Advertising and Marketing Standards
As a general rule, claims in advertisements must be truthful and not misleading, express and implied claims must be substantiated before they are made, and qualifying information must be presented whenever a disclosure is required to avoid misleading consumers.
State authorities, other federal agencies, and self-regulatory bodies, may also be involved in advertising regulation and enforcement. For example, all 50 states and the District of Columbia have enacted legislation prohibiting unfair or deceptive acts or practices (UDAP) in trade or commerce. Most of the UDAP laws are general and cover any kind of practice deemed “unfair” or “deceptive” in the state. In addition, advertising practices associated with food and drug labelings are heavily regulated by the U.S. Food and Drug Administration (FDA), while advertising for alcoholic beverages are primarily regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB). The National Advertising Division (NAD) of the BBB National Programs also monitors and evaluates truth and accuracy in national advertising.
The general principles of advertising law apply to both traditional forms of advertising, as well as to advertisements online, in social media, and on mobile platforms.
All objectively provable claims — both express and implied — must be substantiated with competent and reliable evidence. Competent and reliable evidence generally consists of tests, analyses, research, studies, or other evidence that: (a) is based on the experience of professionals in the relevant area; (b) has been conducted and evaluated in an objective manner by persons qualified to do so; and (c) uses procedures generally accepted in the profession to yield accurate and reliable results. The degree and type of substantiation may vary, however, depending on the type of claim, subject area, and target audience. All substantiation must be gathered prior to making a claim.
The only instance in which a claim does not require substantiation is when that claim constitutes “puffery.” The term “puffery” generally refers to (a) statements that are so subjective that they cannot be measured or otherwise proven to be true or false or (b) representations that are so exaggerated that no one is likely to believe them.
When substantiating claims, consider the following tips:
- Start by determining the type of claim being made. An advertiser must be able to support all objective claims that a reasonable consumer might take away from an advertisement, whether those claims are express or implied.
- Determine what is needed to support the claim. If a claim specifies the type of substantiation relied upon — for example, “a clinical study showed…” — then that level of substantiation is required. If a claim does not specify the type of substantiation, then an advertiser must have a “reasonable basis” for making the claim. Note that health and safety claims generally require a higher level of substantiation than other types of claims.
- The amount and type of evidence required to establish a reasonable basis for making a claim depends on a number of factors, including, most importantly, what experts in the relevant field believe is reasonable. Other factors to consider include (a) the type of product involved, (b) the type of claim made, and (c) the ease of developing substantiation for the claim.
- Tests or research should be tailored to support the specific claim. Moreover, test results should be statistically significant at the 95% confidence level. The typical consumer should reasonably be expected to achieve the touted results, under normal conditions.
Each claim, whether express or implied, must be supported by a reasonable basis.
- Adequate substantiation depends on the type of claim being made.
- Subjective claims are generally far less of a concern than objective claims in terms of substantiation.
Companies often want to claim that their products or services are better than the products or services offered by a competitor. Comparative claims tend to be highly scrutinized by competitors and subject to challenge.
Claims comparing a product’s attributes, performance, or consumer preferences should generally: (a) be substantiated with appropriate research, tests, studies, or other relevant evidence; (b) be appropriately tailored to the substantiation; (c) be based on the current version or features of the products being compared; (d) compare the advertiser’s product to the most similar of the competitor’s products; and (e) be supported by head-to-head testing. All comparisons must be truthful, balanced, accurate, and free of misleading omissions.
Here are some helpful points to consider if your company is making a comparative claim:
- Naming or referring to competitors is acceptable as long as the advertisement does not falsely or unfairly attack a competing product or service.
- Comparisons must be based on specific differences between the products and compare similar features. An advertisement should clearly reveal the basis of comparison.
- If material differences exist between the products being compared, these differences must be clearly disclosed.
- A comparative claim may not distort or exaggerate differences between products or otherwise create a false, deceptive, or misleading impression. Any advertised differences in performance or results should be meaningful to consumers.
