Txt2Win and Mobile Promos

Part Two of a Two-Part Article

In the July edition, the authors covered text messaging as a means of getting consumers to enter contests. This month's final installment looks at mobile promotions specific to lotteries and sweepstakes by examining lottery and gambling laws.

Sweepstakes and contests have become popular in mobile promotion. However, because sweepstakes and contests are highly regulated, a marketer using a mobile device must comply not only with mobile-messaging laws and regulations, but also with those governing sweepstakes and contests.

Indeed, text messaging as a sweepstakes-entry method has brought much consumer litigation in recent years.

Lotteries

Lotteries in the United States are exclusively government-run, where permitted, and are prohibited in many states. A lottery has three key determinative elements:

1. Prize;
2. Chance; and
3. Mandatory consideration.

In short, one cannot create a lottery as part of a legal promotion and, accordingly, sponsors must remove one of the three lottery elements from the promotion. Care also must be taken to avoid laws against gambling, generally defined as payment of consideration for a chance to win something of greater value. Consideration can come in forms other than cash wagers or product purchasing, such as short messaging-service (“SMS”) text, 900-number phone charges, service fees, or engaging in activities that require substantial time or effort. To prevent running afoul of lottery and gambling prohibitions, a promotion must be structured as a contest or a sweepstakes that meets the legal requirements of each state where eligible people enter the game. Accordingly, contests and sweepstakes should be expressly limited to U.S. residents and to states and territories where regulatory compliance is completed.

Contests

A contest awards prizes but replaces chance with the winner(s) selected according to skill or intellect, and thus may, in some (but not all) states, include consideration. An effective contest requires nothing that would be outcome-determinative be left to chance. A random drawing cannot be used to break a tie of a skill-based contest without converting the promotion into a sweepstakes or lottery. States take different approaches to chance and contests, so counsel should be consulted when a promotional contest appears to have randomness, such as when general-public voting is used to select a winner.

Sweepstakes

A sweepstakes is a game or other promotion that awards a prize to a winner (or winners) selected by chance, but which lacks consideration. Most states have generally exempted promotional-prize gaming activities that have an alternative free method of entry (“AMOE” ' also known as “flexible participation”) from prohibitions, because no reason exists to be excessively protectionist if players do not have to exchange consideration for participation. This is where the “No Purchase Necessary” condition comes from.

As the court explained in Pepsi Cola Bottling Co. of Luverne, Inc. v. Coca-Cola Bottling Co., Andalusia, 534 So. 2d 295, 297 (Ala. 1988), when a promoter expects to gain increased sales from a sweepstakes, this benefit is not consideration if consumers need not purchase to participate. But compare, Featherstone v. Independent Service Stations Assn., 10 S.W.2d 124, 125-27 (Tex. Civ. App. 1928) (inducement of patronage is consideration and AMOE is insufficient). A California court addressing the sufficiency of an AMOE to eliminate consideration found that “[t]he question of consideration is not to be determined from the standpoint of the [promoter], but from that of the [entrants].” That instance is People v. Cardas, 137 Cal. App. Supp. 788 (1933) (movie theater “bank night” drawing not a lottery due to free method of entry); but compare, State v. Danz, 140 Wash. 546 (1926) (movie theatre that held “bank night” prize drawing violated lottery law despite free method of entry).

The Cardas court specifically disapproved of the contrary decision in Danz. California courts have also noted that if an AMOE is offered, then the fact that most participants did not take advantage of it is not relevant. In Cal. Gasoline Retailers v. Regal Petroleum Corp. of Fresno, Inc., 50 Cal.2d 844 (Cal. 1958), the court concluded that entrants of a prize drawing who made a purchase “could not be said to have paid consideration for the prize tickets since they could have received them for free.”

But not all courts in all states have agreed. For instance, a Georgia court, looking at consideration from an entrant's perspective, held that if entrants paid consideration by purchasing what the promoter is selling, then the scheme is an illegal lottery. Tierce v. State, 122 Ga. App. 845 (Ga. App. 1970). It should be noted that entrants who purchased products there were eligible for a better prize than those who did not, but this was not the basis of the court's decision. Decisions from the early 1970s by Ohio and Washington courts have reached similar decisions. (See, Kroger v. Cook, 265 N.E.2d 780 (Ohio 1970); and State ex rel. Schillberg v. Safeway Stores, Inc., 450 P.2d 949 (Wash. 1969). See also, Opinion of Washington Attorney General, AGLO 1971 No. 51 (March 24, 1971), Wash AGLO 1971 51, 1971 WL 122969.) Notwithstanding some historical judicial rejection of the flexible-participation approach of an AMOE, it has become custom and practice for the industry nationwide.

