these promotions, no product or a product of minimal value, accompanied a sweepstakes entry, and some jurisdictions concluded that an AMOE, under these circumstances, did not insulate the game from lottery or gambling laws.

For instance, the Georgia AG in 1984 and a federal court applying Georgia law in 2004 found 1-900 sweepstakes where callers were charged a premium for the call constitute an illegal lottery despite AMOE availability, based on Georgia courts' historical rejection of flexible-participation/AMOE schemes and a finding of consideration if any participant “paid consideration in part for a chance to win a prize.” 1984 Op. Att'y Gen. GA 182 (1984) (finding Georgia law still rejects flexible participation). AT&T paid $1 million in punitive damages in that case. See, Kemp v. AT&T, 393 F.3d 1354 (11th Cir. 2004).

The opposite result, however, was reached by a New Jersey court looking at 1-900 toll-call sweepstakes with an AMOE. See, Glick v. MTV Networks, 796 F. Supp. 743 (S.D.N.Y. 1992) (AMOE sufficient under New Jersey law to eliminate consideration in 1-900 sweepstakes because entrants could have entered by mailing a request for a toll-free number or mailing an entry card).

In another action, the Mississippi Supreme Court found that a sales scheme in which participants paid $2 to purchase a three-minute pre-paid phone card and receive a scratch-and-win game piece was not an illegal gambling operation because, in part, the operator of the promotion itself had paid nearly $2 to purchase the same phone cards that it was selling to participants for $2 and an AMOE was offered. See, Mississippi Gaming Com'n v. Treasured Arts, Inc., 699 So. 2d 936, 940 (Miss. 1997). Other state courts have reached similar results. The fact that participants did not overpay for the phone cards to acquire a game card led the court to conclude that no illegal gambling had occurred. Id.

Accordingly, there is support in prior cases in contexts outside of mobile that premium text sweepstakes promoters can minimize their risk by providing real products or services that are sold for a verifiable fair market value to entrants who enter a sweeps by text, in addition to providing an online or mail in AMOE for those who do not elect to buy that product via premium text charge. For instance, ringtones or wallpapers could be sold and delivered via text in exchange for the premium text charge. These digital products should be otherwise available and marketed for purchase for at least as much as the premium text charge to counter claims that the product is a ruse for a disguised gambling scheme. Note, however, that the settlement of the Couch cases does not provide any legal certainty that giving the premium text entrants a digital item will preclude liability. However, since the court approved the settlement, this interpretation finds some support insofar as a court should not be approving prospective promotion terms that are clearly illegal. Nonetheless, approval of the settlement certainly does not create binding precedent on the issue.

Trivia and Other Types of Contests

An alternative pay-to-enter text game would be a trivia or other contest. An example of a trivia-based mobile text promotion is T-Mobile's 4G PayDay trivia game (see, http://www.t-mobile4gpayday.com/). While a sweepstakes awards prizes based on chance, a contest awards a prize but replaces the element of chance by selecting the winner based on skill or intellect. Some (but not all) states may permit consideration, such as payment of money to be paid by entrants in order to participate. But nothing that would be outcome determinative can be left to chance. For example, a random drawing cannot be used to break a tie in a skill-based contest without potentially converting the promotion into a lottery.

States take a range of approaches with respect to how contests treat the element of chance, including the following tests:

• “Pure chance”;
• “Predominant element”;
• “Material element”; and
• “Any chance.”

These four tests can be viewed as falling along a continuum of most permissive to least permissive, with the “pure chance” approach the most permissive and the “any chance” approach the least permissive. For example, a jurisdiction applying the “pure chance” doctrine views the exercise of any skill by a participant in the promotion as enough to remove the promotion from within the definition of a lottery and, thus, is viewed as a game of skill.

On the other side of the continuum would be the “any chance” test, and jurisdictions applying this test have examined the element of chance by determining whether a particular game contains “any chance” affecting the outcome of the game, in which case the game would be viewed as a sweepstakes.

Application of the approaches on what constitutes skill verses chance is jurisdiction-specific, and courts and authorities within the same jurisdiction have been known to take inconsistent approaches even within a relatively short period of time, so legal counsel should be consulted when an element of consideration (such as a premium text charge) exists, before offering a mobile text contest.

