May 19, 2020
By Jennifer McKenzie
Promotional contests are a great way to attract consumers' attention to your brand and your products. For U.S. marketers and companies, allowing Canadian residents to participate in promotional contests is a savvy way to increase brand exposure. However, despite our countries' many commonalities, Canadian contest law has unique differences to U.S. contest law.
Canadian contests must comply with provisions of the Criminal Code, Competition Act, and, if Québec residents may enter, Quebec's Act Respecting Lotteries, Publicity Contests and Amusement Machines. Also, if sponsors are using personal information collected during the contest for any secondary purpose, then the contest must also comply with Canada's federal privacy law called the Personal Information Protection and Electronic Documents Act. If you are sending email or text messages, CASL, our anti-spam law, may also apply. Here are the top things to keep in mind when planning to run a contest in Canada. Depending on the mechanics of your contest (for example, if minors may enter), further legal considerations may apply.
The information in this article is for information only. It is not, and should not be taken as, legal advice. You should not rely on, or take or not take any action, based upon this information. Professional legal advice should be promptly obtained.
Include a Skill-Testing Question
In Canada, games of pure chance are prohibited as illegal lotteries under our Criminal Code. This includes contests where prizes are given away through random draws, as well as those where prizes are randomly distributed through game cards or on packages (e.g. "scratch-and-win" and “instant win” games).
For contests of chance, making prize redemption conditional on answering a skill-testing question turns a game of pure chance into a (legal) game of mixed chance and skill. Generally, a time-limited, multi-step and multi-operational mathematical skill testing question, answered without assistance, is sufficient.
It should be noted that contests of pure skill, such as writing and photographic contests judged by a judge or panel of judges, do not require a skill-testing question, although many include one anyway as a precaution. One would still be necessary if there is a random component to reduce the number of entries before progressing to the judging stage. Skill contests require other disclosures, such as clear communication of the judging criteria and the weight amounted of each criterion and, in the event of a tie, the mechanism to break the tie.
"No Purchase Necessary"
Under our Criminal Code, it is also an illegal lottery to award prizes by any game of chance, or mixed skill and chance, where the entrant must pay money or other valuable consideration to play.
What constitutes "consideration" can be a difficult analysis. Although a contest may not require an entrant to purchase a product to enter, it may require the contestant to take some other action that has value, such as watching a lengthy video (i.e. time) or requiring the entrant to complete an extensive survey (i.e. personal information). Generally speaking, where an entrant has to give up something of value or do something onerous to enter a contest, there is a risk that this will be construed as "consideration."
The simplest way to avoid the consideration prohibition is to include a "no purchase necessary" mode of entry, such including an address allowing consumers to mail-in for an entry without the need to watch a video or complete a survey. However, participants who choose the "no purchase necessary" route must not be unfairly disadvantaged compared to those entering through the other route (e.g. those who purchase the product have an opportunity to obtain additional entries, while those who mail-in do not).
Don't Forget About Québec!
International clients often exclude Québec residents from their contests. However, Québec makes up about 25% of Canada's population. Although there are additional steps to running a contest in Québec, they are not onerous. It means dealing with the Régie des alcools, des cours et des jeux ("Régie") by registering the contest with the Régie, making prescribed disclosures in the rules, having the rules and any related advertising translated to French, paying a duty to the Régie (which is a small percentage of the value of the prize pool and varies depending on the population eligible to win the prizes) and, in certain circumstances, posting security, which is refunded upon the conclusion of the contest and the distribution of the prizes. Likely the most significant costs are associated with the translation to French. Thus, for a few extra steps, which are not as daunting as they may initially seem, your brand could gain exposure to a significant portion of Canada's population by including Québec residents.
Get a Waiver of Moral Rights and an Assignment of Copyright for User Generated Content Contests
Contests encouraging entrants to produce user generated content (UGC), such as submitting their favourite photo with your product, are an exciting way to engage your consumers in your brand. However, there are a number of legal issues that need to be considered for these contests and involvement from your Canadian legal team in planning the contest is prudent. Since entrants will be creating content to be submitted and used in the contest, copyright is an issue that should be taken into consideration.
Unlike in the U.S., Canada more broadly recognizes the moral rights held by creators of copyrighted works. Moral rights automatically exist when a work is created, and they cannot be assigned — they can only be waived. A creator of a copyrighted work may sue for infringement of his/her moral rights when, for example, a work is modified in a way she does not approve of or if it is given a negative association. Thus, you should ensure your contest rules include a waiver of moral rights.
Also, under Canada's Copyright Act, an assignment of rights in a copyrighted work is only valid if it is made in writing and signed by the owner of the copyright. Thus, at a minimum, you should ensure contest rules include a non-exclusive license to publish, display, reproduce, modify, etc. entrants' UGC submissions. Once an entrant is selected and confirmed as a winner, you can then have her sign a written assignment of her rights in the UGC submission to you.
Canada's anti-spam law, referred to as CASL, includes a number of provisions which affect how businesses send marketing communications electronically to the public. Generally speaking, CASL prohibits sending of commercial electronic messages to a recipient without the recipient's consent, which can be implied but only in prescribed limited circumstances. "Commercial electronic messages" is broadly defined and includes marketing and promotional e-mails and texts.
One aspect of promotional contest mechanics that may be affected by CASL are those contests that include a "refer-a-friend" element. For example, contests where the original entrant has the opportunity to gain more entries if she or he refers a friend to the contest. Care must be taken so that this feature is set up not to contravene CASL.
Further, CASL prohibits tied or bundled consent, meaning that you cannot force entrants to agree to receive promotional emails as a condition of entering the contest. Instead, businesses should have a separate consent to receive emails, which is optional and apart from the contest.
Cancel, Suspend, Modify
Every set of rules should have a clause that allows the sponsor to cancel or suspend the contest, or modify the rules, particularly if there is some factor that interferes with the proper administration of the contest. Additionally, the sponsor should have the ability to substitute all or part of a prize, including for cash equal to the stated value of the prize in the rules, if all or part of the prize becomes unavailable for any reason. The importance of these clauses is certainly underscored by the coronavirus pandemic and the resulting cancellation of any sort of public gathering including popular prize items: tickets to concerts and sporting events. Although cash likely does not have the same cachet as a live event, it is necessary when all else is cancelled.
Platforms have their own Terms
Social media platforms are a popular forum for contests. As old ones fall out of favour, brands want to reach a desired demographic by trying the latest platform. It is important to be mindful that every platform has its own set of conditions on whether and how contests can be run on their forum. Brands need to ensure that their contest mechanic corresponds with the platform’s terms.
Content shared on Bereskin & Parr’s website is for information purposes only. It should not be taken as legal or professional advice. To obtain such advice, please contact a Bereskin & Parr LLP professional. We will be pleased to help you.