Sales promotions devised by manufacturers and suppliers of consumer goods that involve the customer participating in a prize draw or competition are very common. Such schemes can be important strategies in advertising and promoting goods and increasing sales. The aisles of any supermarket will invariably have some form of promotion offering “Your Chance to Win...” or “Enter our competition to win...”.
These forms of promotion have the potential to increase sales for the limited period of the promotion and hopefully, from the promoter’s point of view, will encourage repeat purchases in the future which, in turn, may build brand loyalty and value. This briefing sets out some of the issues to consider if contemplating such a promotion.
We consider two forms of contest used in sales promotions: (i) the prize draw; and (ii) the prize competition. The law relating to and governing competitions and prize draws has evolved over many years through case law and statute. The law in this complex and detailed area in Great Britain is now comprehensively set out in the Gambling Act 2005 (the “Act”)1.
The Gambling Commission (the “Commission”) regulates most commercial gambling in Great Britain. It has no regulatory control or responsibility in relation to competitions and free draws but it does have powers to prevent unlawful lotteries. The Commission has published guidance on prize competitions and free draws to assist promoters to identify the boundaries between them and illegal lotteries. There are also other rules and regulations which need to be observed when running these types of sales promotion. These include the Consumer Protection from Unfair Trading Regulations 2008, The Unfair Commercial Practices Directive and the British Code of Advertising, Sales Promotion and Direct Marketing, administered by the Advertising Standards Authority, all of which are considered in this briefing.
When devising a sales promotion which involves the distribution of prizes, the promoter must ensure that his activities do not amount to a lottery or other prize competition which falls within the scope of the Act and are therefore unlawful.
Lotteries or prize draws
Under the Act all lotteries (with limited specific exceptions and the National Lottery) are illegal. Prior to the introduction of the Act there was no statutory definition of a lottery and the elements comprising a lottery were developed in a series of cases, one of the most notable being the Imperial Tobacco case2 following the decision in the Readers Digest case3. The Act now defines two types of lottery, a simple lottery and a complex lottery.
Section 14(2) of the Act provides:
An arrangement is a simple lottery if –
- persons are required to pay in order to participate in the arrangement,
- in the course of the arrangement one or more prizes are allocated to one or more members of a class, and
- the prizes are allocated by a process which relies wholly on chance.
Simply put, the three elements comprising a lottery are (i) payment by (or on behalf of) the participant; (ii) the allocation of prizes; (iii) such allocation to be by chance.
What constitutes payment?
The Act sets out the meaning of payment4. Payment includes paying money, transferring money’s worth, and paying for goods and services at a price or rate which reflects the opportunity to participate in an arrangement. Thus if the price of goods is inflated to include the price of entry into the lottery this will constitute payment.
If, for example, goods including the chance to enter into a prize draw are sold at their normal price then this would not amount to payment for entry. This is a change from the law pre-dating the Act which gave rise to promoters offering the “no purchase necessary” route of entry to a prize draw or competition. Prior to the commencement of the Act if a manufacturer promoted its products by including with the sale of the product a chance to win a prize this would amount to a payment to enter the prize draw even if there was no increase in the normal price of the product. In order to circumvent this, the promoter offered the chance to win the prize by providing an alternative route to entry which did not involve purchasing the relevant product (eg via a website). This could complicate the running of the promotion and of course, from the point of view of the promoter, would be contrary to the principle aim of the promotion, namely to increase sales.
With the commencement of the Act it is no longer necessary to offer a “no purchase necessary” route where the participant is required to purchase a product at its normal price to enter the prize draw.
Payment does not include incurring, at the normal rate, the expense of:
- sending a letter by ordinary post;
- making a telephone call; or
- using any other method of communication.
A normal rate is a rate which does not reflect the opportunity to enter into a prize draw and ordinary post means ordinary first class or second class post without special arrangements for delivery.
Thus entries by letter or post card are considered to be free provided that they are sent using first class or second class post. Any requirement to send entries by registered or special delivery would amount to payment.
There is a difference of opinion amongst commentators as to whether the use of a premium phone number would be “at the normal rate”. Some contrast the use of “normal rate” used in the Act with “premium” rate and conclude that use of premium phone lines would amount to payment to enter. Others contend that if the premium rate call is charged at its normal rate that is not increased to include the costs of the prize draw, then this would constitute free entry. Many competitions invite entry by means of text. Again, this would not amount to payment provided that the cost of the text was not inflated to take account of the costs of the promotion.
