1. shopping
2. resources
3. contests and freebies

PREPARED FOR
CMA’S REGULATORY AFFAIRS CONFERENCE FOR MARKETERS
SEPTEMBER 22, 2005
WESTIN PRINCE HOTEL, TORONTO
MODERATOR
BILL HEARN
PARTNER
MCMILLAN BINCH
MENDELSOHN LLP
ASSOCIATE GENERAL COUNSEL
TIM HORTONS
PANEL
STEVEN KAHANSKY
DUNCAN MCCREADY EXECUTIVE VICE-PRESIDENT
IC GROUP
PIERRE SAVOIE
PARTNER
LEGAULT JOLY THIFFAULT
RICK SHEA
DIRECTOR, MARKETING AND CLIENT
SERVICES
RESOLVE CORPORATION
VANDANA TAXALI
ADVERTISING AND MARKETING LAWYER
Materials prepared by Jeff Scanlon, McMillan Binch Mendelsohn LLP
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
TABLE OF CONTENTS
The Basics: Contest Law 101 ......................................................................................................... 3
Contests and the Criminal Code ................................................................................................. 3
Contests and the Competition Act ............................................................................................... 5
Contests in Quebec ..................................................................................................................... 7
Appendix A - Statutory References ........................................................................................ 9
Appendix B - Contest Disasters............................................................................................ 12
Appendix C – Contest Prosecutions ..................................................................................... 16
Appendix D – Contest Fundamentals: Building a Better Contest ........................................ 18
Appendix E – Sample Contest Materials .............................................................................. 20
Appendix F – Contest Scenarios........................................................................................... 21
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The Basics: Contest Law 101
The Globe & Mail newspaper recently reported that the contest industry in the
country “is on a roll.” Canadians love contests, and an increasing number of promotions are
being structured around contests. Consider the following two examples of successful contests
run in the summer of 2003. First, in Canada, Rogers Video ran a contest called “Win a Film
Fantasy” where one of the prizes, entitled “Spy Thriller Covert Ops Training,” included the
prize-winner being “whisked off to a secret training base” where “contract mercenaries and
Green Berets teach you all the skills you’ll need to survive a 3-day paramilitary covert mission in
hostile territory.” Second, in the US, Pepsi ran a contest where there was a chance of winning a
billion dollars; this generated an immense buzz and likely met or surpassed the beverage giants’
expectations regarding product exposure. Clearly, the stakes are high to impress customers with
ever more elaborate and enticing contest promotions.
In all of the excitement, however, it is important not to lose sight of the fact that
there are laws that apply to contests. The main federal laws governing contests are found in
section 206 of the Criminal Code (Appendix A) and section 74.06 of the Competition Act
(Appendix A). Advertising relating to contests must also comply with the misleading advertising
provisions of the Competition Act. This section briefly outlines the provisions that should be
followed to ensure a “legal” contest.
Contests and the Criminal Code
Parliament passed the Criminal Code provisions on “illegal lotteries” over a
century ago to curb illicit gaming. Lawmakers at that time were concerned mainly with
protecting Canadians from the evils associated with games such as 3-card monte (presumably
played in the backrooms of saloons). They probably had no idea that these rules would one day
be applied to regulate contests on boxes of cereal played by children over the breakfast table!
Section 206 of the Code prohibits the conduct of contests in which winners are
determined solely by chance. However, subject to compliance with certain requirements, the
Code contemplates the conduct of legal contests, which determine winners by mixed chance and
skill or by skill alone.
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Since all aspects of the various combinations of elements must be present before a
contest becomes an illegal lottery under the Code, there is some room for structuring a contest in
a way that eliminates at least one of the aspects, thus making the contest legal.
If winners are to be determined based upon a game of mixed chance and skill, the
contest is prohibited by the Code if the participants are required to pay money or give valuable
consideration in order to participate. It is therefore prudent that an element of skill be introduced
into the contest and that participants not be required to pay money or give valuable consideration
for the right to participate unless the contest does not involve an element of chance.
Skill-Testing Question
Section 206 of the Criminal Code prohibits the conduct of contests in which
winners are determined solely by chance. However, the Criminal Code contemplates the conduct
of legal contests, where people win through mixed chance and skill or by skill alone. It is
therefore prudent that an element of skill be introduced into the contest. The most common
means of introducing an element of skill into a contest is the “skill-testing question” – usually, a
time-limited arithmetical problem containing relatively simple addition, subtraction,
multiplication, and division.
No Purchase Requirement
If winners are to be determined based upon a game of mixed chance and skill, the
contest is prohibited by the Criminal Code if the participants are required to pay money or give
valuable consideration in order to participate. Participants should therefore not be required to
pay money or give valuable consideration for the right to participate unless the contest does not
involve an element of chance.
What is a Game of Mixed Chance and Skill?
Courts have been considering the question of what qualifies as a game of mixed
chance and skill for over a hundred years. For instance, while estimating the number of beans in
a jar1 or estimating the number of votes to be cast in an upcoming election2 would be sufficient
1
R. v. Dodds (1884), 4 O.R. 390 (C.A.).
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to be considered a mixed game of chance and skill, shooting a turkey at 50 yards3 or peeling a
potato4 would not. The presence of an element of chance in a game does not necessarily make it
a game of mixed chance and skill. In 1968, the Supreme Court of Canada interpreted “chance”
to mean not “the chances involved in any human activity” but “the systematic resort to chance.”5
When the issue was revisited in a recent Ontario case, R. v. Balance Group
International Trading Ltd., the Court of Appeal held that an increased level of difficulty (i.e.,
where some elements of the game are out of the control of the player) does not convert a game
from one of mixed chance and skill to one of pure skill. In the Court’s analysis, the “crane game”
at issue was one of mixed chance and skill because a large number of factors prevented the
player from bringing any skill to bear on the game at all. Although the player exercised skill to
control the crane’s lateral movement, other elements of the game – the ability of the claw to hold
the object, for example – were “wholly beyond the power of the player to influence”. While a
game of pure skill may contain “some unpredictable elements,” the average player must be able
to exercise sufficient skill to compensate for the element of chance.
Penalties
The Criminal Code contest section creates an indictable offence punishable by
imprisonment for a term not exceeding two years. However, a court may also treat the relevant
section as an offence punishable on summary conviction, and impose a fine not exceeding
twenty-five thousand dollars.
Contests and the Competition Act
Even if a contest is legal under the Criminal Code, the sponsor must also comply
with the requirements for contests under the Competition Act. In essence, section 74.06 of the
Competition Act provides that there should be adequate and fair disclosure of such matters as the
number and approximate value of prizes, the areas to which they relate (i.e. any regional
2
R. v. Johnston (1904), 7 C.C.C. 525 (Ont. Co. Ct.).
3
R. v. Johnson (1902), 6 C.C.C. 48 (Man. C.A.).
4
R. v. Wallace (1954), 109 C.C.C. 351 (Alta. Sup. Ct, Appeal Division).
5
R. v. Ross, [1968] S.C.R. 786.
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5
allocation of prizes), and any fact within the knowledge of the advertiser that materially affects
the chances of winning (such as the mechanics of the contest and the odds of winning).
Adequate and Fair Disclosure
Disclosure should be made in a reasonably conspicuous manner. It should be
made before the potential entrant is inconvenienced in some way or has committed to the contest
or the product or service being promoted by the contest.
Short List Disclosure
The Competition Bureau requires that sponsors provide adequate and fair
disclosure by indicating a “short list” of rules, either through the media or on the outside of the
package. This short list should, at a minimum, include:
•
the number and approximate retail value of prizes;
•
the regional allocation of prizes, if applicable;
•
if within the knowledge of the advertiser, the chances of winning and any
other fact that materially affects the chances of winning;
•
the requirement to answer correctly a skill-testing question;
•
the date on which the contest closes;
•
the information that no purchase is necessary to enter the contest; and
•
the place where the full contest rules are available.
Written Opinions
Since April 1, 2003 the Competition Bureau will, on payment of a fee of $1,000,
review contest materials and give a written opinion as to whether or not the contest provides the
Commissioner with sufficient grounds to commence an inquiry. This opinion is binding on the
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Competition Bureau, and the process takes two weeks for simple contests and six weeks for
complex contests.
Penalties
Among the sanctions levied by the Competition Act is a monetary penalty, fifty
thousand dollars in the case of an individual, and one hundred thousand dollars in the case of a
corporation. A sponsor who conducts promotions without regard to applicable contest laws also
runs the risk of having to deal with the potential public relations nightmare if a regulator decides
that the sponsor’s promotions runs afoul such laws.
Contests in Quebec
Quebec is the only province that has passed a statute that applies specifically to
contests. If a contest is run in Quebec, it will need to satisfy the requirements of that province’s
legislation on “publicity contests.” This legislation is administered by the Régie des alcools, des
courses et des jeux.
