Corporate Partnerships & The Law: Advertising Disclosures ⚖️
Thanks for your patience waiting for the results of the Selfish Giving / Accelerist Partnership Law Survey many of you took back in May.
Karen Wu of Perlman & Perlman and I received a lot of questions about corporate partnerships and the law. On the surface, this was great! But we did need to establish a process for answering everyone’s questions. That’s taken some time, but we think you’ll enjoy the results.
Over the next few months, Karen and I will be releasing a four-part series on the four key legal issues for which you requested guidance.
Advertising Disclosures
Registration Requirements [Released 12/04/19]
Contracts [Released 03/04/20]
UBIT [Released 06/21/20]
Today, we’re answering your questions on advertising disclosures. The FAQ’s below were taken directly from the survey - although Karen and I modified some of the questions for clarity and for completeness.
Corporate Partnerships & The Law: Advertising Disclosures
1. Are cause marketing advertising disclosure “best practices” also required by law? Some of our corporate partners think they are just “suggestions.”
When it comes to cause marketing advertising disclosure requirements, cause marketers tend to be more familiar with advertising disclosure “best practices,” notably, Standard #19 [1] of the Better Business Bureau (BBB) Wise Giving Alliance Standards for Charity Accountability, than state law advertising disclosure requirements. This is probably because (a) the statutory disclosure requirements vary from state to state [2]; (b) many states don’t have any specific advertising disclosure requirements; and (c) the “best practices” are, in many respects, clearer and more comprehensive than their state law counterparts.
Let’s take a look at what the state laws actually require. The most common statutory disclosure requirement, as stated in eleven states’ charitable solicitation laws, requires that companies which conduct charitable sales promotions disclose the “dollar amount or percent per unit of goods or services purchased or used that will benefit the charitable organization or purpose.” [3] With regard to percentage disclosures, a few state laws are more specific, stating that such donations must be disclosed as an anticipated percentage of the sales price or gross proceeds. [4]
Other advertising disclosure requirements found in a few state laws include (1) the name of the charity [5]; (2) the name of the company [6]; (3) the address/phone number of the charity [7]; (4) a description of how donations will be used for charitable purposes [8]; and (5) the donation cap [9].
Notably missing from any state law is an explicit requirement to disclose a minimum guarantee or promotion period. In spite of that, such disclosures provide important and relevant information to consumers regarding the promotion with respect to the impact of the customer’s purchase. A promotion period is relevant if the purchase of a product will cease to trigger a donation after the end of the established promotion period. Minimum guarantees disclose the fact that a certain minimum donation amount will be donated to the charity regardless of sales. Consider that if a minimum guarantee is set significantly above any reasonable sales forecast, consumer actions will effectively have no impact on the donation amount. The New York Attorney General addressed this issue in 2012 when it issued Five Best Practices for Transparent Cause Marketing, advising that, “if there is a minimum donation guaranteed, stock the shelves; ensure that enough products are distributed for sale so that the minimum amount can be sufficiently exceeded.” Similarly, with respect to donation caps, the New York Best Practices advises that if a charitable sales promotion includes a donation cap, “do not saturate the market with products; limit the number of units distributed to a quantity that is reasonably expected to produce the maximum donation.”
Companies and charities engaged in cause marketing should be aware that state laws not only impose certain specific statutory disclosure requirements, they also prohibit deceptive or misleading advertising and charitable solicitation practices. As such, cause marketing advertisements must avoid misleading customers as to the effect of their purchase on any donation being made.
As another example, the New York Attorney General included advice in its 2012 guidance on how companies should approach a marketing campaign that highlights a charity supported by the company via a fixed donation that is not dependent on sales: “If a flat donation has been promised or paid to a charity, regardless of a consumer’s purchase or use of a product or service, be clear that consumer action will not result in a contribution to the charity.”
2. What if a company insists on structuring a campaign where the donation is based on a percentage of its profits, rather than a percentage of the purchase price?
Several states anticipated this issue in drafting their laws, and have stated that if the actual donation amount cannot be determined until the end of the promotion (e.g., calculations are based on net profits after expenses), the advertisement must disclose the donation as a reasonable estimated dollar amount or percentage of purchase price, and any such estimate must be reasonable and based on all the relevant facts known to the commercial co-venturer and the charitable organization. Companies can draw from past sales history to determine an appropriate donation estimate. As an alternative, companies can disclose a “percentage of profits” donation in combination with a minimum donation per unit sold, thereby ensuring that purchases will always trigger a specific minimum donation, regardless of the company’s profit margin.
3. Have any companies ever gotten into trouble with regulators for failing to include certain information in their cause marketing advertisements?