Payment to discover if prize has been won
If payment is required to discover whether a prize has been won, even if there is no payment for entry, this will constitute payment for the purposes of the Act although sending a letter by ordinary post and the other methods of communication referred to above are still considered not to amount to payment. The issue is one of whether a prize has been won. If all participants are told that they have won a prize but they are required to pay to discover what that prize is then, from a strict reading of the Act, this would not render the promotion unlawful.
Payment to take possession of a prize
A requirement to pay in order to take possession of a prize, even if there is no payment for entry or to discover whether a prize has been won, will amount to payment (although the costs of communication, as above, would not be considered to be payment). The Commission’s view is that where a winner is required to pay normal delivery costs to take receipt of a prize then this would be acceptable but there should be no additonal payment required over such normal delivery charges.
No purchase necessary route
As stated above the purchase of a product which included a chance to win a prize was considered to constitute payment under the old law and therefore such a promotion would be unlawful. In order to overcome this promoters, in additional to selling their goods bearing the promotion, would offer a free route to entry or “no purchase necessary”. The Act now provides that even if payment is required to participate, a prize draw may be lawful provided that certain free alternative routes to entry are available.
A prize draw in respect of which the potential participant has a choice to enter either by (i) paying or (ii) by sending a communication will not be treated as requiring participants to pay. The Act defines what is meant by “sending a communication”. The communication may be a letter sent by ordinary post or another method of communication which is not more expensive or less convenient than the payment route. The choice of route must be publicised so that it is likely to come to the attention of all those intending to participate in the prize draw and the system for allocating prizes must not distinguish between the participants using either route.
Many promotions offer participants the choice to enter via the internet. The Commission guidance points out that whilst use of the internet may not require the participant to pay an additional amount to enter the prize draw where, for example, the participant pays for internet access at home as part his general telecommunications services, for some, internet access may not be so readily available at home and therefore could be less convenient than the payment route. The Commission has set out some guiding principles when considering whether web entry is an adequate alternative route to entry. These include:
- allowing sufficient time for those who do not have home access to the web to get access elsewhere. The Commission considers a period of three working days around the date of the draw to be reasonable;
- entries via the web should be available at all times while the promotion is being promoted until the relevant closing date/time;
- entry by the internet route must be made widely known; and
- if there is any doubt about meeting the Act’s requirements then other routes identified in the Act should also be offered.
The alternative route for entry must be publicised in such a way that each intending participant is aware of the alternative. Thus, the free route to entry must be given sufficient prominence by the promoter in any promotional material. Whilst this does not mean that the free route has to be given equal prominence to the paid route the appropriate wording should not be hidden away in any small print.
Provision of contact details for the chance to enter a prize draw
An increasingly popular marketing tool is for customers and potential customers to provide their contact details to a retailer or manufacture on a postcard or web-site so that the individual can be added to the promoter’s mailing list or otherwise kept-up to-date with the latest offers. To encourage individuals to provide such details the promoter may offer entry into a prize draw. As stated above, paying in relation to a prize draw will include transferring money’s worth. This raises the issue of whether the provision of information, which can be very valuable to a promoter, could be considered to amount to “money’s worth”. The Commission’s guidance indicates that, generally speaking, such provision of data does not constitute payment for the purposes of the Act, in particular, where the amount of information sought from the individual is proportionate. However, the Commission has cautioned that it may take a different view if the individual is required to provide a large amount of data as a pre-condition of entering the prize draw especially if that information is intended to be sold onto third parties. Collecting information in this way may also raise separate issues under the Data Protection Act 1998.5
Allocation of prizes
A prize is defined in the Act6 as including any “money, articles or services” whether or not described as a prize and whether or not consisting wholly or partly of money paid, or articles or services provided, by the members of the class among whom the prize is allocated. The definition uses the word “includes” so the reference to money, articles or services could be said to be illustrative rather than exhaustive. The use of the word prize in a promotion is not determinative of whether it is an unlawful lottery. Schemes in which commissions, gifts and bonuses have been offered have been held to be unlawful lotteries (albeit under the previous law – but the principle continues to apply).
Allocation wholly by chance – lawful prize competitions
In the past, promoters have tried to exclude their schemes from falling within the scope of illegal lotteries by attempting to remove the element of chance. Thus a promoter would introduce a requirement for participants to exercise some form of skill in order to win a prize. In some earlier schemes the level of skill required has been found by the courts to be insufficient such that, in reality, prize-winners were, in fact, determined by chance.