Including Quebec residents results in additional legal requirements for a contest
such as:
•
all materials for Quebec residents must be in French;
•
notice of the contest, together with the applicable duties, a copy of the
contest rules, and the text of any advertisement used in the contest must be
filed in advance with the Régie;
•
duties based on the value of prizes available to Quebec residents must be
paid in advance;
1555714.1
•
the contest rules must contain certain prescribed information; and
•
in certain cases, a security bond with the Régie may be required.
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
7
The extra requirements for running contests in Quebec often lead contest sponsors
to exclude residents of that province.
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Appendix A - Statutory References
Criminal Code – Offence in relation to lotteries and games of chance: Section 206(1):
206. (1) Every one is guilty of an indictable offence and liable to imprisonment for a term not exceeding
two years who
(a) makes, prints, advertises or publishes, or causes or procures to be made, printed, advertised or
published, any proposal, scheme or plan for advancing, lending, giving, selling or in any way disposing of
any property by lots, cards, tickets or any mode of chance whatever;
(b) sells, barters, exchanges or otherwise disposes of, or causes or procures, or aids or assists in, the sale,
barter, exchange or other disposal of, or offers for sale, barter or exchange, any lot, card, ticket or other
means or device for advancing, lending, giving, selling or otherwise disposing of any property by lots,
tickets or any mode of chance whatever;
(c) knowingly sends, transmits, mails, ships, delivers or allows to be sent, transmitted, mailed, shipped or
delivered, or knowingly accepts for carriage or transport or conveys any article that is used or intended for
use in carrying out any device, proposal, scheme or plan for advancing, lending, giving, selling or
otherwise disposing of any property by any mode of chance whatever;
(d) conducts or manages any scheme, contrivance or operation of any kind for the purpose of determining
who, or the holders of what lots, tickets, numbers or chances, are the winners of any property so proposed
to be advanced, lent, given, sold or disposed of;
(e) conducts, manages or is a party to any scheme, contrivance or operation of any kind by which
any person, on payment of any sum of money, or the giving of any valuable security, or by
obligating himself to pay any sum of money or give any valuable security, shall become entitled
under the scheme, contrivance or operation to receive from the person conducting or managing the
scheme, contrivance or operation, or any other person, a larger sum of money or amount of
valuable security than the sum or amount paid or given, or to be paid or given, by reason of the fact
that other persons have paid or given, or obligated themselves to pay or give any sum of money or
valuable security under the scheme, contrivance or operation;
(f) disposes of any goods, wares or merchandise by any game of chance or any game of mixed
chance and skill in which the contestant or competitor pays money or other valuable consideration;
(g) induces any person to stake or hazard any money or other valuable property or thing on the result of
any dice game, three-card monte, punch board, coin table or on the operation of a wheel of fortune;
(h) for valuable consideration carries on or plays or offers to carry on or to play, or employs any person to
carry on or play in a public place or a place to which the public have access, the game of three-card
monte;
(i) receives bets of any kind on the outcome of a game of three-card monte; or
(j) being the owner of a place, permits any person to play the game of three-card monte therein.
Competition Act – Promotional Contests: s. 74.06
74.06 A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly,
the supply or use of a product, or for the purpose of promoting, directly or indirectly, any business
interest, conducts any contest, lottery, game of chance or skill, or mixed chance and skill, or otherwise
disposes of any product or other benefit by any mode of chance, skill or mixed chance and skill whatever,
where
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(a) adequate and fair disclosure is not made of the number and approximate value of the prizes, of the area
or areas to which they relate and of any fact within the knowledge of the person that affects materially the
chances of winning;
(b) distribution of the prizes is unduly delayed; or
(c) selection of participants or distribution of prizes is not made on the basis of skill or on a random basis
in any area to which prizes have been allocated.
Competition Act – Deceptive Prize Notices: s. 53
53. (1) No person shall, for the purpose of promoting, directly or indirectly, any business interest or the
supply or use of a product, send or cause to be sent by electronic or regular mail or by any other means a
document or notice in any form, if the document or notice gives the general impression that the recipient
has won, will win, or will on doing a particular act win, a prize or other benefit, and if the recipient is
asked or given the option to pay money, incur a cost or do anything that will incur a cost.
Non-application
(2) Subsection (1) does not apply if the recipient actually wins the prize or other benefit and the person
who sends or causes the notice or document to be sent
(a) makes adequate and fair disclosure of the number and approximate value of the prizes or
benefits, of the area or areas to which they have been allocated and of any fact within the person's
knowledge that materially affects the chances of winning;
(b) distributes the prizes or benefits without unreasonable delay; and
(c) selects participants or distributes the prizes or benefits randomly, or on the basis of the
participants' skill, in any area to which the prizes or benefits have been allocated.
Due diligence
(3) No person shall be convicted of an offence under this section who establishes that the person
exercised due diligence to prevent the commission of the offence.
Offences by employees or agents
(4) In the prosecution of a corporation for an offence under this section, it is sufficient proof of the
offence to establish that it was committed by an employee or agent of the corporation, whether or not the
employee or agent is identified, unless the corporation establishes that the corporation exercised due
diligence to prevent the commission of the offence.
Liability of officers and directors
(5) Where a corporation commits an offence under this section, any officer or director of the corporation
who is in a position to direct or influence the policies of the corporation in respect of conduct prohibited
by this section is a party to and guilty of the offence and is liable to the punishment provided for the
offence, whether or not the corporation has been prosecuted or convicted, unless the officer or director
establishes that the officer or director exercised due diligence to prevent the commission of the offence.
Offence and punishment
(6) Any person who contravenes this section is guilty of an offence and liable
(a) on conviction on indictment, to a fine in the discretion of the court or to imprisonment for a
term not exceeding five years, or to both; or
(b) on summary conviction, to a fine not exceeding $200,000 or to imprisonment for a term not
exceeding one year, or to both.
Sentencing
(7) In sentencing a person convicted of an offence under this section, the court shall consider, among
other factors, the following aggravating factors:
(a) the use of lists of persons previously deceived by the commission of an offence under section
52.1 or this section;
(b) the particular vulnerability of recipients of the notices or documents referred to in subsection
(1) to abusive tactics;
(c) the amount of the proceeds realized by the person from the commission of an offence under
this section;
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(d) previous convictions of the person under section 52 or 52.1 or this section; and
(e) the manner in which information is conveyed, including the use of abusive tactics.
Competition Act – Misrepresentations to the Public: s. 74.01(1)
74.01 (1) A person engages in reviewable conduct who, for the purpose of promoting, directly or
indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any
business interest, by any means whatever,
(a) makes a representation to the public that is false or misleading in a material respect;
(b) makes a representation to the public in the form of a statement, warranty or guarantee of the
performance, efficacy or length of life of a product that is not based on an adequate and proper test
thereof, the proof of which lies on the person making the representation; or
(c) makes a representation to the public in a form that purports to be
(i) a warranty or guarantee of a product, or
(ii) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a
service until it has achieved a specified result,
if the form of purported warranty or guarantee or promise is materially misleading or if there is no
reasonable prospect that it will be carried out.
Competition Act – False or Misleading Representations: s. 52(1)
52. (1) No person shall, for the purpose of promoting, directly or indirectly, the supply or use of a product
or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever,
knowingly or recklessly make a representation to the public that is false or misleading in a material
respect.
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Appendix B - Contest Disasters6
COMPANY NAME /DATE
PROBLEM
EXPOSURE
RESOLUTION
McDonald’s (US and
Canada), 2001
Game piece promotion involved placing
instant win pieces on containers for
drinks and french fries. Personnel with
the marketing company responsible for
the promotion stole valuable winning
pieces and then, through various tactics,
collected the prize money.
Various coupons for gas were to be
awarded, including three grand prizes of
$1500 worth of fuel. A printing error
created hundreds of grand prize winners.
Negative publicity and an FBI
investigation.
McDonald’s published full-page
apologies in national newspaper
and awarded $10 million in prizes
at randomly selected outlets
across North America.
Prize claims totalled $150 million.
Contest grand prize was a private suite
at the Corel Centre for a Senators game
during the second round of the NHL
playoffs. Secondary prizes also included
pairs of tickets to second round playoff
games. Ottawa lost to Toronto in the
first round of the playoffs.
Value of prizes and negative
publicity.
The company relied upon a “Kraft
clause” in its contest rules to
cancel the original prize
distribution and substitute an
alternate method of allocating the
grand prize.
Substitute prizes offered made up
of tickets for games in the
2001/2002 season.
Ultramar (Canada), 2001
General Motor Dealers /
Ottawa Senators, 2000
6
Prepared by McMillan Binch LLP and summarized from recent secondary sources.
