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Running an international prize promotion is an increasingly popular way for brands to engage
with their consumers. Given the obvious benefits of the internet, brands, influencers and their
advisers often seek to operate those promotions through third-party social media platforms,
such as Facebook, YouTube, Instagram and Twitter, or on bespoke platforms.
While there are many benefits to engaging with consumers
using an international prize promotion, the challenge for
marketers is to do so without breaking the law.
This publication outlines some of the legal issues that should
be considered when planning an international prize promotion,
in particular where it is run through social media. Although
we approach these issues mainly from the perspective of
English law, we also consider examples of the issues brands
typically face in other jurisdictions when running
an international prize promotion.
Prize Draw or Prize Competition?
Although the precise nature of the mechanism and applicable
terms may vary, prize promotions generally fall into one of
two categories:
• Prize draw – The winners are chosen at random from a
pool of qualifying entrants.
• Prize competition – The winners are selected by judges
on the basis of the exercise of some skill or merit, for
example, having submitted content (such as a photograph,
social media post or written piece) or performed a task
(typically answering questions or solving a puzzle).
Promoters sometimes operate schemes with a combination
of the two mechanics, for example, a first round based on a
skill competition, with the winners selected by chance in the
second round. As will be seen, exactly how the mechanics
of a promotion operate may be the difference between being
lawful and not.
Gambling Law
Any international prize promotion must comply with local
gambling laws. In general, UK gambling laws offer a fairly
liberal approach to an area that has traditionally been
restricted to state-operated lotteries (if permitted at all).
Jurisdictions such as certain US states and Australia, for
example, have a slightly more restrictive approach, although
“sweepstakes” (as they are called in the US) remain a popular
way of gathering consumer data and promoting a brand. The
rules in territories such as Italy and the Philippines are more
restrictive still. Certain countries prohibit the operation of
prize draws where there is a payment to enter (for example,
the Republic of Ireland and Northern Ireland), while prize
competitions are usually less problematic.
It is because of the more permissive approach of English
law, as well as the more liberal regulatory regime, that many
businesses operating international prize competitions seek
to do so on the basis of English law. In the UK, the key
legislation to be aware of is the Gambling Act 2005 (Gambling
Act), which does not regulate genuine prize competitions
and permits prize draws so long as they are free to enter. The
Gambling Act overhauled the law in light of the marketing
industry’s desire to link prize promotions to the purchase of
products and services.
Running an International Prize
Promotion Without Breaking the Law
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Prize Draws
As noted previously, the usual mechanics for a prize draw
involve a brand offering consumers the opportunity to win a
prize by entering the draw and being chosen at random from
all qualifying entrants. The Gambling Act, however, prohibits
such schemes where there is a “payment to enter”.
Traditionally, conditioning entry on the purchase of a product
counted as a payment to enter, as did premium rate phone
calls or other payments to gain the opportunity to win a
prize. If there is a payment to enter, unless it is an exempt
scheme or the brand and its advisers hold a licence from the
Gambling Commission, it will be an illegal lottery. Operation
of a lottery is a criminal offence, with the ultimate sanctions
of imprisonment and fines.
However, following the liberalisation of the law in Great Britain
more than a decade ago, the Gambling Act says that entry to
a prize draw promotion can be conditioned on the purchase
of goods or services, provided that they are not paid for “at
a price or rate which reflects the opportunity to participate in
an arrangement”, the normal cost of purchasing a product or
service required for entry into the promotion will not count
as a payment to enter. Therefore, if a promoter wishes to
increase the price of its goods or services required to be
purchased to enter a prize draw, it must be able to justify
those increases, for example, by reference to increases in
supply costs. If possible, increases in costs should be avoided
until the promotional period is over.
The Gambling Act now clarifies that payments to enter include
charges to discover if the consumer has won or to collect a
prize, and any charge that is more than the cost of a first-class
stamp or normal rate telephone call. Therefore, promotions
where premium rate calls feature as an entry requirement or
part of the process for discovering if the consumer has won
will be unlawful.
If a prize draw requires the consumer to make a payment to
enter, promoters can avoid falling foul of the law by offering
consumers an alternative free route to enter the promotion.
