Potential Legal Issues Associated with Internet Promotions

Online promotions can be effective mechanisms for promoting a company’s business, product or services. With the growing popularity and viral nature of social networking, social media sites, such as Facebook, YouTube and Twitter, have become hot marketing platforms for the administration of sweepstakes and contests, in addition to promotions conducted on a company’s own website.
Internet promotions, however, are not without legal risk. They are subject to the same laws and regulations that apply to traditional media and promotions, as well as the terms and conditions of the social media site, if applicable. Companies conducting Internet promotions must be cognizant of the relevant legal issues in order to protect themselves from potential exposure to liability. This article highlights some of the more common issues.
Intellectual Property Issues
Internet promotions frequently incorporate user-generated content (“UGC”), whereby entrants submit and post a photo, video or some other form of user-generated content. These types of submissions may expose a promotion sponsor to potential liability for infringement of a third party’s intellectual property rights if, for example, an entrant’s submission displays third-party trademarks in the background, on signage or on clothing. This could subject the sponsor to a Lanham Act1 claim since utilizing a third-party’s trademark in this manner could arguably give rise to a false association between the trademark owner and promotion sponsor, by suggesting that the trademark owner: (i) is a co-sponsor of the promotion, (ii) has given permission for use of its trademark, (iii) endorses the promotion and/or (iv) is otherwise affiliated with the promotion sponsor. There could also be potential liability for trademark dilution if a third-party’s famous trademark is being used in a way that tarnishes the reputation of the trademark owner (for example, by associating the trademark with pornography or drugs).2
If the UGC contains copyrighted material, such as music, the sponsor could be exposed to copyright infringement claims3 unless the copyrighted material has been used with permission, is in the public domain or falls within the parameters of parody or fair use.4 To reduce a sponsor’s legal risks, the promotion rules should clearly disclose the precise submission requirements, as well as any type of content that is not acceptable. To afford further protection, any such requirements and limitations should be disclosed prominently at the submission point of entry. The sponsor is advised to regularly monitor the submissions and the promotion rules should reserve the sponsor’s right to take down and remove any submission that it deems, in its sole discretion, to be infringing upon another’s rights.
The sponsor should also decide how it intends to use the submission and the promotion rules should specify the rights that it seeks to acquire. For example, if the submissions will be incorporated into an advertising campaign, the sponsor may want to obtain all copyright ownership interest in the submissions (or, at minimum, to the winning submissions) or a perpetual license. If the sponsor intends use of the submission for limited purposes, such as posting on its website, it may require only a limited license for that usage. Regardless of whether a sponsor intends to own or license any submission, prior to use the sponsor should clear the intellectual property rights that have been incorporated within the UGC to mitigate against potential exposure to infringement claims.
Publicity Rights
The right of publicity is a state-based right and prohibits the use of another person’s name or likeness for a commercial purpose without their permission.Virtually every state currently recognizes the right of publicity, either by statute or common law.5 If a video or photo contest submission depicts individuals other than the entrant, the sponsor could be subject to claims for violation of those individuals’ right of publicity by posting the photo or video on the sponsor’s commercial website without their permission. If the photo or video is posted only on the sponsor’s “fan page” of a social media site, an argument may be available that it is not being used for a commercial purpose, depending upon the nature and use of the sponsor’s social media page. Conversely, the sponsor may have liability if the video or photo is used by the sponsor in an advertising campaign, on television or in a print ad, unless it has obtained the consent and a release from all parties whose likeness appears in the submission. Either way, a defense may be available to the sponsor if the use (in whichever form and manner) is fleeting and insignificant, as some courts have held that an incidental use of one’s picture does not amount to a right of publicity violation.6 If the posted photo or video includes the likeness of a person that is merely one of many photos or videos posted on the site, and it is not used as an endorsement of the sponsor’s product or services, then it could be argued that the use is simply incidental to shield the sponsor from liability.7
Public Voting
If public voting will be used to determine an online contest winner, the extent to which public voting will be used must be carefully considered in structuring the contest. To qualify as a “contest” the winner must be determined on the basis of bona fide skill. The contest rules must clearly disclose the specific judging criteria and the weight given to each criterion. The judging criteria must be objective and the judges must be qualified. If public voting is the sole or predominant factor in determining the contest winner, the qualifications of the public as “judges” and their objectivity could raise an issue. If deemed no more than a popularity contest or favoritism, it could be argued that the winner is selected by chance, not skill. This raises two potential legal issues for a promotion that was intended to be a contest, but may now be deemed a sweepstakes (whereby the winner is randomly determined on a chance basis).
First, it could impact the promotion’s legality if consideration or a purchase was required to enter the contest. In most states, it is permissible to require consideration or a purchase for entry into a bona fide skill contest. However, it is unlawful to require consideration or a purchase to enter a sweepstakes. In all fifty states and by federal law, a promotion that requires consideration or a purchase to enter for a chance to win a prize is an illegal lottery.8
Second, if the promotion is open to Florida and/or New York residents and the prize value exceeds $5,000, then the promotion must be registered and bonded in those states if it is deemed a game of chance, not skill.9 In both New York and Florida, the failure to register and bond a game of chance with a prize value exceeding $5,000 is a misdemeanor and the sponsor faces civil penalties, as well as a possible injunction against the continuation of the promotion.10
To mitigate against the legal risks associated with public voting, the promotion rules can limit votes to one per person, clearly explain the judging criteria for public judging and have the selection by public vote count as only a percentage of the criteria by which a winner will be ultimately selected, with the controlling decisions made by qualified, professional judges.
