Transcript isaca m 09 heberer - Law Seminars International
LAW SEMINARS INTERNATIONAL
Unique Issues and Trends in Online and Electronic Contests and Games
By William Heberer
Manatt, Phelps & Phillips LLP
The Basics
Lottery
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Lotteries are illegal under federal and all state laws
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Lottery: a promotion containing all three elements of
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Prize
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Chance
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Consideration
Lottery
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Prize
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Anything of tangible value, no matter how nominal
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Chance
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Random selection of winner
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Consideration
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Product purchase
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Any payment (except postage)
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Substantial expenditure of effort
Sweepstakes v. Contests
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Sweepstakes:
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Prize and chance are present
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Legality depends upon eliminating consideration
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Contests:
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Prize and skill are present
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Consideration may be required except in a few states provided skill is bona fide
Eliminating Consideration: “AMOE”
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Availability of a viable AMOE eliminates consideration element
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AMOE must:
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Be a free mechanism
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Have “equal dignity” with pay method of entry
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Be clearly and conspicuously disclosed
The Hypothetical
SKINNY DIP INTRODUCING SKINNY DIP: The New Low Fat Carb Candy:
Lose Weight While You Snack!
Skinny Dip Campaign
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Fully integrated marketing campaign targeted to adults
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On pack instant win game
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Daily text message sweepstakes
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Music video contest
On Pack Instant Win Game
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Five digit code inside specially marked packages of Skinny Dip
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Codes entered online or via text message to S-K-I-N-N-Y to find out if you are an instant winner
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Free game codes available online (only) - limit one game code per day
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Bonus game codes awarded for e-mail referrals
On Pack Instant Win Game
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Prizes range from $5.00 gift cards to grand prize trip to Final Four
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Online and text message entrants must accept promotional emails from marketing partners
Daily Text Message Sweepstakes
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One text message entrant randomly selected each day
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Must respond within fifteen minutes of winner notification
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Standard text messaging rates apply
Music Video Contest
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Consumers invited to submit 3-5 minute music video showing folks enjoying Skinny Dip
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5 proofs of purchase required to enter
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Entries posted online
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Public judging and cash prizes to entries with highest scores
The Issues
Internet Access Issues
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On pack game entrants must use Internet to enter codes
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Only way to find out whether you’ve won other than text messaging
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Internet is being used as sole AMOE for on pack game
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Only way to obtain free game pieces
Internet as AMOE
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Skinny Dip On Pack Game uses Internet as sole AMOE
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Only way to obtain a game piece without purchase
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Can Internet be relied on as AMOE?
Internet Access as Consideration
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Requirement that consumer have (pay for) Internet access = consideration?
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Early view: Internet access could be deemed to constitute consideration; offline AMOE required
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Today: Internet access as consideration not seen as an issue
• While no definitive ruling, fully integrated promotions are common • Lack of enforcement activity
Internet Access Issues
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Disclosure of Internet Access Requirement
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Internet access is a material condition of participation
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If Internet access is required for promotion offered offline, must disclose prior to purchase
• On packaging • In all advertising materials
Internet as AMOE
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AMOE Requirements:
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Must be a Free Mechanism
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Must Have Equal Dignity with Payment Method of Entry
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Absence of consideration satisfies the “free” requirement
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Issue is Equal Dignity
Internet as AMOE
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Equal Dignity means free entrants have same opportunity to compete on same basis as pay entrants
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AMOE universally available to all who would otherwise sign up via pay method
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Parallel deadlines
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Same odds of winning
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Free entrants not disadvantaged in any way
Internet as AMOE
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Last year NYS AG challenged similar Tylenol promotion where “free” game pieces only available online
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New York AG: AMOE must be “universally” available – Internet is widely but not universally available
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Other problems with promotion so unclear if AG would have challenged on AMOE issue alone
Internet as AMOE
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Where are we today?
