Cause marketing is predicted to reach $2 billion dollars in 2016, a projected increase of 3.7% over 2015. As cause marketing grows, marketing departments need to be aware that certain campaigns may trigger legal obligations for both the for-profit marketer and its charitable partner.
While definitions vary from state to state, in general, a “charitable sales promotion” is an advertising or sales campaign conducted by a commercial co-venturer, which represents that the purchase or use of goods or services offered by the commercial co-venturer will benefit a charitable organization or purpose.
Generally, a commercial co-venturer is a person or entity regularly and primarily engaged in commerce (other than in connection with raising funds for charities) who conducts a “charitable sales promotion.” Approximately twenty-one jurisdictions regulate commercial co-venturers engaging in charitable sales promotions. Only six states require a registration but many others require a written contract, require certain disclosures, and impose record keeping requirements.
Some states have broader definitions than others. For example, Massachusetts includes in its definition of a commercial co-venturer “any person who promotes the sale of any good or service which is advertised in conjunction with the name of any charity.”
The states that regulate commercial co-ventures have different requirements but, in general, the legal requirements imposed by these statutes include:
- Several states require a written contract between the charitable organization and the commercial co-venturer. Sometimes the state requires that certain provisions be included in the contract (e.g., a description of the goods or services to be offered to the public, the geographic area of the promotion, the beginning and ending dates, the manner in which the charitable organization’s name will be used, provisions for final accounting by the commercial co-venturer, and the date and manner in which the charitable organization will receive its benefit).
- A few states require the charitable organization to file a copy of the contract prior to the charitable sales promotion. Note, the charity, not the commercial co-venturer, frequently must file the contract).
- Some states require registration and bonding of the commercial co-venturer. These include Alabama and Massachusetts.
- Some states require the commercial co-venturer to prepare an accounting, retain it for a specified number of years, and make it available to state regulators and their charitable co-venturer.
- Some states require disclosure statements to be included in the advertising.
- Increasingly, state regulators are requiring nonprofits to disclose co-venture relationships on their charitable solicitation registrations.
Approximately 12 states require advertisements to disclose the expected portion of the sales price, percentage of gross proceeds, or other consideration the charity is to receive as a result of the promotion. Failure to comply can prompt investigations from state Attorneys General which can lead to fines and negative publicity. The better approach is to do it right the first time. Once a company has conducted a compliant and successful charitable sales promotion, similar campaigns will be easier to implement going forward.
If you are seeking advice and assistance with commercial co-venturer contracts, disclosures and registrations, contact email@example.com.