On October 19, Coinbase Global, Inc. ("Coinbase") filed a motion to compel arbitration in the proposed class action arising out of its "Dogecoin Sweepstakes." Dogecoin traders (collectively, "Traders") brought a class action lawsuit against Coinbase and Marden-Kane, Inc. ("MKI") (collectively the "Defendants") for allegedly engaging in false, deceptive and misleading sweepstakes advertising. Coinbase, one of the largest online cryptocurrency exchanges, hired MKI to design, market and execute a $1.2 million "Dogecoin Sweepstakes," beginning on June 3, 2021. The Defendant's motion argues that Traders, by accepting the platform's user agreement, agreed to bring disputes through individual arbitration and, as such, waived their right to participate in a class action.
What is the Suski v. Coinbase Global class action about?
The Trader's complaint alleges that in order to enter the Dogecoin Sweepstakes, Trader's had to buy or sell $100 in Dogecoin by June 10, 2021, for a chance to win a cash prize. Although Defendant's did provide an alternative, free means of entry, or AMOE, it is also alleged that Defendant's specifically designed their email and website advertising to prevent users from easily finding the AMOE information. The class is claiming that if the AMOE option had been disclosed properly to them, they would not have given Coinbase $100, or paid Coinbase any commission to acquire Dogecoins.
The "Dogecoin Sweepstakes" is yet another example of how sweepstakes advertising claims may lead to litigation and cause reputational harm.
What are some sweepstakes advertising best practices?
Sweepstakes Advertising
Typically, the goal of sweepstakes advertising is to generate excitement among consumers and increase company revenue. Whether it is the McDonalds Monopoly sweepstakes or Publishers Clearing House offering cash for life, businesses must adhere to state and federal laws, rules and regulations when sponsoring sweepstakes promotions.
In the case at hand, some consumers felt that they were misled in how Coinbase marketed its sweepstakes promotion.
Failing to include certain necessary disclaimers and disclosures can land your sweepstakes contest in hot water. Some specific disclosures that all sweepstakes promotions should include are:
- language explaining that no purchase is necessary for entry, and that any such purchase will not increase the consumer's odds of winning a prize;
- start and end dates;
- eligibility requirements, such as minimum age and states where entry is prohibited; and
- the odds of winning a prize.
Placing the aforementioned disclaimers and disclosures in a prominent location in sweepstakes advertising are necessary steps in running a compliant sweepstakes promotion.
Additional Compliance
Depending on jurisdiction, registration and bonding may be required prior to commencing a sweepstakes promotion. For example, in Florida and New York, sweepstakes that have an aggregate prize value in excess of $5,000 must be registered and bonded. In Rhode Island, the prize threshold for registration is $500, but there is no bonding requirement and registration only applies to contests conducted by brick-and-mortar businesses in connection with a retail outlet.
After selecting a winner, the sweepstakes sponsor must notify the winning entrant(s). The winner(s) may be required to complete an affidavit of eligibility, any applicable tax forms, and a publicity release. Prize winners should not be charged fees to claim their prizes, including any shipping or handling. In addition, certain state agencies require that an official winners' list be filed within a statutorily defined period of time after prizes have been awarded.
Consult a Sweepstakes Attorney
Sweepstakes advertising is a highly regulated area that may appear simple at first blush. Unfortunately, as many sweepstakes sponsors have learned throughout the years, this is anything but the case. As such, businesses should seek counsel before running any sweepstakes promotion in order to avoid the many regulatory and legal pitfalls that await them.
This blog post was originally posted July 16, 2021, and has been updated to reflect Coinbase's decision to motion to compel arbitration.
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