On October 18, 2012, the New York Attorney General’s Office issued new guidelines on “Best Practices for Transparent Cause Marketing.” The Best Practices are the result of a year-long study of charitable sales promotions that had been offered to the public over the prior three years to benefit breast cancer causes.

A charitable sales promotion is generally defined as the offering of goods or services based on a representation that the purchase or use of such goods or services will benefit a charitable organization or charitable purpose. Charitable sales promotions are governed by specific laws in over 20 states. The laws typically require a written contract between the sponsor and the charity, specific disclosure of the exact perunit amount of the donation in all ads, and in seven states registration and/or posting of a bond by the commercial sponsor. These laws apply in addition to general laws prohibiting false or misleading advertising.

The issuance of the Best Practices reflects a growing frustration with vague disclosures and marketing practices that sometimes have left consumers (and regulators) guessing whether the purchase of a product advertised in connection with a charitable logo or message actually triggers a charitable donation, or the amount that goes to charity.

While the Best Practices do not have the force of law, they provide insight into the types of practices the New York Attorney General’s Office and other regulators deem misleading to consumers. For this reason, they should be given close attention.  In addition, two major breast-cancer charitable organizations – Susan G. Komen for the Cure and the Breast Cancer Research Foundation – publicly embraced the Best Practices and have pledged to follow them.  The participation of these two major charities will, as a practical matter, help assure that the Best Practices become a de facto standard followed in many cause-marketing campaigns. 

The five Best Practices are as follows:

1. Clearly Describe the Promotion. This includes disclosure of basic facts that would be required under general principles of truthful and non-misleading advertising, such as identifying the benefiting charity, disclosing the start and end dates of the offer, describing the benefit the charity will receive for each invited purchase or other action, describing all steps a consumer must take to trigger a donation, and disclosing all material restrictions or limitations on the  offer, including but not limited to any maximum donation amount or any guaranteed minimum.  There is also a suggestion to “consider” using a chart-style “donation label” to disclose the key terms of charitable sales promotion offers, a step that would not appear necessary where the relevant information is otherwise disclosed clearly and conspicuously in unambiguous terms in close proximity to the advertised offer.

2. Allow Consumers to Easily Determine Donation Amount.  Many states already have laws requiring disclosure, on a per-unit basis, of the exact amount of the donation to be made in a charitable sales promotion.  The Best Practices emphasize the principle that disclosure should be in dollars/cents or a percentage of the retail sales price so that the consumer will know (or can easily calculate) the exact effect a purchase will have on the donation rather than vague formulations based on “profits” or “proceeds,” which are non-quantifiable for consumers yet potentially material to a consumer’s purchase decision.

3. Be Transparent About What is Not Apparent.  The Best Practices recommend disclosing clearly “whether the purchase of a product or use of a service will trigger a charitable donation.”   While no marketer should ever expressly state that a purchase will trigger a donation where the total donation is a fixed amount, the Best Practices may spark a debate in situations where a sponsor wishes to make a traditional “proud sponsor” statement of the following type on a product label displaying the name and/or logo of a charity:  “[COMPANY X] is a proud sponsor of [CHARITY Y] and is donating $XXX,XXX to them this year.” Historically, a sponsor making such a statement would feel reasonably comfortable that it was disclosing clearly to consumers that purchases will not affect the donation.

However, the proliferation of cause-marketing offers in recent years (many with vague disclosures) may have created an environment in which at least some consumers are uncertain about which purchases count toward donations, even when a traditional “proud sponsor” statement is made.  As a result, some cautious marketers may begin to add an additional line to the traditional “proud sponsor” statement to affirmatively state that purchase of the product does not affect the  donation. Such disclosure may be even more appropriate in a licensing deal where the charity logo might otherwise appear on labels or in ads without the benefit of the “proud sponsor” message to help explain the relationship between the sponsor and the charity.

4.  Ensure Transparency in Social Media.  Even if an offer is based on consumers taking some form of free action online, such as “liking” a sponsor’s Facebook page,  consumers are entitled to clear and transparent disclosure in. The Best Practices go on to suggest: (a)  providing a system to track donations in real time to make the progress of an online program transparent to consumers, and (b) communicating when the program is over and that subsequent actions will not result in a donation.

5. Tell the Public How Much Was Raised.  The Best Practices recommend that sponsors and charities both post on their websites information about “all active and recently closed cause marketing campaigns,” including posting the total amount raised through each campaign at its conclusion.  Charities in particular will need to consider very carefully how much, if anything, they are willing to post online about active programs.  Depending on the exact wording and context of the information posted about an active program, the charity could theoretically run a risk of being deemed to be promoting the offer for the benefit of the sponsor and thereby required to pay federal corporate income tax on “unrelated business taxable income” (UBTI), calculated as the value of the advertising service it is deemed to have rendered to the sponsor.  Since UBTI is a federal tax concept, following a state Best Practices recommendation would not necessarily shield the charity from the UBTI risk. Unfortunately, there is currently little clear guidance from the IRS on how to distinguish non-taxable “acknowledgements” of donations from potentially taxable “inducements” to purchase in this context.