AMOEs

Where an AMOE is permitted, it must be clearly disclosed, universally available and equal in dignity to entries with consideration. Because mobile-text sweepstakes may result in some participant charge (though unlimited data plans are now common), and premium-text sweepstakes result in consumer charges and generation of promoter revenue, consideration and AMOE availability as a mechanism for a promotion's legality is crucial. As opposed to traditional promotions, mobile-text sweepstakes present a unique challenge because some states have gambling or lottery statutes, attorney general (“AG”) opinions or case law prohibiting any entrant to “pay-to-play.” So, an AMOE may not make the promotion legal if the entrants who pay consideration via a text charge do not receive something of value for the payment.

In the case of a sweepstakes involving traditional products, the product purchaser has received a product and the AMOE entrant has paid nothing. It could be argued then that when the value associated with the purchase entry appears to be nothing more than a vehicle for a chance to win, a risk exists that consideration is being paid for no purpose but a chance to win and is, thus, a pure wager. (See, People v. Shira, 133 Cal. Rptr. 94 (Cal. App. 1962) (distinguishing California cases finding no consideration where an AMOE existed to promotions when a product other than the game itself was being merchandised. Court also noted that the AMOE was not available to all).)

Mobile-Sweepstakes Context

To understand this in a mobile-text sweepstakes context, look back to how some states have treated 1-900, phone-card, coupon-scheme and trading-card promotions. In these promotions, no product, or a product of minimal value, accompanied a sweepstakes entry, and some jurisdictions concluded that an AMOE, under these circumstances, did not insulate the game from lottery or gambling laws.

For instance, the Georgia AG and a federal court applying Georgia law found 1-900 sweepstakes where callers were charged a premium for the call constituted an illegal lottery despite AMOE availability, based on Georgia courts' historical rejection of flexible-participation/AMOE schemes and finding of consideration if any participant “paid consideration in part for a chance to win a prize” (1984 Op. Attorney General GA 182 (1984) (finding GA law still rejects flexible participation). See also, Kemp v. AT&T, 393 F.3d 1354 (11th Cir. 2004), upholding a $1 million punitive-damage award).

The opposite result was reached by a court looking at 1-900 sweepstakes with an AMOE under New Jersey law (Glick v. MTV Networks, 796 F. Supp. 743 (S.D.N.Y. 1992) (AMOE sufficient under NJ law to eliminate consideration in 1-900 sweepstakes because entrants could have entered by mailing a request for a toll-free number or mailing an entry card)).

The question of whether a product of any value was received by entrants who did not exercise an AMOE has been examined concerning promotions in which products were savings coupons, collector's trading cards or a minimal-value phone card (see, F.A.C.E. Trading, Inc. v. Dept. of Consumer and Industry Services, et al., 717 N.W.2d 377 (Mich. App. 2006); Sniezek v. CO Dept. of Revenue, 113 P.2d 1280 (Col. App. 2005); and Face Trading v. Carter, 821 N.E.2d 38 (Ind. App. 2005)). In the trading-card case, Alaska's AG found a company selling “informational cards” ' ones with an Arctic animal photo on the front and information about the animal on the back ' with an attached game piece for $1 was guilty of promoting illegal gambling, even though an AMOE was available, because the company had never sold the cards without the game pieces attached, had no intention of doing so and almost all purchasers discarded the “information card” after playing the game piece. The Alaska AG concluded, therefore, that unlike a limited-time retail sweepstakes, the game was the company's product rather than incidental to a real product. (Opinion of the Alaska Attorney General, No. 663-93-0004 (1992).)

The North Dakota Supreme Court affirmed, in Midwestern Enterprises v. Stenehjem, a finding against an operator of vending machines that sold a two-minute pre-paid phone card accompanied by an instant-win game piece for $1, concluding that the phone cards provided no real value to participants and thus “the element of consideration is not missing.” Similar schemes were found in other states to be illegal despite the sale of a phone card where the lure of the chance to win was the controlling inducement for the purchase.