- If a claim does not specify the products being compared, the advertiser should generally possess support for the claim with respect to 85% of the applicable market category for that particular product, based on unit share.
- A comparative claim that was accurate when it was first made may become inaccurate if the competitor changes it formulation or other product attributes. When that happens, a company will no longer be able to make that claim. For that reason, companies should exercise caution when making comparative claims on things like product packages that may be difficult to change.
- Comparisons must be accurate.
- Disclose the basis for comparisons to other products or prices.
- Reference price claims, such as “dollars off” offers, must be based on prices at which products or services have been offered and sold.
Marketers often use the words “sweepstakes” and “contest” interchangeably, but the words refer to different things that can be subject to different legal requirements. In general, a sweepstakes is a promotion in which prizes are awarded based on chance, and a contest is a promotion in which prizes are awarded based on skill.
Promotions are subject to laws across all 50 states. The most important principle under these laws is that companies cannot require people to make a purchase or payment in a promotion in which winners are selected on the basis of chance. There are two common ways to deal with this prohibition: (1) don’t require a payment; or (2) don’t involve chance.
In most cases, a company can have a method of entry that involves a purchase, as long as it also provides a free method of entry. For example, some companies will allow people to enter for free by submitting a request through the mail. It is important to ensure that both methods are treated equally, and that the free option is clearly and conspicuously disclosed.
Companies may have more flexibility to require a purchase in a skill contest, but it is not always easy. States define skill differently, so a promotion that qualifies as skill-based in one state may not qualify as skill-based in another. Moreover, some states may prohibit purchase requirements, even in skill contests.
Most states require companies to make certain disclosures about their promotions, and these disclosures are often grouped together in “Official Rules.” In addition, some states — such as Florida, New York, and Rhode Island — may require companies to register, and even post a bond, before they can launch certain promotions.
Following are some key requirements to consider when planning a sweepstakes or a contest:
- If you run a sweepstakes, make sure that people are not required to make a purchase. If one method of entry does involve a purchase, you should also have another free method of entry. The alternate method should be clearly and conspicuously disclosed.
- If you run a contest, make sure that you have clear and objective criteria against which all entries will be judged. You should generally attempt to ensure that chance does not play a role in the selection of winners.
- Consider whether you need to register or post a bond in any state before launch.
- Ensure that your Official Rules include the disclosures required by the relevant states, as well as provisions designed to protect your company, in case things go wrong. Advertisements should generally include an abbreviated version of the rules that direct people to the full version for complete details.
- Remember that if you run your promotion on a third-party platform, such as Facebook or Twitter, those platforms may have their own requirements.
- A promotion may also trigger related laws. For example, any online contest or sweepstakes directed at children under the age of 13 must comply with the Children’s Online Privacy Protection Act (COPPA). COPPA imposes requirements and restrictions regarding the collection or maintenance of a child’s personal information for the operator of a website directed to children.
- Ensure any contest, sweepstakes, or promotion complies with all applicable state laws.
- Disclose all material terms and conditions of the promotion.
- Determine whether the promotion triggers any related laws, such as COPPA.
Companies often offer warranties and guarantees to entice consumers to purchase products. These offers often come in the form of an opportunity to receive repair service or a refund if a product does not live up to expectations.
A company must clearly and conspicuously disclose all material conditions or limitations upon which a warranty or guarantee is dependent. These disclosures must be made prior to the sale, so that consumers receive the full details and can factor them into their decision of whether or not to make a purchase.
Here are some helpful points to consider if your company is considering any warranties or guarantees:
- If an advertisement mentions a warranty, the advertisement should state where consumers can read the entire warranty before purchase.
- A service contract should be clearly distinguished from the manufacturer’s warranty. If a service contract does not become effective until after the manufacturer’s warranty expires, that must be clearly and conspicuously disclosed.