Under the previous law a winner of a competition was considered not to be determined by chance if winning depended to a substantial degree on the exercise of skill. It was not the level of skill that was the key here but the extent to which the use of skill determined the outcome of the competition.
Section 14(5) of the Act seeks to clarify the level of skill required to take a scheme outside the scope of a lottery and provides that:
“A process which requires persons to exercise skill or judgment or to display knowledge shall be treated for the purposes of this section as relying wholly on chance if:
- the requirement cannot reasonably be expected to prevent a significant proportion of persons who participate in the arrangement of which the process forms part from receiving a prize, and
- the requirement cannot reasonably be expected to prevent a significant proportion of persons who wish to participate in that arrangement from doing so7.
Thus, the level of skill required in order to be able to win a prize must be sufficient to deter a significant proportion of potential participants from entering the scheme and must also be sufficient that a significant proportion of participants would submit an incorrect entry.
Competitions in which a participant is required to be creative, such as writing a jingle or explaining why he likes a particular product would in our view meet this skill test. Competitions where participants are required to complete a number or word puzzle, such as a crossword puzzle, where skill is required and answers are either correct or not are likely to meet this test. However, competitions where, for example, the participant is required to answer a multiple choice question may still fail the “skill test”, if the options are such that no skill is required to provide the correct answer.
There is clearly a continuum along which the contribution of skill to the winning of a competition falls and it may be difficult to determine where any particular promotion lies. The many cases decided under the previous law will be of limited value in assessing the nature of a promotional scheme since the test under the previous law differed from that under the Act and, in any event, any decision will be based on the particular facts of each case.
The Commission’s guidance sets out the factors it will take into account when deciding whether the “skill test” has been met so as to bring a promotion outside the scope of a lottery. The Commission agrees that crossword puzzles, which involve a large number of clues and completed entries only may win, would be an example of where the outcome is not determined by chance, as would word and number problems of the type that appear in competition magazines.
However, where the answer to the entry question is “blatantly obvious” from text accompanying that question or is otherwise widely and commonly known, then the Commission’s view is that the skill test is not met. The Commission recognises that it difficult to know where on the continuum between these two extremes any particular scheme or promotion will lie. However, the Commission has stated that the test of skill could be met even where the answer can be found easily on the internet, is commonly or widely known by the general public, appears in accompanying text or is obvious within a television programme to which the question relates.
However, what is “widely known by the general public” can itself raise issues. A competition addressed to, say, an average 18-year old about the latest pop group may be widely known by people within that age group. However, the public as a whole may not readily know the answer. In these circumstances it is possible that the required skill, judgment or knowledge to answer the question could reasonably be expected to deter a significant proportion of potential participants from entering the competition.
In many cases it will be clear that the skill element is sufficient to take the promotion outside the realms of a lottery. However where this is not clear the Commission recommends that the test as set out in Section 14(5) should be considered to be a two-limb test. First, did the requirement for skill, judgment or knowledge, in fact, deter a significant proportion from entering or winning a prize and, second, if, in fact, it did not, did the promoter reasonably expect that it would have done and, if so, on what basis.
The Commission gives no specific guidance on what a “significant proportion” would be save to indicate that the construction of this phrase is likely to be determined by the context and facts of the promotion in question. It may be relatively straightforward to calculate the numbers of participants who have submitted a non-winning entry and compare this to the total number of entrants to determine the proportion of participants who, in fact, were prevented from winning a prize.
However, it is a far more difficult evidential task to demonstrate that a significant number of potential participants were deterred from entering the competition at all due to the level of skill, or knowledge required to enter. The Commission has suggested that promoters may wish to conduct research on test questions with a panel of, for example, viewers or readers. Based on the results, the promoter would have an idea of the degree of skill etc. required to deter participants. If, subsequently, the legitimacy of the promotion were challenged, then such test results could be provided to the Commission to demonstrate that the promoter had a reasonable expectation that a significant number of potential participants would not enter. The Commission has given an illustration of the type of evidence that would not be acceptable to establish that a significant proportion of potential participants was put off from entering the promotion. Thus, the number of entrants to a magazine competition compared with the total number of readers would not be acceptable evidence to determine what proportion was deterred from entering. Further evidence would be required relating to the propensity of the readership to enter such competitions. Thus it is not sufficient to show that a large proportion of the relative audience (eg television viewers, radio listeners, supermarket customers) did not enter. The promoter has to be able to go further so that it is able to show that it could reasonably be expected that audience members or customers did not enter due to the level of skill, judgment or knowledge required.
