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FCC Proposes to Clear Airwaves of Boring Contest Rules, But State Law Issues Remain

At its Open Meeting this morning, the FCC adopted a Notice of Proposed Rulemaking to “modernize” its station-conducted contest rule, which was originally adopted in 1976. The proposal would allow broadcasters to post the rules of a contest on any publicly accessible website. Stations would no longer have to broadcast the contest rules if they instead announce the full website address where the rules can be found each time they promote or advertise the contest on-air.

Currently, the FCC’s rule requires that broadcasters sponsoring a contest must “fully and accurately disclose the material terms of the contest” and subsequently conduct the contest substantially as announced. A note to the rule explains that “[t]he material terms should be disclosed periodically by announcements broadcast on the station conducting the contest, but need not be enumerated each time an announcement promoting the contest is broadcast. Disclosure of material terms in a reasonable number of announcements is sufficient.”

Of course what terms are “material” and what number of announcements is “reasonable” have been open to interpretation. A review of many past issues of Pillsbury’s Enforcement Monitor reveals numerous cases where a station was accused of having failed to disclose on-air a material term of a contest, or of deviating from the announced rules in conducting a contest. Even where a station’s efforts are ultimately deemed sufficient, the licensee has been put in the delicate position of defending its disclosure practices as “reasonable,” which has the effect of accusing a disappointed listener or viewer of being “unreasonable” in having not understood the disclosures made.

Adopting the rule change proposed by the FCC today would simplify a broadcaster’s defense of its actions because a written record of what was posted online will be available for the FCC to review. Accordingly, questions about whether the station aired the rules, or aired them enough times for the listener/viewer to understand all the material terms of the contest would be less important from an FCC standpoint. Instead, the listener/viewer will be expected to access the web version of the rules and benefit from the opportunity to review those rules at a more leisurely pace, no longer subjected to a fast-talker recitation of the rules on radio, or squinting at a mouseprint crawl at the bottom of a television screen. While the FCC’s willingness to accept online disclosures is certainly welcome, the question of what disclosures must be made in the first instance remains. In fact, the FCC asks in the NPRM whether its rules should dictate a set of “material” terms to be disclosed online.

In our Advertising and Sweepstakes practice, we frequently advise sponsors of contests and sweepstakes on how to conduct legal contests, including the drafting of contest rules and the sufficiency of the sponsor’s disclosure of those rules in advertisements. In addition to the FCC’s rule requiring disclosure of “material” terms, the consumer protection laws of nearly every state prohibit advertising the availability of a prize in a false or misleading manner. What terms will be “material” and essential to making a disclosure not false or misleading is a very fact-specific issue, and will vary significantly depending on the exact nature of the contest involved. As a result, regardless of whether the FCC dictates a prescribed set of “material” terms to be disclosed, the terms will still have to satisfy state disclosure requirements.

The FCC (with regard to station-conducted contests) and state Attorney Generals (with regard to all contests and sweepstakes) investigate whether contests and sweepstakes have been conducted fairly and in accordance with the advertised rules. These investigations usually arise in response to a consumer complaint that the contest was not conducted in the manner the consumer expected. Many of these investigations can be avoided by: (1) having well-drafted contest rules that anticipate common issues which often arise in administering a contest or sweepstakes, and (2) assuring that statements promoting the contest are consistent with those rules.

While, as Commissioner Pai noted, the public does not generally find contest disclosure statements to be “compelling” listening or viewing, and may well change channels to avoid them, the individual states are going to continue to require adequate public disclosure of contest rules, even if that means continued on-air disclosures. If the FCC’s on-air contest disclosure requirements do go away, stations will need to focus on how state law contest requirements affect them before deciding whether they can actually scale back their on-air disclosures.

In fact, while a violation of the FCC’s contest disclosure requirements often results in the imposition of a $4,000 fine, an improperly conducted contest can subject the sponsor, whether it be a station or an advertiser, to far more liability under consumer protection laws and state and federal gambling laws. In addition, state laws may impose record retention obligations, require registration and bonding before a contest can commence, or impose a number of other obligations. As promotional contests and sweepstakes continue to proliferate, knowing the ground rules for conducting them is critically important. If the FCC proceeds with its elimination of mandatory on-air contest disclosures for station-conducted contests, it will make broadcasters’ lives a little easier, but not by as much as some might anticipate.