Top 10 Canadian Contest (Sweepstake) Law Questions – Part II

I work on a lot of contests and receive a lot of Canadian contest (or for our U.S. friends “sweepstakes”) law questions from all over Canada and the U.S.  I thought it would be interesting to list the top ten contest questions I regularly receive, with a bit of legal information for each.  The following are the second five – six actually now that I’ve had a chance to mull this over a bit more.

What do you need to do to legally run a contest in Canada?

The basic moving parts to legally operating a contest in Canada are the following: “short rules” (basic contest rules and mandatory statutory disclosure for all “point-of-purchase” or other first point of contact marketing materials); “long rules” (i.e., full terms and conditions setting out the rules for a contest and key details – e.g., eligibility, entry requirements, prizes, odds of winning, skill-testing question, winner selection, etc.); winner release and/or guest release forms (particularly important for contests with significant prize values or where potential risk for promoters is higher, such as with trip prizes); a skill-testing question for contests involving chance; and a no-purchase required entry option in many cases (again for contests involving chance – pure skill contests can be an exception).  Given that the misleading advertising sections of the Competition Act also apply to contests in Canada, it’s generally a good idea to review creative materials for advertising law compliance as well as ensuring that good rules and forms are prepared.  As I mentioned in Part I, other laws can also apply to contests depending on the concept.  These can include intellectual property laws (e.g., where third party images, logos or trade-marks are involved, such as in relation to prizes); privacy laws (particularly where the collection of personal information is key to a promotion, a contest involves a survey, etc.); and social media sites’ terms of use (e.g., Facebook, Google Plus, Twitter, etc.).

Are there any filing requirements or fees to operate a contest in Canada?

Generally speaking, there are two sets of laws governing contests in Canada – “common law Canada” (i.e., provinces and territories excluding Quebec) and Quebec.  There are no filing requirements or filing fees in common law Canada (i.e., no filings, fees or “bonding” requirements).  If a contest will be open to residents of Quebec, there are some filing requirements and fees. These include a filing in advance of contest launch (with a set of the rules and creative copy); filing fee (which varies according to where the contest is run – i.e., Canada-wide or only in Quebec, etc.); a filing at the close of the contest (with information regarding the award of prizes); and bilingual rules (i.e., rules in English and French).

Can a contest be operated globally (i.e., outside Canada) with one set of rules?

In the world of contests, one size does not fit all.  What rules are required for a contest largely turns on where a contest will be operated in terms of country/jurisdiction (e.g., common law Canada, Quebec, the United States, other countries, etc.) and where a contest will be promoted in terms of marketing channel (e.g., print, online, social media, other media such as radio or television).  When I prepare contest rules I often begin with a set of rules for Canada (excluding Quebec), add Quebec language and comply with other requirements (if open to Quebec residents) and then have U.S. counsel review the rules if running in the U.S. (e.g., for North America wide contests).  Outside these common jurisdictions for Canada-related contests, promoters should get local counsel in the countries that will be key to a planned promotion.  In sum, one set of rules, unless reviewed for the various different jurisdictions’ requirements, will not work for a North America wide or global contest.

What’s the difference between a contest and a lottery?

This is a bit of a big question and has been the subject of a lot of writing and debate over the past century.  In short, at common law an illegal lottery was essentially a promotion that involved three things – a purchase (or other consideration or something of value provided by entrants); chance; and a prize.  These elements have, more or less, now been codified in section 206 of the Criminal Code.  While slightly difficult sledding, and with a number of uncertainties remaining in interpretation, section 206 includes several illegal lottery offences that need to be avoided by contest promoters.  These include games of pure chance where prizes are awarded (“property” in some sections); and games of pure chance or mixed skill and chance, where a purchase or other consideration (i.e., something of value) is required and prizes are awarded (“goods, wares or merchandise” in this section).  Based on the thinking that the three historic common law elements of consideration, chance and prizes are included in these Code offences (or intended to be, despite the inconsistent and rather obtuse legislative language of section 206), contest promoters often elect to remove two of the three elements – i.e., a purchase requirement / consideration (through a no-purchase required entry option) and at least some chance (through a skill-testing question requirement).  Braver promoters sometimes seek to require purchases by attempting to remove other elements in these offences, such as making a promotion one of pure skill (on the theory that most of the offences address only games of chance or mixed skill and chance) or awarding prizes that are not listed in these sections (e.g., intangible prizes such as trips, cash, etc., which may not fall into the terms “property” or “goods, wares or merchandise” used in section 206).

What’s that disclaimer looking language that I see in many Canadian contests?

I sometimes also get asked what that “disclaimer” is in contest marketing materials (i.e., the commonly used 1-2 paragraph summary of basic contest rules).  In short, those are “short rules” that are commonly included in “point-of-purchase” and other first point of consumer/entrant contact materials for several reasons.  First, section 74.06 of the Competition Act requires that certain contest details be “adequately and fairly disclosed” (number of prizes, approximate value of prizes, any regional allocation of prizes and odds of winning).  Second, the Competition Bureau, which enforces the Competition Act, has taken the position over the years in its various guidelines governing promotional contests that “adequate and fair disclosure” of the basic contest rules means that they should be made available to consumers/potential entrants before they are “inconvenienced”, such as by purchasing a product, visiting a retail outlet or otherwise committing themselves to a contest.  The Bureau’s view has in practice led to many contest promoters including a set of “short rules” in all first point of contact materials seen by consumers/potential entrants, such as in the footers of print advertising, footers of web or Facebook pages, etc.  The Bureau’s current position on what “adequate and proper disclosure” means and what it likes to see in contest “short rules” is discussed in its 2009 Promotional Contests Enforcement Guidelines.  Third, because, as mentioned, the general misleading advertising sections of the Competition Act also apply to contests, which prohibit false or misleading claims to promote a product or business interest, it is a good practice to clearly and conspicuously include the essential details of a contest in marketing materials (and make full rules available to contestants).

What happens if we get it wrong (i.e., penalties, fines, etc.)?

The potential penalties for violating the Competition Act or Criminal Code in relation to a contest (the two key pieces of Canadian legislation that govern Canadian contests) can be rather annoying and include unlimited fines (i.e., in the discretion of the court), imprisonment or “administrative monetary penalties” or “AMPs” of up to $750,000 (for individuals) or $15 million (for corporations).  While the upper end of these penalties may practically be uncommon or rare, small and medium sized companies have on occasion paid unpleasant penalties of as much as $150,000 for getting a contest wrong (not to mention the potential negative PR and time and expense of dealing with a regulator or claim).

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