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Legal Basics of Internet Contests

Oct 11, 2007
Despite the great many fraudulent schemes purporting to offer prizes, online contests are often used for legitimate marketing purposes and can be effective for some businesses. The problem for legitimate business is not only that they have to fight the stigma associated with fraudulent internet schemes, but they have to comply with a great many laws pertaining to not only online contests, but all contests.

When planning contest, sweepstake, or promotion the promoter must first be certain that it is not a lottery which is illegal. It does not matter if the contest is runned through traditional media or over the internet. Lotteries are permitted to be run by the states only. Non-state operate lotteries are illegal under state and federal law. The definition of lottery is a contest or promotion that contains all of the following three elements (1) A price (2) a chance, and (3) consideration. It is not 100% clear what each element means as not every single situation has been tested, but for the most part the risk of running a fowl of the law can be reduced substantial by eliminating one or more of these elements as defined under existing laws.

A prize has been defined as something of value that is awarded to the winner of a contest. This element is unlikely to be one of the elements that can be eliminated as that would defeat the whole purpose of running a contest or sweepstake to promote goods or services.

A means of eliminating the chance element is by simply allowing everyone to be a winner or by making the contest one of skill. Prices could be based on ability, knowledge, creativity, judgment, or expertise. The skill contests have to have some sort of objective criteria that is to be judged by real judges with sufficient expertise to apply the criteria that is going to be evaluated.

Consideration can include many different things of value that the contestant gives up for the chance to win something. Generally it is money, so if some sort of a purchase or fee is required it would definitely be considered consideration. Consideration also includes other things you would normally not considered valuable. Asking lengthy questionnaires or asking for personal information would more likely than not be considered consideration and should be avoided.

A lengthy registration form would also be consideration or asking referrals or information about friends or family. Alternative methods of entry are often used as means to avoid consideration. You may have heard the phrase "no purchase required" to enter call this number or write here or send a card here or something along those lines.

For the alternative method of entry to be an effective as a means of avoiding the consideration element it must provide for an equal chance of winning and the process itself has to be simple and not arise to a level of difficulty or time consuming that it would becomes consideration. The equal chance requirement means that it actually has to provide and equal chance, if the chances are limited to the first entrees or callers then the odds are no longer the same, especially if one provides for entry over the internet and the other by mail. Requiring the contestant download and install your software would be consideration, especially if it has spyware. Internet access itself has been construed as consideration by some states, but not by others.

A means of eliminating the chance element is by simply allowing everyone to be a winner or by making the contest one of skill. Prices could be based on ability, knowledge, creativity, judgment, or expertise. The skill contests have to have some sort of objective criteria that is to be judged by real judges with sufficient expertise to apply the criteria that is going to be evaluated.

Once one or two of these elements have been eliminated from the contest then it is no longer a lottery, but now the contest still has to comply with the laws of every state.
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