Class Actions Against Premium SMS Sweepstakes Promotions To Go Forward

As we previously reported, contests incorporated into popular shows such as American Idol, Deal or No Deal, 1 vs. 100, and The Apprentice have generated lawsuits by people claiming the contests are illegal lotteries. Now that four lawsuits have survived the first round of attempts to get them thrown out, it looks like they will become part of the new reality for the producers of these shows. The recently issued decisions out of the federal court in Los Angeles, California denying defendants' motions to dismiss class and representative action claims demonstrates the risk in having a "pay to play" component in sms game promotions. This is true even where there is a free no-purchase alternative method of entry that is readily taken advantage of by consumers. Rather, the risk appears when promotion has a pay component and there is a claim of insufficient economic value provided in return for the payment.

Four cases at issue involve premium text message sweepstakes run in connection with the four popular reality shows. The promotions were included as a supplemental contests in connection with these shows, entrants were offered the opportunity to enter either a trivia contest or guessing game either through text messaging or a designated website. Although the website entry method was free, if an entrant wished to enter via text messaging, there was a 99 cent charge per entry (plus standard text message rates). Consumers from around the country filed lawsuits as representative actions under California's liberal Business and Professions code as well as class actions under Connecticut and Massachusetts law. The suits were filed against the television networks, producers, and game promoters. The plaintiffs have alleged that the because they were charged a fee to enter without receiving anything of substance in return, the contest sponsors were violating the law by running an illegal lottery.

The contest sponsors tried to convince the courts to throw out the claims by arguing that they were not conducting a legal contest, not an illegal lottery. Under California law, which is typical of state anti-lottery laws, a contest becomes an illegal lottery when it has three components: prize, chance, and consideration (usually the payment of money). All of the reality show promotions clearly had the prize and chance components, the sponsors argued there was no consideration required because the web offered a no-purchase necessary method of entry, which has consistently been permitted in sweepstakes promotions to avoid the anti-lottery laws. The court, however, rejected the argument, holding that in sweepstakes promotions, consideration is normally paid for something of economic value (i.e., purchase a product and automatically receive a free entry into the sweepstakes). Here, the court found that plaintiffs could go forward with their claim that the reality show sweepstakes were an illegal lottery because the .99 cent chargers were merely to play the game and that there was nothing of economic value received in return. The court rejected contest sponsors' procedural challenges on lack of standing and the fact that the consumers were not located residents of California.

While a ruling on a motion to dismiss is only the beginning of a lawsuit and does not mean that the plaintiffs will ever win their case or ever collect a dime, the court's ruling insures that the contest sponsors will incur significant legal fees and have potential significant exposure. Therefore, these lawsuits send a strong message to those who are running sms or text message promotions, particularly those that assess premium charges to players. Game promoters should make sure that not only is a free method of entry available, but that an entramt who has paid to play receives something of reasonable economic value in return.

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