Corporate Partnerships & The Law: Contracts ⚖️
This is the third-part of a four-part series on the four key legal issues you - my readers! - requested guidance on in the Selfish Giving / Accelerist Partnership Law Survey you completed last year.
Advertising Disclosures [Released 10/02/19]
Registration & Reporting Requirements [Released 12/4/19]
Contracts
UBIT [Released 6/21/20]
Today, our legal expert, Karen Wu of Perlman & Perlman, is answering your questions on contracts.
The FAQ’s below were taken directly from the survey - although Karen and I modified some of the questions for the sake of clarity and completeness.
Corporate Partnerships & The Law: Contracts
1. We are entering into a cause marketing promotion in which our charity will receive a portion of the proceeds from the sale of each Sellco product. Sellco sent us a draft contract to sign. It seems to describe the promotion the way we discussed it. Should we go ahead and sign it?
Let’s start by reviewing the important purposes a cause marketing agreement should accomplish:
Memorializing the parties’ understanding of all material terms of the promotion and the parties’ relationship,
Documenting any specially negotiated terms;
Including provisions required by state law; and
Providing legal protections for the parties in the unlikely event that a problem arises in the relationship.
A review of the contract simply to make sure it correctly describes the promotion may mean that other important functions of a contract may have been overlooked. For more information on what contract provisions to look for to cover each of these important purposes, read FAQ #2, below.
2. What provisions should be included in our cause marketing agreement?
The contract should include provisions that address each of the various purposes that a cause marketing agreement serves. Let’s look at each of the four key contract purpose categories.
a. Material Terms of the Promotion and Partnership
A cause marketing agreement should document all of the material terms of the promotion and the partnership. The agreement should include all of the terms needed for a customer to understand the impact of their purchase or action, and should mirror the terms that are disclosed to customers (see the post on advertising disclosures), including: (1) the participating products or services; (2) geographic territory of the promotion; (3) the dates of the promotion; (4) the dollar amount or percentage of the purchase price per unit sold that will be donated; and (5) any minimum guarantee or donation cap. In certain cases, if extra steps in addition to purchasing a product are required to trigger a donation, e.g., submission of a special code, redemption of a coupon, etc., those should be clearly described in the agreement as well.
b. Specially Negotiated Terms.
Some companies and charities negotiate special terms as part of their relationship. Here a few of the most common specially negotiated terms, and key considerations for each.
i. Donation Use Restrictions. In a recent Forbes article, corporate partnerships expert, Maureen Carlson, highlighted a trend to watch for in 2020, in which companies are looking to more clearly define their social and environmental commitment. Many companies want to know specifically how the funds they’ve donated or helped to raise have been used to impact the cause.
Charities can negotiate to receive unrestricted funds, while still reporting back to the company on specific charitable impact from the use of the donated funds. However, if a company wants to legally require that donations be used for a specific purpose, that purpose should be clearly stated in the contract as well as in advertising disclosures, and funds raised must be treated as legally restricted assets of the charity.
The parties should ensure that any language used in advertising disclosures about how donations will be used mirrors the language in the contract, and that the charity is prepared to comply with that restriction. Note that even if a use restriction is not explicitly documented in the agreement, advertisements that specify that donations will be used for a specific purpose (rather than for the charity beneficiary’s overall mission) create implied gift restrictions that must be followed. Failure to comply with charitable use restrictions in a cause marketing promotion led to a multi-state enforcement action against charity, Operation Troop Aid.
ii. Minimum Guarantee or Donation Cap. These provisions are already noted above as material terms of a promotion, but they are also included in this section regarding specially negotiated terms because neither a minimum guarantee nor a donation cap is legally required. A promotion can have neither, one, or both, of these terms. If included, such minimum guarantee and/or donation cap should be clearly disclosed in both the contract as well as in any advertisements.
iii. Exclusivity. Companies may negotiate to be the exclusive partner/sponsor of the charity in a particular business category (e.g., automotive, restaurant, sports apparel, etc.). This is most typically seen in corporate partnerships in which a significant level of donations is expected to be raised or given, and the company is prepared to invest significant time, effort, and money to promote the partnership.
iv. Compliance with the Better Business Bureau Disclosure Requirements. Some charities include a provision that requires the company to comply with the Better Business Bureau (“BBB”) Wise Giving Alliance’s disclosure requirements for charitable sales promotions. BBB Standard #19 requires companies to disclose the following information at the point of solicitation: (a) the actual or anticipated portion of the purchase price that will benefit the charity; (b) the duration of the promotion; and (c) any maximum or guaranteed minimum amount to be paid to the charity, if applicable.
