Understand the legal obligations of cause marketingAccording to Engage for Good, cause marketing campaigns have exploded in the last decade — driving $700 million in sales in 2002 to $2 billion in 2016. Everywhere consumers look there are offers that promise to benefit a charity or cause. What many companies don't know is that cause marketing triggers legal obligations for both the businesses making the offer and the charities that benefit.
Often companies are blissfully unaware that their charitable sales promotion is a regulated activity and are surprised to learn that there are regulations that require compliance. However, states have an interest in protecting consumers from false and misleading advertising. They also have an interest in protecting charities from being exploited. Accordingly, at least 20 states regulate cause marketing offers (which are referred to interchangeably as "commercial co-ventures" or "charitable sales promotions").
While definitions vary from state to state, in general, a commercial co-venture is an advertising or sales campaign conducted by a business which represents that the purchase of goods or services offered by the business will benefit a charitable organization or purpose.
A number of states require the business making the offer to enter into a contract with the charity they plan to benefit. As of 2016, four states require some form of registration. Others require the parties to enter into a written contract and even specify certain terms to be included in the contract. Two states require copies of the contract to be filed with the state before any actual sales occur. Two states even require the business to obtain a bond and register it with the state.
Most state regulators also require the charitable beneficiary to register to fundraise in the states where the offer is going to be made. Failure to register can lead to fines and, in some states, criminal penalties.
Best practices for businesses
- Carefully vet charitable beneficiaries to ensure the charity enjoys a good reputation as an ethical and effective organization
- Enter into a written contract with the charitable beneficiary that secures the right to use its name and trademarks to promote the offer and that includes the terms and disclosures required by certain states' laws
- Ensure the charity files a copy with the states that require it
- Either obtain and register a bond in the states that require a bond or clearly state the offer is not valid in those states in all promotional material
- State the offer in clear and unambiguous terms
- Include the required disclosures at the point of sale
- Ensure advertisements list the donation on a per unit basis wherever possible
- If an offer is based on a percentage of profits, clearly disclose any minimum sales requirements or sales caps
- Look for charitable beneficiaries that are registered (or are willing to register) to solicit in the states where the offer will be valid
Best practices for charitable beneficiaries
- Before agreeing to participate in a charitable sales promotion, make sure the business is aware of and willing to fulfill its legal obligations
- Require a written contract
- Ensure the contract makes clear the dates of the offer and in which states the offer will be valid (and register to fundraise in those state before the campaign begins)
- Ensure the item or service that is being sold is clearly described
- Ensure the offer is clear and unambiguous and written in a way that the amount owed to the charity can be tracked
- Include a limited, nonexclusive, nontransferable, nonassignable, revocable license to use the charity's trademarks and service marks as part of the promotion
- Clarify how and how often payments will be made to the charity and ensure the reporting schedule adheres to any statutory minimums (every 90 days is typical)
- Require regular accounting reports of the campaign
Cause marketing can be an effective strategy for companies to promote products and gain market share. It can also be a welcome source of funds for charities. However, cause marketing can backfire when proper consideration isn't given to legal compliance.
For more from Ellis Carter, visit CharityLawyer.