Steve Douglas on April 12th, 2008

NewsBefore I begin I should probably point out that I’m not a lawyer, nor do I play one on the tee vee. Thus, my legal advice, and whatever opinions I offer, are worth exactly what you paid for them. Nada. Having said that, I’m of the opinion that logo design contests, not the cute effort where the local church asks the kiddies to design some artwork for the Sunday picnic, but these logo design contest sites popping up everywhere on the web, are skirting very close to the law, if not breaking it altogether. At least from what I understand about contest law and my admittedly limited experience with it. The design risks of these contests has been done to death. Any designer worth their salt knows that they’re bad for business. The opinion of the design community is well documented. But what if these sites are breaking a ton of laws, in jurisdictions all over the world, as well as running afoul of state and national lottery and gaming laws? A little far-fetched? I thought so at first, but after fairly intensive research, I’m beginning to think otherwise.

Should probably start with a little history as to that research got started and why I’d pursue this seemingly absurd line of thought. Was talking with a colleague this afternoon, and we were reminiscing about design gigs from days gone by. In one of those previous incarnations, I was a magazine art director and was often tasked to come up with new and zany ways to publicize our humble publication. One such promotion was a ‘Holiday in Maui’ contest – a four month marketing blitz during which we’d give away posters, T-shirts and magazine subscriptions culminating in the grand prize, a two week cruise and vacation in Hawaii, thrown in by one of our advertisers. The sponsor hoped to get a promotional buzz going on with their logo plastered over 6-page magazine spreads that advertised the contest. We hoped to pick up a few percentage points in newsstand sales and some additions to our subscriber list.

NewsWas a great idea – everybody would win – but we were advised by the legal beagles to tread ever-so-lightly. As the contest would technically be held in various jurisdictions (the magazine was published in several international languages) we had to be aware of some pretty nit-picky laws about what we said, didn’t say and our overall intentions when it came to allocating prizes. We had to use the legalese “void were prohibited by law” on every single bit of propaganda and ignore entries that came from various locales. We had to hold prizes in escrow (holding a contest without giving away the ‘prize’ is fraud, and breaks several gaming and contest specific laws). We had to very clearly announce that “no purchase was required.” In some regions, charging people to enter contests opens up a Pandora’s Box of regulations, rules and provisos and redefines what the contest can be called and how it can be described. All told, setting up our contest cost thousands in legal fees, and our ‘terms and conditions’ pages took up 1/3 of the advertising space, even when typeset in 8pt helvetica condensed type. Bottom line, because we were holding a ‘contest’ and giving away ‘prizes’, we needed to obey a wide-range of state and national consumer and gaming laws, all of which were set up to protect contest entrants from shady practices, unfair dispersement of awards, and to ensure that – once the contest had concluded – entrants were awarded what we had promised in the first place. Would not the same types of laws apply to companies marketing their services as ‘logo design contests’? As mentioned earlier, I’m not a lawyer, but I think they just might.

NewsThe concept of these outfits is quite simple. Customers (sponsors) pay the site owner to have their fabulous logo design contest listed. Designers (the entrants) work up design concepts and enter their logo artwork in order to ‘win’ a prize (the money offered by the sponsor). Despite all their lofty verbiage, sure sounds like a typical run-of-the-mill contest to me. But what type of contest? I would assume that your average logo contest site offerings would fall under the ‘skill testing‘ category (an important distinction, as we’ll discover later). Turns out there are very important laws regarding running a contest of any kind, in this case a ‘skill-testing’ contest, and there’s some hefty demands (varied by location) regarding the content and subsequent publication of said rules and regulations. Among a lengthy list of recommendations found on their site, the DMA (Direct Marketing Association) offers a list of disclosures that are required under US law, including; The number of rounds or levels of the contest, the maximum cost to enter all rounds, the method used in judging (we’ll see later that “cause we like it” ain’t good enough) and the date prizes will be awarded (I’ve seen logo contest deadlines extended by months to squeak in more entries from hapless designers). Many will carp that these are only ‘little’ design contests, hurting no-one. US-based cyber lawyer and internet specialist Parry Atfab has this to say about contests on the internet, regardless of the size -

“Most web operators don’t realize that there are laws that apply to even the most innocuous contest – and that, because of the reach of the Internet, they must comply with all the myriad contest laws in the world. Because that’s far too cumbersome to deal with, the first thing web operators should know is to limit their contests to the United States. So now there are only 50 different sets of laws to deal with. And the contest has to comply with all of them – or make clear that residents of a particular state are not eligible to participate.”