The California AG warned that such schemes were an illegal lottery, despite an AMOE via a mail-in request for a free game piece, because the point of sale indiscriminately offered a free chance to win. A California court soon after found that telephone-card vending machines with cash prizes of $1 to $100 provided no value to participants, and so the promotion was a form of illegal gambling, and the machines that dispensed the phone cards and game pieces were illegal gambling devices.

The AGs of Alaska, Tennessee and Texas have distinguished these types of vending schemes from limited-time retail-sales sweepstakes where products would otherwise be marketed at the same retail price without any promotional giveaway. In contrast, a court looking at a phone-card promotion that found real value present, aside from a chance to win, held that no gambling-law violation should be found.

In Mississippi Gaming Commission v. Treasured Arts, the Mississippi Supreme Court found that a sales scheme in which participants paid $2 to purchase a three-minute pre-paid phone card and receive a scratch-and-win game piece was not an illegal gambling operation because, in part, the operator of the promotion itself had paid nearly $2 to purchase the same phone cards that it was selling to participants for $2 and an AMOE was offered. The fact that participants did not overpay for the phone cards to acquire a game card led the court to conclude that no illegal gambling had occurred.

Illegal Payment, or Chance to Win?

The question of whether a text-message charge in connection with a sweepstakes entry is an illegal payment for a chance to win has been presented in several lawsuits brought on behalf of television viewers who entered sweepstakes as part of a game-show promotion by sending a text message from their mobile phones and were charged a 99' premium charge. Premium text messaging as part of participatory television has been around for quite a while. Millions of American Idol fans have paid a premium charge to interact with the program, even without a prize as an inducement. The “value” supposedly stems from the entertainment and interaction they receive in connection with viewing the program. However, the addition of a sweepstakes entry as part of these activities has brought class-action lawsuits in Georgia and California under the theory that no value was received by the person who was charged a premium for the text to enter other than the chance to win.

In consolidated cases before a federal court in California ' including SMS-text sweepstakes campaigns in connection with the American Idol, Deal or No Deal, 1 vs. 100, and The Apprentice television programs ' the court denied the defendants' motion to dismiss the illegal-lottery/gambling-based claims, finding: “Defendants' offers of free alternative methods of entry do not alter the basic fact that viewers who sent text messages paid only for the privilege of entering the Games. They received nothing of equivalent economic value in return” (Couch, et al. v. Telescope Inc., et al., Case Nos. CV 07-3916, 3537, 3643 and 3647-FMC (C.D. Cal., order filed Nov. 30, 2007). This might not be the case if the person had also received a ringtone or wallpaper sold separately for at least as much as the text charge.

However, such a structure may nonetheless be deemed a ruse, as was found in some of the earlier phone-card and trading-card cases, particularly if the digital item has no history of independent sale or its fair market value cannot be shown to be equal to, or more than, the premium charged. Indeed, on Dec. 11, 2007, the well-known New York-based plaintiff's firm Milberg Weiss filed a similar class-action suit against NBC and others regarding an SMS-text game related to the TV show America's Got Talent. Glass v. NBC Universal Inc., et al., Case No. CV07-0844-JFW (C.D. Cal.) (since consolidated with the Couch cases, of which Milberg Weiss became lead counsel). In the America's Got Talent promotion, the paying mobile-text entrants received back a “factoid” about the show, for which they were also charged a fee. It remains to be seen whether the “factoid” will be deemed a legitimate product with value that, when combined with an AMOE, is sufficient to eliminate consideration. It appears that the factoid was not otherwise sold without an accompanying chance to win, potentially a fatal fact under the reasoning of several of the phone-card decisions.

Additionally, with some of these text-television promotions, the product might be the ability to vote on what will happen on the television program, especially if the same charge for such participatory television activities pre-existed the sweepstakes. However, when the free method of sweepstakes entry (e.g., the Internet) also permits such voting, as was the case with The Apprentice promotion, the text charge appears not to be the cost of the ability to engage in participatory television because voting, not just sweepstakes entry, was available online for free.

At the Ninth Circuit

The trial courts' decision in these consolidated-TV-promotions cases went up to the Ninth Circuit Court of Appeals when the defendants requested, and the trial court certified, an interlocutory appeal seeking a certification to the California Supreme Court as to if a claim had been properly stated under state law.