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TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
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COMPANY NAME /DATE
PROBLEM
EXPOSURE
RESOLUTION
KBQI FM Albuquerque,
2000
Radio station promised to play 20,000
songs, commercial free, or to pay
$20,000 to the first caller who caught
them playing a commercial. About one
week into the promotion, the computer
that controlled the on-air production,
suffered a software glitch that caused it
to play an advertisement for Geico
Insurance. A listener called to claim the
prize. The applicable rules stated that
the ad had to be “a paid commercial”,
which the Geico ad was not, since it was
played in error.
CHEO conducted a fund raising lottery
that sold tickets at $100 each. Contestant
purchased ticket with an NSF cheque.
His name was drawn for the grand prize
and he was given the opportunity to pay
for the ticket with cash and claim the
prize. Other entrants who had paid with
an NSF cheque had been given the
opportunity to make good on their
payments.
Under-the-cap promotion involved cash
prizes ranging from $14 to $30,000. The
wrong number was announced in the
media and far more “winners” came
forward to claim prizes than planned.
The value of the promised prize of
$20,000.
The radio station chose not to rely
on the rule and paid the prize
money.
Potential for negative publicity.
After the experience 1998, CHEO
changed its procedure to void any
ticket that had not been paid at
least 24 hours before the draw.
The Pepsi bottling plant was
besieged by an angry crowd of
supposed winners who ultimately
had to be removed by the police.
Pepsi garnered negative media
exposure over the fiasco but was
not charged or required to pay a
monetary penalty.
Under-the-cap promotion with a grand
prize of 1 million pesos (U.S. $36,000).
Pepsi faced prize claims totalling
U.S. $18 billion. The disaster
Pepsi paid $19 per piece for the
“winning” caps totalling U.S. $10
Childrens’ Hospital of
Eastern Ontario (CHEO),
1998
PepsiCo (Chile), 1992
PepsiCo (Philippines),
1992
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COMPANY NAME /DATE
Hoover Europe, 1992
Coca Cola (U.S.), 1991
Popsicle Industries Inc.
(Canada), 1990-1991
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PROBLEM
EXPOSURE
RESOLUTION
A computer glitch resulted in the wrong
winning number being announced and
500,000 people believing they had won
the grand prize.
prompted anti-Pepsi rallies and
sabotage attacks on Pepsi trucks
and bottling plants. It was also
reported that Pepsi’s sales in the
Pacific Rim plummeted and its
market share dropped nine points
just after the news broke.
The value of the airline tickets
claimed was in the tens of
millions of dollars.
million. 7000 additional lawsuits
were dismissed.
Contest promised consumers in Britain
or Ireland a free airline ticket with the
purchase of a vacuum. The airline
tickets cost more than the revenue
generated from the sale of the vacuum.
Hoover was flooded with requests for
vacuums by consumers seeking cheap
airfares.
Under-the-cap promotion wherein the
player was supposed to collect circular
game pieces for 5 Super Bowls – Super
Bowl XXI, XXII, XXIII, XXIV and
XXV. The rare game piece was
supposed to be the Super Bowl XXII
piece and the odds of winning the
$25,000 prize that came with collecting
these five pieces were supposed to be 1
in over 72 million. A printing error
resulted in some of the Super Bowl
XXIII pieces being printing without the
third “I”. As a result 17 people
submitted what they thought were
winning pieces and claimed the $25,000
prize.
“Points collection” promotion allowed
collectors of Popsicle sticks to trade in
“points” for Nintendo games. The
The fiasco cost Hoover tens of
millions of dollars, years of
litigation and immeasurable bad
publicity.
The total value of the prizes
claimed was $425,000.
Class actions were avoided due to
clauses in the rules that stated that
game pieces containing errors
would be null and void. The rules
also contained provisions for what
would be done if there were more
than one prize claimant.
Popsicle Industries, along with
some employees personally, were
charged under the Competition
To settle the case, Popsicle
Industries gave Nintendo prizes to
all the players who claimed them,
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
14
COMPANY NAME /DATE
Beatrice Foods (U.S.),
1990’s
Kraft (U.S.), 1980’s
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PROBLEM
EXPOSURE
RESOLUTION
Act.
number of requests generated by the
promotion was unexpectedly high and
eventually exceeded the supply of
games. Popsicle Industries exercised a
clause in its rules which allowed it to
award substitute rewards. However, the
latter were of inferior quality and
desirability.
The potential exposure to Beatrice
Advertiser distributed millions of
“scratch and win” cards in a probability was massive.
game promotion. Every card could be a
winner if the contestant uncovered the
right combination of symbols. A
contestant figured out that there were a
limited number of variations in the
configuration of the cards. This
information could be used to make
every card a winner. The contestant
collected a large number of cards and
demanded satisfaction from Beatrice. He
also threatened to go public with his
information. Beatrice refused and the
contestant sued for $20 million.
which amounted to a cost of
$250,000. The company was also
required to pay a $200,000 fine
under s. 59 (predecessor to the
current s. 74.06) of the
Competition Act for failing to
distribute the awards in a timely
manner.
The parties came to a confidential
settlement.
Kraft tried to cancel the contest,
which spawned class action suits
as well as inquiries from certain
regulatory authorities. In total, the
company’s exposure was $270
million.
After extensive public relations
efforts and negotiations, the
matter was settled for $10 million.
Matching game piece promotion. If two
game pieces were collected that formed
a picture of a prize, that prize was won.
The odds of winning were supposed to
be 1 in 15,000,000, but due to an error
in distributing the game pieces, the odds
of winning became 1 in 1.
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
15
Appendix C – Contest Prosecutions7
COMPANY NAME/DATE
PROBLEM
RESOLUTION
S.S. Viking Industries, S.C.
Canadian Clearing Centre Inc.
and Executive Premium
Distribution Centre S.C.
Corporation, 2000
Consumers were advised that they had been selected to receive
valuable awards or premiums if they purchased a product.
Misrepresentations were made regarding the nature, value and
quality of the awards, and important additional conditions and
restrictions required to collect the awards were not disclosed or
were only partially disclosed to consumers at the time of the
transaction.
The Competition Bureau commenced a prosecution against the
aforementioned company and its president, Jack Stroll, for a
deceptive telemarketing scheme. Customers were mailed
“official claim certificates”, indicating that they would win one
of five valuable prizes. Customers were required to telephone
within 72 hours to obtain the prize. When they telephoned,
they were told that they had to buy overpriced promotional
items to receive a prize. The prizes actually awarded had little
actual value.
Consumers asked via the telephone to buy thousands of dollars
worth of promotional products (pens, jewellery, letter openers,
etc.) at inflated prices in order to receive prizes. However no
prizes were provided.
Principal director of the company, Stephen
Clark, convicted under s. 52(1)(a) of the
Competition Act and fined $300,000.
3076784 Canada Inc. (carrying
on business as National
Clearing House, Nationwide
Clearing House, National
Clearing House), 1999
America Family Publishers,
Vijay Sharma et al., 1999
7
Corporation fined $290,000; Jack Stroll fined
$10,000.
Company fined $1 million; president, Sharma,
fined $100,000.
Various telemarketers working for the
company received jail sentences of between
two and six months, or community service
orders.
Prepared by McMillan Binch LLP and summarized from recent secondary sources.
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COMPANY NAME/DATE
PROBLEM
RESOLUTION
Cave Promotions Ltd., 1999
Promotion in which some twenty million “scratch and win”
cards were mailed to Canadians. If the consumer scratched a
“winning” card, they were to call a 1-900 number for prize
claim instructions. These calls cost consumers between $20
and $40 each. They generally learned that they had in fact not
won any prize, or that the prize they had won was not
available.
Cave convicted under s. 52(1)(a) of the
Competition Act, fined $75,000 and made
subject to a prohibition order.
Pepsi Cola Canada Ltd., 1991
Various Frito Lay brands of potato chips were labelled as
having a “playing card inside.” Cards could be collected in
certain combinations to win cash prizes. In fact, only 9 out of
10 packages contained cards. Wording on the package was
alleged to be false and misleading in violation of s. 52 of the
Competition Act. Rules on the back of the potato chip bags
stated that all bags might not contain cards.
Promotion featured “mini casino” cards with four “pull-tabs”.
Customers could win one of four discount amounts – 10%,
15%, 20% or 25%. A customer was meant to lift one of the
tabs in the presence of a salesperson on the day of the
promotion and the discount revealed would be applied to the
customer’s purchase. The cards and advertising for the
promotion stated that you could “save 10% to 25% on
practically everything in the store”. In fact, however, 90% of
the cards were printed with only one type of symbol
(representing 10% off) under all four tabs.
Contest provided that the participating radio station would
draw 150 entries from eligible entries received from which 1
winner would be drawn. Three hundred entries were in fact
drawn. The decision to draw 300 was not made with the
consent or knowledge of the head office of the accused. Only
one customer complaint was received.