Now, that doesn’t square with any logo design contest site that I know of. Some states even require that companies offering prizes worth (in aggregate) over $5000 need to register the contest and post a bond for the prize amount. One of the newer logo contest sites proudly boasts on the footer of their home page that the amount of “prize money up for grabs” is in the tens of thousands. Wouldn’t that qualify them for registration and the posting of prize money bonds? In some jurisdictions, and where applicable, I’d think yes.

NewsAlso, most state and federal laws require that contests “must have a closing date, and the distribution of prizes to the winners must be carried out in a timely fashion, without any undue delays.” On another of these logo sites, contest sponsors are actually advised that they can ‘abandon’ the contest if they like (thus, the ‘prize’ is never paid out) but probably shouldn’t, because the the entrant designers’ feelings might get hurt. I’d assume abandoning an advertised ‘contest’ and not paying any prize money to entrants is a lot more legally provocative than just hurting someone’s feelings. I’d also expect that it would be the site owner, not the sponsor, who’s on the hook for the prize money and whatever legal fallout there might be. In any case, there are legal protections for the awarding of prizes after a contest has run its course. These sites seem to believe that it’s the designers’ tough luck when the sponsor walks with the prize money without selecting a winner, but I’m willing to bet that contest and gaming laws state otherwise. There has to be a winner. The advertised prize has to be awarded. See, that’s the point of a contest and why there are laws about running one.

Major sites and corporations aren’t immune to the plethora of laws either. Craft sales site Etsy tried to have a rather simple sweepstakes giveaway recently and found the process rather daunting -

“Contest law is very complicated due to, for example, lottery laws, gaming and gambling laws, consumer laws, trading laws, and tax laws. And to make things even more complex, contest law varies from state to state and from country to country. In fact, depending on the contest, certain states require the posting of a bond.”

When they contacted their lawyers, Etsy staffers were told that in order to hold an international contest (logo design contest sites boast about their international cadre of designers), they’d have to consult a licensed attorney who is a specialist in contest law “for each and every country eligible for the contest.” In many cases, the contest rules would need to be translated into the various languages by certified lawyers in the applicable country. In the end, Etsy gave up, opting for a contest that was ‘open to US residents only’ and slapping ‘void were prohibited by law’ all over place.

Then, there’s the issues of chance, skill and the requirement of payment to enter. Generally speaking, contests of chance can fall under lottery laws (that’s why many contests require the answer of a ‘skill testing question’ to get around this restriction). Logo design contests, as mentioned earlier, might qualify as a skill-testing contest (though such contests require a clear definition of who’s doing the judging, the procedure and the rules). Surely that should be cut-and-dry? Maybe. Maybe not. Tech Firm has an excellent look at internet contests, and weigh in on what constitutes ‘judging’ , appropriately when it comes to creative work – -

“The bad news is, if you fail to provide objective criteria for picking a winner, your game of skill could degrade into a game of chance. Therefore, be sure your rules are clear and describe the objective criteria for picking a winner, whether you run an objective trivia contest or a subjective essay contest.”

Office.com has a little more on what constitutes ‘judging’ -

“Judges should apply objective criteria, which bear a reasonable relation to the contest, when evaluating the entrants. Contestants should be advised of the standards of comparison that will be applied by the judges – not that the “best” entry will win. For example, acceptable criteria for an essay contest might be: appropriateness (25 percent); creativity (40 percent); clarity (25 percent); and sincerity (10 percent).”