Premium Text Sweepstakes

Until courts apply the law to this new technology, operating a text sweepstakes or contest, particularly when premium charges occur, carries a risk. Premium text sweepstakes should be avoided unless the premium change is for an otherwise available legitimate product, such as a digital item, sold at fair market value.

A proper AMOE should also be included and promoters should consider excluding states that have poor records on accepting flexible participation. Premium text contests need to avoid elements of chance and certain states will need to be excluded. Various regulatory requirements, which vary from state to state, will need to be met. Also, beware that every state is free to interpret its lottery and gambling laws differently, so it is unlikely that national certainty will ever be possible.

Conclusion

In approximately the last 30 years, we've moved at rocket speed from the first practical desktop workplace and at-home personal computers to laptops and notebooks to cells phones and, now, smartphones and tablets that are as usable and powerful as the first computers we installed on our desktops.

And the increased use and ease of use of this technology, and of the devices with which individuals and firms engage these has brought ever-growing business and legal demands.

With that use, mobile marketing has burgeoned. The complex, evolving legal issues connected to mobile sweepstakes, contests and marketing efforts, marketers who use mobile media must work closely with their counsel to design and execute mobile-marketing campaigns to bring from the outset a minimum of legal risks inherently associated with these promotions.

As consumers have embraced mobile devices and communicating via text message, mobile marketing promotional campaigns have followed.

As a result, sweepstakes have become popular mobile promotional tools because the chance of a prize motivates consumers to interact with the sponsor. However, because sweepstakes and contests are heavily regulated by states, mobile sweepstakes and contests must comply not only with mobile-messaging laws and regulations, such as the federal Telephone Consumer Protection Act (47 U.S.C. '227) that requires express consent from a consumer before a marketing message can be sent via text to the consumer, but also with those regulating sweepstakes, lotteries and gambling.

New Means, New Questions

Mobile sweeps also have raised legal questions regarding the sufficiency of the traditional approach to making a promotional sweepstakes legal ' the free alternative method of entry (AMOE). A set of class action lawsuits consolidated in federal court in the Southern District of California that many had hoped would ultimately result in greater clarity recently has failed to do so with the announcement of the settlement of the cases. The legal uncertainty is not likely to change soon, particularly given that marketers face a patchwork of 50 state laws, and some prior decisions predating mobile technology are unclear or unfavorable.

Texting

Text messaging as a sweepstakes-entry method has brought much consumer litigation in recent years. Class-action plaintiff's lawyers purport to represent all allegedly affected consumers and thereby position themselves to extract significant fees by bringing these cases. Marketers, especially big brands with deep pockets, present a tempting target for these actions. Thus, marketers that run mobile sweeps should consider structural approaches that mitigate risks. Also, courts, attorneys general (AG) and state legislatures that eventually may clarify the rules for mobile sweeps should adopt a permissive approach that permits, rather than fetters, the mobile promotions industry.

Lottery and Gambling Laws

To understand the legal complexities confronting mobile sweeps promoters, one must understand the history of lottery and gambling laws in the United States. Lotteries are exclusively government-run (or sanctioned), where permitted, and are prohibited outright in many states. A lottery essentially has three key determinative elements:

1. Prize;
2. Chance; and
3. Mandatory consideration.

Lotteries Reserved for States

In short, one cannot create a lottery as part of a legal promotion and, accordingly, sponsors must remove one of the three lottery elements to conduct a legal promotion. In addition, care also must be taken to avoid laws against gambling, generally defined as payment of consideration for a chance to win something of greater value.

Considering Consideration and
Alernative Methods of Entry

Consideration can come in forms other than cash wagers or product purchasing, such as short messaging-service (SMS) text or 900-number phone charges, service fees, collection of consumer contact information for marketing purposes or engaging in activities that require substantial time or effort. A sweepstakes is a legal promotion that awards a prize to a winner (or winners) selected by chance, but which lacks consideration.

Flexible Participation

Most states have generally exempted promotional prize-gaming activities that have an AMOE ' also known as flexible participation ' from prohibitions, because no reason exists to be excessively protectionist if players do not have to exchange consideration for participation.

This is where the “No Purchase Necessary” condition comes from. However, some states have, at least in past years, taken a narrow approach to flexible participation, particularly when promotions are revenue-generating schemes as premium text sweepstakes are, and it is this vulnerability that is being exploited by the class-action plaintiff's bar.

