The rise of social media has helped popularize cause marketing programs where a sponsor donates to a charity each time a consumer takes a totally free action –such as “liking” the sponsor's Facebook page– without making any purchase. Such programs pose interesting legal compliance questions.
Is it a charitable sales promotion?
A traditional charitable sales promotion offers goods or services based on a representation that their purchase will benefit a charitable organization or purpose. In most states, the standard definition of a charitable sales promotion contemplates a sale as the trigger for regulating the offer. While it is theoretically possible that some states could seek to stretch their charitable sales promotion laws to cover the “like” situation, that has not been the pattern of interpretation or enforcement to date. Nor is there a strong policy reason for such interpretation or enforcement where consumers don't purchase anything, donate any money, or otherwise incur any cost whatsoever.
Is the sponsor a commercial co-venturer (“CCV”)?
In most states, the standard definition of a CCV is a commercial party who conducts a charitable sales promotion. Accordingly, the current pattern of interpretation and enforcement of the law generally would not deem the sponsor of a “like” promotion to be acting as a CCV. Exceptions theoretically could arise in Massachusetts and Illinois, which do not follow the standard definition of a CCV, but again there has been no pattern of such interpretation or enforcement of the laws where consumers don't purchase anything, donate any money, or otherwise incur any cost whatsoever to cause a sponsor to make a promised donation to a charity.
What should a sponsor and charity do when conducting a “like” program on Facebook?
1) Have a thorough and clear written contract.
Even if CCV laws don't technically apply, the parties should have a contract to set forth their duties and avoid any confusion or misunderstanding as to the sponsor's obligations and the charity's right to receive the promised donation. S
ome states also have laws requiring a written agreement anytime a company wants to use a non-profit's name in a commercial context.
2) Advertise the offer in a clear and non-misleading fashion.
This includes disclosing the exact amount, on a per-“like” basis, that will be donated to the charity, along with any limit on the donation. It also includes making sure the offer ceases to be advertised if and when any cap on the offer is reached. Corrective advertising to affirmatively announce the end of an offer might be necessary in some cases depending how the initial offer was communicated.
3) Confirm the proper status of the beneficiary.
The charity should be a tax-exempt organization in good standing with the IRS and under applicable state laws. While a reasonable argument can be made that the charity isn't required to register with any states because no “solicitation” is occurring, it is generally safer (and wiser) for a sponsor to conduct “like” programs on behalf of reputable charities that are in fact registered for fundraising purposes in the state(s) where the offer is expected to be of interest to the public. The fact of registration by the charity helps give comfort to regulators and confidence to the public that the offer and the charitable purpose of the program are genuine.
Caution for future developments.
As “like” programs (and other free-action programs) become more popular, it is reasonable to expect greater scrutiny from regulators, especially if (when?) the technique becomes abused by sponsors not adhering to best practices. Don't be surprised, therefore, if a like-program sponsor becomes attacked for failing to deliver the promised donation to the charity. Such an attack could (and should) be based on simple laws of false advertising — i.e., if the sponsor didn't deliver what it promised, then it can be held to account on that basis without need for an extra overlay of CCV laws. But if a scandal arises, don't be surprised if one or more states (or plaintiffs' lawyers) also reach out to use the CCV laws as an additional angle of attack. The best protection for the cause marketing community is to adhere to best practices and avoid giving anyone any reason to add extra legal regulation to free-action promotions, whether you 'like' it or not.