To the disappointment of the mobile promotions industry, the Ninth Circuit rejected that petition last month, finding that the legal standard for an appeal and certification ' a substantial ground for difference of opinion resulting from conflicting judicial opinions ' had not been shown. Couch, et al., Case Nos. 08-56357 and 08-56360 (9th Cir., Order filed July 8, 2010). The cases will now proceed in the trial court and it may be years before the legal issue can be resolved.

Issues Raised

These, and the sure-to-follow text-sweepstakes cases, given the plaintiff's ability to proceed in the consolidated TV cases, raise a number of issues, including:

• If only third-party consideration is paid to the mobile carrier ( e.g., basic text charges) and the promoter does not profit from sharing premium charges, then will an AMOE suffice to make the promotion legal?;
• If the SMS action is tied into meaningful interaction with a television show, particularly where structured to be apart from the sweepstakes game play, and an AMOE is offered for the chance to win but not for the opportunity to engage in the participatory television activity, will that take it out of the pay-to-play and game-for-game's-sake context?; and
• What types of products or benefits can be given to SMS-text participants that will be deemed of real value apart from a chance to win that's sufficient to take the scheme out of a pay-to-play situation?

Although the 1-900, and phone-card and trading-card cases can be differentiated, and the rationale for those decisions does not seem to further the same consumer-protection interest with regard to typical premium-text sweepstakes, until courts apply the law to this new technology, operating a text sweepstakes, particularly when premium charges occur, carries a risk.

Also, every state is free to interpret its lottery and gambling laws differently, so it is unlikely that national certainty will ever be possible. Risk can, however, be minimized by structuring the promotion so that participants are less likely to be seen as merely paying for a chance to win (i.e., providing a real product) and considering not permitting sweepstakes participation by residents of states that have statutes, AG opinions and case law that can be interpreted as providing support to a claim that the promotion is an illegal lottery or gambling scheme.

Conclusion

The smart phones in our pockets are rapidly replacing the personal computer and will continue to do so as technology and transmission speeds improve. This will increase the demand for mobile marketing. It is essential that marketers using mobile media work closely with regulatory counsel to properly structure and operate campaigns, and that care be taken in the selection of, and contracting with, vendors used to conduct the campaigns.

Part Two of a Two-Part Article

In the July edition, the authors covered text messaging as a means of getting consumers to enter contests. This month's final installment looks at mobile promotions specific to lotteries and sweepstakes by examining lottery and gambling laws.

Sweepstakes and contests have become popular in mobile promotion. However, because sweepstakes and contests are highly regulated, a marketer using a mobile device must comply not only with mobile-messaging laws and regulations, but also with those governing sweepstakes and contests.

Indeed, text messaging as a sweepstakes-entry method has brought much consumer litigation in recent years.

Lotteries

Lotteries in the United States are exclusively government-run, where permitted, and are prohibited in many states. A lottery has three key determinative elements:

1. Prize;
2. Chance; and
3. Mandatory consideration.

In short, one cannot create a lottery as part of a legal promotion and, accordingly, sponsors must remove one of the three lottery elements from the promotion. Care also must be taken to avoid laws against gambling, generally defined as payment of consideration for a chance to win something of greater value. Consideration can come in forms other than cash wagers or product purchasing, such as short messaging-service (“SMS”) text, 900-number phone charges, service fees, or engaging in activities that require substantial time or effort. To prevent running afoul of lottery and gambling prohibitions, a promotion must be structured as a contest or a sweepstakes that meets the legal requirements of each state where eligible people enter the game. Accordingly, contests and sweepstakes should be expressly limited to U.S. residents and to states and territories where regulatory compliance is completed.

Contests

A contest awards prizes but replaces chance with the winner(s) selected according to skill or intellect, and thus may, in some (but not all) states, include consideration. An effective contest requires nothing that would be outcome-determinative be left to chance. A random drawing cannot be used to break a tie of a skill-based contest without converting the promotion into a sweepstakes or lottery. States take different approaches to chance and contests, so counsel should be consulted when a promotional contest appears to have randomness, such as when general-public voting is used to select a winner.

Sweepstakes

A sweepstakes is a game or other promotion that awards a prize to a winner (or winners) selected by chance, but which lacks consideration. Most states have generally exempted promotional-prize gaming activities that have an alternative free method of entry (“AMOE” ' also known as “flexible participation”) from prohibitions, because no reason exists to be excessively protectionist if players do not have to exchange consideration for participation. This is where the “No Purchase Necessary” condition comes from.