Yes, but fortunately, not many. Perhaps the most well-known enforcement action is one brought by the Georgia Attorney General’s office in 1999 against Yoplait in connection with a charitable sales promotion benefiting Susan G. Komen for the Cure. According to a 2010 New York Times article discussing the enforcement action, Yoplait had disclosed the $500,000 donation cap on the inside of the yogurt lid, making the information inaccessible before customers purchased the product. Yoplait resolved the investigation by donating an additional $63,000 to Susan G. Komen for the Cure, and subsequently revised its disclosures.
While few companies have faced regulatory enforcement actions as a result of allegedly deceptive or misleading cause marketing advertisements, I’m certain that most companies would prefer not to be mentioned in a newspaper article or Attorney General press release involving deceptive business practices, and would rather have their brand positively associated with the charitable causes they support. [10] Given the potential for regulatory scrutiny and enforcement, companies and charities are well-advised to adhere to the advertising disclosure statutory requirements and best practices.
4. Advertising disclosure problems only present a real legal risk to the corporate partner, not the charity, right?
Wrong. A joint report issued in 1999 by state regulatory agencies, which examined commercial marketing campaigns that feature the name or logo of a charity, stated the following: “Both the commercial sponsor and the nonprofit organization have dual responsibility for complying with applicable legal standards governing the advertising and sale of the product, specifically including the requirements of state consumer laws. Both participants will be legally responsible for any deception that may arise from the advertising campaign.”
The potential for a charity to be the subject of an enforcement action in connection with cause marketing disclosures became a reality in 2018 when 16 state charity regulatory agencies brought an enforcement action against Operation Troop Aid (OTA), in connection with its cause marketing promotion with the retail store chain, Harris Jewelry. The company advertised that for each teddy bear purchased as part of the promotion, a specific amount of money would be donated to OTA for the express purpose of sending care packages to service members. According to the settlement agreement entered into with OTA, the charity used donated funds for purposes other than those expressly represented, including non-charitable purposes. In the settlement agreement, OTA acknowledged that it “engaged in unfair, false, misleading, or deceptive solicitation and business practices.”
The OTA enforcement action confirmed that charities do risk regulatory enforcement action for deceptive or misleading cause marketing disclosures. As such, it is important that charities ensure that the advertisements used by their corporate partners are sufficiently transparent, taking into account statutory and best practices guidance. Charities have the additional responsibility of following through in using the donations for the specific purposes stated in the advertising, and making sure that companies do not inaccurately describe how the funds will be used.
5. Can the company simply state on the hangtag or store signage, “10% of the purchase price will be donated to ABC Charity, see www.company.com/ABCCharity for details,” and then include the website URL where the minimum guarantee and/or donation cap can be found?
No. While most state laws only state that their disclosure requirements must be “in each advertisement,” Vermont’s CCV laws more specifically require that the disclosures, including the donation cap, be placed “in a clear and conspicuous manner in close proximity to any representation” that a specific amount will be donated per unit of goods or services sold and will benefit a charitable organization or purpose.
Let’s take another look at the best practices guidance. BBB Standard #19 states that all of the disclosure requirements must be “at the point of solicitation.” This typically includes hangtags or in-store signage placed on or near the products being sold. The New York Attorney General’s guidance includes the following advice: “These key details should be displayed together in a clear and prominent format and size, and in close proximity to, the text used in marketing the promotion. Disclosing information separate from the principal marketing of the campaign does not promote transparency or allow consumers to make informed decisions at the point of purchase or use.” For an example of the regulatory enforcement risks of such an approach, re-read FAQ#3, above!
Footnotes
[1] BBB Standard #19 requires charitable sales promotions to disclose, at the point of solicitation, the following information: “(1) the actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to ABC Charity for every XYZ Company product sold), (2) the duration of the campaign (e.g., the month of October), and (3) any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).”
[2] Thirteen states have enacted specific advertising disclosure requirements applicable to charitable sales promotions.
[3] See state laws in Arkansas, Colorado, Connecticut, Louisiana, New Hampshire, New Jersey, Ohio, Oregon, Utah, Vermont, and Wisconsin.
[4] See state laws in New York, Vermont, and Wisconsin.
[5] See state laws in Massachusetts and Vermont.
[6] See Oregon state law.
[7] See Massachusetts state law.
[8] See Massachusetts state law.
[9] See Vermont state law.
[10] It is worth noting that enforcement actions involving deceptive advertising or charitable solicitations are frequently settled without an official determination that the disclosures at issue were, in fact, deceptive or misleading. However, Attorney Generals’ disclosure of the enforcement action and settlement nevertheless create negative publicity for the company and charity involved.
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.
