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Is it Ruff To Run an Internet Currency Sweepstakes?

Last month, a class action lawsuit was dismissed, in part, against plaintiffs who opted into Coinbase Global’s $1.2 Dogecoin sweepstakes. Dogecoin is an open source peer-to-peer digital currency (say that twice), with a cute Shiba Inu as its mascot. Even though the sweepstakes dealt with the new and ever-growing virtual currency world, the principles applied by the Court go back to the earliest lottery cases and demonstrate that you don’t have to teach a dog new tricks. See, Suski v. Marden-Kane, Inc., 2022 WL 103541 (N.D. Cal. 2022).

According to the Complaint, Coinbase’s advertisements for the sweepstakes stated:

Trade DOGE. Win DOGE. Starting today, you can trade, send, and receive Dogecoin or and with the Coinbase Android and iOS apps. To celebrate, we’re giving away $1.2 million in Dogecoin. Opt in and then buy or sell $100 in DOGE on Coinbase by 6/10/21 for your chance to win. Terms and conditions apply. [With a “See all rules and details” link in smaller font.]

Three important issues were decided by the Court:

Arbitration or Court? The Court first had to decide whether the case was properly in court or whether it should be kicked to arbitration. Coinbase argued that the claims had to be brought in arbitration based upon the language in the Coinbase User Agreement agreed to by the plaintiffs when they created their Coinbase accounts. This User Agreement contained a broad arbitration clause mandating any disputes to be settled in arbitration and without resort to class action. The Official Rules for the Sweepstakes, however, provided that California courts shall have sole jurisdiction over any disputes concerning the promotion. With these conflicting provisions, who wins? The Court held that the subsequent provision – in the Sweepstakes Official Rules – supersedes the earlier User Agreement on the website.

Illegal Lottery? Plaintiffs argued that the Sweepstakes was an illegal lottery because entrants had to trade Dogecoins in order to enter. But the Court agreed with the Sponsor who did provide an AMOE by allowing mail-in entries as stated in the Official Rules. We note that according to the Official Rules, winners selected who used the AMOE to enter were then required to create a new Coinbase account to receive their prize. This aspect – which could arguably be a form of consideration necessary to receive the prize – was not addressed in the Court’s opinion.

Deceptive Advertising? While the Court was satisfied that an AMOE was available, the Court had serious questions as to whether this AMOE was sufficiently disclosed. The Court stated that Sponsor’s “advertising methods heavily directed people to make a trade in order to participate in this sweepstakes” and that its “statements regarding ‘no purchase necessary’ were ambiguous in light of the other statements regarding the need to ‘buy or sell’ Dogecoin.” Therefore, the Court did not dismiss the deceptive advertising claim.

The entire decision is now up on appeal to the Ninth Circuit.

What we can learn.

The most important lesson from the opinion is that you always have to go back to the basics. While Sweepstakes have become more intricate and nuanced, they’re still, at heart, sweepstakes. Every dog has to know Sit! Stay! Heel! before he can start jumping through hoops at the National Dog Show.

Also, make sure all of your terms play well together. Just like you don’t want a little yappy Bichonaranian mixing with a Alaskan Malamute, conflicting terms in your rules, ads, and website terms and conditions can cause unnecessary injury.

Last, an AMOE is really only good when people know about it. People are like dogs. They pay attention to what’s put in front of them. Does Spot care if there are “healthy” treats in the truck of the car? No, Spot wants the big soup bone he just saw you place on the counter. Don’t be afraid to disclose the AMOE (or at least the availability of an AMOE) by saying more than “see full terms here.” It’s likely the consumer will still want that juicy bone.

Please contact Robert Laplaca to answer any questions or provide additional information about this post.

Topics: Sweepstakes