Cause marketing is a type of promotional campaign a company creates with the goal of delivering upon key business objectives while simultaneously making a positive social impact. Typically developed through formal partnerships between companies and nonprofit organizations, these campaigns seek to benefit both parties through increased revenue, additional exposure/awareness and improved brand loyalty.
Whether you’ve been developing cause marketing campaigns for some time, or just looking to start, it’s important to have your legal bases covered. Attorney Karen Wu of Perlman & Perlman recently shared these legal essentials in a webinar for the EFG community.
Here is a summary of Karen’s tips on the key legal issues in cause marketing so you can set your organization up for a stellar and compliant cause marketing campaign.
10 Legal Requirements Cause Marketers Need To Know
1 Comply With The Law
There are a number of legal requirements pertaining to cause marketing that you need to be aware of, whether you’re a company or a nonprofit. These include:
- Advertising/marketing disclosures
- Charitable solicitation registration and reporting
- Contract requirements
- Federal income tax considerations
Failing to comply with these requirements can result in state enforcement actions, which, we’re guessing, you’d like to avoid.
One important step is making sure you’re on the same page as your partner – not just in terms of the contract itself, but in terms of the overall compliance requirements applicable to the campaign. What language will be used in the advertisements? What will the funds raised be used for? When will funds be transferred? Is state registration required?
2 Do Not Mislead
One of the key objectives in cause marketing regulation is to protect consumers from deceptive or misleading advertising and charitable solicitations. Cause marketing advertisements should avoid misleading customers as to the effect of their purchase on any donation being made. To avoid problems, companies should be clear and transparent about how a charity will benefit from a cause marketing campaign. Be sure that all of the following information is clearly visible to customers at the point of sale:
- Amount donated per purchase
- Minimum guarantee, if any
- Donation cap, if any
- Campaign period
- Any other required actions or restrictions
(If a flat donation is promised regardless of purchase, be clear that consumer action will not result in a donation).
3 Clearly State Donation Amount
Similar to not misleading potential customers, you need to be clear about the donation amount and how the campaign works. Vague terminology, including “profits” or “a portion of proceeds,” do not meaningfully inform consumers about the impact of their purchase on the donation amount. Make sure your campaign clearly states the specific dollar amount donated per purchase or the percentage of the purchase price that will be donated. If you’ve chosen to give a flat donation regardless of sales or use of a product or service, be clear that purchases or consumer action do not result in a donation.
Looking for more guidance? Check out the New York Attorney General’s “Five Best Practices for Transparent Cause Marketing.”
4 Meet BBB Standard 19
The Better Business Bureau (BBB) Wise Giving Alliance has established standards that help donors make informed giving decisions and promote high standards of conduct among charities that solicit contributions from the public. In order for a charity to be able to publicly state that it meets all 20 standards for charity accountability, it must meet Standard 19, which relates specifically to cause marketing. Charities need to make sure that their corporate partners’ charitable sales promotion advertisements “clearly disclose how the charity benefits from the sale of products or services… that state or imply that a charity will benefit from a consumer sale or transaction.”
Things to include:
- The actual or anticipated portion of the purchase price that will go to the charity
- The duration of the campaign
- Any maximum or minimum contribution guarantees
5 Register/File, if Required
Companies must register and file contracts and campaign reports in certain states if the company is acting as a commercial co-venturer (CCV). A commercial co-venturer is generally defined as any company “who for profit… advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.”
For example, Crocs partnered with Susan G. Komen to create a line of pink crocs. The company made a $3.00 donation to Komen for each pair sold (advertising that sales benefit the charity). Crocs is considered a CCV because it advertised that the sale of its product triggered a monetary donation to a charity.
Companies engaged in charitable sales promotions must comply with registration and/or reporting requirements in up to seven (7) states. Campaigns conducted online require a more nuanced jurisdictional analysis.
Coordinate your compliance efforts with your partner. Make sure to comply with the specific state requirements that relate to your campaign – on both the corporate and nonprofit sides of the partnership. Yes, the charity also has filing obligations!
6 Enter into a Written Agreement
Some would argue that this goes without saying, but you should always enter into a written contract for all your cause marketing campaigns. The contract should outline the goods or services offered, geographic territory of the campaign, the amount of the donation and how it is triggered, the campaign period, and require that a final accounting be provided to the charity. It may also need to include certain state-required provisions applicable to CCV agreements.
7 Avoid Unintended Endorsements
The use of a charity’s name and logo in connection with the sale of a commercial product may lead consumers to believe that the charity has endorsed the product as being superior to others in the marketplace when the charity has not, in fact, intended to endorse the product or determined the product to be superior. This issue often arises with health-related charities, but is important to be aware of regardless of your industry. Companies should avoid misrepresenting, either expressly or impliedly, that a charity has endorsed the product if it has not intended to do so.
As a separate legal consideration, payments made by a company to a charity in exchange for an endorsement are subject to unrelated business income tax (UBIT), which brings us to the next legal issue.
8 Be Aware of UBIT
If a charity actively promotes a company’s campaign in which sales of the company’s products or services will trigger a donation to the charity, the payment may be subject to unrelated business income tax (UBIT). While tax-exempt organizations are allowed to conduct a certain amount of unrelated business activities, any decision to incur UBIT should be an informed one. Unrelated business income received by the charity will be subject to the same tax rates as corporations (currently at 21 percent).
9 Do Not Wait Until the Last Minute
As you’ve probably gathered by now, there are lots of compliance steps that need to be taken care of before a campaign begins. Make sure you start early so that you can cross your t’s and dot your i’s well before the campaign begins and avoid breaking any laws.
10 Seek Advice from Good Advisors
Consult with legal counsel to make sure your campaigns are compliant across the various legal requirements. Reach out to attorney Karen Wu of Perlman & Perlman if you have questions.