The Couch Cases

Indeed, on Dec. 11, 2007, the well known New York-based plaintiff's firm Milberg Weiss filed a class-action suit against NBC and others regarding an SMS-text game related to the TV show America's Got Talent (Glass v. NBC Universal Inc., Case No. CV07-0844-JFW (C.D. Cal.)), which was consolidated with a number of similar cases involving other TV show text promotion cases (hereafter the Couch cases), and became lead counsel in the consolidated cases.

The promotional marketing industry was anxiously awaiting a federal appeals court decision in the Couch cases that had gone up to the Ninth Circuit Court of Appeals following the federal trial court's ruling that plaintiffs had stated a claim under state laws regarding SMS text sweepstakes campaigns that were offered in connection with the American Idol, Deal or No Deal, 1 vs. 100, and The Apprentice television programs.

The trial court had denied the defendant's motion to dismiss the illegal-lottery/gambling-based claims, finding: “Defendants' offers of free alternative methods of entry do not alter the basic fact that viewers who sent text messages paid only for the privilege of entering the games. They received nothing of equivalent economic value in return.” Couch v. Telescope Inc., Case Nos. CV 07-3916, 3537, 3643, 3647-FMC (C.D. Cal., order filed Nov. 30, 2007). The defendants then requested, and the trial court certified, an interlocutory appeal seeking a certification to the California Supreme Court as to whether a claim had been properly stated under state law. The Ninth Circuit rejected that petition in July 2010 on technical grounds, finding that the legal standard for an appeal and certification ' a substantial ground for difference of opinion resulting from conflicting judicial opinions ' had not been shown. Couch v. Telescope Inc., Case Nos. 08-56357, 08-56360 (9th Cir., order filed July 8, 2010).

As a result of the Ninth Circuit ruling, studio heavyweights including NBC Universal and Fox Broadcasting Co. agreed to settle the Couch cases, which the court approved on Sept. 19, 2011. As part of the settlement, the studios agreed to:

• Refund the premium text message fees of 99 cents paid by the millions of people who entered the “American Idol Challenge” and “Deal or No Deal Lucky Case Game” via text message and did not win a prize;
• Pay the plaintiff's attorneys' fees of more than $5.2 million; and
• Enjoin the defendants from: “creating, sponsoring or operating any contest or sweepstakes, for which entrants are offered the possibility of winning a prize, where people who enter via premium text message do not receive something of comparable value to the premium text message charge in addition to entry.”

That thing of equivalent value might be a ringtone, wallpaper or other digital items sold otherwise for 99 cents or more, a technique many text-to-win promoters have been using widely now for some time.

Mobile Sweeps and AMOE?

However, with the Couch cases settling, there remains the lingering legal uncertainty for mobile sweepstakes operators as to whether they can use an AMOE to make a mobile sweeps, especially one that uses premium charges to generate revenue, a legal venture. As one court explained the reasoning behind accepting flexible participation or AMOE in taking sweepstakes out of the prohibitions on lotteries and gambling, when a promoter expects to gain increased sales from a sweepstakes, this benefit is not consideration if consumers needn't purchase to participate ( see , Pepsi Cola Bottling Co. of Luverne, Inc. v. Coca-Cola Bottling Co., Andalusia , 534 So. 2d 295, 297 (Ala. 1988), but compare, Featherstone v. Indep. Serv. Stations Assn. , 10 S.W.2d 124, 125'27 (Tex. Civ. App. 1928) (inducement of patronage is consideration and AMOE is insufficient)).

