FCC Makes Online Contest Expensive
One of the curiosities of communications law is that while there are thousands of applicable rules and statutory provisions, there are a handful that the FCC likes to enforce with particular gusto. One of these is the rule regarding how on-air contests must be conducted. Over the years, many broadcasters have found this to be a “strict liability” rule, with any problem that occurs in an on-air contest being laid at the feet of the broadcaster along with the standard $4,000 fine. As a result, despite the myriad state laws governing the conduct of contests, broadcast contests tend to be some of the more carefully conducted contests out there.
The rule itself, Section 73.1216, is one of the most concise of the FCC’s rules, being only two sentences long: “A licensee that broadcasts or advertises information about a contest it conducts shall fully and accurately disclose the material terms of the contest, and shall conduct the contest substantially as announced or advertised. No contest description shall be false, misleading or deceptive with respect to any material term.” Significantly longer than the rule itself, however, are the three footnotes to the rule, which provide details about what must be disclosed and how. The key requirements are that the “material terms” of the contest be disclosed on-air through “a reasonable number of announcements”. The typical basis for a $4,000 contest fine is that the station either fails to adequately disclose the material terms of the contest, or fails to comply with those terms in running the contest (for example, failing to award the stated prize).
What has changed since the current rule was adopted in 1976, however, is that stations increasingly have a station website with much content that is independent of their broadcast content, including online contests. While a station and its website will obviously cross-promote each other, neither is a substitute for the other, and each is a separate channel of communication with the public. As a general rule, the FCC has no jurisdiction over websites, and has not attempted to regulate contests that are not conducted on-air. While online contests are subject to numerous state and federal law requirements, they are not normally the subject of FCC proceedings.
Yesterday, however, the FCC released a decision proposing to fine a number of Clear Channel radio stations $22,000 for contest rule violations relating to a car contest conducted on the stations’ websites. Both the size of the fine and the fact that it does not relate to a true on-air contest make it a noteworthy decision. In the contest, listeners were invited to submit video commercials for Chevrolet (keep in mind the stations fined were radio stations), with the contestant submitting the best commercial winning a car. The FCC received a complaint from a listener who argued that the stations involved in the contest failed to disclose the material terms of the contest on-air, failed to conduct the contest in accordance with the stated rules, and improperly awarded the prize to a friend of an employee.
While the FCC declined to find that the contest was “fixed” merely because the winner was a friend of a station employee, it did find that the stations failed to disclose the material terms of the contest on-air, and that the stations failed to conduct the contest in accordance with the rules in any event, principally because the rules were internally inconsistent. One provision in the rules stated that entries would be accepted through March 21, 2008, but another provision stated that judges would select a winner on March 10, 2008, before the stated deadline for entries had passed.
In its defense, Clear Channel argued that the FCC’s rule doesn’t apply, since the contest was conducted on the stations’ websites, and was not a broadcast contest. In addition, it noted that the contest rules were posted on the station websites where the contest was being conducted. The FCC rejected this argument, stating that the stations had promoted the contest on-air, and that this cross-promotion made the contest a broadcast contest subject to the FCC’s rule. Interestingly, it does not appear from the FCC’s order that Clear Channel made the arguments that: (1) stations promote advertisers’ contests all of the time and the mere fact that a contest is promoted on-air does not extend the FCC’s jurisdiction to the conduct of those contests, and (2) there isn’t any reason from a First Amendment standpoint for requiring a different level of disclosure from a broadcaster than any other party choosing to promote its online contest on-air.
Having concluded that its contest rule applied, the FCC found that the stations violated that rule when they failed to air announcements disclosing the material terms of the contest rules, and that they also violated the rule by failing to accurately state the deadline for entries, creating confusion among listeners. Noting that the contest was promoted on multiple stations, that Clear Channel has previously been found in violation of the contest rule on multiple occasions, and that Clear Channel has “substantial revenues”, the FCC increased the base fine of $4000 to $22,000, an unusually high amount for a contest rule violation.
So what should broadcasters take away from this decision? First, that any on-air promotion of a contest makes it a “broadcast contest” unless the contest is conducted by a third party. In this regard, stations will want to be careful about co-sponsoring an advertiser’s contest, since an advertised contest that otherwise fully complies with all state and federal laws can suddenly cause a problem if the FCC concludes that it is a licensee-conducted contest.
Second, and this part is nothing new, stations and others conducting contests need to make sure that the contest rules are carefully written, consistent with law, and not confusing to potential contestants. Surprising as it is, major companies holding national contests frequently fail to accomplish this successfully, and the lawyers in our Contests & Sweepstakes practice are regularly called upon to draft or revise contest rules to avoid this problem. Given yesterday’s FCC decision, broadcasters have one more reason than everyone else to make sure that their contests, online or otherwise, are carefully conducted to comply with the law.