The conditions to a free entry route are:
• Entrants via the paying route and the free route must be
treated equally
• The consumer must have a choice about which method
they use to enter
• The free entry route must be clear; it is not a good idea to
hide the option in detailed terms and conditions; ideally,
it should be publicised in the main promotional materials
so that it is likely to come to the attention of consumers
thinking about taking part in the prize draw
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Prize Competitions
Regarding prize competitions, as noted previously, genuine
competitions are not regulated by the Gambling Act. However,
as also mentioned previously, some schemes combine
elements of the traditional prize draw with a skill-based
competition. Where an arrangement requires consumers to
pay to enter and the first stage of the process for distributing
prizes is random (even though later stages may be skill based
to select the eventual winner), the arrangement will still be
classed as an illegal lottery unless there is a genuine free
entry route, as explained previously.
To avoid classification as a lottery, a prize competition must
require the consumer to exercise skill to determine the
winners. That skill must be sufficient to prevent a “significant
proportion of persons” from either entering in the first place
or from eventually winning the prize. There is no guidance
on exactly what counts as a “significant proportion”, but it
is generally thought that 50% would usually be enough.
Therefore, where promoters pose very easy questions, they
should consider carefully whether consumers will be deterred
from entering the promotion due to the questions asked, or
whether, after entering, enough people will get the questions
wrong before the winners (or pool of potential winners) are
chosen. Best practice is to maintain data and conduct surveys
on the numbers of consumers who would and do enter a
promotion, and to monitor those numbers throughout the
operation of the promotion.
Other pitfalls where a competition scheme includes a
payment to enter include:
• Questions that are so difficult that consumers tend to
guess the answer; as this introduces a random element, it
may be classed as an illegal lottery
• Schemes where the skill element is a game, as operating a
game for a prize is also a regulated activity
• Promotions where consumers are required to guess the
outcome of a future event (for example, a football match),
as this is regulated under betting laws
CAP Code
Promotions operated in the UK must also comply with the
UK Code of Non-broadcast Advertising, Sales Promotion and
Direct Marketing (CAP Code), which applies to social media
and a brand’s websites.
At its core, the CAP Code requires that the promotion be
operated legally, decently, honestly and truthfully. Specific
rules include that promoters should avoid causing unnecessary
disappointment, conduct promotions equitably, promptly and
efficiently, and deal fairly and honourably with consumers.
Where advertising agencies or prize providers assist their brand
clients with promotions, the CAP Code’s guidance is clear that
all parties are responsible for ensuring that the promotion is
operated and the prize is delivered in accordance with the spirit
and the letter of the CAP Code. The corresponding contracts
should, therefore, be clear as to who is responsible for
ensuring that the promotion mechanics are lawful.
Other specific CAP Code requirements include making sure
that all significant conditions are made clear to consumers.
In practice, this means that the actual prizes, start date, end
date and entry conditions cannot only be placed in detailed
terms and conditions that consumers are unlikely to read.
Instead, the “call to action”, whether it is a tweet, a post on
social media or an advertisement, will need to state that key
information. The CAP Code accounts for the often limited
space available on social media (in particular on Twitter), and
the Advertising Standards Authority (ASA) (which enforces
the CAP Code) has shown some flexibility in its approach to
rulings in this area. Nonetheless, such key terms must be
made clear, and consumers should be made aware of how
to obtain any supplemental terms that apply, which must be
easily accessed throughout the promotion (for example, on
the brand’s website), and in a form retainable by entrants.
In recent years, the CAP Code has published updated
guidance on the selection, notification and announcement
of winners. Therefore, the CAP Code is prescriptive about
how promotions should be operated. For example, where
a computer process is used in the selection of winners
for a prize draw, on request, a promoter must be able to
provide the ASA with evidence verifying that the process is
random. Where a computer programme has not been used,
an independent observer must monitor the selection of
winners. Similarly, if the promotion has been structured as a
competition, an independent judge is advisable, and certainly,
the judges should be competent to judge the relevant skill.
Judges’ names should be made available on request.
It is essential that every promotion has a comprehensive
set of terms and conditions specifying the promotion
mechanism, entry requirements, winner notification and any
other promotion conditions to the level of detail required by
the CAP Code. Failure to comply with the CAP Code can
result in censure or sanctions by the ASA. If consumers are
disappointed with a promotion that they have entered, they
often make complaints directly to the ASA, and the ASA is
often willing to investigate after only one complaint. ASA
rulings are widely publicised and, therefore, a promotion
banned by the ASA will lead to negative publicity for the brand.
