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Recent Developments in Sweepstakes Enforcement
Robert A. Schwartz
Sophia S. Rahman
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The specific proposals advanced last year by the Attorneys General have been superseded to some extent by the passage of the new federal sweepstakes law that took effect on April 21.
On April 5 this year, the Attorneys General of forty-eight states and the District of Columbia announced a major multi-state settlement involving one of the nation's largest direct mail sweepstakes company. The California-based United States Sales Corporation, which sends millions of direct mail pieces annually under the business names United States Purchasing Exchange and USPE entered into an assurance of voluntary compliance under which it agreed to modify its sweepstakes marketing practices and pay $30 million in restitution to consumers without admitting to any wrongdoing. At the same time, the company settled a class-action lawsuit which had been brought in Illinois by agreeing to a separate $20 million settlement.
The settlement terms under the multi-state Attorneys General action include the following:
Making clear and conspicuous disclosures in future sweepstakes mailings that:
(1) the consumer has not yet won,
(2) buying products will not enhance the consumer's chances of winning the sweepstakes,
(3) no purchase is necessary to enter the sweepstakes and
(4) the odds of winning a prize;
placing the sweepstakes entry form in conjunction with the portion of the mailing that provides the disclosures listed above and segregating the entry form from all other mailing materials;
prohibiting any representations that:
(1) consumers received a sweepstakes offer because they are a customer or that they may receive additional sweepstakes offers if they remain a customer or
(2) the direct mail recipient has a better chance of winning a sweepstakes than other consumers;
requiring that uniform sweepstakes entry practices are adhered to, by mandating that:
(1) a single, standard method of sweepstakes entry must be offered, regardless of whether a purchase is made and
(2) a single response deadline must be offered for each sweepstakes, rather than intermediate response deadlines;
maintaining a toll-free telephone number for consumers to call if they want to be placed on a "Do Not Contact" list that eliminates their names from future mailings;
establishing a $30.4 million account funded by USPE which an independent third party will disburse as restitution to consumers who made purchases of at least $1,870 in the calendar years of 1997, 1998 or 1999; and
immediately ceasing direct mailings to any person who has made
(1) more than 25 purchases or spent over $935 in a twelve-month period or
(2) has spent more than $2500 in the last twelve months on USPE product purchases.
The settlement is the first reached since the Attorneys General began a collective effort last year to address sweepstakes deception and fraud and proposed that sweepstakes disclosures be made that would emphasize that making a purchase will not enhance one's chance of winning.
The specific proposals advanced last year by the Attorneys General have been superseded to some extent by the passage of the new federal sweepstakes law that took effect on April 21. Specifically, the new federal law requires, among other provisions, that every direct mailing which includes entry materials for a sweepstakes:
Must provide clear and conspicuous disclosure in the mailing, the rules and on the entry or order form that making a purchase will not improve an individual's chance of winning;
must include the estimated odds of winning each prize;
must not represent that individuals who do not make a purchase may not receive future sweepstakes offerings; and
must not represent that an individual is a winner of a prize unless the individual has in fact won that prize.
The USPE settlements, a pending lawsuit brought last year by the Washington state Attorney General against three major direct mail sweepstakes operators which is set for trial this September, and the passage of a federal sweepstakes law emphasize the continued concern and vigilance, on both the federal and state level, against the deceptive or fraudulent use of sweepstakes as a direct marketing tool. The unavailability of legal precedents to guide interpretations of the new federal sweepstakes law and the inevitability of enforcement actions that can be expected now that the new law has taken effect underscore the need for sweepstakes operators to proceed with caution as they develop future sweepstakes direct mail pieces.
© 2000 Davis & Gilbert LLP |
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