Court Decision Points To Importance Of Certain Clauses In A Contest’s Official Rules

Court Decision Points To Importance Of Certain Clauses In A Contest’s Official Rules

August 20, 2015
by Jerry Glover

A recent decision from the U.S. Court of Federal Claims shows why sponsors of contests/sweepstakes must pay attention to the official rules accompanying those promotions. Frankel v. US, 2015 WL 4594082 (Ct. Cl. July 31, 2015). The clauses from the rules in this case released the sponsor from all claims and made the sponsor’s decisions final in all matters concerning the contest.

The Federal Trade Commission (FTC) sponsored a contest this year to find a solution to automatically dialed, prerecorded sales calls labeled “robocalls.” The contest was entitled The Robocall Challenge and offered a $50,000 prize to the best solution submitted by an individual or small company. The contest’s official rules, as do most contest rules, set out the criteria by which entries would be judged: (1) Does it work (50%); (2) Is it easy to use (25%); and (3) Can it be rolled out (25%). Almost 800 entries were received. An FTC administrator screened all of these entries to determine if they were facially deficient and ultimately forwarded 268 entries to the expert judges for review. The plaintiff’s entry was one of those 268 entries.

The judges narrowed the entries to 115 because those entries were the only ones that employed filtering-type solutions which the judges believed best satisfied the contest criteria. The plaintiff’s entry was not part of these 115 entries. Seven finalists received numerical scores based on the judging criteria. Two winners were chosen each of whom was awarded one-half of the advertised $50,000 first prize.

The plaintiff filed a complaint claiming the FTC had breached the contract it had with the plaintiff based on the official rules for not adhering to those rules. He claimed that a breach occurred because the rules did not provide that the entries would first be narrowed to a particular type or category of solution noting that the rules stated all submissions would be judged by the experts.

The court noted that the rules included a clause which provided that each entrant agreed to “comply with and be bound by … the decisions of the [FTC], the Administrator, and/or the Competition Judges, which Rules and decisions are binding and final in all matters relating to this competition.” The rules also included a broad release clause which stated that the entrants agreed to “release, indemnify, defend and hold harmless the [FTC] … from and against any and all claims, expenses and liabilities.” The plaintiff admitted he had read the official rules.

The court concluded that the FTC acted within its discretion when it elected to narrow the submission and when evaluating and selecting the winning proposals. The court noted that the FTC had perhaps been overwhelmed by the large number of entries it received so it decided to filter them first. The same was true when the judges further limited entries to 115 based on the judges’ identification of the most sophisticated and comprehensive entries. The court added that there might have been another way that was different or more comprehensive to evaluate the hundreds of proposals received but that fact, the court concluded, does not give rise to a legal action. The court noted that judges exercised their discretion reasonably and properly and the court could not second guess the contest’s outcome.

The court looked to the clause that noted all of the judges’ decisions were final and binding concluding that courts should not interfere with the judges’ decision unless there was evidence of fraud, intentional or gross mistake, irregularity of lack of good faith, things the plaintiff had essentially admitted did not occur. The court then turned to the release clause noting that it covered all claims related to an entrant’s participation in the contest. It concluded that allow the plaintiff’s breach of contract claim to go forward would negate the terms of the official rules (i.e., the contract) and allow any other entrant in plaintiff’s position to challenge the contest outcome.

NOTE: This case clearly shows the importance of a broad release clause and a clause noting that the judges’ or sponsors’ decisions on all matters involving the contest/sweepstakes are final and binding. All contest/sweepstakes sponsors should include a statement in the contest/sweepstakes on-line entry form that the entrant has read and accepts the Official Rules. The entrant must be required to check a box next to that statement and the words “Official Rules” should be a hyperlink in a different color ink that will lead the reader to the Official Rules page. From a contract law perspective, it is irrelevant if the entrant does not, in fact, read the rules. A contract has been formed between the sponsor and entrant once that box is checked.

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