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September 16th, 2011
Television Networks Agree to Stop Premium Text Message Sweepstakes
After four years of litigation, NBC Universal, Fox Broadcasting Company and several major production companies have agreed to settle a class action lawsuit involving premium text message promotions run during the popular competitive reality shows 'American Idol' and 'Deal or No Deal.' The promotions prompted viewers to answer a trivia question or choose a winning briefcase via text message or online for the chance to win a prize. The plaintiffs, who entered via text message, argued that the promotions constituted illegal lotteries under California law because they paid a premium SMS fee and received nothing of comparable value in return aside from the chance to win a prize.
The settlement, which is pending court approval, requires the media companies to pay close to $5 million in legal fees and to refund the 49 cent or 99 cent premium SMS fee paid by the plaintiffs. The settlement also includes a surprising five-year agreement barring defendants from running similar contests or sweepstakes with premium SMS charges where those who text to enter do not receive something of value other than the entry.
Under the California law, which is similar to many state anti-lottery laws, a contest or sweepstakes becomes an illegal lottery when it has three elements: (1) a prize (2) chance, and (3) valuable consideration by participants, usually in the form of money. Plaintiffs argued that the premium SMS charge constituted valuable consideration, despite the fact that the media companies offered an alternate, free method of entry to participate through a designated Web site.
Defendants' motion to dismiss the case was denied by the District Court for the Central District of California, a decision that was later upheld by the Ninth Circuit.
The decision and subsequent settlement illustrate the potential risks involved in "pay to play" text message promotions and other sweepstakes where nothing of value (in addition to the entry itself) is provided to entrants in return for their payment. Notably, this risk can remain even where an alternate, free method of entry is provided.
Read California code on lottery - CAL. PEN. CODE § 319 : California Code - Section 319.
If you have any questions about this case or sweepstakes and contest issues, please contact Terri J. Seligman at (212) 826 5580, tseligman@fkks.com, Candice Kersh at (212) 826 5562, ckersh@fkks.com, Claudine Wilson at (212) 705 4842, cwilson@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group.
Other Advertising Law Alerts
What the Advertising Industry Can Learn from Kim Kardashian’s Settlement with the SEC
On October 3, 2022, the Securities and Exchange Commission (SEC) announced that it entered into a $1.26 million settlement with Kim Kardashian over her social media promotion of the EMAX token without disclosing payment she received from token issuer, EthereumMax. The matter provides important lessons for advertisers. Read more.
October 10 2022
Get Ready for California’s New “Automatic Renewal” Rules
California recently amended its Automatic Purchase Renewals law. The amended statute - effective July 1st -- require marketers to provide consumers of automatic renewal or continuous service offers with more information and easier ways to terminate. Read more.
June 22 2018
“Made in the U.S.A.” Claims Continue to be Scrutinized
In 2016, California amended Section 17533.7 of the California Business and Professions Code ("Section 17533"), liberalizing the standard for selling products labeled "Made in U.S.A" to California consumers. Read more.
June 4 2018
