This Monday, “brain training” company Lumos Labs, Inc. D/B/A “Lumosity” agreed to pay $2 million to settle Federal Trade Commission (“FTC” or “Commission”) claims of deceptive advertising. The FTC’s allegations were brought in part because of Lumosity customer testimonials that were purportedly submitted as a condition to enter promotional contests for a chance to win contest prizes.

Can businesses incentivize customer testimonials with sweepstakes and contest prizes?

Lumosity Brain Training Program

Lumosity provides “brain training” video games via its mobile application and the lumosity.com website. The Lumosity program is widely advertised through a number of consumer channels. As we reported earlier this week, the FTC sued Lumosity this Monday in federal district court in San Francisco (Case No. 3:16-cv-00001-sk) for alleged deceptive advertising violations.

Contest Prizes for Customer Testimonials

Among other things, the Commission alleged that certain Lumosity marketing materials featured 160 testimonials provided by Lumosity users, which promoted a wide range of supposed Lumosity program-related benefits, such as improved school, work and athletic performance. According to court documents filed by the FTC, 46 of Lumosity’s featured testimonials were submitted by individuals in exchange for a chance to win contest prizes, such as a free iPad, a lifetime Lumosity subscription and a trip to San Francisco. In one such Lumosity contest, consumers were eligible to receive contest prizes for answering each of the following questions in a YouTube video:

  • What is your first and last name?
  • How long have you been using Lumosity?
  • How has Lumosity helped you live a better life?
  • Why do you recommend Lumosity to others?

The Commission alleged that Lumosity failed to adequately disclose to prospective consumers the fact that contest entrants were asked to answer these questions, which could have affected the weight and credibility consumers assigned to such testimonials.

FTC and Lumosity Settle Deceptive Advertising Claims

Under the terms of the settlement agreement announced on January 4, 2016, Lumosity has agreed to pay the Commission $2 million to redress consumer injuries. Additionally, Lumosity must clearly and conspicuously disclose any material connections between itself and its endorsement providers, such as the use of contest prizes to solicit testimonials and product endorsements.

Avoiding Liability in Connection with Advertising Campaigns

Broadly speaking, FTC regulations require advertisers to disclose all financial interests that testimonial providers may receive in connection with providing testimonials or product endorsements. Operators of sweepstakes and promotional contests must ensure that entrants (and, in some instances, the operators themselves) include prominent disclosures adequately detailing the prospective benefits that entrants receive in connection with their subject endorsement, testimonial or other promotional efforts. Failure to do so could result in regulatory action or other adverse legal consequences. In this regulatory climate, it is recommended that advertisers retain qualified legal counsel before commencing any promotion, contest or sweepstakes.