The Commission’s guidance makes it clear that it is the responsibility of the organisers of promotions to ensure that the relevant promotion is lawful. However, the Commission has set out a few indicators that it will consider if reviewing the legality of a promotion or competition. These include the number of plausible alternative answers offered in a multiple choice question, the number of questions required to be answered or the cost of entry as compared with the value of the prize. The guidance clearly states that the Commission will never provide prior clearance for schemes and if there is any doubt about the legality of a proposed competition or prize draw then specialist legal advice should be sought.
Click here to see flow chart.
As stated above, the Act defines two types of lottery. We have outlined above the elements of a simple lottery. Section 14(3) of the Act provides that:
An arrangement is a complex lottery if:
- persons are required to pay in order to participate in the arrangement,
- in the course of the arrangement one or more prizes are allocated to one or more members of a class,
- the prizes are allocated by a series of processes, and
- the first of those processes relies wholly on chance.
It can be seen that the first two elements are identical to those for a simple lottery, in that there needs to be payment and an allocation of prizes. The final two elements of the definition are designed to cover promotions or competitions where there are a number of stages and the outcome of the first stage is determined wholly by chance. Thus if a competition comprises two stages where participants for the second round are chosen by chance and in the second round participants are required to undertake a task requiring skill, judgment or knowledge this would be a complex lottery and unlawful. For, example a competition where participants are selected from a larger group at random and then required to undertake a test of skill would be a complex lottery.
However, if a promoter runs a scheme in which participants are required to exercise skill, judgment or knowledge and then a winner is selected at random from the group of winning entries (ie skill followed by chance) this would not be a lottery and would be legitimate unless it fell to be considered an unlawful prize competition (discussed below).
Unlawful prize competitions
We have already considered above where the exercise of skill, judgment or knowledge will take a competition or promotion outside the scope of being an unlawful lottery. The Commission’s guidance states that “competitions that genuinely rely on skill, judgment or knowledge are to be permitted to operate free of any regulatory control under the Act.” However there are still circumstances in which a prize competition will be unlawful.
The legislation preceding8 the Act provided that:
“... it shall be unlawful to conduct in or through any newspaper, or in connection with any trade or business or the sale of any article to the public:
- any competition in which prizes are offered for forecasts of the result either:
- of a future event; or
- of a past event the result of which is not yet ascertained, or not yet generally known;
- any other competition in which success does not depend to a substantial degree on the exercise of skill.”
Section 11 of the Act identifies certain activities and provisions which, if met, are considered to amount to betting under the Act. Thus under Section 11 of the Act an unlawful prize competition (that is to say, betting) will take place if a person:
- participates in an arrangement in the course of which participants are required to guess:
- the outcome of a race, competition or other event or process,
- the likelihood of anything occurring or not occurring, or
- whether anything is true or not,
- he is required to pay to participate, and
- if his guess is accurate, or more accurate than other guesses, he is to
- win a prize, or
- enter a class among whom one or more prizes are to be allocated (whether or not wholly by chance).
The Act also provides that a reference to “guessing” includes a reference to “predicting using skill or judgment”.
The provisions of the Act that set out what constitutes payment for the purposes of Section 11 of the Act9 follow very closely the provisions that apply in relation to lotteries and we will not consider them in detail here other than to confirm that payment includes paying money, transferring money’s worth, and paying for goods and services at a price or rate which reflects the opportunity to participate in an arrangement. Similarly, payment does not include incurring, at the normal rate, the expense of sending a letter by ordinary post; making a telephone call, or using any other method of communication. Thus, for example, if the opportunity to enter a prize competition is conditional upon buying a product this will not fall within the scope of the Act if the price of the product is not increased to take account of the entry to the prize competition. Further, similar provisions and consequences that apply to prize draws providing a free route of entry where there is also a paid route also apply to prize competitions of this nature.
However, if some form of payment is required and there is no alternative acceptable free route for entry then a promoter should be careful to ensure that a prize competition does not fall within the limbs of Section 11 of the Act.