As the court explained in Pepsi Cola Bottling Co. of Luverne, Inc. v. Coca-Cola Bottling Co., Andalusia , 534 So. 2d 295, 297 (Ala. 1988), when a promoter expects to gain increased sales from a sweepstakes, this benefit is not consideration if consumers need not purchase to participate. But compare , Featherstone v. Independent Service Stations Assn. , 10 S.W.2d 124, 125-27 (Tex. Civ. App. 1928) (inducement of patronage is consideration and AMOE is insufficient). A California court addressing the sufficiency of an AMOE to eliminate consideration found that “[t]he question of consideration is not to be determined from the standpoint of the [promoter], but from that of the [entrants].” That instance is People v. Cardas , 137 Cal. App. Supp. 788 (1933) (movie theater “bank night” drawing not a lottery due to free method of entry); but compare , State v. Danz , 140 Wash. 546 (1926) (movie theatre that held “bank night” prize drawing violated lottery law despite free method of entry).

The Cardas court specifically disapproved of the contrary decision in Danz. California courts have also noted that if an AMOE is offered, then the fact that most participants did not take advantage of it is not relevant. In Cal. Gasoline Retailers v. Regal Petroleum Corp. of Fresno, Inc. , 50 Cal.2d 844 (Cal. 1958), the court concluded that entrants of a prize drawing who made a purchase “could not be said to have paid consideration for the prize tickets since they could have received them for free.”

But not all courts in all states have agreed. For instance, a Georgia court, looking at consideration from an entrant's perspective, held that if entrants paid consideration by purchasing what the promoter is selling, then the scheme is an illegal lottery. Tierce v. State , 122 Ga. App. 845 (Ga. App. 1970). It should be noted that entrants who purchased products there were eligible for a better prize than those who did not, but this was not the basis of the court's decision. Decisions from the early 1970s by Ohio and Washington courts have reached similar decisions. ( See , Kroger v. Cook , 265 N.E.2d 780 (Ohio 1970); and State ex rel. Schillberg v. Safeway Stores, Inc. , 450 P.2d 949 (Wash. 1969). See also, Opinion of Washington Attorney General, AGLO 1971 No. 51 (March 24, 1971), Wash AGLO 1971 51, 1971 WL 122969.) Notwithstanding some historical judicial rejection of the flexible-participation approach of an AMOE, it has become custom and practice for the industry nationwide.

AMOEs

Where an AMOE is permitted, it must be clearly disclosed, universally available and equal in dignity to entries with consideration. Because mobile-text sweepstakes may result in some participant charge (though unlimited data plans are now common), and premium-text sweepstakes result in consumer charges and generation of promoter revenue, consideration and AMOE availability as a mechanism for a promotion's legality is crucial. As opposed to traditional promotions, mobile-text sweepstakes present a unique challenge because some states have gambling or lottery statutes, attorney general (“AG”) opinions or case law prohibiting any entrant to “pay-to-play.” So, an AMOE may not make the promotion legal if the entrants who pay consideration via a text charge do not receive something of value for the payment.

In the case of a sweepstakes involving traditional products, the product purchaser has received a product and the AMOE entrant has paid nothing. It could be argued then that when the value associated with the purchase entry appears to be nothing more than a vehicle for a chance to win, a risk exists that consideration is being paid for no purpose but a chance to win and is, thus, a pure wager. ( See , People v. Shira , 133 Cal. Rptr. 94 (Cal. App. 1962) (distinguishing California cases finding no consideration where an AMOE existed to promotions when a product other than the game itself was being merchandised. Court also noted that the AMOE was not available to all).)

Mobile-Sweepstakes Context

To understand this in a mobile-text sweepstakes context, look back to how some states have treated 1-900, phone-card, coupon-scheme and trading-card promotions. In these promotions, no product, or a product of minimal value, accompanied a sweepstakes entry, and some jurisdictions concluded that an AMOE, under these circumstances, did not insulate the game from lottery or gambling laws.