The BBB Standards for Charity Accountability are important for many nationally fundraising charities because organizations meeting all 20 standards are eligible to license the BBB logo to use on all of their fundraising materials, which helps signal to potential donors that the charity operates with high standards of conduct in governance and oversight, measuring effectiveness, finances, and fundraising.
v. Return Benefits. Companies may want the charity partner to undertake specific activities. The basic expectation includes public acknowledgment of the partnership through the charity’s communication channels. The company may also ask for customized content highlighting the charity’s work to embed into an awareness campaign. If the charity is expected to provide substantial return benefits, such as active marketing of the company’s products or services, the payments received as part of the relationship could be subject to unrelated business income tax (“UBIT”). Organizations should make an informed decision as to whether they want to provide benefits that would cause income generated to be taxable, and confer with legal counsel on the limits associated with conducting such activities. (UBIT is the subject of the next post in this “Corporate Partnerships & The Law” series, so stay tuned.)
c. State Law Required Provisions.
Various states require that certain provisions be included in agreements where the corporate partner constitutes a “commercial co-venturer” (“CCV”)[1]. A commercial co-venturer is a business that conducts a charitable sales promotion in which the business advertises that the purchase or use of certain goods or services will benefit a charitable organization (e.g., “For every T-shirt purchased in July, ABC Company will donate $5 to XYZ Charity.”).
Many state laws require that the contract include the material terms of the promotion, including: (1) the goods or services to be offered to the public[2]; (2) the geographic territory of the promotion[3]; (3) the dates of the promotion[4]; (4) a statement of the charitable purpose for which the promotion is being conducted[5]; (4) the representation to be made to the public as to the amount or percent per unit of goods or services purchased that will benefit the charity;[6] and any donation cap.[7]
Additional state-required provisions that are important to protect the charity include: (1) the date when the donation will be made to the charity[8]; and (2) a provision for a final accounting on a per unit basis, and the date when it will be provided.[9] The company must keep the final accounting and/or books and records of the promotion on file for three (3) years following the final accounting or end of the promotion.[10]
A few states have special requirements that are uniquely required by that state:
Georgia: A statement that the charitable sales promotion is subject to the requirements of O.C.G.A. Title 43, Chapter 17.
Georgia/New Hampshire: The estimated number of units of goods or services to be sold or used.
New Hampshire: A statement that the charitable sales promotion is subject to the requirements of N.H. Rev. Stat. § 7:28-d.
New Jersey: A provision stating that the parties are subject to N.J.S.A. § 45:17A-29 and any rules adopted pursuant thereto.
North Carolina: The projected amount of gross sales, and the charity’s projected total dollar share.
South Carolina: The registration numbers of the charity and the company in South Carolina.[11]
Four states -- California[12], Massachusetts, Tennessee, and Virginia -- require two officers of the charity to sign the contract.
d. Key Legal Protections.
Last but not least, cause marketing agreements should provide appropriate protections for each party, should unexpected problems arise. Here are two key provisions that are important to protect the parties.
1) Trademark license/approvals. The charity’s name (and possibly also its logo and other trademarks) are included in the company’s advertising, and as such, the charity should grant a formal license to the company to use its trademarks in connection with the promotion. To the extent that the charity will be acknowledging the company’s support in public communications, the company should similarly license its name and trademarks to the charity for that limited purpose. Importantly, each licensing party should require that all advertising or other promotional materials relating to the promotion that bear the licensing party’s trademarks be approved by the licensing party prior to its publication or distribution. Trademark monitoring and oversight is an important part of trademark and brand protection strategy. It also gives the licensor an opportunity to review how their marks are being used in conjunction with the promotion, and ensure that the overall advertising disclosures comply with advertising disclosure requirements required by law and/or the contract.
2) Termination. Common reasons to permit either party to terminate the agreement include: (1) material breach of the terms of the agreement; (2) damage to a party’s reputation or good will; (3) insolvency/bankruptcy; and (4) a significant legal or financial organizational change (e.g., merger or sale of substantially all assets).
Below is a checklist for reviewing cause marketing agreements, taking into account the various purposes served by such an agreement.
Cause Marketing Agreement Checklist
✅Clear description of the promotion, including:
Name of the benefiting charitable organization and charitable purpose supported by the promotion
Participating goods/services
Dollar amount or percentage of the purchase price to be donated
Promotion period
Minimum guarantee or donation cap (if applicable)
Any additional requirements to trigger a donation (e.g., coupon redemption, submission of special code, etc.)
✅Geographic territory
Tip: If the promotion will not be conducted in all 50 states, list the specific states where the company will be conducting the promotion (e.g., participating store locations) or list the states that are excluded. Also specify if the promotion will include or only be conducted online.
