Well-meaning marketers sometime structure branded licensing campaigns around charitable causes. These kinds of campaigns are built around a core concept: sell products or services that benefit, in whole or in part, a charity of the marketer’s choosing. Campaigns of this nature offer manufacturers and retailers a possible tri-fecta win- increased sales, positive public relations, and the satisfaction of contributing to a worthwhile cause.      

Sound too good to be true? Be careful. While using a charity’s trademark or name is permitted so long as a proper licensing arrangement is in place, accompanying promotion language may pose unexpected challenges. Promotional language that specifically states or implies that the sale of a product or service benefits a charity in some way may, under the laws of certain states, trigger a host of regulatory requirements and mandatory disclosures at the point of sale. These laws, commonly known as "commercial co-venture laws," impose varying degrees of regulatory requirements on both the nonprofit organization and the for-profit licensee (otherwise known as a "commercial co-venturer" or "CCV").

CCV laws are some of the most overlooked laws by both charities and for-profits alike. However, state regulators are paying more attention to charitable sales campaigns that use charity names in promotional materials. And when the regulators call, many businesses (and even charities) express dismay when discovering this unwelcome "speed bump." Why this "chilling effect" on businesses that want to "do good?" The answer lies in state consumer protection policies. Certain states believe that government oversight is necessary to protect the unwitting consumer from untoward for-profits that use charity names under false pre-tenses.   

While it may (or may not) be difficult to argue against the public policy, the manner in which these activities are regulated presents real challenges for nationwide sales campaigns.   CCVs regulations vary dramatically based on the particular state. Approximately 22 states have laws that specifically regulate CCVs, others do not regulate them at all, and still others have laws that are entirely unclear in their application. Those states in the latter category may treat the for-profit as a paid or professional solicitor and the promotion itself as a "charitable solicitation" under charitable solicitation laws. It all depends on the particular facts and circumstances of the promotion.    

Compliance challenges can be overcome with careful coordination between the CCV and the charity, proper administrative practices, and knowledgeable legal counsel. While state laws vary, there are overarching themes to many: (i) CCV registration with the state (with some states requiring CCVs to post significant bonds of upwards of $10,000 as a condition of their registration); (ii) a carefully written contract between the charity and the CCV that contains certain mandatory provisions; (iii) periodic reporting requirements that the CCV must provide to the charity and that either the charity or the CCV must provide to the state; and (iv) mandatory disclosure statements to consumers at the point of sale, which often require disclosure of the precise percentage or dollar amount of product/service sales that will benefit the charity. Additionally, charities have separate charitable solicitation requirements, although most charities (particularly those who are national in scope) will probably already have systems in place for such requirements.

New York and California both have specific CCV laws on the books. New York does not require CCVs to register with the state. However, Article 7-A of the Executive Law of New York requires that the CCV and charity enter into a written contract that contains legally-mandated terms, and to file periodic reports with the New York Attorney General (among other requirements). Additionally, all advertising of any nature that states that sales will benefit a charity (including language used on product packing) must disclose the anticipated portion or percentage of the sales price or other anticipated consideration that the charity is to receive. 

California’s requirements are slightly more involved than New York but certainly not as cumbersome as other states. Sections 17510 through 17510.95 of the California Bus. & Prof. Code requires the CCV to: (i) have a written contract with the charity; (ii) specifically disclose to the public the name and address of the charity and the precise amount that the charity will receive; (iii) pay the charity the amount disclosed on the promotion statement within 90 days after the representations commence and every 90 days thereafter; and (iv) provide an accounting of all such sales with every 90 day payment to the charity. CCVs may also be required to officially register as a CCV with the California Attorney General’s Office.

Still other states impose more cumbersome requirements. Maine, for example, requires CCVs to: (i) register as a CCV with the state of Maine; (ii) post a $25,000 bond before the solicitation begins; (iii) enter into a written contract with the charity with such contract including specific contractual clauses; and (iv) provide similar sales disclosures as required by California. If the charity receives more than $30,000 from the promotion during the charity’s fiscal year, it must file a financial report disclosing the amount received. In turn, the CCV must cooperate with the charity in providing the requisite information and to maintain accurate and complete books and records of the promotion for a period of three years after the solicitation ends. 

Penalties for non-compliance, again, vary based on the state. California, for instance, may impose a civil fine of $1,000 for a first offense with a statutory penalty of up to $10,000 for a willful violation. Maine treats any offense as a violation of its state unfair trade practices act and authorizes a fine of up to $5,000 for a violation. Both California and Maine require that the non-complying CCV be notified of any violation and be given time to correct the offense before being subject to fines. Charities themselves may bear the largest risk of non-compliance. In egregious circumstances, a non-complying charity may lose its right to conduct other charitable solicitation campaigns.

The easiest way to avoid CCV administrative and regulatory burdens is to refrain from using any promotional language that states or implies that a portion of sales proceeds will benefit a charity. Statements that use the name of a charity to "induce" a sale are most likely to trigger CCV laws. While refraining from such statements may somewhat diminish direct "tie-ins" to a charity, there are ways to tailor the language to accomplish the campaign’s objectives. For instance, promotional language appearing in an ad or on product packaging could simply employ a phrase that encourages consumers to support the charity by visiting the charity’s site and learning more about its work. The farther removed that a statement is concerning an implied or expressed representation that sales benefit a charity, the greater the likelihood that CCV laws will not apply to the campaign at hand.

Another possible option is to simply employ a general "support" line in advertising materials and/or on product packaging stating that the for-profit is "proud to support" the charity. The risk here is really whether the use of the charity’s name in the statement of support acts as an "inducement" to buy. Further, the charity may not be able to acquiesce to such language if the charity participates in the Better Business Bureau’s National Charity Seal Program and wishes to keep its BBB charity "seal." New BBB charity seal standards require participating charities to ensure that authorized promotion statements that use their name specifically disclose (by percentage of purchase price, dollar amount, or other consideration generated per each sale) the precise benefit that the charity is to receive. In essence, the BBB forces the charity to convert previously acceptable "support" statements to those that will necessarily trigger CCV laws of many states. 

Yet another approach is to create two different versions of advertising and promotion materials (one that uses CCV-triggering language and one that does not) and to distribute each version according to whether a particular state regulates CCVs. The challenge with this approach is really a function of added cost (having two different versions of advertising or product packaging) and administration (making sure that the correct versions are distributed to the correct body of states).   

To be sure, CCV laws add a new wrinkle when considering how to structure and implement an advertising campaign involving a charity. Carefully planning, coordination with the charity partner, and a generous "cushion" between the campaign design to launch phase to ensure that proper registrations and other requirements are met is extremely important. Creative thinking may help satisfy a campaign’s objectives without having to experience the co-venture adventure. In any case, marketers should seek out competent legal advice to ensure that they do not encounter unanticipated CCV issues after a promotion or advertising campaign is implemented.