Other Potential Legal Claims
Internet promotions can lead to potential libel or defamation claims against the sponsor if UGC submissions are posted online and contain comments or information that may harm the reputation of a competitor or individual. In addition, a sponsor should beware of the potential for false advertising or unfair competition claims against it in contests that encourage entrants to compare a sponsor’s product to a competitor’s product. For example, in 2006, Subway Restaurants filed a false advertising action against Quiznos Restaurants relating to an online contest that invited consumers to submit videos comparing Quiznos and Subway sandwiches.11 Arguably, the federal Com­munications Decency Act (“CDA”)12 may provide the promotion sponsor with protection under its broad immunity for “users” of an interactive computer service that publish the statements of a third party. CDA immunity applies when someone is attempting to make a re-publisher liable as if it were the speaker of the defamatory statement. To qualify for immunity, the sponsor cannot be the speaker of the defamatory statement and should make clear who made the statement if it is not already otherwise clear. In addition, the availability of CDA immunity may depend upon the degree to which the sponsor participated or encouraged the defamatory content and whether or not the sponsor edited or created its own content from the promotion entrant’s submission.13
At a minimum, to reduce legal risk, the promotion rules should reserve the sponsor’s right to take down and remove any submissions that it deems, in its sole discretion, to be defamatory or libelous, lewd, obscene, sexually explicit, pornographic, disparaging, or otherwise containing inappropriate content or objectionable material.
Social Media Sites 
Terms of Use In addition to compliance with applicable laws, promotion sponsors must also comply with the applicable social media site’s terms and conditions. Both YouTube’s Contest Platform Terms and Conditions of Use (“YouTube’s Terms”)14 and Facebook’s Promotions Guidelines (“Facebook’s Guide­lines”)15 prohibit the requirement of a payment, purchase or consideration to participate in the promotion. Other key terms and conditions shared by YouTube’s Terms and Facebook’s Guidelines include that: (i) the promotion may not be open to minors; (ii) the promotion must have official rules posted on the entry page or otherwise disclosed to entrants; (iii) the promotion sponsor has sole liability to entrants and third parties with respect to content and other materials in connection with the promotion; (iv) notice must be posted on the website disclaiming the social media site’s responsibility or liability regarding the conduct or administration of the promotion; and (v) there is an indemnification provision in favor of the social media site for any claims relating to the promotion.
Noncompliance with YouTube’s Terms or Facebook’s Guidelines puts the promotion sponsor at risk for the social media site’s removal of any materials relating to the promotion or the entire promotion itself, in addition to triggering the indemnification provisions if a claim is brought against YouTube or Facebook relating to the promotion. While Twitter does not have any specific rules governing online promotions, it does provide guidelines for contests on Twitter16 and rules governing content boundaries and the use of Twitter.17 Twitter promotions, however, are not without their own legal risks. If substantial effort is required by an entrant as a condition to entry, such as multiple “retweets,” there is potential risk of turning an otherwise lawful sweepstakes into an illegal lottery. Given the viral nature of Twitter and its international reach, the eligibility requirements for a Twitter promotion should be carefully considered, as well as any conditions to entry. If open to international residents, the promotion and its rules should be reviewed by appropriate legal counsel to avoid possible noncompliance with any applicable foreign laws.
This article highlights only some of the potential legal issues that may be associated with Internet promotions. While offering a company many benefits and opportunities for viral marketing and real-time interaction with users, a company is well-advised to consult counsel to ensure that its Internet promotion is compliant with applicable laws. Failure to do so could result in legal liability, removal of the sponsor’s promotion from a social media site and otherwise defeat a promotion’s purpose with adverse publicity.
Terese L. Arenth is a partner with Moritt Hock & Hamroff LLP, co-chairing its promotions and marketing law practice group.
1. 15 U.S.C. § 1125.
2. 15 U.S.C. § 1125(c).
3. 15 U.S.C. § 501 et seq.
4. 15 U.S.C. § 107.
5. Currently, 19 states, including New York (see N.Y. Civ. Rights Law § 50), recognize a right of publicity by statute. Another 28 states recognize it via common law. .
6. See e.g. Almeida v. Amazon.com, Inc., 456 F.3d 1316 (11th Cir. 2006).
7. See e.g. N.Y. Civ. Rights Law § 50.
8. See e.g. N.Y. Penal Law § 225.00(10).
9. See N.Y. Gen. Bus. Law § 369-e; Fl. Stat. § 849.094.
10. Id.
11. See Doctor’s Associates, Inc. v. QIP Holder LLC, No. 3:06-cv-1710 (D. Conn. Feb. 19, 2010)(denying Quiznos’ summary judgment motion). The parties subsequently settled.
12. 47 U.S.C § 230.
13. See Fair Housing Council v. Roommates.com, LLC, 521 F.3d 1157 (9th Cir. 2008).
14. http://www.youtube.com/t/contest_platform_ rules.
15.http://www.facebook.com/promotions_ guidelines.php.
16. http://support.twitter.com/articles/68877- guidelines-for-contests-on-twitter.
17. http://support.twitter.com/articles/18311-the- twitter-rules.