A commercial co-venture (“CCV”) is an arrangement between a charity and a commercial entity under which the commercial entity advertises in a sales or marketing campaign that the purchase or use of its goods or services will benefit a charity or charitable purpose. CCVs have gotten very popular in recent years and, when done right, can be of significant benefit to both the charity and the commercial entity.
In the United States, CCVs are primarily regulated at the state (and not the federal) level, generally by the state Attorneys General. Borrowing from the Charities Bureau of the New York State Attorney General’s Five Best Practices for Transparent Cause Marketing, this article highlights those five best practices, followed by a brief discussion of state registration and other requirements that apply to CCVs.
1.) Clearly Describe the Promotion
- Consumers should be able to easily understand before purchasing a product or using a service how doing so will benefit the charity.
- Ads, websites, and product packaging used in the cause marketing campaign should clearly and prominently disclose:
- The name of any charity receiving a donation, as well as the mission of the organization if it is not readily apparent by the name
- The benefit the charity will receive from the purchase of a product or use of a service
- Any flat donation, any minimum amount guaranteed to the charity, or any maximum amount or other cap on the donation
- Any consumer action required in order for the donation to be made and any other restrictions on the donation
- The start and end dates of the campaign
- These details should be displayed together in a clear and prominent format/size and in close proximity to the text used in the marketing promotion.
- Consider using a “Donation Information” label to disclose the above information. Similar in design to a nutritional facts label on a product.
2.) Allow Consumers to Easily Determine the Donation Amount
- Do not use vague terms like “profits” or “proceeds.” These terms prevent the consumer from understanding how their purchase or use of a product or service will benefit a charity.
- Use and disclose either a fixed-dollar amount per item, or a fixed percentage of the retail purchase price in ads, marketing, and product packaging.
3.) Be Transparent About What is Not Apparent
A company or charity’s brand is its most valuable asset. Nothing can damage the reputation of that brand more than when consumers or donors believe they have been deceived. To maintain public trust and confidence, err on the side of caution, and disclose what might not be apparent:
- If a flat donation has been promised or paid to a charity, regardless of a consumer’s purchase or use of a product or service, be clear that consumer action will not result in a contribution to the charity
- If all or part of a donation to a charity is an in-kind contribution and not monetary, disclose the nature and amount of the in-kind contribution
- If a ribbon, color, logo, or other indicia commonly associated with a charitable cause is used in a cause marketing campaign, clearly and prominently disclose whether the purchase of a product or use of a service will trigger a charitable donation
- If a purchase triggers a donation, but there is a cap on the amount to be donated to the charity, do not saturate the market with products; limit the number of units distributed for sale to a quantity that is reasonably expected to produce the maximum donation. On the other hand, if there is a minimum donation guaranteed, stock the shelves; ensure that enough products are distributed for sale so that the minimum amount can be sufficiently exceeded
4.) Ensure Transparency in Social Media
- Increasingly, companies are partnering with charities through social media sites to promote their products and raise money for charities
- Typically, companies will provide a donation if a Facebook user “likes” a company, or a Twitter user agrees to “follow” a company
- Companies and charities should approach social media cause marketing campaigns the same way they do traditional product-based campaigns
- Companies also should have a system in place to track donations in real time for the duration of the campaign, in order to make transparent to users the progress of the campaign
- When the campaign ends, it should either be discontinued entirely, or it should be clear that any subsequent actions will not result in a donation to charity
5.) Tell the Public How Much Was Raised
- To further transparency, companies and charities should maintain on their websites key information about all active and recently closed cause marketing campaigns. At the conclusion of each campaign, the website should clearly disclose the amount of the charitable donation each campaign generated
6.) Registration and Other State Law Requirements
Charities must be registered for charitable solicitation purposes and their annual reporting current in each state where the CCV campaign will run, and this must occur prior to the commencement of the CCV campaign. There are approximately 40 states that require charities to register for charitable solicitation purposes. But beyond that, approximately 26 states regulate CCVs specifically, on top of the state charitable solicitation requirements. A handful of them (described below) require registration or other reporting, but most of them impose other non-registration/non-reporting-related requirements (such as contract requirements, public disclosures, bonding, and the like). Note that the specific state references below are not necessarily up-to-date and should be verified for accuracy.
- What are commercial co-ventures?
- An arrangement between a charity and a commercial entity under which the commercial entity advertises in a sales or marketing campaign that the purchase or use of its goods or services will benefit a charity or charitable purpose.
- Legal definition of a commercial co-venture (these vary by state)
- New York: “Any person who for profit is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase of goods, services, entertainment, or any other things of value will benefit a charitable organization.” [N.Y. Exec. Laws § 171-a]
- Massachusetts: “[A]ny person who for profit or other commercial consideration conducts, produces, underwrites, arranges or sponsors a performance, event, or sale to the public of any good or service which is advertised in conjunction with the name of any charitable organization or as benefitting to any extent any charitable purpose.” [Mass. Gen. Laws Ch. 68, § 18, 22-28]
- What states require commercial co-ventures to register or have other reporting requirements?
- Alabama, California, Hawaii, Massachusetts, Mississippi, and South Carolina
- The registration and reporting requirements vary for each state listed above but they generally follow this sequence; note that state registration must occur prior to the commencement of the CCV campaign:
- Registration -> Bonding -> Contract -> Ad Disclosures -> Accounting and Recordkeeping
- Alabama: Requires the commercial co-venturer (commercial entity) to register with the Attorney General’s Office, obtain a $10,000 surety bond, file a notice of charitable solicitation along with a copy of the written contract between the commercial co-venturer and the charity ten days prior to the solicitation campaign, and file a closing statement at the end of the solicitation campaign that details the number of units sold, a description of the merchandise, gross income from the campaign, and net amount from the campaign that was given to the charity.
- Hawaii: The only requirement for the commercial co-venturer is to submit a “consent form for a charitable sales promotion” that is signed by both the commercial co-venturer and the charity along with a copy of the contract between the commercial co-venturer and charity.
For more information, contact the author at jtenenbaum@TenenbaumLegal.com