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Data Protection and Privacy (Including GDPR)
Prize promotions run through social media, or otherwise,
invariably require (and, in some cases, rely on) the
contribution of information from participants. Where this
information relates to an individual who can be identified,
directly or indirectly from that information, it will be
considered personal data. The collection and use of personal
data, such as a name, photo, address or email address, etc.,
is governed by the Data Protection Act 2018 (DPA) and the
General Data Protection Regulation 2016/679 (GDPR).
Under the GDPR, a lawful basis is needed before personal data
is processed. It is usual for a promoter to collect and use (or
process) an entrant’s personal data, based on their consent,
when they enter. Alternatively, the promoter might be able to
demonstrate that the lawful basis for such processing is that
it was either in the promoter’s “legitimate interests” to do so
or necessary for the performance of the contract between the
promoter and the promotion entrants (so long as the personal
data is collected with best practice in the industry).
However, the personal data that a promoter can collect
and use under the legal basis of legitimate interests is
limited to information that is strictly necessary for them
to use to run the promotion. For example, such necessary
information would include the entrant’s name, email address
and, perhaps, telephone number, which would be used to
contact a winner. Any personal data collected on this basis
and without express consent cannot be used for any other
purpose. If relying on this lawful basis, a legitimate interests
assessment is also required to ensure that the promoter’s
interests are not overridden by the interests or fundamental
rights and freedoms of the individual entrants.
If promoters wish to collect personal data for other means,
such as promotional (electronic) marketing, they must obtain
entrants’ express consent. In very general terms, for consent
to be valid, it must be a freely given, specific, informed and
unambiguous indication of an individual’s agreement. In
practice, this will mean including an unticked box requesting
consent by a clear affirmative action (such as ticking the box).
Promoters must use the personal data they collect fairly,
which means that they will need to ensure that it gives
entrants the required information about the collection and use
of that information at the point of collection, and the details
of this should be sufficiently set out in a privacy notice. In
addition, under the GDPR, individuals have a clear right to
withdraw their consent at any time.
Accordingly, careful thought needs to be given to the basis
of lawful processing and ongoing use if permission to use
material submitted as part of a promotion may later be
withdrawn, rendering published material incorporating the
user’s submission unusable. Incidentally, there is also the
risk that the requirement of excessively detailed information
as a condition to entering a prize draw (for example, a very
long survey with valuable consumer insight) may count as a
payment to enter and, therefore, render a scheme an illegal
lottery. Such requirements should, therefore, be avoided in
favour of basic data collection, which is not problematic under
the Gambling Act.
In compliance with the GDPR, the CAP Code requires that, at
or before the time of entry, promoters are required to inform
entrants of their intention to publish or make available the
full name and county of major prizewinners. Promoters must
give entrants the opportunity to object to their information
being published or made available, or to reduce the
amount of information published or made available. In such
circumstances, the promoter must, nevertheless, still provide
the information and winning entry to the ASA if challenged. In
this way, such consent is likely to meet the GDPR standard of
being truly freely given and fully informed.
To the surprise of some international organisations looking
to move data around, specific rules apply with respect to
the transfer of personal data outside of the EEA, whether
internally, to a group company or to a third party for marketing
purposes. The GDPR restricts the transfer of personal data
outside the EEA unless the rights of the individuals in respect
of their personal data are protected in another way, or one
of a limited number of derogations applies. These issues
are important aspects of the terms and conditions with
consumers and should be covered in the privacy notice, as
well as the internal and external contracts involving the data
controllers and processors involved.
Cookies play an increasingly important role in social media
campaigns, especially with targeted advertising. Specific rules
now requiring that consumers consent by a clear affirmative
action before cookies can be placed on a user’s device
may prove challenging for brands operating on social media
platforms. The UK regulator (the Information Commissioner’s
Office) has recently produced updated guidance on the use
of cookies and similar technologies, which contains helpful
information on interpreting the existing law.
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Intellectual Property and Third-party Rights
Many social media campaigns encourage consumers or
influencers to create and submit content; this is known
as user-generated content (UGC). In the context of a prize
promotion, organisers need to consider the intellectual
property (IP) rights in that UGC.
If the brand intends to use the UGC in its own marketing, it
should ensure that any IP rights in it are licensed (or, ideally,
assigned) to the brand and any necessary formalities for this
have been followed. For example, assignments of copyright
must be in writing. The best way to obtain such rights is to
provide for assignments and licences in the promotion terms
and conditions, which consumers should be required to
accept before being permitted to take part in the promotion.