In earlier years, the courts of various states struggled with AMOE ( compare , People v. Cardas , 137 Cal. App. Supp. 788 (1933) (movie theater “bank night” drawing not a lottery due to free method of entry) with State v. Danz , 140 Wash. 546 (1926) (movie theater that held “bank night” prize drawing violated lottery law despite free method of entry). The Cardas court specifically disapproved of the contrary decision in Danz. By the 1970s, only Georgia, Washington and Ohio continued to produce court decisions or AG opinions hostile to AMOE. Tierce v. State , 122 Ga. App. 845 (1970) (getting card punched at supermarket register qualified consumers for prize drawing). ( See also , Kroger v. Cook , 265 N.E.2d 780 (Ohio 1970) (because majority of sweeps entries got entry with product purchase, availability of AMOE insufficient since a portion of grocery product sales proceeds funds the scheme, thus resulting in some entrants paying for a chance to win), state ex rel. Schillberg v. Safeway Stores, Inc. , 450 P.2d 949 (Wash. 1969) (requiring grocery store visit to get entry, even where no purchase was required, was illegal lottery), and , Op. Wash. Att'y Gen., AGLO 1971 No. 51, 1971 WL 122969 (Mar. 24, 1971) (following Schillberg)).

AMOE has become custom and practice for the industry nationwide and for good reason ' it protects consumers, does not create gambling in disguise and permits marketers to use a popular and well-established form of promotion.

AMOE Nitty Gritty

A proper AMOE must be clearly disclosed, universally available to qualified entrants and equal in dignity to entries with consideration. This is typically done by means of the free mail-in or online entry method, with the entries going into the same drawing for the same prize pool as entrants who bought products or otherwise provided a form of consideration. Because mobile-text sweepstakes may result in some participant charge (though unlimited data plans are now common), and premium-text sweepstakes absolutely result in consumer charges and generation of promoter revenue, AMOE availability as a mechanism for a promotion's legality is crucial for the viability of these promotions.

Pay-to-Play

As opposed to traditional product promotions, however, mobile-text sweepstakes present a unique challenge because some states have gambling or lottery statutes, AG opinions or case law prohibiting any “game for game's sake” where any entrant “pays to play.” Thus, an AMOE may not make the promotion legal if the entrants who paid consideration via a text charge do not receive something of value for the payment, even in states that otherwise permit flexible participation. In the case of a sweepstakes involving traditional products, the product purchaser has received a product (e.g., the hamburger or packaged good being promoted) and the AMOE entrant has paid nothing. Some courts and regulators have concluded that when the value associated with the purchase entry appears to be nothing more than a vehicle for a chance to win, that consideration is being paid for no purpose but a chance to win and is, thus, a pure wager ( see , People v. Shira , 133 Cal. Rptr. 94 (Cal. App. 1962) (distinguishing California cases finding no consideration where an AMOE existed for promotions where a product other than the game itself was being merchandised; court also noted that the AMOE was not available to all)).

More recently, a class action challenging a premium-text sweepstakes under Georgia law permitting the recovery of lost gambling wagers was unsuccessful, with the Georgia Supreme Court holding that because the premium-text charge was a fee that did not “hang in the balance” between two parties, it was not “gambling consideration” under the act. See , Hardin v. NBC Universal, Inc. , 283 Ga. 477, 660 S.E.2d 374 (Ga. 2008). However, the decision did not address potential claims that might be brought under the Georgia lottery laws.

1-900, Phone-Card, Coupon-Scheme
And Trading-Card Sweeps Promos

This has been addressed in the context of 1-900, phone-card, coupon-scheme and trading-card sweeps promotions. In these promotions, no product or a product of minimal value, accompanied a sweepstakes entry, and some jurisdictions concluded that an AMOE, under these circumstances, did not insulate the game from lottery or gambling laws.

For instance, the Georgia AG in 1984 and a federal court applying Georgia law in 2004 found 1-900 sweepstakes where callers were charged a premium for the call constitute an illegal lottery despite AMOE availability, based on Georgia courts' historical rejection of flexible-participation/AMOE schemes and a finding of consideration if any participant “paid consideration in part for a chance to win a prize.” 1984 Op. Att'y Gen. GA 182 (1984) (finding Georgia law still rejects flexible participation). AT&T paid $1 million in punitive damages in that case. See, Kemp v. AT&T, 393 F.3d 1354 (11th Cir. 2004).

The opposite result, however, was reached by a New Jersey court looking at 1-900 toll-call sweepstakes with an AMOE. See , Glick v. MTV Networks , 796 F. Supp. 743 (S.D.N.Y. 1992) (AMOE sufficient under New Jersey law to eliminate consideration in 1-900 sweepstakes because entrants could have entered by mailing a request for a toll-free number or mailing an entry card).