- Absent any qualification, “Satisfaction Guarantee,” “Money Back Guarantee,” or similar representations will be construed as a guarantee that the full amount paid by the purchaser will be refunded without question.
- Any material conditions, such as exclusions from the refund amount or a requirement that a consumer return the product within a specific time, must be disclosed prominently.
- Warranties should not be conditioned on the consumer’s use of any article or service which is identified by brand name unless it is provided for free, however, warranty coverage may be excluded for defects or damage caused by unauthorized parts or service. There has been an uptick in enforcement against manufacturers that impose repair restrictions. For example, the FTC has recently scrutinized companies’ terms that voided warranties if customers used anyone other than the companies and their authorized dealers to get parts or repairs for their products.
- If “Lifetime Guarantee, “for life,” or similar terms are used in advertising to indicate the duration of a guarantee, and they relate to any life other than that of the purchaser or original user, the “life” referred to must be clearly explained.
- Advertisements discussing warranties must state where the entire warranty can be seen before purchase.
- All material conditions to a warranty, guarantee, or rebate must be prominently disclosed prior to purchase.
Companies often offer sales or make other temporary price reductions to induce purchases. Keep in mind that there are specific laws and regulations that apply when advertising products or services as “on Sale,” “Free,” “New,” or using similar language.
When making these types of claims, advertisers should consider the following general guidelines to ensure that consumers are not misled:
- Price comparisons - including comparisons to a company’s former price - are regulated by detailed state and federal laws, and should be reviewed by counsel. There must be factual proof for any price comparisons made in an advertisement. All price comparisons must be current.
- An advertisement that makes a price reduction or savings claim for a specific item must base the claim on either: (a) the advertiser’s own usual or customary price for the item in the regular course of business; (b) the usual and customary retail price of the specific item sold by other merchants in the area; or (c) the current selling price of comparable merchandise sold in the area by the advertiser or by other merchants. The claim may not be based on an artificial mark-up above the usual retail price of the item.
- The word “new” can be used to describe a product, service, feature, or offer that is new or different in some significant way. Use of the claim should generally be limited to a period of about six months after the product, service, or feature has achieved substantial distribution.
- When making a “free” offer, extra care must be taken to ensure that the offer clearly discloses all conditions for obtaining the “free” product or service (e.g., “free” with the purchase of another product or service).
- When “free” merchandise or service is offered with the purchase of another product, the advertiser’s usual price for the purchased merchandise may not be increased to recoup the loss on the free product.
- “Free” offers in connection with the introduction of a new product/service should be limited in time. In any 12-month period, a “free” offer for a single product or service should not run for more than six months, be conducted more than three times, and/or exceed 50% of the total volume of all sales of that product or service. At least 30 days should elapse between “free” offers for a single product or a single kind of service.
- Any time-limited offer must be truly limited to the period specified in the advertisement.
- The term “free” should never be used in a misleading manner.
- Regular prices cannot be altered to recapture any portion of the costs of free items.
- “Free” offers that introduce new products/services should be time-limited and unbundled for a fair amount of time after termination.
“Made in USA” and similar phrases have marketing appeal, and continue to explore opportunities to respond to consumer demand for U.S. content and advertise domestic production. Such claims have been frequent enforcement targets in recent years and most recently individual commissioners have pushed for even more aggressive enforcement of the standard.
The Federal Trade Commission (FTC) regulates country of origin claims under Section 5 of the Federal Trade Commission Act (FTC Act). Under the FTC Act, objective advertising claims, including U.S. origin claims, must be truthful and substantiated. The FTC’s Enforcement Policy Statement on U.S. Origin Claims provides guidance to advertisers about how to substantiate unqualified and unsubstantiated U.S. origin claims.