For instance, the Georgia AG and a federal court applying Georgia law found 1-900 sweepstakes where callers were charged a premium for the call constituted an illegal lottery despite AMOE availability, based on Georgia courts' historical rejection of flexible-participation/AMOE schemes and finding of consideration if any participant “paid consideration in part for a chance to win a prize” (1984 Op. Attorney General GA 182 (1984) (finding GA law still rejects flexible participation). See also, Kemp v. AT&T, 393 F.3d 1354 (11th Cir. 2004), upholding a $1 million punitive-damage award).

The opposite result was reached by a court looking at 1-900 sweepstakes with an AMOE under New Jersey law ( Glick v. MTV Networks , 796 F. Supp. 743 (S.D.N.Y. 1992) (AMOE sufficient under NJ law to eliminate consideration in 1-900 sweepstakes because entrants could have entered by mailing a request for a toll-free number or mailing an entry card)).

The question of whether a product of any value was received by entrants who did not exercise an AMOE has been examined concerning promotions in which products were savings coupons, collector's trading cards or a minimal-value phone card (see, F.A.C.E. Trading, Inc. v. Dept. of Consumer and Industry Services, et al., 717 N.W.2d 377 (Mich. App. 2006); Sniezek v. CO Dept. of Revenue , 113 P.2d 1280 (Col. App. 2005); and Face Trading v. Carter , 821 N.E.2d 38 (Ind. App. 2005)). In the trading-card case, Alaska's AG found a company selling “informational cards” ' ones with an Arctic animal photo on the front and information about the animal on the back ' with an attached game piece for $1 was guilty of promoting illegal gambling, even though an AMOE was available, because the company had never sold the cards without the game pieces attached, had no intention of doing so and almost all purchasers discarded the “information card” after playing the game piece. The Alaska AG concluded, therefore, that unlike a limited-time retail sweepstakes, the game was the company's product rather than incidental to a real product. (Opinion of the Alaska Attorney General, No. 663-93-0004 (1992).)

The North Dakota Supreme Court affirmed, in Midwestern Enterprises v. Stenehjem, a finding against an operator of vending machines that sold a two-minute pre-paid phone card accompanied by an instant-win game piece for $1, concluding that the phone cards provided no real value to participants and thus “the element of consideration is not missing.” Similar schemes were found in other states to be illegal despite the sale of a phone card where the lure of the chance to win was the controlling inducement for the purchase.

The California AG warned that such schemes were an illegal lottery, despite an AMOE via a mail-in request for a free game piece, because the point of sale indiscriminately offered a free chance to win. A California court soon after found that telephone-card vending machines with cash prizes of $1 to $100 provided no value to participants, and so the promotion was a form of illegal gambling, and the machines that dispensed the phone cards and game pieces were illegal gambling devices.

The AGs of Alaska, Tennessee and Texas have distinguished these types of vending schemes from limited-time retail-sales sweepstakes where products would otherwise be marketed at the same retail price without any promotional giveaway. In contrast, a court looking at a phone-card promotion that found real value present, aside from a chance to win, held that no gambling-law violation should be found.

In Mississippi Gaming Commission v. Treasured Arts, the Mississippi Supreme Court found that a sales scheme in which participants paid $2 to purchase a three-minute pre-paid phone card and receive a scratch-and-win game piece was not an illegal gambling operation because, in part, the operator of the promotion itself had paid nearly $2 to purchase the same phone cards that it was selling to participants for $2 and an AMOE was offered. The fact that participants did not overpay for the phone cards to acquire a game card led the court to conclude that no illegal gambling had occurred.

Illegal Payment, or Chance to Win?

The question of whether a text-message charge in connection with a sweepstakes entry is an illegal payment for a chance to win has been presented in several lawsuits brought on behalf of television viewers who entered sweepstakes as part of a game-show promotion by sending a text message from their mobile phones and were charged a 99' premium charge. Premium text messaging as part of participatory television has been around for quite a while. Millions of American Idol fans have paid a premium charge to interact with the program, even without a prize as an inducement. The “value” supposedly stems from the entertainment and interaction they receive in connection with viewing the program. However, the addition of a sweepstakes entry as part of these activities has brought class-action lawsuits in Georgia and California under the theory that no value was received by the person who was charged a premium for the text to enter other than the chance to win.