Required to guess
The important element here that distinguishes competitions falling under Section 11 of the Act is the requirement to guess. In a competition some participants may use skill or knowledge to arrive at the answer, some participants may guess the answer. This would not amount to an unlawful prize competition because the participants are not required to guess the answer.
However, where the participant is required to make a prediction, whether by guessing or by using skill or judgment, this would amount to a prize competition falling within Section 11 of the Act.
Offences and sanctions
Betting and participating in a lottery are included in the definition of “gambling” under the Act. The Act sets out a number of offences and sanctions in respect of gambling and related activities which are not permitted under the Act.
A person commits a criminal offence if he promotes or facilitates a lottery (unless the promoter holds an operating licence and the terms and conditions of the licence are complied with or the lottery falls within the limited exceptions permitted under the Act (eg incidental non-commercial lotteries, private lotteries)10. Illegal lotteries include competitions which are lotteries as discussed above.
Promotion of a lottery under the Act is the making or the participation in making the arrangements for a lottery. This includes making the arrangements for the printing of lottery tickets or promotional material, making arrangements for the distribution or publication of promotional material or making other arrangements to advertise a lottery.
Facilitating a lottery under the Act is printing lottery tickets or promotional material for a specified lottery or advertising a specified lottery.
Promotional material for these purposes means a document which advertises or invites participation in a specified lottery, contains information about how to participate in a specified lottery or lists the winners in a specified lottery.
A person found guilty of these offences under the Act is liable on summary conviction to a fine of up to £5000 and/or imprisonment for up to a period of 51 weeks (six months – Scotland).
A person commits a criminal offence if he provides facilities for gambling unless that person (or the person carrying on the relevant business) holds an operating licence and the terms and conditions of the licence are complied with or the specified gambling falls within the limited exceptions permitted under the Act. As stated above gambling includes betting which in turn includes certain prize competitions in which the participants are required to guess.
Thus if a person provides facilities for an unlawful prize competition he will be guilty of an offence and is liable to a fine not exceeding £5000 and/or imprisonment for a term up to 51 weeks (six months – Scotland).
The effect of the unfair commercial practices directive11
The Unfair Commercial Practices Directive (the “Directive”) has been implemented into UK law under The Consumer Protection from Unfair Trading Regulations 200812. The European Court of Justice (“ECJ”) has considered the Directive in relation to the validity of national laws in various Member States which prohibit certain forms of sales promotion. One such case was referred from the German courts and related to a sales promotion involving a lottery.13
Under German law on unfair competition (UWG) it is unfair for a person to make the participation by consumers in a prize competition or lottery conditional on the purchase of goods. A German retailer launched a promotional campaign in which its customers were able to collect points when making a purchase. By collecting 20 points customers could take part, free of charge, in a draw held by a national lottery association. The Courts held that under the UWG such a promotion was unfair and therefore unlawful.
On a reference to the ECJ, the ECJ concluded that:
- the German retailer’s promotion constituted commercial practices within the meaning of the Directive14;
- the Directive fully harmonises at the Community level the rules relating to unfair business-to-consumer commercial practices and Member States may not adopt stricter rules than those provided for in the Directive;
- Annex I to the Directive sets out an exhaustive list of 31 commercial practices which are regarded as unfair “in all circumstances”. Thus, those commercial practices alone can be deemed to be unfair without a case-by-case assessment against the relevant provisions15 of the Directive;
- The UWG established a general prohibition of practices which combined prize competitions or lotteries with the requirements to purchase goods. This general prohibition meant that under German law it was not necessary to determine, having regard to the facts of each particular case, whether the commercial practice in question was unfair as assessed against the relevant provisions of the Directive;
- There cannot be a valid general prohibition under national law of a commercial practice unless it is set out in the list at Annex I of the Directive. National law that establishes such a general prohibition does not meet the requirements of the Directive.
The implication of the ECJ’s decision on the effect of the Act in relation to sales promotions may be significant. Some commentators have suggested that in light of the ECJ’s ruling, the provisions of the Act imposing prohibitions on lotteries and prize competitions may, in the context of sales promotions, be invalid. However, even though it may be open to a manufacturer or retailer of consumer products running a sales promotion involving some form of prize competition to challenge the validity of the Act, should such a promotion be challenged, the more prudent course may be to ensure that any sales promotion does not fall within the activities prohibited under the Act in any event. From a practical point of view it may be better to invest in a sales promotion that complies with the national legislation, rather than to invest in the time and expense of a court action to challenge the validity of that national legislation.