In another action, the Mississippi Supreme Court found that a sales scheme in which participants paid $2 to purchase a three-minute pre-paid phone card and receive a scratch-and-win game piece was not an illegal gambling operation because, in part, the operator of the promotion itself had paid nearly $2 to purchase the same phone cards that it was selling to participants for $2 and an AMOE was offered. See , Mississippi Gaming Com'n v. Treasured Arts, Inc. , 699 So. 2d 936, 940 (Miss. 1997). Other state courts have reached similar results. The fact that participants did not overpay for the phone cards to acquire a game card led the court to conclude that no illegal gambling had occurred. Id.

Accordingly, there is support in prior cases in contexts outside of mobile that premium text sweepstakes promoters can minimize their risk by providing real products or services that are sold for a verifiable fair market value to entrants who enter a sweeps by text, in addition to providing an online or mail in AMOE for those who do not elect to buy that product via premium text charge. For instance, ringtones or wallpapers could be sold and delivered via text in exchange for the premium text charge. These digital products should be otherwise available and marketed for purchase for at least as much as the premium text charge to counter claims that the product is a ruse for a disguised gambling scheme. Note, however, that the settlement of the Couch cases does not provide any legal certainty that giving the premium text entrants a digital item will preclude liability. However, since the court approved the settlement, this interpretation finds some support insofar as a court should not be approving prospective promotion terms that are clearly illegal. Nonetheless, approval of the settlement certainly does not create binding precedent on the issue.

Trivia and Other Types of Contests

An alternative pay-to-enter text game would be a trivia or other contest. An example of a trivia-based mobile text promotion is T-Mobile's 4G PayDay trivia game (see, http://www.t-mobile4gpayday.com/). While a sweepstakes awards prizes based on chance, a contest awards a prize but replaces the element of chance by selecting the winner based on skill or intellect. Some (but not all) states may permit consideration, such as payment of money to be paid by entrants in order to participate. But nothing that would be outcome determinative can be left to chance. For example, a random drawing cannot be used to break a tie in a skill-based contest without potentially converting the promotion into a lottery.

States take a range of approaches with respect to how contests treat the element of chance, including the following tests:

• “Pure chance”;
• “Predominant element”;
• “Material element”; and
• “Any chance.”

These four tests can be viewed as falling along a continuum of most permissive to least permissive, with the “pure chance” approach the most permissive and the “any chance” approach the least permissive. For example, a jurisdiction applying the “pure chance” doctrine views the exercise of any skill by a participant in the promotion as enough to remove the promotion from within the definition of a lottery and, thus, is viewed as a game of skill.

On the other side of the continuum would be the “any chance” test, and jurisdictions applying this test have examined the element of chance by determining whether a particular game contains “any chance” affecting the outcome of the game, in which case the game would be viewed as a sweepstakes.

Application of the approaches on what constitutes skill verses chance is jurisdiction-specific, and courts and authorities within the same jurisdiction have been known to take inconsistent approaches even within a relatively short period of time, so legal counsel should be consulted when an element of consideration (such as a premium text charge) exists, before offering a mobile text contest.

Premium Text Sweepstakes

Until courts apply the law to this new technology, operating a text sweepstakes or contest, particularly when premium charges occur, carries a risk. Premium text sweepstakes should be avoided unless the premium change is for an otherwise available legitimate product, such as a digital item, sold at fair market value.

A proper AMOE should also be included and promoters should consider excluding states that have poor records on accepting flexible participation. Premium text contests need to avoid elements of chance and certain states will need to be excluded. Various regulatory requirements, which vary from state to state, will need to be met. Also, beware that every state is free to interpret its lottery and gambling laws differently, so it is unlikely that national certainty will ever be possible.

Conclusion

In approximately the last 30 years, we've moved at rocket speed from the first practical desktop workplace and at-home personal computers to laptops and notebooks to cells phones and, now, smartphones and tablets that are as usable and powerful as the first computers we installed on our desktops.

And the increased use and ease of use of this technology, and of the devices with which individuals and firms engage these has brought ever-growing business and legal demands.

With that use, mobile marketing has burgeoned. The complex, evolving legal issues connected to mobile sweepstakes, contests and marketing efforts, marketers who use mobile media must work closely with their counsel to design and execute mobile-marketing campaigns to bring from the outset a minimum of legal risks inherently associated with these promotions.