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Legal tips on cause marketing promotions for mobile and other media

By Christie Grymes

Whether asking consumers to "Do the (RED) Thing" or to "adDRESS Your Heart," companies have increasingly embraced cause-related marketing to motivate consumer behavior.

Cause marketing campaigns and charitable promotions result from a partnership formed when a for-profit company aligns its merchandise with a charitable organization in support of a cause -- often advertising that a predetermined portion of sales will benefit charity.

For example, Motorola, Converse, Apple and other consumer product giants launched the (RED) Campaign to support The Global Fund to Fight AIDS, Tuberculosis and Malaria; The Campbell Soup Company contributed proceeds from sales of select items to the American Heart Association's "Go Red For Women" program; and Nintendo donated a portion of proceeds from the sale of its Pink Ribbon model product to Susan G. Komen for the Cure.

To maximize donation potential, many charities have launched mobile marketing campaigns which encourage consumers to donate via SMS text.

According to a Jan. 5 Mobile Marketer article, mobile donations directly to charities exceeded $500,000 in 2008 (see story).

The text message medium for donation allows consumers to support causes such as the Red Cross Disaster Relief Fund by texting a specified keyword to a specified short code, without having to provide credit card information.

A commercial co-venturer?
In a 2008 study conducted by Cone LLC, consumers, especially younger ones, reported the use of the Internet and new media to learn about a corporation's social causes.

For example, 11 percent of respondents age 18-24 said they use a mobile device to support or access information about a cause.

Given such success by charities and growing consumer interest, for-profit companies teaming with charities will also likely turn to mobile marketing campaigns for increased exposure.

However, regulatory scrutiny has followed closely in the wake of the upsurge in charitable promotions.
Companies that fail to comply with applicable laws risk being targeted by regulators, suffering potentially irreparable damage to their legal standing, financial stability and brand reputation.

Nike recently launched a mobile application for the iPhone called Nike Goal, which allows consumers to receive, free of charge, live scores from the Italian Serie A.

In addition, when a Nike player scores a goal, consumers will receive updates consisting of an image of that Nike player and the boot he wears.

With a successful launch of the basic application, Nike has the potential to add features that would allow the consumer to purchase the boot.

With this purchase potential comes donation potential, which would allow Nike to donate a portion of product sales purchased through the application to a charity -- perhaps one that is soccer-related.

Though cause marketing has many benefits, it may also trigger legal requirements under numerous state statutes regulating "commercial co-venturers."

The formal definition of this term may vary among states. However, it typically describes a commercial entity that advertises that some portion of product sales will benefit charity.

As state statutes have imposed a variety of contractual, registration, disclosure and recordkeeping requirements, it has become critical for companies to develop effective strategies for addressing -- and complying with -- these provisions.

Charitable organizations are also subject to numerous state requirements, even if the charity is not working with a commercial co-venturer.

In addition, many states govern "professional fundraisers" and "professional solicitors" and may define those terms in ways that could apply to some commercial co-venturers. Those requirements are beyond the scope of this article.

Contractual provisions
As a commercial co-venturer using mobile marketing channels, it is crucial to negotiate a contract with the charitable organization at the outset of the agreement that clearly defines both the terms of the relationship and the division of responsibilities.

Several states currently require a written contract. A select few further mandate that specific provisions be included and that the commercial co-venturer is required to submit to the state a copy of the contract signed by two authorized officers, directors or trustees of the charity and by the appropriate corporate officer or executive.

A standard contract should include the following provisions:

â?¢ Statement of name, address and telephone number of both the commercial entity and the charitable organization;
â?¢ Statement of the charitable purposes for which the campaign is being conducted and the geographic area where the promotion will be offered;
â?¢ Proposed dates for the campaign's beginning and end;
â?¢ Statement of any guaranteed minimum and/or maximum percentage of gross receipts to be remitted to the charity, excluding the amount that the charity must pay for fundraising costs, if any;
â?¢ Description of methodology for calculating the commercial entity's resulting contribution to the charity;
â?¢ Description of methodology and anticipated timeline for distributing the commercial entity's contribution to the charity;
â?¢ Statement that the for-profit company will provide a final accounting, on a per-unit basis, to the charity and the date on which the accounting is due;
â?¢ The charitable organization's express permission for the commercial entity to use its name or other intellectual property;
â?¢ Statement of the estimated number of units to be sold; and
â?¢ The commercial entity's express acknowledgement of its obligation to disclose in its advertising the dollar amount or percentage that will benefit charity.