Similarly, when engaging a celebrity brand ambassador or
influencer, thought needs to be given to any IP rights in
content they create that the brand may want to use and if
this is dealt with in their terms of engagement. Depending
on the mechanism for accepting the promotion terms and
conditions (and the nature of the prizes), it may be necessary
to have winning consumers sign additional documentation
to complete such formalities or cover off additional risk (for
example, if the prize is a driving experience, insurance and
such matters will need to be dealt with).
Brands should also be aware that hosting or allowing UGC
to appear on their social media space exposes them to
the risk of liability if any UGC infringes third-party IP rights,
is defamatory or is otherwise unlawful. The terms of the
prize promotion should be specific about what content can
and cannot be submitted, as well as require the entrant
to indemnify the brand for any issues caused by the
consumer’s use of problematic UGC when they take part in
the promotion. In reality, such indemnities offer little comfort,
and most brands seek to police their social media through
moderation and an effective takedown policy (i.e. content that
is complained about is immediately removed for assessment,
thus limiting exposure).
International Prize Promotions
Prize promotions run on social media are, by the very
nature of those digital platforms, accessible globally. Terms
and conditions should, therefore, specify who can enter a
promotion, and consider technologies to limit accessibility.
If entry is not restricted to UK residents, promoters need to
consider compliance with the laws and rules in other territories
to which the promotion is directed. Prize promotions in other
jurisdictions face a number of hurdles, including:
• Requirements for the terms and conditions to be available
and accessible in a local language (for example, Spain,
Germany, Switzerland, France, Italy, Brazil and the province
of Quebec in Canada)
• Significant variations in the rules governing a promotion in
one country due to the differing federal laws in each state
(for example, the US and Australia)
• Requirements to register the promotion, obtain a licence or
provide a bond/deposit (for example, Australia, Brazil, Italy,
certain US states, Hong Kong and the Philippines)
• Requirements to maintain a separate pool of national
entrants (for example, Italy)
• Requirements to pay gambling taxes on the average total
value of all prizes offered (for example, Austria)
• Restrictions on the maximum single prize value and the
maximum total value of all prizes (for example, Japan and
Brazil)
If a campaign is to be operated globally, organisers usually
choose the law of one jurisdiction to govern the entire
campaign and exclude consumers from problematic
jurisdictions from entry. English law is ideal for this type of
arrangement.
Compliance With the Social Media Platform
In recent years, there has been a significant increase in
brands and influencers using competitions and prize draws
on social media asking consumers to “Retweet to win” or
“Follow and tag to win”. Brands, influencers and their advisers
need to comply with the terms and conditions of the social
media platform on which they will operate their promotion.
Facebook, for example, used to prohibit promoters from
using the “Like” button function as the entry mechanism into
a prize draw or competition. The platform relaxed the rules,
but other restrictions apply (such as that personal timelines
cannot be used to administer promotions, i.e. one cannot
share on a timeline in order to enter). Promotions operated on
this social media platform must also contain a full release of
liability to benefit Facebook.
Each social media platform also has its own terms on the
ownership and use of any UGC that consumers upload to
the platform. It is important to ensure that plans for the use
of such material are consistent with those terms. It is rare
for the major platforms to transfer ownership of UGC from
the consumer, but the typical non-exclusive, worldwide and
perpetual licence that platforms usually hold will not sit well
with a marketing team seeking exclusive territorial use of
some material for a limited period of time.
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Consumer Law
A final point to mention is that promotion terms must be
compliant with local consumer law. Again, English law offers
a relatively business-friendly approach. Even though there is
increasing harmonisation throughout the EU, the approach
of the UK courts and regulators is, overall, less restrictive.
Key pieces of legislation in this field include those on unfair
contract terms and misleading advertising. Compliance with
the CAP Code will often help to ensure that the terms of
promotions do not fall foul of the rules. However, drafting
should always be checked with expert legal advisers to
ensure enforceability, in particular regarding key issues such
as liability and indemnities.
Operating an international prize promotion through social
media is an exciting and common marketing technique. To do
so under English law offers much more scope and flexibility
than the law in some other jurisdictions, but it is important to
consider any international elements and to comply with the
UK rules to avoid criminal liability and potentially embarrassing
media attention.
Contacts
Carlton T. Daniel
Partner, London
T +44 20 7655 1026
42348/09/21
