Coronavirus Crisis: A Compliance Guide For Cause Marketing in an Era of Social Distancing

Advertising Law

The offers are popping up everywhere: “Buy a protective face mask on our website and we will donate a mask to a hospital or a community in need” or “Retweet this message and we will donate $1 to a COVID-19 relief fund.” Companies planning to launch new products or services during the pandemic are pledging that a portion of the proceeds from the online sales of the product or service will be donated to a coronavirus-related fund. As nonessential physical retail has been largely shut down across the United States due to the COVID-19 health crisis, companies are looking to quickly launch online cause marketing campaigns to help raise funds and supplies for COVID-19-related causes. 

In times of a local or national crisis, brands will frequently pivot their marketing messages to support charitable causes in order to create meaningful consumer goodwill and to differentiate themselves from competitors who sell similar products or services. Companies frequently advertise that they will donate a percentage of sales to a charitable cause for each product sold. It is also common to see brands donating money to charity for every social share or retweet they get from consumers on a social media platform. However, companies that may not have traditionally engaged in such promotions without getting legal counsel involved are often surprised to learn of the broad regulatory scheme that applies to advertisements that raise funds, directly or indirectly, for charitable organizations. Additionally, each social media platform has its own rules and restrictions with regard to integrating a cause marketing campaign with the platform’s functionality.

In part because consumers are particularly likely to be influenced by an ad’s claim that purchasing a particular item or taking a particular action will benefit a charitable organization, and in part because of the potential for outright fraud if those donations are not actually made to the charity, many states specifically regulate cause marketing. Over 40 states have laws that regulate various method of fundraising, including charitable solicitations and commercial coventures. These laws cover a wide range of “solicitation” activities—including charitable sales promotions—and can subject violators to significant fines and even criminal penalties. In most states, the attorney general is charged with the obligation of supervising the administration of charitable organizations, and the attorney general’s powers also extend to the companies working with charities in connection with cause-related marketing programs. Thus, when a brand decides it wishes to align itself with a charitable organization or cause, it must be mindful of a myriad of laws, regulations and best practices guidelines that apply to such activity. 

In addition to general tenets of advertising law, cause marketers should be familiar with state commercial coventure laws. Commercial coventure laws vary significantly from state to state, and many states have unique requirements, making campaigns that cross multiple states or are launched nationally particularly burdensome from a legal compliance perspective. Generally, a commercial coventurer (CCV) is the company or brand that for profit or other consideration is regularly and primarily engaged in commerce other than in connection with soliciting for a charitable organization and that conducts a charitable sales promotion. A charitable sales promotion typically represents that a purchase or use of goods or services offered by the CCV will benefit a charitable organization or purpose. In addition, a social media campaign that invites a consumer to take some totally free action such as retweeting a promotional message, with a promise to make a donation for each consumer action, may implicate commercial coventure laws but remains in a gray area. Read expansively, at least some state commercial coventure laws could theoretically apply because a representation is made that the “use” of a “service” offered by the sponsor will benefit a charitable organization. As a matter of enforcement policy, however, many states are not likely to place priority on situations where the consumer pays no money at all—either for a purchase or a donation.

Generally speaking, sponsoring brands and companies often face the following kinds of statutory obligations in various states: (1) enter into a written contract containing mandatory terms with the charitable organization, (2) register annually and post a bond, (3) file the contract with the charitable organization prior to the solicitation, (4) file other solicitation-related documents with the state, (5) make written disclosures in advertising and promotional materials, (6) retain records of solicitation activities, and (7) submit a final accounting of completed solicitation activities. A general discussion of each of these obligations follows:

  • Written Contract With Charitable Organization: Many states with commercial coventure laws require that the CCV and charity enter into a written agreement and further specify what provisions must be included in the contract. The contract must be in writing and signed by the parties (California, Massachusetts and Virginia require signatures of two officers of the charitable organization) prior to the solicitation. Not only should the contract clearly define the parties’ respective obligations with respect to the campaign (e.g., term of campaign, management and control of funds, promotional activities, trademark licenses, fulfillment, warranty, indemnification terms, insurance), but many statutes also require the contract to contain mandatory terms. Representative examples of such terms include (i) identification of charitable purpose and goods/services to be offered to the public; (ii) geographic area where, and starting and final date when, offering will be made; (iii) permission to use the charitable organization’s name and manner in which it will be used; (iv) representation to be made to the public as to the actual or estimated dollar amount, or percent per unit of goods/services purchased or used, that will benefit the charitable organization; (v) estimated number of units of goods or services to be sold or used; (vi) percentage of gross proceeds collected to be paid to the charitable organization; (vii) date by which, and the manner in which, the benefit will be conferred on the charitable organization; (viii) if applicable, guaranteed minimum percentage of the gross receipts from the fundraising to be utilized exclusively for the stated charitable purpose of the solicitation; (ix) if applicable, a maximum dollar amount that will benefit the charitable organization; and (x) if applicable, a provision for a final accounting on a per-unit basis to be given by the CCV to the charitable organization and the date by which it will be made. Additional mandatory terms may be required by the charitable solicitation statutes in, for example, Georgia, New Hampshire, New York, Rhode Island, South Carolina and Washington.
  • Registration and Bonding: Sponsoring companies considered to be CCVs may be required to register with state authorities in a handful of states (e.g., Alabama, Massachusetts, Mississippi and South Carolina) before engaging in a cause marketing campaign. Registration must be done sufficiently in advance to allow time for approval by the state before a promotion begins. Typically, there is a registration fee (usually less than $200). The sponsoring company may also be required to post a bond (e.g., up to $25,000) before commencing the solicitation. Many states make their registration and bonding forms available online. In most instances, states requiring registration will request evidence of other charitable activities the CCV is conducting in the state, and corporate information such as lists of officers and a copy of the company’s articles of incorporation.
  • Contract Filing Requirements: Several states require the CCV to file with the state a copy of the written contract between the CCV and the charitable organization in relation to the charitable campaign. Some of the states require the charity to file the contract (e.g., Arkansas, Connecticut, New Hampshire, New Jersey, New York and Utah), while others require the CCV to file it. Some states require the contract to be filed within a certain time period before the charitable solicitation begins (e.g., at least 15 days before the solicitation in Alabama and at least 10 days before in South Carolina and Hawaii), or within a certain number of days after the contract is signed (e.g., within 10 days after execution in Alabama and Massachusetts). Because of these timing requirements, it is prudent to begin negotiations with the charitable organization sufficiently in advance of the cause marketing campaign to ensure compliance with all state laws. In addition, states requiring the CCV to file the written contract may also require a description of the promotion, including start and end dates, an overview of the charity, and the submission of any forms required by the state, which may require signatures by both the CCV and the charity. States such as Hawaii and Mississippi allow these submissions to be done online. 
  • Additional Obligations: Charitable solicitation statutes in several states require CCVs to file a closing statement and an annual report. Several states (e.g., Hawaii, Louisiana, Ohio and Oregon) require the CCV to provide a final accounting of the charitable sales promotion to the charitable organization or to state authorities within a certain number of days (usually 10 or 20) upon request. New York, on the other hand, requires that the accounting be provided to the charitable organization within 90 days after the promotion ends, regardless of whether the charity or the state requests an accounting. Several states require the CCV to provide fiscal or sales records of the promotion to state authorities upon request.
  • Required Advertising Disclosures: There are specific rules and best practices guidelines issued by state attorneys general governing what disclosures the CCV needs to include in advertisements, including at the point of solicitation, that tout the charitable endeavor. In many states, the disclosure must state the dollar amount or percentage of the sales price, gross proceeds or other consideration (on a per-unit basis where applicable) that will benefit the charitable organization or charitable purpose. Some states require the name, address and telephone number of the charity to be disclosed (e.g., Massachusetts) or how the money will be used. Additionally, it is recommended that advertisements clearly disclose any guaranteed minimum or maximum donations so that the consumer understands how his or her purchase is likely to impact the amount donated. Advertising should also set forth the duration of the campaign so consumers understand when their purchase or other action will no longer result in a donation. All disclosures should be clear and conspicuous to ensure compliance with general advertising legal principles. 
  • Record-Retention Obligations: Finally, one of the most commonly imposed obligations on CCVs is that of retaining records. In states with this obligation, the CCV must retain records relating to all solicitation activities for at least three years after the solicitation ends (e.g., New Jersey, Ohio, Virginia and Washington) and final accounting records for at least three years after the final accounting date in several additional states (including Arkansas, Florida, Georgia, Hawaii, Louisiana, New Hampshire, New York, Oregon, South Carolina, Tennessee and Utah). New York law requires the CCV to retain the contract with the charity for at least three years after the solicitation ends. Regulators in states such as Alabama, Arkansas and Hawaii may request an inspection of the records required to be retained by the CCV.

Conclusion

Any brand planning to run a charitable sales promotion to raise funds for a COVID-19 cause should, sufficiently in advance of any solicitation, evaluate the extent to which the promotion will implicate commercial coventure laws and take steps to ensure compliance. Companies should conduct due diligence on charities they wish to work with before aligning with a charity, as many states will not permit the cause marketing promotion to launch in their state unless the charity is already registered to accept donations in that state. When an online purchase triggers a donation to a charity, the campaign immediately becomes available nationwide and the charity benefiting from the donations must be properly registered to solicit donations in every state where charitable solicitation registration is legally required. Before any cause marketing agreements are signed, the brand and charity should confirm that all necessary registrations are in place—otherwise, it will become a race against time to make sure registrations are in place before the campaign begins.

Even if your charitable marketing campaign does not promote the purchase or sale of a product or service that will benefit a charity or cause, the entire spectrum of charitable promotion structures have varying legal compliance obligations and risks. In light of the increase in regulatory inquiries regarding cause marketing activities (e.g., the California attorney general has quietly brought enforcement actions against a number of charity-fundraising platforms in the past year), companies and brands are advised to review their cause marketing practices with experienced legal counsel to ensure full compliance with the provisions of the numerous laws governing in this area. Review by an attorney experienced in cause marketing prior to launching a campaign is a modest investment compared with the cost of regulatory action or a lawsuit, which can negatively impact not only the brand but also any charity involved in the campaign.

*Jesse M. Brody is a partner in the advertising, marketing and media practice group at the law firm of Manatt, Phelps & Phillips, LLP, resident in the Los Angeles office. He has over 15 years of experience handling all aspects of promotions that involve charities and charitable causes. He can be reached at jbrody@manatt.com or 310.312.4173. Ramu Anne is a data privacy and e-discovery specialist in Manatt’s Orange County office and can be reached at 714.371.2530.

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