✅Advertising methods (e.g., TV/radio ads, direct mail advertisements, websites, social media, emails)
✅Intellectual Property (IP) license
✅Approval rights over use of IP and the advertising disclosure
✅Donation transfer due date and payment frequency/schedule
✅Final/interim accountings to the charity
✅Requirement for company to maintain books/records as required by state law
✅Estimate of gross sales/# of units to be sold (GA, NH)
✅Projected amount of gross sales, and the charity’s projected total dollar share (NC)
✅Provisions referencing the parties’ compliance with applicable state laws (NH, NJ, SC)
✅South Carolina registration numbers of the parties[13]
✅Termination provision with appropriate protections
✅Two charity officer signatures (CA, MA, TN, VA)
✅Optional Provisions
Donation use restrictions, if any
BBB disclosure requirement
Partner exclusivity
List of benefits provided by the charity, if any
3. Is there a way to streamline the preparation of cause marketing agreements so they are compliant with all 50 states’ laws as well as for online sales?
Organizations or businesses that enter into many cause marketing agreements will benefit from implementing a structured process that ensures that compliance requirements are determined and addressed early. Here are a few tips for building out an internal implementation process.
a. Use an intake sheet to collect and organize all of the key details of the promotion. This will help ensure that you collect all of the information that drives compliance obligations and considerations (e.g., whether it’s a CCV, what geographic territory is involved, how long the promotion will run, etc.). An intake sheet can be structured as a set of questions, or set of terms to be filled in.
b. Communicate directly with the partner about any state law obligations applicable to the promotion. Do not assume that simply inserting a provision in the agreement that states that “the parties agree to comply with all laws applicable to the agreement” will lead to actual compliance. Confirming early on that the parties have a coordinated understanding of the applicable state laws, particularly those relating to registration and reporting, will help avoid unnecessary last minute surprises and scrambling to get into compliance.
c. For CCV agreements, create contract templates that are pre-customized with the general legal protections that your organization or company seeks, and that can be easily customized for compliance with only one state, several states, or all states. A simple way to do this is to use comment bubbles to guide the internal staff member customizing the agreement, including state-required provisions, and including annotations on when certain provisions must be included or not. To determine which state laws are applicable to CCV promotions (including promotions that involve online sales only), review blog post #2 on registration compliance. The analysis used to determine the states in which a company must register as a commercial co-venturer is also used to determine which state-required provisions must be included in the agreement.
4. Our corporate partner wants to enter into a multi-year relationship that includes a significant financial commitment, and will involve numerous customer activations. Only the details for the first activation have been solidified. How do we draft an agreement to cover this type of arrangement?
For-profit businesses seeking to make a bigger impact with a cause often want to strategically align their brand in multi-year, multimillion-dollar campaigns involving a variety of customer activations. These campaigns might include peer-to-peer events, charitable sales promotions, educational awareness campaigns, social media tie-ins, customer donations, product donations, and employee volunteer opportunities.
Because of the long-term nature of such relationships, these contracts are often structured as master campaign agreements, which outline the overall framework and goals of the relationship, together with contract addenda or standalone campaign agreements entered into throughout the relationship documenting the specific terms of each sub-campaign. This flexible contract structure allows the parties to experiment with new ideas while building toward a larger overall goal.
Footnotes
[1] Commercial co-venturers are subject to registration and advertising disclosure requirements, in addition to contract language requirements.
[2] See state laws in Arkansas, Connecticut, Georgia, Hawaii, New Hampshire, and South Carolina.
[3] See state laws in Arkansas, Connecticut, Georgia, Hawaii, New Hampshire, and South Carolina.
[4] See state laws in Arkansas, Connecticut, Georgia, Hawaii, New Hampshire, and South Carolina.
[5] See state law in Massachusetts.
[6] See state laws in Arkansas, Connecticut, Georgia, Hawaii, and New Hampshire.
[7] See state laws in Georgia and New Hampshire.
[8] See state laws in Arkansas, California, Connecticut, Georgia, Hawaii, and New Hampshire. California does not require companies to register as a commercial co-venturer in the state if the company undertakes certain actions, including transferring funds to the charity every 90 days throughout the promotion period.
[9] See state laws in Arkansas, California, Connecticut, Georgia, Hawaii, and New Hampshire.
[10] See state laws in Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Louisiana, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, South Carolina, Tennessee, Utah, Vermont, Virginia
[11] South Carolina does not enforce inclusion of these numbers in the contract. South Carolina requires companies to register and file a notice of solicitation form prior to the start of the promotion, and the form includes fields to provide the parties’ registration numbers.
[12] Companies are not required to register as a commercial co-venturer in California if, among other things, it enters into a written contract with the charity signed by two officers of the charity. See Cal. Gov. Code § 12599.2.
[13] See footnote 10.
The information provided in this post does not constitute legal advice to any individual or entity, and is not intended to substitute for legal counsel.