A company may only make an “unqualified” U.S. origin claim when all or virtually all of the product’s components are from the United States and all or virtually all of the manufacturing, processing, packaging, or assembly took place in the United States. Unqualified claims are those that contain no qualifications or limits on the claim (e.g., “Made in USA” but not “Designed in USA — Made with Chinese parts”). To determine whether your product meets the “all or virtually all” standard, consider the following factors:
- Was the site of final assembly or processing in the U.S.? The final assembly or processing must be in the United States to comply with this standard.
- How much of the product’s total manufacturing costs can be assigned to U.S. parts and processing? To calculate the total manufacturing cost, businesses should use the cost of goods sold or inventory costs of finished goods. Manufacturers and advertisers should also look back far enough in the manufacturing process to be reasonably sure that any significant foreign content has been included in their assessment of foreign costs.
- How far removed is any foreign content from the finished product? In some instances, only a small portion of the total manufacturing costs is attributable to foreign processing, but that processing represents a significant amount of the product’s overall processing. For example a lampshade would be a significant part of a finished lamp, even if it was a small amount of the cost. This part would not be considered far-removed.
If the product does not meet the all or virtually all standard, the claim must be qualified to disclose to consumers how much of the product or processing was completed in the U.S. Qualified claims should only be used if the product has a significant amount of U.S. content or processing and, as with the unqualified standard, the product’s final assembly or processing must take place in the U.S.
Some examples of qualified country of origin claims include:
- “Assembled in the USA”
- “Made in USA of U.S. and imported parts”
- “Made in USA from Italian fabric”
- “Manufactured in USA with Chilean materials.”
- “80% U.S. glass”
These standards also apply to implied advertising claims. Implied claims depend on the context and net impression of an advertisement or label. For example, depending on the context, a U.S. flag, map, reference to a U.S. factory, or reference to a particular city, state or region could communicate a Made in USA message. Use of a U.S. brand name or trademark alone, however, is typically not considered a Made in USA claim.
Interplay with Other Standards
The FTC is not the only regulatory body with country of origin regulations. For example:
- Under California law a product can be labeled “Made in the U.S.A.” “if all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 10% of the final wholesale value of the manufactured product;”
- the Buy American Act requires that a product manufactured in the U.S. be of more than 50% U.S. parts to be considered Made in USA for government procurement purposes; and
- the U.S. Customs Office mandates the placement of the origin label, and defines important terms such as “substantial transformation”.
However, compliance with these standards does not always amount to compliance with the FTC Made in USA standard. Manufacturers and marketers should ensure they review and apply all Made in USA regulations applicable to their products.
To avoid unintentionally making an illegal U.S. origin claim due to foreign component parts, businesses should:
- Not assume that a component purchased from a U.S. supplier is 100% U.S.-made.
- Engage in reasonable due diligence before relying on information from suppliers.
- Look back far enough in the manufacturing process to be reasonably sure that any significant foreign content has been included.
Americans spend billions of dollars every year on foods, supplements, weight loss programs, and other devices in hopes of maintaining or improving their health and fitness. As a result, health benefit claims have been the source of significant FTC and FDA scrutiny and require a higher level of substantiation than other types of claims.
In addition to FTC’s authority to prevent unfair or deceptive acts or practices in or affecting commerce, Section 12(a) of the FTC Act specifically makes it unlawful to disseminate any false or deceptive advertisement, by any means, if its purpose is to induce the public to buy food, drugs, devices, or cosmetics. The FTC assumes broad discretion to regulate all forms of advertising practices.
Conversely, the FDA has specific statutory authority over the claims that appear in food labeling, including the package, product inserts, and other promotional materials available at the point of sale and only indirect authority over advertising. The Food Drug and Cosmetic Act (FDCA) provides that a food is misbranded and subject to seizure if its labeling is false or misleading. The FDA’s indirect authority over food advertising arises when promotional materials, including advertisements, tout the ability of a food or dietary supplement to reduce the risk of a disease or health-related condition.
Following are some pointers to keep in mind when crafting a health benefit or related claim:
- Health benefit claims must be substantiated by competent and reliable scientific evidence. Scientific evidence must be conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.