The Court held that there was no
misrepresentation, given the small print
wording on the back of the package. The
producer’s attempt to place cards in all bags
was a relevant consideration in a due diligence
defence.
Simpsons Department Store,
1988
Pepsi Cola Can Ltd., 1986
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Simpsons was convicted and fined
$100,000.00.
The Court held that the non-disclosure of this
fact constituted an omission to disclose
material information affecting the chances of
winning contrary to Section 59(1)(a) of the
Competition Act [then Section 37.2(1)] as well
as misleading advertising contrary to Section
52(1)(a) [then Section 36(1)(a)].
A fine of $2,000 was imposed under s. 74.06
of the Competition Act.
17
Appendix D – Contest Fundamentals: Building a Better Contest
(Please note that this checklist is simply a tool to assist contestants play the “Taming the Beast” Sweepstakes and
should not be a substitute for legal advice regarding the planning, organization and execution of a contest.)
Conduct intellectual property searches to ensure proposed catch phrase or slogan of
contest is not already trade-mark protected.
Do not award a prize on the basis of chance alone; require a skill-testing question.
Provide a “no purchase” way of entering the contest.
Restrict number of entries.
Specify copyright ownership in entries.
Disclose the number and value of the contest prizes in all contest promotional material.
Provide adequate and fair disclosure of all facts that affect the chances of winning.
The contest rules must be disclosed or available to the consumer before he/she is
inconvenienced.
It is not acceptable to require a contestant to go to a particular retail outlet to get the
contest information. Since they must be easily accessible, post the contest rules in all
retail outlets and/or online for ease of reference.
Describe how the winner will be selected, contacted, and awarded the prize.
Distribution of prizes not to be unduly delayed
The following information should be disclosed in all contest rules:
o The number and nature of the prizes to be won;
o The approximate retail value of the prizes;
o If applicable, the regional distribution of the prizes;
o An explanation of how the entry form must be completed and submitted;
o The chances of winning;
o The mechanism and date for awarding the prizes (i.e. random draw and skill-testing
question);
o Whether facsimiles are accepted, and, if so, the form of acceptable facsimile;
o Whether the winner may substitute or choose between the prize and its cash
equivalent;
o The cut-off date for entering the contest; and
o Any other significant fact regarding when, how, or who could be eligible to win the
prize(s) or otherwise affecting the chances of winning.
Ensure contestant information gathered by the contest operation meets the requirements
of the Personal Information Protection and Electronic Documents Act (PIPEDA). Under
PIPEDA’s basic scheme, no business may collect, use or disclose personal information
without first clearly defining its purpose and obtaining the individual’s informed consent.
Ultimately, contest organizers are responsible for the information they collect, whoever
ends up using it.
If your contest includes Quebec, and the total value of the prizes exceed $100.00, you
must comply with Quebec legislation:
o Notice of the contest;
o Payment of duties;
o Reporting requirements; and
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o French language materials.
o If Quebec is excluded, say so in the rules.
Contest rules are the contract between the player and the contest sponsor (CS).
Therefore, CSs should include provisions that help the CS manage its risk exposure related
to operating the contest. For example, a CS might want to include clauses which address:
o When and how the CS may cancel the contest;
o The extent of limited liability of the CS; and
o Indemnification of the CS.
Always remember that a properly conducted contest may be an effective marketing tool. A
contest that is not conducted properly can be a public relations fiasco. Moreover, a
mismanaged contest can violate the Criminal Code and the Competition Act, with severe
consequences.
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Appendix E – Sample Contest Materials
(Please note that these contest materials have been included for the purposes of identifying
common contest elements; they are not intended to act as a model or precedent.)
Pepsi’s “Play for a Billion Dollars” Sweepstakes
Esso’s Fill Up for the Cup
Reader’s Digest’s Winners Selection
Canadian Business’s Diamond Challenge
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21
Appendix F – Contest Scenarios
NOTES FOR PANEL DISCUSSION
Taming the Contest Beast: Making Your Promotion a Winner
September 22, 2005
CONTEST SCENARIOS
1.
Charging a Fee to Play/Forcing a Purchase: Distinguishing Between Games of
Chance and Games of Skill
Scenario: The contest sponsor would like to charge contestants a
fee or force a purchase to enter its contest.
Questions
•
When may a contest sponsor force a purchase or charge a fee to enter its contest?
•
When will a contest be considered a “pure skills” game?
•
Can a contest sponsor “pool” entry fees collected from contestants in a pure skills
game and award all or some of the money as a prize?
Discussion Points
When Does the Prohibition Apply?
•
Canadian contest law prohibits charging a fee to play or forcing a purchase except
where the contest is one of “pure skill” – e.g., a juried photo contest or dance
competition
•
Word of Warning: Contest sponsors should view this exception
narrowly as many so-called games of “skill” have elements of chance and
so are games of “mixed chance and skill” for the purposes of section
206(1)(f) of the Criminal Code.
Also, case law is inconsistent and
difficult to reconcile. For instance:
-
1555714.1
some court findings of “pure skill” include: R. v. Dodds (Ontario High
Court of Justice, 1884) (guessing number of beans in glass jar); R.
v. Cardinal (Que. Mun. Ct., 1980) (darts); R. Canada Trust Co.
(Alberta Provincial Court, 1984) (math question);
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
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22
-
some court findings of “mixed chance and skill” include : R. v. Ross
(Supreme Court of Canada, 1968) (bridge – “chance” being cards
dealt and “skill” being how cards played); R. v. McGarey (Supreme
Court of Canada, 1974) (milk bottle toss – player throws ball at 3
bottles arranged in a pyramid and tries to knock them down); R. v.
Touzin (Québec Court of Appeal, 1979) (“dishes game” - player
throws dimes at cups and dishes; if dimes stay in dish or cup, player
wins vessel as prize);
-
•
•
Arguably, this general prohibition does not apply where:
•
1555714.1
some court findings of “pure chance” include: R. v. Johnson (Court of
King’s Bench – Manitoba, 1902) (shooting turkey at 50 yards); R. v.
Wallace (Alberta Supreme Court, 1954): (potato peeling contest) ; R.
Southern Music Ltd. (Alberta Provincial Court) (video lottery
terminals)
Also, contest sponsors must ensure that the prize in such pure-skills
competitions are not the result of pooling entry fees or else the contest will
be illegal under section 206(1)(e) of the Criminal Code (see below).
the prize is not “goods wares or merchandise” - e.g., cash or trip prizes
(see comments of court in Miramichi Agricultural Exhibition Association
v. Lotteries Commission of New Brunswick (New Brunswick Court of
Appeal, 1995)
-
A key element of Section 206(1)(f) is that it applies only where there
is a disposition (i.e. giving away a prize) of “goods, wares or
merchandise.”
-
While a great many cases consider the meaning of the words in other
contexts, there is relatively little guidance as to their interpretation
under this provision in the Criminal Code.
-
Interestingly, a judge of the Ontario Court of Justice (Provincial
Division), Central East Division, recently held (affirmed on appeal
November 7, 2002) that a cash prize in a contest does not constitute
“goods, wares or merchandise.” In R. v. Milew Inc., the accused, who
operated bulldozer-type machines which provided cash as prizes, was
charged with keeping a common gaming house and machines for
gambling contrary to the Criminal Code. To escape liability, the
accused maintained that it was conducting a section 206(1)(f) game,
and as part of this argument, asserted that cash constitutes “goods,
wares and merchandise.” In what may represent an instance of resultsoriented reasoning, the judge held that “goods, wares and mechandise”
did not include Canadian currency.
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
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23
-
In its conclusion, the case follows an earlier decision of the New
Brunswick Court of Appeal, Miramichi Agricultural Exhibition Assn.
v. Lotteries Commission of New Brunswick. While Miramichi
involved a number of aspects, relevant for our purposes is the lower
court’s finding that the words “goods, wares and merchandise” in
section 206(1)(f) do not encompass cash. On appeal, Justice
Bastarache (as he was then), writing for the Court, agreed:
The second argument made was one relative to the wording of
subsection [206(1)](f); the Association was of the opinion that
the word “goods” should be given a broad interpretation and be
read to include the word “money”. This interpretation is
entirely inconsistent with the terminology used in s.206 as a
whole; it is also impossible to accept in view of the use of the
term “effets” in the French version of the section, this word
having a meaning that reveals no ambiguity whatsoever.
-
these cases have unusual and unique facts which probably limit their
use to contest sponsors and their legal counsel
-
Related Issue: is a ticket “goods, wares and merchandise”? In a 1999
decision of the Ontario Court of Appeal, the appellant was convicted
under a Toronto by-law of selling tickets to a Blue Jays baseball game.
