We asked top cause marketing legal experts for their first take on the significance of this move

by the NYAG (The attornies will present an in-depth webinar on this subject on November 6th — register here.)  Here’s a quick overview of their first impressions:

Force of Law?
Ed Chansky of Greenberg Traurig feels that it’s important to note that these Best Practices are merely recommendations and, “do not have the force of law. However, they do provide insight into the types of practices that the New York Attorney General’s office and other regulators may find to be misleading to consumers, and, therefore, should be given careful attention. In particular, the ‘Best Practices’ reflect a growing frustration with vague disclosures and marketing practices that sometimes leave consumers guessing…”.

Added Tension
Perlman and Perlman’s Karen Wu agrees. “…the best practices, albeit non-binding, will likely further increase the adoption of these disclosures across the industry,” but offers that there is, “always an added tension when best practices are promulgated by regulatory bodies, because the standards can take on the weight of law in the public psyche, even though they do not have the force of law.”

Practical Effects
Venable’s Jonathan Pompan and Kristalyn Loson felt that the NYAG took a unique approach to enforcement by engaging Komen and BCRF explaining, “If these two organizations follow the Best Practices for any cause marketing efforts in which they engage, this will have the practical effect of forcing most of the 150 companies in the ‘pink ribbon’ cause marketing space to comply with the Best Practices even if they are not strictly legally enforceable…”.

Gray Areas Galore
Multiple questions should spring to mind when contemplating these new best practices. Here are a few you should be asking (and will be covered in the November 6th webinar), as raised by the attorneys we consulted:

• Will disclosure formats now commonly used on packaging, websites and advertising pass muster under these new best practices?

• Why do charities need to use extra caution in posting information about ‘active and closed campaigns’ on their websites?

• What are the specific recommendations for cause marketing campaigns using social media?

• How detailed does a charity’s mission statement need to be in ‘Best Practice’ disclosure?

• Is the suggestion of donation labels mandate or example?

• How will companies meaningfully estimate the number of purchase when experimenting with new products/services?

Although the attorneys we consulted felt these best practices were a step in the direction of better transparency for cause marketers and consumers alike, they also advise caution and diligence in interpreting these best practices. At least one felt these reforms were “dramatic” and will “radically transform cause marketing”.

This is just the tip of the iceberg. Join us November 6th as Ed Chansky of Greenberg Traurig, Karen Wu of Perlman and Perlman and Jonathan Pompan of Venable pave the way for your comprehensive understanding of these significant best practices.

How is your cause marketing team interpreting these new guidelines? Weigh in below!

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Looking for more examples of cause marketing campaigns?  You’ll find  2011 campaigns here and new 2012 campaigns here.

Is it a charitable sales promotion?
A traditional charitable sales promotion offers goods or services based on a representation that their purchase will benefit a charitable organization or purpose. In most states, the standard definition of a charitable sales promotion contemplates a sale as the trigger for regulating the offer. While it is theoretically possible that some states could seek to stretch their charitable sales promotion laws to cover the “like” situation, that has not been the pattern of interpretation or enforcement to date. Nor is there a strong policy reason for such interpretation or enforcement where consumers don't purchase anything, donate any money, or otherwise incur any cost whatsoever.

Is the sponsor a commercial co-venturer (“CCV”)?
In most states, the standard definition of a CCV is a commercial party who conducts a charitable sales promotion. Accordingly, the current pattern of interpretation and enforcement of the law generally would not deem the sponsor of a “like” promotion to be acting as a CCV. Exceptions theoretically could arise in Massachusetts and Illinois, which do not follow the standard definition of a CCV, but again there has been no pattern of such interpretation or enforcement of the laws where consumers don't purchase anything, donate any money, or otherwise incur any cost whatsoever to cause a sponsor to make a promised donation to a charity.

What should a sponsor and charity do when conducting a “like” program on Facebook?

1)  Have a thorough and clear written contract.

Even if CCV laws don't technically apply, the parties should have a contract to set forth their duties and avoid any confusion or misunderstanding as to the sponsor's obligations and the charity's right to receive the promised donation. S

ome states also have laws requiring a written agreement anytime a company wants to use a non-profit's name in a commercial context.