- Health benefit claims must be based on evidence that is consistent with the larger body of evidence and cannot be based on outlier studies.
- The FTC is increasingly interested in the data underlying health claims. In its new Health Products Compliance Guidance, the FTC provides that randomized, controlled human clinical trials (RCTs) are the only form of evidence that will suffice for health benefit claims. Before relying on an unrelated study conducted by a third party, consider whether the company should conduct its own clinical trial or other study to support the claim.
- Consider whether an expert is needed during the claims development process to help evaluate substantiation and proposed claims.
- Health benefit claims must be substantiated with competent and reliable scientific evidence.
- The FTC has indicated in recent guidance that advertisers should conduct a clinical trial to support the health benefit claim.
Sometimes claims also require a disclosure or qualifier to prevent them from being misleading. Disclosures must be noticeable, readable, and understandable by consumers. The relevant standard is that disclosures should be presented in a “clear and conspicuous” manner.
When evaluating whether disclosures are necessary and how they are presented, consider the following:
- An advertisement should convey all information that is material to the consumer’s decision to purchase the product.
- Claims about performance, features, safety, price, rates, or effectiveness are usually material. Material information may also include any restrictions on an offer, such as date limitations, geographic limitations, and restrictions on the number of purchases.
- If a reasonable consumer would find a claim to be misleading without additional information, that information should be disclosed in a “clear and conspicuous” manner. To determine whether a particular disclosure is clear and conspicuous, consider:
- The prominence of the disclosure. A disclosure is more effective if it is prominent in size, type, and color. Using graphics to help display a disclosure may also make the disclosure more prominent.
- The placement of the disclosure in the advertisement and its proximity to the claim it qualifies. A disclosure is more effective if it is placed near the claim it qualifies or other relevant information. Proximity increases the likelihood that consumers will see the disclosure and relate it to the relevant claim or product.
- The presentation of the disclosure. The disclosure should be understandable to the intended audience. Advertisers should use clear language and avoid “legalese” or technical jargon. Disclosures should be as simple and straightforward as possible.
- Whether there are distracting elements in the advertisement. Elements like graphics, sound, text, and links that lead to other screens or sites may result in consumers not noticing, reading, or listening to the disclosure.
- Disclosures or qualifiers should not contradict or be inconsistent with the claims they qualify.
- Disclosures must be easily noticed and understood by the consumer.
- Qualifying information must be proximate to the claim that it qualifies and be “unavoidable.”
- Online disclosures should be unavoidable and optimized for cross-platform compatibility.
Because consumers often value opinions from other consumers before deciding whether to purchase a product or service, many companies include consumer endorsements in their advertisements.
An endorsement is generally any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser. Endorsers can range from experts or celebrities who are paid to talk about a product on TV to consumers who are given incentives to review a product on social media. As with all advertisements, endorsements must be truthful and not misleading. This fundamental principle applies regardless of who is endorsing the product or program, or the media through which the endorsement is disseminated (e.g. blog, social media, newspaper, infomercial, “word of mouth” marketing, or talk show appearance).
When any person is paid to be a spokesperson, that person’s endorsement is considered a commercial message. Companies should advise any spokesperson about what they should (or should not) say about a product. Companies also should counsel endorsers about the need to disclose their relationship or any other material connection they have to the company during interviews and other media events in which they refer to the company or its programs.
When using endorsements and testimonials, consider the following tips:
- Endorsements and testimonials must reflect the honest opinions, beliefs, findings, or experience of an endorser. They may not contain any claims that cannot be substantiated independently, and may not be misleading.
- If there is a material connection between an endorser and the seller of the advertised product, and the connection is not reasonably expected by the audience, that connection must be disclosed. The disclosure should be presented in a clear and conspicuous manner.