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No new/recent challenges, but some risk remains, particularly in NY
• Assess risk tolerance level: i f risk averse offer second offline AMOE -
Practical risk may be lower for certain promotions:
- E.g., fully integrated promotion where Internet access is required anyway
Internet as AMOE
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Equal Dignity: Equal No. of Chances
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Skinny Dip cannot limit game pieces via AMOE to one per day
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Those who enter for free must be afforded same number of chances as those who purchase or pay
• Limit of one free game piece per day is fatal, although a common mistake made by marketers
Text Message Fees as Consideration
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Skinny Dip Daily Instant Win Sweepstakes
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Open to text message users only
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Daily winner randomly selected and notified via text message
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Winner must claim prize within 15 minutes
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No AMOE
Text Message Fees as Consideration
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Text Message/SMS charges clearly constitute consideration
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Unlike Internet access, each entry incurs a separate charge
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Third party consideration is no defense (900 # sweeps)
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Cost of text message is irrelevant-If its not a postage cost its consideration
Text Message Fees as Consideration
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Thus, text message/SMS sweepstakes require AMOE
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Internet can be the AMOE
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Internet as AMOE is lower risk here than for offline game with product purchase
• Issue is “universal availability” • Vast majority of mobile users have Internet access
Text Message Fees as Consideration
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Text messaging technology can create a challenge in structuring an AMOE with equal dignity
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AMOE players can’t be disadvantaged
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If it’s a daily game with daily prizes you must be able to enter for free every day
• Snail mail won’t work
Text Messages and Gambling Laws
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Text message sweeps with a “premium” charge may raise gambling issues
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Game-for-games sake and AMOE
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Some regulators have suggested that those who “pay” to play receive no product or service in exchange other than chance to win may be engaged in gambling – even if there is an AMOE
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Recommendation: offer a premium item to those who “pay” to play
Issue: Refer a Friend Program
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Additional instant win game pieces earned for e-mail referrals
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Key issue:
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Can Spam- Is the referral e-mail a commercial solicitation subject to requirements of Can-Spam Act?
Refer a Friend Program
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Can-Spam applies to any commercial e-mail message whether solicited or unsolicited
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Status of Refer-A-Friend e-mails was originally unclear
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Status was clarified in recent FTC Rulemaking
Refer a Friend Program
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Refer-A- Friend e-mail message WILL be considered a “commercial” message subject to Can-Spam if any inducement is provided by the seller
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A sweepstakes entry IS an inducement
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Can Spam applies whether the “refer a friend” email is sent by seller or set up as E-Card that consumer sends
Can-Spam Requirements
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Must provide Internet based opt-out mechanism-directed to seller
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Must include seller’s name and address
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Must honor opt-out within 10 days
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Must clearly disclose that it is an advertisement
Waiver of Opt-Out Rights
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Skinny Dip instant win games requires entrant to accept promotional e-mail/text messages
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Does this constitute consideration?
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Under traditional lottery law analysis answer is NO
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No purchase
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No payment
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No substantial expenditure of effort
Waiver of Opt-Out Rights
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However, entrant is giving up something of personal value a “privacy” right
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NY AG indicated that waiver of rights under DNC is consideration
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Query whether this is the emergence of a new “consideration theory -- the giving up a legally protected right?
• Proposed bill in NJ would prohibit waiver of opt-out rights as a condition of entry
Prize Issues
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Types of Prizes
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$5 Gift Cards as Prizes
• Gift Card Legislation • Post Consideration –
Final Four Trip
Types of Prizes - Gift Cards
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Gift Card Legislation
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State regulation of gift cards is steadily increasing
• Over 16 states currently regulate issuance and terms of gift cards –
Most states prohibit dormancy fees or expiration dates
Types of Prizes - Gift Cards
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Post Consideration
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Many states prohibit conditioning a prize on the purchase of a product or service
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Value of gift card awarded as prize should be high enough to permit redemption of at least some items in the store
Types of Prizes – Final Four
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NCAA and professional sports leagues aggressively enforce IP and other rights
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Refer to event generally
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Avoid prominent use of marks
Advertising of Instant Win Game
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Two disclosure issues
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Disclosure of AMOE
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Full Rules Disclosure
Advertising: Disclosure of AMOE
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General Rule: AMOE must be clearly and conspicuously disclosed
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NY AG challenged AMOE disclosure in Tylenol promotion and CVS/A&P ads
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Ads prominently highlighted purchase method of entry with “no purchase necessary” disclaimer in smaller type
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Tylenol settlement requires disclosure of AMOE with “equal prominence” if product purchase is mentioned
Advertising: Disclosure of AMOE
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NY AG: not looking to change standard; all 3 promotions had other problems:
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A&P- promotion was not registered
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CVS- website directed consumer to store for free entry-no entry forms were available in store
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Tylenol- Internet used as the AMOE
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Standard remains “clear and conspicuous” not “equal prominence”
Advertising: Disclosure of AMOE
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Where are we today?