The city was authorized to pass by-laws prohibiting the selling of
“goods” in certain circumstances. While the conviction was quashed
for other reasons, Finlayson J.A. did observe, in obiter, that “[t]he
authorizing statute makes no reference to tickets whatsoever.”
-
But the proper approach to a “ticket” is likely illustrated by a 2001
decision involving the “scalping” of professional hockey tickets
outside the Air Canada Center. The Court in that case concluded that
“goods” have the connotation of tickets:
Tickets are essential to our economy.
Many industries,
entertainment and transportation, for example, could not survive
without them. They have become commodities of commerce,
articles that can be bought and sold because they are
redeemable for goods and services. It is interesting that the
Consumer Protection Act defines “goods” to include tokens,
coupons or other documents or things issued or sold by a seller
to a buyer that are exchangeable or redeemable for goods and
services.
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•
•
-
This reasoning was recently adopted in a decision that has been upheld
by the Ontario Court of Appeal in R. v. Cacciatore, [2001] O. J. No.
5227, aff’d [2002] O.J. No. 2366.
-
The better (and certainly more prudent) view is that cash, tickets
and (possibly, services) fall within the intended scope of the
expression “goods, wares or merchandise.” While the Miramichi
and Milew decisions suggest a different conclusion, those cases
arguably reflect, less a definitive judicial gloss on the term “goods,
wares or merchandise,” than a response to the unique policy
considerations raised on the facts.
the contest is not advertised externally - e.g., contests at car or home
shows, in theatres or during sporting events
-
but what happens when such “unadvertised” contests become part of
the overall entertainment experience and so are “expected” by
attendees/fans
-
if a contest is purely ancillary to a larger event (i.e. a baseball game),
and not advertised, then an entry fee to the game can be charged. As
long as the payment occurs without the expectation that a contest is
included in the purchase price, the contest will be on-side the Criminal
Code.
-
a promoter would run into difficulty if the contest becomes an integral
part of the larger event. In that case, the admission fee becomes linked
to participation in the contest, and a consideration problem may arise.
the contest is not a “game”
-
R. v. Simpsons Ltd. (Ontario District Court, 1988) (“mini-casino”
promotion; Simpsons mailed cards with 4 tabs to customers;
customer lifted a tab in presence of Simpson’s employee and received
discount pictured under tab)
-
Holding that the promotion was not a “game” within the meaning of
the Criminal Code provisions re contests, the judge cited with
approval the following statement from the 1967 English case Adcock
v. Wilson
I think that an ordinary man, when talking about playing a
game, is talking about something which involves
entertainment, he is talking of something which involves
excitement and fun in the common pursuit by a number of
competitors of a similar and known object, and it seems to me
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exceedingly difficult to produce those elements which the
common man would ascribe to a game if the participants are
in separate places with no communication between them while
the activity is going on and thus no sort of opportunity of
seeing how their competitors are progressing and, I would
have thought, none of the excitement and entertainment which
any true game provide. (emphasis added)
-
However, this narrow English definition of “game” from the 1960’s
seems antiquated and may not be relevant today in Canada where
many people play computer and other games on the Internet that lack
the face-to-face interaction and other hallmarks of a good cricket
match.
When Will a Contest Be Considered a Game of Pure Skill?
•
Canadian promotional contests take their form from paragraphs 206(1)(a) to (f) of the
Criminal Code. Generally, paragraphs 206(1)(a) to (d) prohibit the advertising
(among other aspects) of a scheme for disposing of property by any mode of chance.
Paragraph 206(1)(f) makes it an indictable offence to dispose of any goods, wares or
merchandise by any game of chance or any game of mixed chance and skill in which
the contestant or competitor pays money or other valuable consideration….
Paragraph 206 (1)(f) only applies to games of chance or “mixed chance and skill.”
Therefore, if the prizes are to be awarded on the basis of skill alone, a purchase or
entry fee may arguably be charged under section 206(1)(f).
In differentiating between games of chance, skill and mixed chance and skill,
courts focus on the degree to which the outcome is determined by the skill level
of the player as opposed to the structure of the game itself.
The recent 2002 decision of the Ontario Court of Appeal called R. v. Balance
Group International Trading Ltd. (“Balance Group”) is an important case in this
area (see Appendix B of session materials). Balance Group considered the
legality of a “crane game” under section 206(1)(f) of the Criminal Code. For the
price of a dollar, players would move a joystick to position an overhead crane
above a toy or novelty item. By pressing a button on the joystick, the player
would cause a claw to descend on the prize beneath. The player had no ability to
control the outcome of the game after having activated the red button on the
joystick. The claw would descend and, if the contestant was successful, pick up a
prize and deposit it into a chute. At trial, the court heard expert evidence on the
degree to which the contestant could determine the outcome of the game. In the
result, given the “overwhelming degree of chance” and mere “dash of skill”
involved, the court convicted the game’s owner.
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The Ontario Court of Appeal affirmed, emphasizing that an increased level of
difficulty does not convert a game from one of mixed skill and chance to one of
skill. Although the player exercised skill to control the crane’s lateral movement,
other elements of the game – the ability of the claw to hold the object, for
example - were “wholly beyond the power of the player to influence.” In fact,
virtually all of the elements of the game were out of the control of the player.
While a game of pure skill may contain “some unpredictable elements,” the
average player must be able to exercise sufficient skill to compensate for the
element of chance.
While the case was highly fact-driven, the principles set out in Balance Group
should be considered carefully in determining whether a “no purchase necessary”
method of entry should be included in the rules.
Do Not Pool Entry Fees: Even if s.206(1)(f) does not apply, it is necessary to
consider section 206(1)(e) of the Criminal Code, which prohibits schemes in which
persons, upon payment of a sum of money, become entitled to receive a larger sum
of money “by reason of the fact that other persons have paid…any sum of money”
under the scheme. Unlike paragraph 206(1)(f), this provision makes no reference to
chance, skill or mixed chance and skill. Accordingly, the paragraph catches even a
pure skill-based competition: Dream Home Contest case, 1960 SCC.
2.
Managing Contest Risks
Scenario: Contest sponsor has heard the horror stories of contest
disasters and wants to manage contest risks prudently.
Questions
How should contest risks be managed by agreement between promotional
partners?
What contractual safeguards should be included in every set of contest rules?
What other risk-management processes and products (such as insurance) are
available?
Discussion Points
Promotional Partnership Agreements
• Responsibilities
- Who is going to judge the contest
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- Who is providing prizing, covering the costs of prizing and the nature of the
prizing
- Who is responsible for drafting contest rules and contest administration
- Set out a production schedule with timelines for approval
- Who is responsible for producing or arranging for the production of the final onair promotional spot
- Who has approval over the final web content and contest promotional spot
(usually this is a mutual approval)
- If there is going to be a radio ad, then who is responsible for the local radio station
promotional costs and who has approval over the final radio plan document
- How will contest entrant information be handled
• Ownership of Advertising Materials and On-air Promotional Spots
• Databases – i.e. sharing contest entrant information with promotional partner. A
sample clause is as follows:
Client undertakes and agrees to abide with the Personal Information Protection
and Electronic Documents Act (the “Act”) in respect of “Personal Information”
(as defined in the Act) (“Personal Information”) provided from Company to
Client. The parties agree that Company may from time to time take such
reasonable steps to ensure that Client is in compliance with the Act with respect
to such Personal Information (including but not limited to setting retention dates
and procedures with Client, site visits by an authorized Company staff member
and provision of letters by Client confirming such compliance). Client agrees to
destroy Personal Information and provide to Company proof of such destruction
of Personal Information when so requested by Company. This provision shall
survive termination or expiration of this Agreement.
Contest Rules
• There are a number of contractual “outs” that should appear in every set out
contest rules.
• All decisions of the independent judging organization are final and binding on the
participants in all matters relating to the contest.
• The Ontario Court of Appeal considered such a clause in Pegi Horne and
Haliburton Forest & Wild Life Reserve Limited v. Bombardier, Inc. and
Promotion Activators (Ont. C.A. 1998). The contest was open to “registered
snowmobile clubs.” The contest judge had ruled that the selected entrant did
not qualify as a recognized snowmobile club. The selected entrant sued both
the contest sponsor and the judging agency.
• The Court of Appeal upheld the trial judge’s decision, which found that
“…in circumstances such as this where a third party has been established to be
a judge of the contest and the rules of the contest make the provision that his
decision ‘shall be final in all matters relating to this promotion’…so long as
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the third party acts honestly and has not been acting in an unreasonable or
arbitrary manner, if the decision was an honest decision, it need not be
reasonable.”
• “The Sponsor reserves the right to suspend, cancel or modify the contest at any
time [, subject to the approval of the Régie des alcohols, des courses et des jeux
in Québec,] if it determines that for any reason the contest cannot be run as
originally planned or if fraud or any other occurrence compromises the fairness or
integrity of the contest.”
