Enforcement actions involving commercial co-ventures are (or have been) few and far between. But they serve as a very useful reminder that all those state laws about how to conduct one properly mean something. This post will tell you about a recent multi-state regulatory action and provide a little refresher about what you need to run a compliant commercial co-venture ("CCV").  

And just to make sure we’re on the same page: a commercial co-venture is a form a cause marketing where a for-profit company invites consumers to take an action because it will trigger a donation by the company to a charity. The usual action called for is a purchase of the company’s products but sometimes it’s a different type of action, like sharing a video. (A non-purchase CCV is called a “good will” CCV.)  CCVs are a popular way to incentivize the public but they can sometimes go awry. 

The CCV at issue here one went so far awry that it attracted the attention of state AGs, 16 of them in fact. Operation Troop Aid, a Tennessee-based charity, allowed the retail jewelry store chain Harris Jewelry, which markets and sells to service members, to use the charity’s name in the jeweler's “Operation Teddy Bear” campaign, in which the retailer advertised that it would donate a specific amount of money to Operation Troop Aid when consumers purchased its teddy bears dressed in military uniforms. Harris Jewelry used Operation Troop Aid’s logo prominently in advertising and promotional materials in-store and online, and Operation Troop Aid displayed Harris Jewelry’s logo on care packages sent overseas to troops.

The investigation, co-led by the New York and Tennessee AGs, found that Operation Troop Aid failed to ensure that Harris Jewelry was donating the full amount it advertised to the public. The retailer sent Operation Troop Aid checks without documenting how the donated amount was calculated, and sometimes provided different information to consumers as to the amount of money donated. Operation Troop Aid acknowledged that it did not have a written agreement with Harris Jewelry, that it failed to oversee the co-venture with Harris Jewelry and that there was insufficient oversight of its operations and records. Operation Troop Aid also acknowledged that it failed to ensure that donated money was used for its stated charitable purpose.    

The upshot:  A settlement with the state Attorneys General, announced in conjunction with the federal-state initiative Operation Donate with Honor, requires Operation Troop Aid to cease operating and wind down its operations and bars its chief executive from serving as a fiduciary or soliciting for any nonprofit. The agreement also assesses civil penalties and requires Operation Troop Aid to continue providing assistance in the States’ continued investigation.  (The settlement does not address the conduct of Harris Jewelry itself.  More to come?)

This action is a good reminder that cause marketing, even if well-intentioned, is subject to rules governing how it should done. The rules are intended to protect both the charities, to ensure they get the money promised them and their valuable IP isn’t exploited, and consumers, who have the right to rely on the truthfulness of the promises made to them.

So, what are the rules? Here’s a short summary:

- You need a contract between the charity and the for-profit company that contains certain statutorily-mandated provisions, including a grant of rights to use the charity’s name and logo, a description of the campaign, how donations are triggered and for how long, an accounting process, and more.  The parties should also be clear about how the money will be used if it's not just going to the charity's general funds.    

- Registration and bonding is required in a few states. Those states also require post-campaign filings to ensure the charity receives the money promised to it.

- If you’re the co-venturer (the for-profit company), make sure to do your due diligence about the charity you’re supporting with your campaign.  In addition to ensuring that you're dealing with a legit non-profit with 501(c)3 status and a solid track record of spending its money wisely, make sure that the charity is registered to solicit in the states where your campaign will run. If it isn’t, your CCV registration will be bounced and the charity could find itself in hot water with the state.

- Disclosures!  The advertising materials must tell consumers exactly how their action will impact the charity. A vague “a portion of proceeds will be donated” statement won’t cut it.  You also need to disclose the time period during which the consumers’ actions will trigger a donation, any minimum or maximum donation amounts, and where consumers can learn more about the charity.

- Steer clear of guaranteed donation amounts. Minimums and maximums are fine but, remember, if you’re telling consumers that their actions will impact the amount donated to the charity, that must be true.  Guaranteed donations lend themselves to a “proud supporter” type advertising campaign, but not a CCV.

- Keep careful records of the donation-triggering actions (purchases, video views, etc) and amounts paid to the charity. Even if you’re conducting the campaign in a state that doesn’t require CCV filings, if you can't substantiate claims made to the public about the donations, or promises made to the charity, you could be held liable.