California Court Sides With Coinbase In Sweepstakes AMOE Action – Fin Tech

Running a promotional sweepstakes is an innovative and creative
way to attract and retain new customers. However, promoters and
administrators must be sure to follow state and federal regulations
when crafting their sweepstakes contest rules or risk legal action.
One of the most important factors to consider is what is necessary
to enter a given contest: would-be participants must not be
required to pay any sort of fee as a condition of entry. In fact,
there must be a “Sweepstakes AMOE” or an “alternative
free means of entry” available to all prospective entrants.
According to a recent California Court decision, it may not matter whether the
participant was actually aware of the AMOE, so
long as the opportunity to enter via this mechanism in fact
existed.

Illegal Lottery Claims and the Sweepstakes AMOE

In Suski vs. Marden-Kane, Inc., Plaintiffs each
purchased a certain amount of the cryptocurrency Dogecoin on the
Coinbase exchange to enter a Coinbase-sponsored sweepstakes.
Plaintiffs filed a purported class action against Coinbase, as well
as Marden Kane, the administrator, alleging violations of various
California State deceptive marketing laws. Plaintiffs argued that
the Dogecoin sweepstakes was an illegal lottery within the meaning
of the California Penal Code. Specifically, Plaintiffs claimed that
not only were they unaware that a sweepstakes AMOE existed, but
also that “the ordinary, reasonable consumer could not be
expected to have known” that people would be able to enter the
contest without buying or selling Dogecoin.

The Court granted Defendants’ motion to dismiss the illegal
lottery claims, pointing out that no California court has held that
being unaware of a sweepstakes AMOE is enough to satisfy the
required Penal Code consideration element.

Consumer Legal Remedies Act Claims (the “CLRA”)

In addition to the Sweepstakes AMOE claims, Plaintiffs alleged
that Defendants’ actions violated the CLRA. The CLRA prohibits certain “unfair methods of
competition and unfair or deceptive acts or practices undertaken by
any person in a transaction intended to result or which results in
the sale or lease of goods or services to any consumer
[emphasis added].” Although both parties agreed that Dogecoin
is a cryptocurrency (an intangible good) that does not
fall within the purview of the CLRA, Plaintiffs claimed that the
statute applies to Coinbase’s services because they facilitate
the ability of others to trade in Dogecoin (like that of a
stockbroker). The Court disagreed, seeing no reason to make a
distinction between an entity selling the cryptocurrency itself
versus offering the same services for others (Coinbase).
Accordingly, Plaintiffs’ CLRA claims were dismissed.

Lessons Learned from the Coinbase Decision

As we mentioned in a blog concerning earlier proceedings in this
case, failing to include certain necessary
promotional disclaimers and disclosures can land your sweepstakes
contest in hot water. Some specific disclosures that all
sweepstakes promotions should incorporate include:

1. a sweepstakes AMOE, i.e., language explaining thatno purchase is necessaryfor entry, and that
   any such purchase will not increase the consumer’s odds of
   winning a prize;




2. start and end dates;




3. eligibility requirements, such as minimum age and states where
   entry is prohibited; and




4. the odds of winning a prize.

Consult a Sweepstakes Attorney

Sweepstakes advertising is a highly regulated area that may
appear simple at first glance. Unfortunately, as many sponsors have
learned throughout the years, this is anything but the case. As
such, businesses should seek counsel before running any contest
promotion to avoid potential regulatory and legal challenges.

Related Blog Posts:

Coinbase Sued For Misleading Sweepstakes
Advertising

What Is An NFT Sweepstakes AMOE?

So You Want To Run A Discord Sweepstakes? Be
Careful!!!

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.