• In 1998, the Children’s Hospital of Eastern Ontario held a fund-raising
lottery. Tickets cost $100 and the Grand Prize was the proverbial “dream
home” One hour before the “Grand Prize” winner was drawn, the organizers
realized that his cheque had bounced but included the entry in the draw
anyway. The lottery's rules did not anticipate a winner who had entered for
free. And not surprisingly, the contestant was quite prepared to pay for his
ticket after the fact. He won the dream home and the other participants were
justifiably annoyed. Had the lottery organizers included the above clause, they
likely would have felt comfortable not honouring the entry based on the NSF
cheque.
• In 1989, BP Oil ran a contest called “Licence Plate Jackpot.” Every week, a
randomly selected licence plate number was posted in BP service stations. If
your licence plate number exactly matched the posted number, you could win
a new BMW 325. Mr. Johnson used public records to track down the owner
of a car with one of the winning licence plates. He bought the car (a clunker)
for $650 and used it to claim the BMW. The promotion company learned of
these manoeuvres and claimed that Johnson’s claim was not “legitimate”
within the meaning of the contest rules. The case went to trial. The court
found that a reasonable person applying the official rules to these facts could
not conclude that Johnson had failed to meet the “obtain legitimately”
provision. Johnson was awarded the BMW. Had the contest organizers
included the above clause, they could have argued that such predatory
participation was not the intent of the contest and comprised the contest’s
fairness and integrity.
• “If, as a result of an error relating to the entry process, drawing or any other aspect of
the contest, there are more potential winners of prizes than contemplated in these
rules, there will be a random draw amongst all eligible prize claimants after the
Contest Closing Date to award the correct number of prizes.
• In 2001, Ultramar, a gasoline retailer, sent out thousands of “Reveal a
Deal” coupons for prizes up to $1,500 worth of free gas. Ultramar only
wanted to give out three such jackpots; they actually printed more than 50,000
winning coupons for a potential liability of $90 million. As a result there are
ugly scenes at Ultramar stations across New Brunswick, where the coupons
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were distributed. Luckily, the company had the right in its contest rules to
terminate the contest if the “number of coupons entitled to win a prize is
higher than the number of prizes...” and thus avoided the potential liability.
Other key clauses for contest rules include
- right to substitute prizes
- eligibility: age restrictions and residency requirements
- other exclusions, such as Quebec’s legal requirement to exclude “the contest
sponsor, its employees, representatives, agents, members of the jury and persons
with whom they are domiciled”. Due, in part, to concerns about security
breaches, preserving the integrity of the contest and overzealous lawyers drafting
overly comprehensive clauses, there seems to be a trend towards excluding a
broader category of people, such as immediate family members working for
affiliates of contest sponsor.
- promotional use of name, likeness, address (city and province): for example
By entering the Sweepstakes, entrants consent to the use of their name,
address (city and province) and/or likeness, without further compensation,
worldwide and in perpetuity, in any and all forms of media now known or
hereafter devised, including the Internet, in any publicity or advertising
carried out by the Sponsor, unless prohibited by law.
-
releases and indemnities and requirements that selected entrants sign
Declarations of Eligibility, Publicity and Liability Releases and Indemnities
(especially important for trip and car prizes).
By participating in the Sweepstakes, entrants agree to release and
indemnify the Sponsor and the independent judging organization and any
of their parents, affiliates, agents and contractors, including advertising
and promotional agencies, and their directors, officers and employees,
from any and all losses, expenses (including legal fees), damages, and
claims of any kind in connection with the Sweepstakes or resulting from
the acceptance, possession, or use of any prize, including without
limitation, any loss, personal injury, death, property damage, or claims
based on publicity rights, defamation, or invasion of privacy.
To be officially declared a winner, each selected entrant must first correctly
answer, without assistance of any kind, a mathematical skill-testing question.
This skill-testing question, along with the Declaration of Compliance with
Sweepstakes Rules and a Liability and Publicity Release, will be
forwarded to the attention of each selected entrant via mail promptly
following the draw. Failure by any selected entrant to complete, sign and
return any of the aforementioned documents within ten business days after
notification is sent to the address on the selected entrant's entry, or the
return of Grand Prize documents as undeliverable, may result in forfeiture
by that selected entrant of the Grand Prize and selection of an alternate
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winner. If a selected entrant cannot be contacted in a timely fashion, or if
for any other reason the Grand Prize cannot be awarded, another
Sweepstakes entry will be randomly selected by draw until the Grand
Prize has been awarded.
Promotion Risk Management Processes and Products
Clearly defined contest rules are just one component of an overall promotion risk
management strategy that should be employed for every promotion undertaken.
The goal of a promotion risk management is to ensure that clauses such as,
“Sponsor reserves the right to suspend, cancel or modify..” or “If, as a result of an
error relating to the …” don’t need to be invoked. If a promotion gets to this
point, key assets are already in jeopardy, such as:
1.
2.
3.
4.
5.
Customers
Brands
Financial Assets (cash, share price etc.)
Suppliers
And more
Promotion Risk Management is all about avoiding problems before they arise. It
is a logical and systematic method of identifying, analyzing, evaluating,
managing, monitoring and communicating risks associated with any promotional
marketing activity, function or process to mitigate risk and ensure a promotion is
successful.
Some tools that can be utilized to help mitigate risk:
Project Specification - identify the specifications for the program and assess
where risk could arise.
Process Definition and Management – understand the key processes and the
inputs/outputs of each that are required to develop and execute a promotion. Risk
creeps in at all stages in the development cycle - from concept generation to
fulfillment. The contest sponsor must understand the processes and put the proper
checks and balances in place to mitigate risk. A few questions a contest sponsor
could ask:
•
•
•
•
•
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Are there secure printing processes in place to ensure the integrity of the
offer isn’t compromised?
Does the printing process reflect the requirements of distribution?
Is the promotion creative copy misleading?
Are there security risks surrounding the distribution of the offer?
What are the security and audit features within the prize fulfillment
process?
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
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•
•
•
How much redundancy is built into hosting environments for online
programs?
Does the online program operate on a secure platform so that data integrity
and privacy is maintained?
How and who develops contest odds and seeding structures associated
with the prize pool?
Contest Rules – ensure they accurately reflect the promotion and how it is
delivered to market. Also ensure the proper safeguards are in place to manage
issues should they occur. For example, if there is an online component to the
promotion ensure you account for managing technical issues and failures.
Supplier Matrix – understand the requirements needed to properly develop and
execute a promotion and then ensure you understand the strengths and
weaknesses of your suppliers so you can manage accordingly.
Promotion Risk Management Awareness - Create awareness within your
organization, communicating that managing promotion risk is critical to the
success of any program. Identify a resource responsible for Promotion Risk
Management – put someone in charge of making sure all aspects of delivering a
promotion are done properly and that all parties (internal and external) are
communicating and working together.
Communication – most errors happen because resources don’t understand the
requirements of a program or they don’t effectively communicate change that
occurs throughout the development and execution cycles.
Track and Audit – identify key checkpoints to audit the processes, ensuring
requirements are being met. All audit records must be securely maintained and
easily accessible.
Insurance – Specialty insurance products can be used to mitigate the financial
liabilities associated with promotional offers and prize pools.
1555714.1
•
For example, with games of chance, the likelihood of someone winning a
prize is dependant on odds. Regardless of how you structure the odds,
there is no guarantee that someone isn’t going to win the grand prize, or
more than the expected number of people will win a prize. By using Prize
Insurance, the marketer can purchase an insurance policy to protect them
against this financial exposure. The entire risk is transferred to an insurer,
making it one of the most effective risk tools available.
•
Another example would be a coupon or rebate offer. A marketer can only
guesstimate how many people are going to participate in their offer – there
is no way to determine the exact number of responses. Over-redemption
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
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insurance can be applied to cover responses above and beyond what the
marketer anticipates. Again, risk is transferred to an insurer, giving the
marketer an ultimate solution to manage financial exposures.
•
In addition, contest sponsors want to ensure suppliers carry proper Errors
& Omissions insurance to cover the types of products and services they
are providing to an organization. Also, they must ensure the limits of
liability are reflective of the risk.
The challenges of prize fulfillment: prizing, delivery and winner notification.
•
While prize fulfillment signals the final stages of a contest, it certainly
isn’t of lesser importance in the planning cycle. In fact, it’s one of the
must crucial. The prize is what motivates the consumer to participate in an
offer – if something goes wrong, a not so favourable impression of the
brand and company will result. Or, legal suits will result if the awarding of
the prize is not handled properly.