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What constitutes clear and conspicuous will depend on the context of the ad
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More prominent the emphasis on product purchase, the more prominent the disclosure of the AMOE should be:
• It’s the net impression that counts –
NY AG sued CVS for violating AVC
• Believes free entry disclosure must be available at POS
Advertising of Full Rules
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Florida used to require, but no longer
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Material terms and conditions must be disclosed in advertising for game:
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Start and end date of promotion
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Name of promotion and sponsor
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No purchase is necessary
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Disclosure of where promotion is void
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Age/geographic eligibility restrictions
Skinny Dip Instant Win Game: Risk Management Issues
Risk Management: Patent
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Consult patent counsel
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Online game methodologies subject to increasing number of patents
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Patents on wireless technology likely to be next
Tips For Game/Contest Rules
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“Kraft Clause”
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Limit liability in the event of error to offered prizes
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Recent DL Blair/Daily News cases – if you follow the contingencies in your rules, the courts will support you
Skinny Dip Music Contest
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Consumers invited to submit music video
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Five proofs of purchase required
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Entries posted online
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Entries judged by the public
Is This a Bona Fide Skill Contest?
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Consideration is required to enter
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Status as bona fide skill contest is critical to legality
Criteria For Bona Fide Skill Contest
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Tasks entrants are being asked to perform must constitute bona fide skill
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Entrants must possess the requisite skill and have opportunity to exercise it
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Standard of skill must be known to the participants
Criteria For Bona Fide Skill Contest
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Must be objective entry criteria
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Judges must be qualified to apply the criteria
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If there is a hybrid skill/chance game, skill must dominate and control
Criteria For Bona Fide Skill Contest
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Examples of bona fide skill contests:
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Knowledge based games
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Essay or jingle contests, creative submissions
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Memory games
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Athletic ability contests
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Manual dexterity games
Criteria For Bona Fide Skill Contest
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Games not general considered to constitute bona fide skill
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Guessing Games
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Predicting the outcome of a Single event
• Distinguish from fantasy games –
Fast 50/First xxx to respond
Criteria For Bona Fide Skill Contest
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Hybrid games: review case by case
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Trivia - depends on structure of game
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Computer/video games
• Does practice improve scores?
• Are there random computer elements that impact game play?
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Card games
• What type of game, does skill dominate
Skinny Dip Music Video Contest
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Composing music video is a skill
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Issue is in structuring the judging of videos and selection of winners
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Objective judging criteria
• Need to set forth objective criteria by which entries will be judged
Skinny Dip Music Video Contest
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If Public Judging is involved
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Establish criteria that public can apply
• E.g. Audience appeal, entertaining etc.
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Limit impact of public judging on final outcome
• Remember the dominant factor test • Limit public judging results to only a percentage of the score
Skinny Dip Music Video Contest
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Scoring System
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Pick winners based on highest average rather than total score
• Rewards “best in class” rather than those who are voted on most frequently
Public Judging: Risk Management
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Limit entries to one per person to avoid ballot stuffing
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Include strong disclaimers to deter violators
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Prohibit use of robotic/automated devices
Skill Contests: State Issues
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Skill contest requiring consideration prohibited in certain states
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Application of state laws vary depending on nature of contest, consideration and media
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Entry fee vs. Product purchase
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Direct Mail vs. Mass media
Skill Contests: State Issues
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Arizona
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Gambling statute prohibits entry fees for skill contests California
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Special disclosures for puzzle contests
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Florida
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Pay to play skill contests may violate gambling laws
Skill Contests: State Issues
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Iowa
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Prohibits pay to play skill games in which sponsor benefits
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Louisiana
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Gambling statute prohibits fee-based skill contests
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Maryland
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Gambling statute arguably prohibits fee-based skill contests
Skill Contests: State Issues
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New Jersey
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Appears to apply an “any chance” standard to hybrid games
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Vermont
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Prohibits any consideration for skill contests
Issue: User Generated Content
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Set forth clear standards for entry
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Prohibit use of 3 rd party materials/likenesses
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Strong warranties of non-infringement
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Strong rights to disqualify
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Releases
LAW SEMINARS INTERNATIONAL
Unique Issues and Trends in Online and Electronic Contests and Games
By William Heberer
Manatt, Phelps & Phillips LLP