- In determining whether there is a material connection, consider: (a) whether the endorser is compensated by the advertiser; (b) whether a product was provided for free by the advertiser; (c) the terms of any agreement; (d) the length of the relationship; (e) the previous receipt of products, or the likelihood of future receipt of products; and (f) the value of the products received.
- Where an advertisement represents that the endorser uses a product, the endorser must be a bona fide user.
- Consumer endorsements and testimonials must be representative of what consumers will generally achieve with the advertised product or service. Otherwise, an advertiser must clearly and conspicuously disclose that the advertised result is not typical and/or describe the result that consumers should expect.
- An expert’s endorsement or testimonial must be supported by an actual exercise of his or her expertise in evaluating product features or characteristics.
- Endorsements or testimonials by organizations must be reached by a process that fairly reflects the collective judgment of the organization.
- A written release should generally be obtained from the individual or organization providing the endorsement. If the endorsement comes from an organization, the release must be signed by a person with authority to represent the organization.
- Be sure to train and monitor endorsers. Advertisers may be liable for an endorser’s actions, including when there is a failure to disclose any material connections, or when the endorser makes false claims. Advertisers may be liable even if they did not authorize, approve, or use the claims themselves.
- Endorsements and testimonials must be substantiated and not misleading.
- Always obtain a written release for all endorsements and testimonials.
- Consumer endorsements must be typical or must clearly disclose that the results are not typical and may vary depending on relevant circumstances.
- Expert endorsement must be based on independent evaluation.
- Organizational endorsements must be based on collective judgment and experience.
- Endorsers must disclose material connections to the company.
Maintaining a “green” business can have positive effects for not only the environment, but also for the company. Promoting the environmental benefits or the reduced environmental impact of a product, package, or service can serve as a good way for companies to engage consumers. However, companies must ensure that all environmental claims are truthful and non-misleading. Whether a claim is deceptive will depend on the net impression of the advertisement, label, or other promotional material at issue.
Key things that marketers should keep in mind when making “green” claims include:
- All environmental benefit claims should be qualified to the extent necessary to avoid consumer deception. Qualifiers should be clear and conspicuous.
- All environmental marketing claims, express and implied, must be substantiated.
- Claims should specify whether they refer to the product, the product’s packaging, a service, or just a portion of any one of these.
- Use precise language for the claim, and don’t overstate the environmental benefits.
- Unqualified general environmental benefit claims - such as “green,” “eco-friendly,” or “environmentally friendly” - are difficult, if not impossible, to substantiate because consumers may interpret them very broadly. These claims should generally be qualified by clear and conspicuous language that limits claim to specific benefits.
- Claims about company’s green goals and aspirations must not be merely illusory. Companies should be able to provide evidence of the steps it is taking to reach its stated goals.
- Qualify all environmental benefit claims to avoid consumer deception.
- All environmental benefit claims must be substantiated.
- Look to the FTC’s Green Guides for guidance on specific claims.
The FTC imposes specific labeling requirements for clothing and related items under the Textile Products Identification Act, Wool Products Labeling Act, Fur Products Labeling Act and Care Labeling Rule. It is very important that representations made in product advertising, including websites, conform to the labeling standards prescribed by these rules, particularly because consumers do not have an opportunity to inspect the actual product prior to purchase. It is not typically necessary to use the same level of detail in advertising as on the actual label, however.
Most household textiles, such as towels, and wearing apparel are covered by one or more of these requirements, but there are exceptions. For example, the Textile Act applies to wearing apparel, but excludes hats and shoes. Thus, a 100% cotton hat would not be subject to those requirements. If a hat is wool, however, it would still be subject to the requirements in Wool Act. Likewise, if a pair of boots has real fur trim, it would not be subject to the Textile Act, but would be subject to the Fur Act.
Below are a few tips when labeling and advertising products subject to these requirements:
- All required labeling information for textiles, wool, and fur must: (a) be in English; (b) either state the full name under which the company is doing business, or Registered identification number (RN) issued by the FTC of the manufacturer or of one or more persons marketing or handling the product; and (c) specify the country of origin where the product was processed or manufactured.