•
A simple but common mistake is managing sweepstakes draw process and
winner notification. Where the contest sponsor is eager to identify a
winner to participate in a big PR event but the selected winner, named
“Peter Piper”, is not home at the time of the call to notify him that he has
just won. So, a message is left “This is ABC Company calling to advise
you that you have just won a car. Please call us back”. Three days later
with no call back from the winner a second person is drawn and that
person is notified they are a winner. Well, five days later Peter Piper
returns from holiday and calls ABC Company to claim his prize. The
damage is done!
Some areas of risk which contest sponsors must be cognizant of are:
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Can the fulfillment centre execute the requirement? Example – prizes
can be fulfilled instantly at point of retail. How does the CSR manage
compliancy?
•
Winner eligibility – the contest sponsor will want to ensure all winners
meet eligibility requirements set out in the rules, including answering the
Skill Testing Questions before releasing the prize or publicizing the
winner’s name in promotional materials. Pending the value of the prize, a
background check could be conducted of the potential winner(s) to ensure
compliance with contest rules.
•
Winner validation -- Validation of claims is based upon the contest rules
and regulations. Pending program type and prize values, contest sponsors
may want to consider additional auditing features such as opening mail
under continuous videotaping and under supervision of a minimum of 2
TAMING THE CONTEST BEAST – SEPTEMBER 22, 2005
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representatives. Independent third party adjudicators may also be utilized
pending value of prize.
•
Prize release – depending on prize values, contest sponsors need to ensure
proper release forms are prepared and distributed to winners before
releasing the prize. The release form signed by the winner accomplishes
three things:
1.
It’s written agreement from the winner that they comply with the
contest rules
2.
•
•
It’s written agreement from the winner that the contest sponsor can
publicize the winners information in promotional materials
3.
And finally, it releases the contest sponsor of further responsibility
associated with that prize. For example, if the consumer wins a trip
to Mexico and the consumer loses their luggage or breaks their leg,
the release form shields the contest sponsor from possible damage
claims (i.e. the costs associated with the lost luggage or medical
attention.)
Adjudication – Depending on prize values, the contest sponsor may want
to consider third party attendance when conducting draws. This ensures
the best interests of all parties is maintained and lessens the chance of
fraud or consumer disputes.
Security – there are a number of security risks within the prize fulfillment
process. Contest sponsors need to be cognizant of security factors when
choosing fulfillment partners. For example:
1.
Are prizes stored in a secure storage facility?
2.
Are there security processes and check points in place to ensure
prize fraud is not possible among employees?
3.
What types of auditing measures are in place to ensure data
integrity and prize counts are maintained?
4.
What privacy policies and procedures are in place to ensure
consumer data is stored and transferred securely?
This only scratches the surface of the potential risks and areas that need to be
monitored closely by any contest sponsor. Contest sponsors should develop a
process, or contact experts in the field, to help them identify, assess and respond
to the various areas of risk. Because there are so many areas of risk, it is strongly
recommended that companies have systematic processes and check points in
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place, not only ensure successful promotions, but also to ensure their finances,
brands and customer relationships are protected.
3.
Privacy Issues
Scenario: Contest sponsor is designing an online contest for
which all Canadians are eligible to enter. There is no “age of
majority” eligibility threshold. The contest sponsor is collecting
information from entrants such as their address, age, profession,
shopping habits and income bracket. The entry form provides that
entrants will receive an additional entry if they “tell a friend”
about the contest by providing the contest sponsor with their
friend’s home email address.
Questions
Is it necessary to obtain an entrant’s express consent to use his or her personal
information solely for the purpose of administering the contest or may this be
implied from the act of the contestant entering the contest.
What form of consent is required if the contest sponsor intends to use the entrant’s
personal information for secondary marketing purposes or consumer research?
Should this consent be in the contest rules, the entry form or both?
What are the special considerations for protecting the privacy of children under 13
years and teenagers?
What’s wrong with “tell a friend” contest entries?
Discussion Points
As of January 1, 2004, Canada’s national private sector privacy law, the Personal
Information Protection and Electronic Documents Act (PIPEDA), has been
extended to every organization dealing with personal information in the course of
commercial activities in Canada.
PIPEDA regulates almost all collection, use and disclosure of personal
information in the course of commercial activity. Under PIPEDA’s basic scheme,
no business may collect, use or disclose personal information without first clearly
defining its purpose and obtaining the individual’s informed consent. Moreover,
even where consent is obtained, the collection, use and disclosure is limited to
purposes that a reasonable person would consider appropriate in the
circumstances; any change in use of the information will require further consent
for that particular use. Finally, although the debate is not entirely settled, an opt-
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in clause relating to how an organization may use someone’s personal information
is preferable to an opt-out clause.
Compliance with PIPEDA could involve appropriate security measures,
destruction after an appropriate time, policies and contractual safeguards to ensure
third parties and employees who come into contact with the information maintain
the same levels of protection offered by the firm that gathered the information. In
other words, contest organizers are responsible for the information they collect,
whoever ends up using it.
Under PIPEDA, a contest entrant’s consent to the contest sponsor’s collection,
use (and even disclosure to third parties) solely for the purpose of administering
the contest (i.e., conducting the draw, contacting selected entrants and awarding
the prize) may be implied from the act of entry.
Use of the entrant’s personal information for secondary marketing or consumer
research purposes should only be by express consent of that entrant. The
appropriateness of “opt-in” vs. “opt-out” consent will turn largely on how
sensitive the personal information being collected is.
Best to provide express consent (be it “opt-in” or “opt out”) on contest entry form.
Easier for entrant to see, understand and execute as recommended by CMA. May
not be sufficient if buried in contest rules.
No Canadian equivalent of US Children’s Online Privacy Protection Act
(COPPA) but Paragraph G4 of the CMA Code of Ethics and Standards of Practice
states as follows:
G4 Contests, Games or Sweepstakes Directed to Children:
Marketers may collect personal information from children (i.e.
under 13 years) for the purposes of contests, games or sweepstakes
without obtaining the parent or guardian’s express consent only if
the marketer:
- collects a minimal amount of personal information, sufficient
only to determine the winner(s);
- deals only with the winner(s)’ parent or guardian and does not
contact the winner(s);
- does not retain the personal information following the conclusion
of the contest or sweepstakes;
- makes no use of the personal information other than to determine
the contest or sweepstakes winner(s);
- does not transfer or make available the personal information to
any other individual or organization.
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For children over thirteen, the Code divides information collected into two
categories: (a) contact information, consisting of the person’s name, address,
email, and home and cell phone numbers, and (b) personal information, consisting
of all other information which identifies the individual. The Code’s position is
summarized in the following table:
Age
Over 13, Under 16
Personal Information
Collection, use or
disclosure to third party
with express consent of
the parent or guardian
Over 16, Under Age of Collection,
use
or
Majority
disclosure to third party
with teenager’s express
consent
Contact Information
Collection and use with
teenager’s express
consent. Disclosure to
third party with express
consent of the parent or
guardian.
Collection,
use
or
disclosure to third party
with teenager’s express
consent
Is PIPEDA in the context of contest administration perhaps much ado about
nothing? Québec’s An Act Respecting the Protection of Personal Information in
the Private Sector and its impact on administering contests in Québec over the
past decade has been minimal.
The problem with tell-a-friend contest entries: Even if the friend’s consent to
use his or her personal information is subsequently obtained, the contest sponsor
collects the entrant’s friend’s home email address without that indvidual’s consent
and therefore acts contrary to PIPEDA. This practice is frowned upon by the
CMA. Prior to January 1, 2004, many contest sponsors developed databases
whereby the express consent of the friend was either obtained with the contest
sponsor’s first communication to that individual or the personal information was
deleted from the contest sponsor’s database: see example of Canadian Business
Diamond Challenge in Appendix M.
4.
Jurisdictional Juggling and Québec Issues
Scenario: Contest sponsor is running a contest to award a car
prize that is open to all Canadians. Entrants can participate only
by filling out a ballot at participating stores located in Ontario.
There is no on-line method of entry.
Questions
Is it always necessary to file with the Régie? What is required for a contest run at
a single retail outlet in Ottawa (but still open to Quebecers and in fact entered by
many Hull residents)?
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Is it always necessary to have the rules translated in French?
What are the main requirements for contests in Québec?
Discussion Points
A literal reading of the Québec’s Act respecting lotteries, publicity contests and
amusement machines (the “Act”) appears to suggest that all contests for which
Québec entrants are eligible fall within the jurisdiction of the Régie. The failure
to exclude Québec residents from the purview of the contest might accordingly
trigger the filing requirements of the Régie.
However, the administrative practice seemingly adopted by the Régie is as
follows:
•
It is necessary to file only if a Québec resident can participate in the
contest from within Québec. If a ballot (whether off-line or online) is
available to residents of Québec within Québec, then a filing must be
made. For this reason, it is necessary to register an online contest that is
open to Québecers (since they can enter from their computers at home).