Additional recommended provisions include:

â?¢ Description of the specific services, marketing materials, retailer incentives and publicity to be provided by the participating parties;
â?¢ Acknowledgement of the charitable organization's compliance with all state-mandated charitable solicitation statutes and regulations;
â?¢ Statement of any exclusive sponsorship rights that the commercial entity may require;
â?¢ Statement defining terms of use by the charitable organization of the commercial entity's name or other intellectual property; and
â?¢ Description outlining the terms under which participating parties may terminate the agreement, and the methodology for distributing fees and revenues in the event of termination.

State registrations
At least six states currently require that commercial co-venturers complete a registration process before launching a cause marketing campaign.

The laws in other states governing entities such as "professional fundraisers" might also be broad enough to require registration and impose other requirements.

Several states also require the company to file a bond.

With few exceptions, it takes an average of 30 or more days to complete the registration process, and partial registrations that would be supplemented later are not permitted.

Following registration, the commercial co-venturer must file renewals in accordance with a timeline required by the respective state.

Advertising disclosures
Commercial co-venturers are required to include mandated advertising disclosures in order to avoid misleading consumers with false or deceptive claims.

Compliance with these requirements can generally be accomplished by establishing a standard set of disclosures that appear in 10-point type in all promotion-related advertising, including:

â?¢ Name, address and phone number of charitable organization;
â?¢ Name of commercial entity;
â?¢ Fixed dollar amount or percentage of each purchase that will benefit charity;
â?¢ Description of the promotion's charitable purpose;
â?¢ Tax-deductible percentage of each purchase, if any;
â?¢ Dates during which the promotion will take place; and
â?¢ Description of any limits on the commercial entity's contribution.

Recordkeeping
Commercial co-venturers must also provide an accounting statement to the charity and file it with certain states following the promotion.

It is advisable to retain a copy of the contract and a financial statement reflecting the results of the campaign for three years.

Enforcement
When seeking to appeal to consumer emotion, no company wants to become the poster-child example of a promotion that becomes the target of enforcement proceedings.

In 1996, nineteen states settled with McNeil Consumer Products Company ("McNeil") and the Arthritis Foundation ("Foundation") in connection with allegations that they had used deceptive advertising to promote a "new" over-the-counter arthritis pain reliever.

As a condition of the settlement, McNeil agreed to pay nearly $2 million in damages to the states; to pay $250,000 to an agency of the National Institute of Health to fund arthritis research; and to refund consumers as requested.

The controversial advertisements claimed that the "doctor recommended" product was superior to comparable drugs, and that a portion of the proceeds would benefit the Arthritis Foundation.

The states alleged that participating consumers were not actually supporting the Arthritis Foundation because, pursuant to an agreement between the parties, the nonprofit would receive a guaranteed minimum $1 million annual payment from McNeil, regardless of sales.

Practical pointers
The following guidelines can help your company to develop proactive strategies for compliance with applicable state statutes and avoid making the state treasury's coffers the unintended benefactor of your cause marketing campaign.

ï?¼ Confirm that the charitable organization has met all applicable state requirements.
ï?¼ Draft the contract to be streamlined and allow flexibility to legally modify product positioning once the campaign begins.
ï?¼ Allow adequate time to complete the state registration forms as some request detailed information or require numerous signatures that may take longer to obtain.
ï?¼ Develop standardized disclosures that appear in all advertising.
ï?¼ Confirm that all material terms on point-of-purchase materials and packaging are visible to consumers before purchase.
ï?¼ Avoid representations that the company is soliciting from consumers or fundraising on behalf of the charitable organization.
ï?¼ Avoid increasing the cost of a standard product to account for selling it with a charitable benefit.
ï?¼ Create accounting and inventory systems to track running sales totals.
ï?¼ Ensure prompt delivery of the promised amount to the charitable organization.
ï?¼ Prepare charts to ensure that all requirements and deadlines for renewals and state registrations are met.

Christie Grymes is a partner in Washington-based law firm Kelley Drye & Warren's advertising law practice. Reach her at .