The consumer protection from unfair trading regulations 2008
As we have mentioned above The Consumer Protection from Unfair Trading Regulations 2008 (the “Regulations”) implement the Directive in the UK. Even if the necessity to comply with the Act is open to question as discussed above, any sales promotion including those involving prize draws or competitions must comply with the Regulations. The Regulations impose a general prohibition on unfair commercial practices including misleading or aggressive marketing or advertising.
The definition of commercial practices is similar to that in the Directive and includes any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers.
A commercial practice is unfair if:
- it contravenes the requirements of professional diligence; and
- it does or is likely to materially distort the economic behaviour of the average consumer in relation to the product16.
Professional diligence under the Regulations is the standard of special skill and care which a trader may reasonable be expected to exercise towards consumers which is commensurate with either honest market practices or the general principle of good faith in the trader’s field of activity.17 Thus the activity of the trader is measured against an objective standard.
To materially distort economic behaviour means to appreciably impair the average consumer’s ability to make an informed decision so that he makes a transactional decision that he would not otherwise make.
An average consumer is considered to be reasonably well informed, reasonably observant and circumspect. A transactional decision includes a decision taken by a consumer whether, how and on what terms to purchase a product.
The difficulty that the Regulations present is that any good sales promotion which offers prize draws or competitions will be designed to influence consumers to purchase a particular product. However, provided such promotions comply with honest market practices or the duty of good faith then such promotions should be lawful.
In line with the Directive, the Regulations list 31 commercial practices that are in all circumstances unfair without regard to the effect that they may have on consumers. These are therefore specifically prohibited. The prohibited practices that are relevant to the type of sales promotion we are considering here are:
Claiming that products are able to facilitate winning in games of chance – this prohibition is directed more at products that are advertised as improving consumers chances of winning and is unlikely to affect sales promotions incorporating a prize draw or competition.
Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent – this prohibition raises several relevant issues.
The prizes offered must be genuinely available. For example, if a sales promotion for a particular brand of biscuits involves the winner matching a number on the biscuit packaging with a prize-winning number in order to win, then the relevant manufacturer must print the packaging and make available the packet of biscuits with the prize winning number. If there is, in fact, no “winning” packet it would be a breach of the Regulations.
If the actual prize offered is not available then a reasonable equivalent must be provided. This would, for example, be a prize of an equivalent value.
Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact, either –
- there is no prize or other equivalent benefit, or
- taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.
This provision is directed at the types of promotion which typically state “You have won a prize” and then requires some form of payment from the consumer in order to claim the prize. This would be illegal under the Regulations.
Offences and sanctions under the regulations
If a trader is found guilty of engaging in an unfair commercial practice it will be liable, on summary conviction, to a fine of up to £5000 and on indictment, a fine and/or imprisonment of up to two years.18 There is no private right of enforcement under the Regulations but an individual could apply to the court for a declaration that the trader is in breach of the Regulations.
Compliance with the CAP code
Any sales promotions run in the UK should comply with the British Code of Advertising, Sales Promotion and Direct Marketing (the “CAP Code”) which relates to non-broadcast advertisements and promotions. The CAP Code is published by the Committee of Advertising Practice which is an industry body made up of those engaged in the advertising industry including advertisers, agencies and media owners.
The CAP Code was revised last year and applies to advertisements and sales promotions in printed and non-broadcast media including newspapers, magazines, brochures, mailings and posters, cinema and DVD/Blu-ray. The CAP Code also relates to non-broadcast electronic media including online advertisements in paid-for space (eg pop-up ads) and on-line sales promotions. There is a separate code that relates to advertising on television and radio (the BCAP Code) and the content of premium rate telephone services are governed by PhonepayPlus.
With effect from 1 March 2011 the CAP Code in relation to on-line advertising has been extended to cover not only paid for advertising but also advertisers’ marketing claims on their own web-sites and in other non-paid for space under their control (eg on Twitter and Facebook).
The CAP Code sets out provisions that apply to advertising generally and sales promotions and prize promotions in particular. The main principle for all marketing communications including sales promotions is that they should be legal, decent, honest and truthful and should reflect not only the letter of the CAP Code but also the spirit of the CAP Code. Such communications must not materially mislead or be likely to mislead consumers and must not contain anything that is likely to cause serious or widespread offence.