However, if in order to participate the Québec resident must travel outside
Québec (ie. to fill out the ballot entry), then the contest sponsor does not
need to register.
•
The Régie does not require a French translation of the rules for a contest
that is being held exclusively online. A French translation is only required
if the contest sponsor is advertising in Québec or making entry forms
(other than an online entry form) available in Québec. Therefore, it is
possible to "register" with the Régie without filing a French translation of
the rules.
•
Notwithstanding the Régie’s view of the laws and rules regarding
publicity contests for which it is responsible to administer, the Québec
Charter of the French Language (administered by the Office de la Langue
Francaise) still requires contest rules to be translated into and available in
French.
Main Régie requirements
If the total prize pool is $100 or less or the contest is for the contest sponsor’s
employees only:
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•
No need to file with the Régie
•
No need to abide by the Régie’s rules
•
No need to insert the “Régie clause” into the contest rules.
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If the total prize pool is over $100 but under $2000.01:
•
File the Notice of Holding a Publicity Contest thirty days before contest
launch, except if the total prize pool is under $1000, then file the Notice
five days before the launch
•
Pay the duty upon filing the Notice
•
Do not file the rules or the advertisements
•
Do not send in a report after the contest is completed.
If the total prize pool is $2000.01 or more:
•
File the Notice of Holding a Publicity contest thirty days before the
contest launch
•
Pay the duty upon filing the Notice
•
File the rules ten days before the contest launch
•
File the advertisements ten days before the contest launch
•
Complete a written report with the name, address and date of awarding the
prize for each winner of a prize of $100 or more and verify whether all
prizes have been delivered within sixty days of the date the winner is
named.
Where a duty must be paid, the amount depends on how the contest is structured.
If Québec is just a part of the contest area within Canada, then the duty is 3% of
the value of the prizes. However, if prizes are allocated specifically to Québec, the
duty is 10% of the value of the prizes. Contests open to residents outside Canada
including Québec need only pay a duty of 0.5%. If the value of the prizes offered
specifically to Québec residents is over $5000, or the total value of all prizes
offered (where Québec is only part of the contest region) is $20,000 or more, a
security bond must be filed in the prescribed form. The Régie will send the bond
form if applicable, once the company has filed the Notice.
Contest rules in Québec must include the number and value of each of the prizes
and a detailed description of each. The rules must state the place, date and precise
time the prize winners will be named, and the nature of the skill testing
requirements. The following “Régie clause”, noted above, must appear verbatim
in almost all contest rules where Québec residents are eligible:
“Any litigation respecting the conduct or organization of a publicity contest may be
submitted to the Régie des alcools, des courses et des jeux for a ruling. Any litigation
respecting the awarding of a prize may be submitted to the Régie only for the purpose
of helping the parties reach a settlement.”
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Because of these additional costs and constraints on contests and promotions, as
well as the need to publish rules in French, Québec residents are often excluded
from contests.
5.
Advertising Your Contest
Scenario: Contest sponsor does not want to clutter creative in
contest ads with legalese and so is reluctant to include contest
details on packaging or other ads.
Questions
What items make up the Competition Bureau’s minimum short list contest rule
disclosure requirements for contest advertisements?
Do these disclosures vary depending on the size of the package or type of media:
e.g, print (such as point-of-sale pieces, billboards and newspapers), TV, radio,
internet? Should they?
How are these rules enforced? Is there scope for “mini” mini rules?
E.g., for a “draw” must contest sponsors really say “odds of winning depend on
number of eligible entries received or is this self-evident?
Discussion Points
The Competition Bureau requires that contest sponsors provide adequate and fair
disclosure by indicating a “short list” of rules, either through the media or on the
outside of the package.
Disclosure must be made in a reasonably conspicuous manner prior to the
potential entrant being inconvenienced in some way or committed to the
advertiser’s product or to the contest.
A contest advertised in the media should not require that a consumer visit any
particular retail outlet of the advertiser to become adequately and fairly informed
of the short list
These mini-rules should, at a minimum, include:
The number and approximate retail value of prizes
The regional allocation of prizes, if applicable
If, within the knowledge of the advertiser, the chances of winning and any
other fact that materially affects the chances of winning
The requirement to answer correctly a skill-testing question
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The date on which the contest closes
The information that no purchase is necessary to enter the contest
The place where the full contest rules are available
The mini’s should also include residency requirements, if applicable (i.e., whether
Québec residents are included or not)
Of course, if space for the mini’s on the ad or product package permit, the contest
sponsor may include items such as “How to Enter”, trade-mark notices, and
consents/promises relating to privacy protection for good reasons (business and
legal) other than compliance with the Competition Act.
6.
On-line Contests
Scenario: Contest sponsor wants to drive traffic to its website and
so wants to run a sweepstakes where entrants may only enter online.
Questions
What are the main laws and Competition Bureau policies that apply to on-line
contests?
Is a snail mail AMOE still necessary?
What are the special risks to manage?
Discussion Points
Same basic Canadian contest laws apply (whether contest on-line or offline):
namely, Criminal Code, Competition Act and Québec’s provincial law regarding
promotional contests
Operating nowadays apparently without prosecution are many on-line only
contests conducted by reputable contest sponsors. In the late 1990’s, when
Internet access was more expensive and less common, risk averse contest
sponsors would usually structure on-line contests to include an off-line AMOE,
such as entry by snail mail. While there is no case law suggesting that an on-line
only contest is not requiring the entrant to “give consideration” and so is illegal,
more and more contest sponsors are taking this business risk. On the other hand,
some cautious contest sponsors are still using a snail mail AMOE. In many cases,
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a snail mail AMOE will not lead to significant contest administration costs and
therefore provides inexpensive insurance against the contest running afoul the
Criminal Code if ever challenged.
Comply with Bureau’s February 2003 Information Bulletin on the Application of
the Competition Act to Representations on the Internet
-
Contest sponsor should not assume that contestants read and entire
Web site page just as they do not read every word on the printed page
- Required disclosures should be presented so that they are noticeable
and likely to be read
- The location, prominence, accessibility, duration and repetition of
disclaimers (in addition to attention grabbing tools) will be considered
by the Bureau when assessing whether a disclaimer is sufficient to
alter the general meaning of the principal representation
- Hyperlink to disclaimers and contest rules can be effective and are
permitted; requiring the contestant to take an “active step” such as
sending an email, is not
• Avoid jurisdictional disputes with choice of law clause: e.g., make disputes arising in
connection with your North American wide contest subject to resolution by
Ontario law
• Limit number of entries (e.g., per person, per day) because otherwise overzealous
entrants may inundate the contest (and possibly swamp the contest sponsor’s
website) with multiple entries generated with the click of a mouse. Limiting
entries does oblige the contest sponsor to establish a system to confirm who has
exceeded the limit and disqualify such persons.
• Include glitch disclaimer, for example:
Neither the Sponsor nor any other Sweepstakes Entity is responsible for
lost, incomplete, late or misdirected entries or selections, player selections
and submissions; theft, destruction or unauthorized access to, or
alteration of, entries; failures or malfunctions of phones, phone lines or
telephone systems; interrupted or unavailable network, server or other
connections; any error, omission, interruption, defect or delay in any
transmission or communication; traffic congestion on the Internet or for
any technical problem, including but not limited to any injury or damage
to the participant’s or any other person’s computer related to or resulting
from participation in this Sweepstakes; the cancellation, suspension or
pre-emption of games, injuries or other unavailability of players, scoring
tabulation or timing errors or other problems or errors of any kind
whether mechanical, human, electronic or otherwise.
• Don’t go worldwide (without at least knowing and getting professional advice to
manage the risk, which will be expensive): Should limit eligibility to important
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markets and to those jurisdictions in which the laws have been reviewed to ensure
compliance
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-
need to get local counsel
-
in the US, each state has laws which impact on contests
-
generally, the Canadian contest law skill-testing question requirement
is foreign to the law of US states
-
the following states have extensive (and not necessarily harmonized)
disclosure, registration or other requirements regulating contests:
Arizona, California, Connecticut, Florida, Illinois, Iowa, Louisiana,
Maryland, New Mexico, New York, Rhode Island, Texas, Utah,
Wisconson, Vermont
-
in Australia, there are divergent permit requirements among the States
and Territories
-
in France, rules are filed with a public official who confirms they are
proper and makes them available to interested parties
-
in Germany, there are requirements that the rules clearly disclose the
nature of the prize and its retail value
-
in the UK, there must be a genuine, clearly advertised, free AMOE
which is available to a substantial number of participants
-
CAUTION (especially if directors and management of the contest
sponsor travel the globe): in some countries, the conduct of
sweepstakes that are lawful in Canada are strictly prohibited (e.g.
Baluchistan, a state in North Western Pakistan where Taleban-style
Puritanism has recently lead officials there to crack down on
gambling)
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