In consolidated cases before a federal court in California ' including SMS-text sweepstakes campaigns in connection with the American Idol, Deal or No Deal, 1 vs. 100, and The Apprentice television programs ' the court denied the defendants' motion to dismiss the illegal-lottery/gambling-based claims, finding: “Defendants' offers of free alternative methods of entry do not alter the basic fact that viewers who sent text messages paid only for the privilege of entering the Games. They received nothing of equivalent economic value in return” (Couch, et al. v. Telescope Inc., et al., Case Nos. CV 07-3916, 3537, 3643 and 3647-FMC (C.D. Cal., order filed Nov. 30, 2007). This might not be the case if the person had also received a ringtone or wallpaper sold separately for at least as much as the text charge.

However, such a structure may nonetheless be deemed a ruse, as was found in some of the earlier phone-card and trading-card cases, particularly if the digital item has no history of independent sale or its fair market value cannot be shown to be equal to, or more than, the premium charged. Indeed, on Dec. 11, 2007, the well-known New York-based plaintiff's firm Milberg Weiss filed a similar class-action suit against NBC and others regarding an SMS-text game related to the TV show America's Got Talent. Glass v. NBC Universal Inc., et al., Case No. CV07-0844-JFW (C.D. Cal.) (since consolidated with the Couch cases, of which Milberg Weiss became lead counsel). In the America's Got Talent promotion, the paying mobile-text entrants received back a “factoid” about the show, for which they were also charged a fee. It remains to be seen whether the “factoid” will be deemed a legitimate product with value that, when combined with an AMOE, is sufficient to eliminate consideration. It appears that the factoid was not otherwise sold without an accompanying chance to win, potentially a fatal fact under the reasoning of several of the phone-card decisions.

Additionally, with some of these text-television promotions, the product might be the ability to vote on what will happen on the television program, especially if the same charge for such participatory television activities pre-existed the sweepstakes. However, when the free method of sweepstakes entry (e.g., the Internet) also permits such voting, as was the case with The Apprentice promotion, the text charge appears not to be the cost of the ability to engage in participatory television because voting, not just sweepstakes entry, was available online for free.

At the Ninth Circuit

The trial courts' decision in these consolidated-TV-promotions cases went up to the Ninth Circuit Court of Appeals when the defendants requested, and the trial court certified, an interlocutory appeal seeking a certification to the California Supreme Court as to if a claim had been properly stated under state law.

To the disappointment of the mobile promotions industry, the Ninth Circuit rejected that petition last month, finding that the legal standard for an appeal and certification ' a substantial ground for difference of opinion resulting from conflicting judicial opinions ' had not been shown. Couch, et al., Case Nos. 08-56357 and 08-56360 (9th Cir., Order filed July 8, 2010). The cases will now proceed in the trial court and it may be years before the legal issue can be resolved.

Issues Raised

These, and the sure-to-follow text-sweepstakes cases, given the plaintiff's ability to proceed in the consolidated TV cases, raise a number of issues, including:

• If only third-party consideration is paid to the mobile carrier ( e.g., basic text charges) and the promoter does not profit from sharing premium charges, then will an AMOE suffice to make the promotion legal?;
• If the SMS action is tied into meaningful interaction with a television show, particularly where structured to be apart from the sweepstakes game play, and an AMOE is offered for the chance to win but not for the opportunity to engage in the participatory television activity, will that take it out of the pay-to-play and game-for-game's-sake context?; and
• What types of products or benefits can be given to SMS-text participants that will be deemed of real value apart from a chance to win that's sufficient to take the scheme out of a pay-to-play situation?

Although the 1-900, and phone-card and trading-card cases can be differentiated, and the rationale for those decisions does not seem to further the same consumer-protection interest with regard to typical premium-text sweepstakes, until courts apply the law to this new technology, operating a text sweepstakes, particularly when premium charges occur, carries a risk.

Also, every state is free to interpret its lottery and gambling laws differently, so it is unlikely that national certainty will ever be possible. Risk can, however, be minimized by structuring the promotion so that participants are less likely to be seen as merely paying for a chance to win (i.e., providing a real product) and considering not permitting sweepstakes participation by residents of states that have statutes, AG opinions and case law that can be interpreted as providing support to a claim that the promotion is an illegal lottery or gambling scheme.

Conclusion

The smart phones in our pockets are rapidly replacing the personal computer and will continue to do so as technology and transmission speeds improve. This will increase the demand for mobile marketing. It is essential that marketers using mobile media work closely with regulatory counsel to properly structure and operate campaigns, and that care be taken in the selection of, and contracting with, vendors used to conduct the campaigns.