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Fox, NBC barred from text-to-win sweepstakes as part of settlement

Fox, NBC and other media companies will be barred from offering certain types of text-to-win sweepstakes as part of the settlement for a class action lawsuit in California.

The lawsuit stems from several years ago when the companies involved with text-to-win sweepstakes for American Idol, The Apprentice and other reality shows allegedly violated gambling and lottery laws. While a similar suit in Georgia was decided favorably for companies involved, NBC, Fox and others decided to settle the California suit.

?Text-to-win sweepstakes are becoming an increasingly popular marketing strategy with many companies, though companies may incorporate the mobile component in different ways,? said Gonzalo E. Mon, attorney with Kelley Drye & Warren LLP, Washington.

?The settlement should not impact the majority of text-to-win sweepstakes, which only include standard text messaging fees,? he said.

?The settlement obviously does impact other text-to-win sweepstakes that include premium charges, however.?

Premium charges at issue
With the sweepstakes in question, consumers could enter by sending a text message subject to a $0.99 premium charge or by filling out a free online entry form.

While it is unlawful to require consumers to pay money to enter a sweepstakes, it is generally lawful to offer a sweepstakes that has a paid method of entry as long as there is also a free method of entry, per Mr. Mon.

?The plaintiffs in the California case argued that the sweepstakes were unlawful, notwithstanding the free method of entry, because individuals didn?t get anything of value for the money they paid to enter, other than the opportunity to win prizes,? Mr. Mon said.

The defendants denied that the sweepstakes were unlawful, but agreed to settle the case.

As part of the settlement, the defendants agreed to a five-year injunction barring them from offering any sweepstakes in which people who enter by paying premium text message charges do not receive something of comparable value to the charges in addition to the entry.

The defendants also agreed to refund all premium text messages fees paid by members of the lawsuit and to pay more than $5 million in fees and costs

?The lawsuit and settlement highlight that there are still a number of risks associated with text-to-win sweepstakes,? Mr. Mon said.

For some companies, the mobile component is the primary method of entry, and they add alternate methods of entry just to comply with legal requirements and the MMA Guidelines.

Other companies may lead with other methods of entry, and simply include a mobile component to reach a broader audience or to get people to sign up for mobile alerts.

However, sweepstakes are subject to laws that are spread out across all 50 states as well as the Mobile Marketing Association Guidelines.

For example, in the Georgia case the companies were sued on the basis that the sweepstakes violated gambling laws while in the California case, the basis was an alleged violation of lottery laws.

?To reduce the risks of challenge, companies that offer text-to-win sweepstakes with premium fees should consult with their legal teams early in the planning process,? Mr. Mon said. ?At a minimum, each sweepstakes should include a free method of entry and consumers who pay premium fees should get something of value for those fees.

?Companies that offer those types of sweepstakes should work closely with their legal counsel to see if they can avoid the issues that led to this case,? he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York