- In Textiles and Wool Products, if a particular fiber is present in 5% or more of the total fiber weight, the generic name of each natural or manufactured fiber must be listed together with the percentage of each fiber present, by weight, in the total fiber content of the product.
- If a particular fiber is present in less than 5% of the total fiber weight, any fiber (or group of fibers) that is 5% or less by weight of the total fiber content must be designated as “other fiber” or “other fibers.”
- For products that contain real fur, the animal name must be indicated, and the fur country of origin must be included for imported fur. For items that are Faux Fur, consider stating “Faux Fur” on the label.
- Textile wearing apparel is required to have a care label that: (a) states what regular care is needed for the ordinary use of the product; (b) has a washing or dry-cleaning instruction (if both can be used, label can have only one instruction); and (c) if the product cannot be cleaned without being harmed, states “Do not wash—do not dry-clean,” or something similar.
- Specific information must be provided in the labeling for textiles, wool, and fur products.
Commercial co-ventures generally involve a consumer making a purchase from a for-profit corporation to benefit a charitable cause. Often, the company will donate a portion of either its total sales or sales of a specially-branded product to the charitable organization.
More than half of all US states and the District of Columbia have commercial co-venture laws to protect consumers from false or misleading sales promotions and to ensure that the charity receives its advertised share of the proceeds. Generally, these laws require the following obligations:
- Registering the commercial co-venture;
- Disclosing certain information in advertising and marketing materials about the promotion;
- Executing and filing a written contract with the charity; and
- Keeping detailed accurate accounting statements and financial records of the amounts raised.
Registrations must be completed prior to the beginning of the commercial co-venture and are often valid for one year. Registrations must be complete at the time of filing. Some states also require companies to pay registration fees and post bond. During the registration period, many states require an annual filing of activity reports regarding the amount of money raised from the public, the amount disbursed to the charity, and the amount the commercial co-venturer retains.
- Advertising Disclosures
States require specific information be disclosed in at least ten-point type in marketing materials for a commercial co-venture. This includes material terms such as (1) the name of both the commercial co-venturer and the charitable organization; (2) the phone number and address of the charitable organization; (3) a description of the promotion, including the purpose of the promotion, the dates of the promotion and any other material terms of the promotion; and (4) financial information, including the amount of each purchase that will benefit the charity, the percentage of each purchase that will benefit the charity, and any limit on the commercial co-venturer’s contribution.
- Contractual Provisions
Many states require written contracts between the commercial co-venturer and the charitable organization. Some states also require specific provisions be included in the contracts, such as information about the parties; where the promotion will be offered; the dates of the promotion; and the estimated number of units to be sold.
Some states may require commercial co-venturers to retain certain documents, such as a copy of the contract with the charitable organization and the financial results of the campaign, for at least three years after the conclusion of the co-venturer’s license or campaign. States may also require the co-venturer to file an accounting statement with the appropriate state agency. Even if the state does not specifically require recordkeeping, the commercial co-venturer should retain these records for its own files.
- Other Requirements
Commercial co-venturers should also consider how to structure the commercial co-venture, such as by either including a cap on donations or minimum guarantees. If using a cap, co-venturers should ensure that they let consumers know when the cap has been reached. If using a guaranteed minimum, co-venturers should implement strategies to minimize risks associated with the program, such as setting the minimum low enough that consumer purchases will cover a majority of the minimum. When considering either, commercial co-venturers should ensure that the terms of the program’s structure are clearly and conspicuously disclosed to consumers.
- Check with each state where rolling out the co-venture to determine registration and other requirements.
- Clearly disclose to consumers all material terms regarding how the co-venture will operate.
- Maintain a written contract with the charity that clearly indicates each party’s requirements and expectations.
- Maintain detailed records of the commercial co-venture, including relevant contracts and accounting records.