Compliance for promotions and sweepstakes: don't leave it to chance - International Law Office

Background
Promotional activities
Comment

This update summarises the Russian legal requirements for various types of advertising that may be relevant when planning promotional activities, such as contests and sweepstakes.

Background

The Law on Advertising covers the advertising of promotional activities. Among other things, it contains a prohibition against advertising that is incorrect or misleading in respect of value, price, amount of discount or conditions of purchase. Each advertisement must be compliant on its face. Thus, the omission of material information is considered misleading and the mere provision of external means of obtaining further information (ie, a telephone number or a reference to a website) cannot cure a misleading advertisement. Recent examples of advertisements that were found to be misleading due to material omission include:

• an offer of free mobile services with the purchase of a mobile phone, which failed to disclose that the offer was valid only for certain models;
• a discount offer for replacement windows, which failed to disclose that the discount was unavailable for certain parts of window fittings or installation work; and
• a discount offer for prepared foods, which failed to disclose that the discount was unavailable in combination with other discount programmes.

Furthermore, the law stipulates that:

• comparative advertising must be accurate. If an advertised product is compared with another product of inferior quality and the difference can be substantiated, the advertisement is lawful because the comparison is correct.
• advertising for consumer-participation promotions must disclose the rules and deadlines for participation, the number of prizes to be awarded, the times and places where prizes can be obtained and the source of the promotional activities. Again, each individual advertisement must comply with the disclosure requirements.
• any foreign-language content (other than in a trademark or to identify a company) must also be presented in Russian. The information must be identical and must be presented in the same format.

Promotional activities

Price discounts
Offering discounts is generally permissible within the limits of the Law on Advertising. However, a few products - primarily alcoholic beverages - are subject to minimum prices under Government Regulation 239/1995.

Joint and tied sales
A joint sale is an offer to provide certain goods or services at a discounted price, or for free, if the buyer purchases other goods or service. A tied sale is similar, except that the discounted (ie, tied) product is usually packaged with the other product, so that the buyer cannot purchase one product without the other. Joint sales are permitted in Russia, but tied sales are not.

Contests
A promotional contest where winning is not solely a matter of luck, but also requires some minimal skill, is deemed a 'skill contest', or simply a 'contest'. The contest must be for a "socially useful purpose": sales promotions meet this qualification. The contest and all rules must be publicly announced, disclosing:

• the nature of the contest;
• the time, place and procedure for participation;
• the criteria and procedure for judging the contest;
• the form that the prize will take; and
• the procedure and time for identifying winners.

Once a contest has been announced, the organiser may change the rules or cancel the contest only if less than half the time has elapsed between the announcement and the deadline for participation. Any such change or cancellation must be made by the same means as the original announcement. The organiser must reimburse the expenses of participants who entered before learning of the rule change or cancellation; otherwise, it must award prizes to such participants as if the rule continued to apply unchanged.

If, in the course of participation, contestants produce items of value, the organiser must return such items to non-winners, unless the rules of the contest provide otherwise.

Sweepstakes
A sweepstake is a type of lottery in which prizes are awarded by, and at the expense of, the sweepstake organiser. Sweepstakes are permitted in Russia, but are strictly regulated by the Law on Lotteries. The law includes certain general prohibitions. For example, it states that:

• sweepstakes may not be directed at minors;
• winners may not be determined by means of mechanical, electrical, electronic, computerised or other automatic equipment;
• sweepstakes may not give the impression that participation is a means of earning money, obtaining profit or otherwise gaining a means of sustenance;
• sweepstakes may not understate the risks of participation or exaggerate the chance of winning; and
• organisers may not give the impression that participation is connected with the attainment of social acclaim or professional, sporting or personal success, and may not condemn a person's refusal to participate.

Before the sweepstake commences, the organiser must submit a set of notification documents to the competent tax authorities. It must disclose:

• its identity (ie, legal and postal addresses, banking details, tax and registration numbers);
• the goods or services being promoted;
• the duration of the sweepstake;
• the geographical area in which it is being held; and
• the procedure for determining the result.

In addition, the organiser must confirm that it owes no back taxes. On receipt of this information, the tax authority must either issue a state registration number for the sweepstakes or notify the organiser that the sweepstake is prohibited. A sweepstake may be prohibited if the notification documents are inadequate, if they contain false or misleading information, or if the organiser owes back taxes.

All advertising regarding sweepstakes must state:

• the rules and times of the promotional activities;
• the total number of prizes;
• the amount of the prize fund;
• the times and places at which prizes will be distributed; and
• the identity of the organiser.

Sweepstake advertising may not state or imply that a prize is guaranteed unless every participant wins a prize and can claim it. When winners are announced, they must actually receive the prize as promised.

Sweepstake organisers are also subject to the Law on Combating Money Laundering and Terrorism Financing. Organisers must register with Rosfinmonitoring, the anti-money laundering authority, and keep the authority informed of its financial operations. Court practice regarding money-laundering requirements is not uniform. Some courts interpret the law to mean that only sweepstake organisers are liable for violations; however, other courts have found sweepstake operators to be liable as well. Although some decisional practice suggests that the law applies only to organisers who are regularly involved in sweepstake activity, Rosfinmonitoring considers that the law applies to any company that acts as an organiser, even on a one-off basis.

Comment

Russia has a well-established legal framework for advertising and promotion. The general 'truth in advertising' requirements are straightforward and compliance is simple. However, the regulations for contests and sweepstakes are strict and present more of a challenge. In order to minimise the potential administrative and procedural difficulties and mitigate the risk of significant financial penalties for violations, many companies - both Russian and foreign - enter into contracts with specialist organisers.

For further information on this topic please contact Natalya Babenkova at Noerr by telephone (+7 495 799 56 96), fax (+7 495 799 56 97) or email (natalya.babenkova@noerr.com).