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part four: online contests

If only it were as simple as drawing names from a hat.

Running an online contest in Canada seems easy, but those who hold them need to be careful not to fall afoul of the law. Contest marketers, contest lawyers and the people who run online tools for online competitions face these issues all the time – and small businesses are best off consulting their advice. But before you dive in, here are some legal issues to keep in mind:

Don't become an accidental casino

Gambling is controlled in Canada. If you're running a giveaway, you might be skating closer to that line than you think.

"You want to make sure you're not running gambling or betting," warns Chad Finkelstein, a partner at Toronto lawyers Dale & Lessmann LLP, who specializes in gaming law.

There are three elements to an illegal game, he explains. First, there has to be a prize; second, the contestant has to pay to enter; and, third, it has to be a game of chance.

To qualify as a contest – and stay on the right side of the law – it has to somehow exempt itself from one of these three criteria.

This explains a lot of the hoops Canadians have been jumping through since the days of entering contests off the side of cereal boxes.

For instance, contests have skill-testing questions because they mean the contest won't boil down to pure chance, but still involve an element of skill. Similarly, contests offer entrants a way of entering for free ("reasonable facsimile" of a UPC code, anyone?) to skirt the pay-for-play nature of gambling.

Post your rules up-front

In Canada, online contests (just like offline ones) are also subject to the Competition Act, which requires that the rules, and other pertinent pieces of information, be posted for the entrant to see. (It's acceptable to post the salient instructions up-front, and then simply link to the full legalese.)

Among the pieces of information a contest runner needs to post: Identification and contact information for your company, the eligibility rules, the distribution of prizes, the odds of winning (which is usually covered by boilerplates like "Odds of winning depend on the number of entries received), and disclaimers that help protect you from liability if something goes wrong.

One thing that online contests should make sure to include, however, is a disclaimer that protects them from entries that are fouled by technical difficulties – for instance, entries that are e-mailed and not received, or forms that can't be submitted because a server is overloaded.

You'll also want to disclaim against vote fraud.

Above all else, though, the number of moving parts involved in meeting the letter of a law means you'll be best served by consulting a contest lawyer before launch, or work with a contest marketing firm (or platform) that deals with these issues routinely.

My contest includes Quebec

Ever notice that Canadian contests keep barring the poor residents of Quebec from entering? It's not that contests are illegal in Quebec – it's just that the government makes it especially difficult to run one.

For one thing, contest runners have to pay tax on the value of the prize. For another thing, contests with prizes over $2,000 have to register their rules with a government agency, the Régie des alcools des courses et des jeux – which is usually just referred to as the "Régie."

To top it off, contests with prizes worth more than $5,000 actually have to deposit an amount as a security with the Régie, as a means of protecting consumers should the contest runner fold or renege.

When compounded with the complexities of working in two languages at once, many contest runners simply disqualify entrants from the province.

For those who do want to run a contest in Quebec, allow plenty of extra time for preparations. For those who exclude Quebeckers, be careful to make this clear in the rules. Mr. Finkelstein says it's not uncommon for them to enter anyway, only to be unpleasantly surprised when they win and find themselves disqualified.

Stay flexible and watch for trouble

The way you set up a contest from the outset can save you a world of trouble later, says Steve Hulford, the chief creative officer at FileMobile, a Toronto-based software company that offers a user-generated content contest platform for major brands.

When running a contest that encourages users to vote on their favourite submission – say, of a photo, caption or essay – it's best to create a system that lets users vote to select the top 10 finalists, and then have a judge or jury pick the winner.

This can avoid being painted into an embarrassing, and potentially binding, corner. The Internet loves a prank, after all.

When running the online competition that the CBC used to pick a new theme song for Hockey Night in Canada," Mr. Hulford had to contend with a noisy phony entry that someone had submitted.

"It had screaming cats and cows," he said. "It was a cacophony of sound."

No problem – except that the user recruited a large and mischievous online community to vote for the entry. The CBC deleted it, only to be faced with a protest at its removal.

A system that doesn't put the final choice in the hands of users means that such entries remain mostly harmless – and indeed, a bit of extra publicity doesn't always hurt.

Watch out for copyright issues

Infringement is another issue to be mindful of, especially when running a contest with user-generated content.

However you moderate it, keep a lookout for inadvertent copyright violations. These might include background music on a video, used without permission, or even a copyrighted image appearing in the background of an otherwise-innocent photo.

Mind the local customs

Not all laws are national. Companies have their own rules. Facebook, an increasingly popular tool for hosting contests, has a strict set of regulations that need to be followed by contest runners.

Most significant among them: You're not allowed to use Facebook's built-in tools as mechanisms for entering a contest, or notifying winners.

That means, no entering contests just by pressing the "like" button, and no using Facebook messages to notify winners.

Instead, couple Facebook with an external tool or page to run the contest.

Other stories can be found on the Web Strategy section of the Report on Small Business website.

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