2)  Advertise the offer in a clear and non-misleading fashion.

This includes disclosing the exact amount, on a per-”like” basis, that will be donated to the charity, along with any limit on the donation. It also includes making sure the offer ceases to be advertised if and when any cap on the offer is reached. Corrective advertising to affirmatively announce the end of an offer might be necessary in some cases depending how the initial offer was communicated.

3)  Confirm the proper status of the beneficiary.

The charity should be a tax-exempt organization in good standing with the IRS and under applicable state laws. While a reasonable argument can be made that the charity isn't required to register with any states because no “solicitation” is occurring, it is generally safer (and wiser) for a sponsor to conduct “like” programs on behalf of reputable charities that are in fact registered for fundraising purposes in the state(s) where the offer is expected to be of interest to the public. The fact of registration by the charity helps give comfort to regulators and confidence to the public that the offer and the charitable purpose of the program are genuine.

Caution for future developments.
As “like” programs (and other free-action programs) become more popular, it is reasonable to expect greater scrutiny from regulators, especially if (when?) the technique becomes abused by sponsors not adhering to best practices. Don't be surprised, therefore, if a like-program sponsor becomes attacked for failing to deliver the promised donation to the charity. Such an attack could (and should) be based on simple laws of false advertising — i.e., if the sponsor didn't deliver what it promised, then it can be held to account on that basis without need for an extra overlay of CCV laws. But if a scandal arises, don't be surprised if one or more states (or plaintiffs' lawyers) also reach out to use the CCV laws as an additional angle of attack. The best protection for the cause marketing community is to adhere to best practices and avoid giving anyone any reason to add extra legal regulation to free-action promotions, whether you 'like' it or not.

“We’ve found out that we have been the passive beneficiary of some cause marketing campaigns of which we were not informed until after the fact.  Basically, a company announces a special 'giving back', limited promotion where they will donate a portion or all sales to our nonprofit organization.  Is this a commercial co-venture?  And, if so, are we now required to complete legal registration paperwork?”

A charity sometimes finds itself the unexpected beneficiary of a charitable sales promotion it knew nothing about — that is, a commercial party independently offers  goods or services based on a representation that a purchase will benefit the charity without ever telling the charity in advance about the promotion, or seeking permission to use the charity's name, or entering into a contract with the charity.

The Good News
The good news is that an unexpected donor is at the doorstep with a windfall check.

The Bad News
The bad news is that the promotion was conducted without the written contract required in many states, and without registration by the sponsor in the smaller group of states with such requirements.

To Accept or Not to Accept
What is the charity to do?  Accept the

money?  Send the sponsor/donor away?  Something else?  The answer will depend on the facts.  For example, if the sponsor is a party the charity would not normally accept funding from (perhaps a tobacco, liquor or other company that does not fit the charity's mission), the charity should not accept the money.  Similarly,  if the advertising for the promotion was somehow fraudulent or misleading, the charity might not be comfortable accepting the money.

But let's assume a tougher case where the sponsor acted with good and honest (though uninformed) intentions, the advertising was truthful and non-misleading, and the sponsor is a company the charity is willing to accept funding from.  On those facts, what should the charity do?

Choosing the Lesser Evil
The answer requires balancing risks and choosing the lesser of evils.  Refusing the donation makes the sponsor's advertising false and risks generating consumer ill will against both the sponsor and the charity.   Accepting the money can give the appearance of ratifying a promotion that didn't comply with technical statutory requirements but was otherwise truthful and non-misleading and conducted in good faith.

Faced with these choices, the charity can consider accepting the donation but also issuing a strong letter notifying the sponsor (a) what it did wrong, (b) how to seek permission in the future, and (c) that the charity will not accept future donations without proper documentation and procedures.  Of course, the charity should then adhere to that position and not turn a blind eye to future similar conduct by the same sponsor.  The first time might have been a good faith mistake.  Repeat offenses can't be forgiven as easily — by the charity or by state regulators.