The CAP Code specifies that before purchase (or if no purchase is required before or at the time of entry or application) promoters must inform potential participants in any sales promotion of all significant conditions. The CAP Code sets out certain conditions which would be considered to be significant. These include:
- Details of how to participate, including relevant costs of participation and other conditions which are likely to influence the consumer’s decision or understanding of the promotion, must be provided;
- There should be a clear explanation of any entry‑free route
- The start date of the promotion (if applicable);
- The closing date of the promotion, if applicable. For example the deadline by which entries should be received. A closing date for prize promotions targeted at children must always be stated;
- Closing dates must not be changed unless due to circumstances outside the reasonable control of the promoter. If there is a change in the closing date the promoter must do everything reasonably possible to ensure that the participants who entered under the original terms of the promotion are not disadvantaged;
- If proof of purchase is required to participate in the promotion then the relevant requirements must be stated;
- The number and nature of the prizes must be stated. If the exact number is not known then a reasonable estimate of the number should be provided.
- The promoter must distinguish between prizes that could be won (including estimated prize funds) from prizes that will be won at the end of the promotion;
- The promoter must state whether prizes will be awarded in instalments or be shared between winners;
- Any geographical, personal or technological restrictions relating to the promotion must be stated. If permission is required from an employer or adult to enter then this should also be stated;
- The promoter should make it clear whether there is any limitation on the availability of promotional packs. This will be important if the relevant promotional packs could become unavailable before the closing date of the promotion; and
- The promoter’s full name and correspondence address must be clearly stated.
If a marketing communication does not have sufficient space to include all information about significant conditions then the promoter must provide as much information as practicable and must clearly direct the consumer to where such information is easily accessible and is prominently set out. Participants must be able to retain this information throughout the promotion.
The CAP Code sets out specific rules that apply to prize promotions. These include:
- A promoter must not claim that consumers have won a prize if they have not;
- A promoter must not exaggerate a participant’s chances of winning a prize;
- A promoter must not give the impression that a participant is luckier than they actually are;
- A promoter must not falsely claim or imply that the consumer has already won or will win a prize (or equivalent benefit) if that consumer must incur a cost to claim the prize or if the prize does not exist;19
- A promoter must not state that entry is required by a particular deadline if this is not the case;
- Promotions should not involve complex rules. Only in exceptional circumstances may a promoter amend or add to conditions of entry and even then, participants must be told how to obtain such additional rules. The rules must not contain anything that could have reasonably influenced the participant in buying the promoted product or entering the relevant competition;
- If the prize promotion is a prize draw then the prizes must be awarded as a result of chance and winners should be drawn by or under the supervision of an independent person (unless selected randomly using a computer process);
- If the winner of a competition is to be chosen by subjective criteria then an independent judge (either alone or on a panel with other judges) must be appointed. Any appointed judge must be competent to judge the competition and their full name must be available on request;
- Prizes may only be withheld if the relevant participant has not met the qualifying criteria which must be clearly set out in the rules;
- In additional to the rules relating to sales promotions in general, prize promotions must also specify before the time of entry the following:
- any restriction on the number of entries;
- whether prizes may can be substituted by a cash alternative;
- if more than 30 days after the closing date, the actual date by which winners will receive their prizes;
- how and when winners will be notified;
- how and when details of winners and results will be made available. Promoters must publish or otherwise make available on request the name and county of main prize winners, and if relevant, their winning entries. Winners must not be compromised by the publication of excessive personal information;
- the criteria and mechanism for judging entries (if applicable);
- who will own the copyright in the entries (if applicable);
- how the promoter will return entries (if applicable); and
- any intended use of the winners in post-competition publicity.
Sanctions and Enforcement
The CAP Code does not have the force of law but, as stated above, it is administered by the Advertising Standards Authority (the “ASA”). Whilst the ASA proactively monitors advertising and promotions, it also deals with complaints. If a complaint is made, the complaint will be investigated by the ASA and, if the complaint is upheld, the ASA can ask an advertiser to withdraw or amend the offending material. The decisions of the ASA are published on its web-site and from time to time attract wider press coverage. As such a non-compliant advertiser may suffer adverse publicity and have to revise or withdraw its advertising campaign or promotion.
As can be seen from the review above, the rules and regulations applying to the use of prize draws and competitions in sales promotions are extensive and care should be taken when considering and developing a promotion that involves offering prizes, either on the basis of chance or some form of competition.