Electronic Retailer - October 2011 - 40

BY JEFFREY D. KNOWLES, JONATHAN L. POMPAN AND KRISTALYN J. LOSON

Avoid Legal Pitfalls in Cause-Related Marketing
Marketers are increasingly looking to affiliate with charities in cause-related marketing efforts, such as arrangements in which a charitable donation is built into the cost of purchase of a good or service. These partnerships provide the charitable organization with financial support and, at the same time, burnish the public image of its for-profit partner. The popularity of cause-related marketing has increased and with it has come increased regulation and scrutiny. As seen by the recent class-action lawsuit filed against Lady Gaga over charity wristbands for Japanese earthquake victims, good intentions are not enough to prevent scrutiny and legal trouble. Below we highlight a few of the key issues to be considered. commercial entity from making false or misleading statements in connection with a solicitation. States have been particularly active in enforcing commercial co-venturer statutes and charitable solicitation laws in general. The Attorney General of each state generally holds enforcement power under these statutes, and fines for violations can be extremely significant. Some of these statutes also contain private rights of action, including, in some cases, allowing plaintiff’s lawyers to bring class-action lawsuits on behalf of a large class of consumers, greatly increasing the risk and stakes for the marketers and charities that become targets of those suits. Therefore, it is important that marketers embarking on campaigns with charities consider state regulation of commercial co-ventures and plan for meeting registration, disclosure, filing and other applicable requirements before launching their campaigns.

CHANNEL CROSSING: LEGAL

Commercial Co-Venturer Registration
Currently, more than 20 states regulate “commercial co-ventures,” typically defined under state law as “arrangements between a commercial entity under which the commercial entity advertises in a sales or marketing campaign that the purchase or use of its goods or services will benefit a charity or a charitable purpose.” While commercial co-venturer relationships come in many shapes and forms, the most common scenario involves a for-profit, taxable business using the name and logo of a charitable organization for the purpose of increasing sales of the for-profit entity’s products or services while at the same time increasing revenue to the charity. In some states, the commercial entity – often referred to as the “co-venturer” – is required to register with the state prior to the marketing of the commercial co-venturer relationship and must meet requirements such as posting a bond and filing financial reports with the state. In other states in which registration may or may not be required, specific recordkeeping requirements and/or mandatory contractual terms between the organization and the commercial co-venturer may be imposed. State statutes also may specify required disclosures for advertising the good or service and typically prohibit the

Unfair and Deceptive Practices
In addition to potential state registration requirements, both the Federal Trade Commission Act (the “FTC Act”) and state consumer protection statutes (often referred to as “mini-FTC Acts”) prohibit unfair and deceptive trade practices, which include misrepresentations of material facts regarding an advertised product or service as well as omissions of information that would be material to a consumer’s decision to purchase a product or service. The FTC and state Attorneys General have collaborated on a number of actions to enforce the FTC Act and mini-FTC Acts against charities and fundraisers alleged to engage in deceptive marketing practices, including in cause-related marketing efforts. For example, the FTC has brought actions against companies alleged to have deceptively offered advertising space under the guise that it would benefit a law enforcement organization, sellers of household goods alleged to have been manufactured by disadvantaged workers, and a company selling children’s activity books claiming to benefit children’s hospitals.

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electronicRETAILER | October 2011
Electronic Retailer - October 2011

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