Trade prize promotions: You’ve got to be in it to win it!

You’ve seen them before in magazines, newspapers and when you walk into stores, “Tell us in 25 words or less why you love our product” and “leave your details for your chance to go into a draw to win a holiday!”

Trade prize promotions are competitions or lotteries run by businesses to help increase sales and develop their customer base. While these types of promotions are permissible in Australia, the States and Territories have different laws which dictate the extent of permissions required, if any, to run them. Additionally, federal laws impose some restrictions on a business’ conduct in advertising a promotion, and the collection and future use of consumer information.

Businesses intending to run a trade prize promotion must comply with the idiosyncrasies of each Australian jurisdiction in which that promotion is to be run. Under the relevant laws an important distinction is drawn between a game of skill and a game of chance.

Games of Skill

In a game of skill entrants are required to perform a skill-based activity and a winner is selected on the basis of particular criteria. ‘Skill’ refers to the entrant having to make a decision or provide input. For example, a competition may invite entrants to provide an answer in 25 words or less on a particular topic.

Generally, games of skill are not subject to as much regulatory oversight or intervention as games of chance.  However, important requirements apply to how a game of skill must be run. In some jurisdictions a game of skill must have qualified judges or experts determine the winner, and importantly no element of chance or randomness can be present.

Games of Chance

In a game of chance all entrants have an equal chance of winning the competition, and there is no criteria of assessment for selecting a winner. For example, a winner is selected from a random draw. Often a permit will be required to run a game of chance (also known as a Trade Promotion Lottery) depending on the relevant State or Territory’s stance on the significance of entry fees, if a purchase is required to enter, and the nature and value of the prizes on offer. Additional rules sometimes apply to ‘instant win’ type promotions.

In some jurisdictions restrictions are placed on who can enter a game of chance by reason of their proximity to the business running the promotion.

The permit application process and fees vary between States and Territories.

Federal Laws

Australian Consumer Law – Section 18 of the Australian Consumer Law prohibits misleading and deceptive conduct. This extends to, for example, misleading entrants of a competition about the prizes being offered or how the competition will be run. Additionally, businesses running a trade prize promotion must ensure, among other things, that the terms and conditions of the promotion are clearly explained and visible to the customer. The promotion must be run in accordance with the advertised terms and conditions. All associated marketing materials must also comply with the Australian Consumer Law.

Privacy – One of the key reasons behind organisations running promotions is to collect information about their customers and entrants to the trade promotion, since having information about people is important in making marketing and promotional activities efficient and effective.  The collection of personal information in the course of a promotion, and any use of that collected information after a promotion, must comply with the Privacy Act 1988 (Cth), the Spam Act 2003 (Cth) (Spam Act) and the Do Not Call Register Act 2006 (Cth) which restrict the circumstances in which customer information collected can be used at a later date. For example, the Spam Act imposes specific requirements and limitations on how contact information of entrants can be used for future marketing communications.

Prizes

All States and Territories place restrictions on the types of prizes which can be awarded. At a general level, some prizes cannot be advertised or awarded to people under 18, for example liquor products. Other prizes which are generally prohibited include tobacco products; firearms or ammunition; explosives; and weapons.

Enforcement

Specific penalties for non-compliance can arise under the various State and Territory laws, including monetary penalties and, in some cases, imprisonment.

Additionally, the Australian Competition and Consumer Commission can seek pecuniary penalties for breaches of the Australian Consumer Law. Fines and pecuniary penalties can be awarded under the various privacy laws too.

Key Takeaways:

  • most States and Territories do not require a permit for games of skill. Choosing to run a game of skill is a simple way to avoid the complexities of accommodating multiple jurisdictions in the organisation of a trade prize promotion;
  • regardless of type, all trade prize promotions must comply with the applicable State or Territory laws, as well as federal laws including the Australian Consumer Law; and
  • information collected by businesses in the course of a trade prize promotion must be dealt with in accordance with applicable Australian privacy laws.

For further detail on the laws governing trade prize promotions please see our guide to Prize Promotions Around the World at this link.

This post was co-authored by Alexandra Moore (Graduate),  Josephine Gardiner, Nicholas Boyle (Senior Associate) and Melinda Upton.