NewsOnce again, this is nothing like any logo design contest site that I’ve poked around on -’I like that logo’, the usual barometer wouldn’t seem to cut it. Nor would ‘wow, that groovy icon is the best’. Further, as every logo design contest on these sites has a different prize, as well as arguably different judging criteria, shouldn’t every single contest feature its own unique set of terms and conditions? I’ve also seen ‘ties’ on logo design contests, where ‘winners’ split the ‘prize’ or the winner is determined by a ‘draw’. Apparently that’s a no-no too. In many jurisdictions, ‘skill-testing’ contests that end in a tie must pay both winners duplicate prizes. Any other method might turn the contest into a sweepstakes type contest where the outcome is determined by chance. And if your contest is judged as being one of chance, then any payment for entry will constitute a lottery. And that, my dear friends, falls under gambling and lottery laws – a much more serious kettle of fish. Many logo design contests seem to be free for designers to enter, but even that may not be cut and dry -


Besides making certain that you don’t charge a fee to enter, you’ll need to ensure that no purchase of your goods or services is required to win. But the problem is, some state courts might conclude that even though you didn’t charge a dime to enter, your Web contest still wasn’t “free.”

In some jurisdictions, simply requiring someone to register on a website can meet the threshold of paid entry. Some contest sites even charge entrants a ‘membership’ fee. Most contest laws require that the judging criteria, number of ‘entries allowed‘ and ‘maximum number of rounds‘ be stated beforehand, as part of the published contest rules, not as the contest progresses or as the sponsor sees fit. Accordingly, I’d imagine submitting multiple logos and variations at different times as requested by the sponsors could even be looked upon as ‘consideration’ – legalese for payment. And payment can represent illegal wagering. In some states the mandatory ‘purchase’ itself is a violation of the law. Etc. Rummaging through these legally complex factors would determine what laws apply to a contest, as well as the obligations that the contest would have to meet in order to remain legal. And as the contests are internet-based, in a mess of jurisdictions than span the globe.

While I’m not sure if the methods logo design contest sites employ are completely illegal or not (hence the question mark at the end of the title), I’m reasonably sure that many of these sites are skirting contest and gaming laws, especially when it comes to their rules, regulations and their payment of advertised prize money. If nothing else, I’d think they’re on murky legal territory and judging by most of their TOS, aren’t too acquainted with anyone in the legal profession in their own backyard, let alone around the globe. Contest rules on logo design contest sites are positively spartan compared to the typical rules required for other contests. Everyone else has to pay excruciating detail to state and national level contest laws and gaming restrictions. Why shouldn’t logo design contest sites? They want to be treated as professional design ‘alternatives’? Fair enough. Following laws and regulations is part and parcel of being a professional, and especially if you arrange a legion of contests as part of your business promotion. As we’ve seen, the laws regarding contests, on and off the internet, are complex, varied and difficult to navigate – even for the biggest companies – and I’m willing to bet that most logo design sites haven’t even thought about most of these issues. I’m thinking it’s time they should.

As usual, this post is open for comments and I’d especially like to hear from anyone with experience in these areas. Unfortunately, my legal knowledge only goes as deep as can be expected with a few hours on Google and a couple of pots of coffee.

 

 

 

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66 Comments to “Are logo design contest sites even legal?”

  1. B says:

    If some sort of IP is transferred (like a license to use something or ownership of the IP), then it becomes a sales transaction not a contest, be it skill or chance.

    • @ B – Thanks for your comment, but it’s not entirely accurate. Almost every design contest (even those for Sports Team fans sites and what-have-you) almost always require the transfer of copyright and/or ownership to the host, even if the entry doesn’t win. Similarly, most logo design contest sites have some sort of clause in their sign-up that involves transferring rights even if the submissions aren’t selected. That’s the only way the host site can grant publication rights to their participants’ work in promotional and marketing material. The transfer of IP rights has little, or nothing, to do with whether something is viewed as a contest or not.

      Some of the websites are now trying to dilute the premise of a ‘contest’ by asking their ‘creatives’ to use phrases like ‘project’ when describing the services offered, ironically still referring to design selection as ‘winning’ and money paid as ‘prizes’ or ‘awards’.

  2. j. says:

    Whether a particular “contest” event is actually a contest or some kind of RFP/solicitation for submissions on spec would probably depend on just how the particular event is being run. However, @B: if it is a contest, the prize is the opportunity to enter into a contract with the company seeking a logo.

  3. Music Pro says:

    Really fascinating – this is going on in the music biz like crazy – if you want to submit your music or even a custom score to a posted video, there are folks charging for your submission and whether anyone even “wins” this competition is a mystery.

    I’m wondering who you notify of these “contests” Some definitely do not originate in the USA.

  4. dizeyner says:

    Im a designer, and yes, Im worth my salt but I find all this complaining about design contests to seem a little like sour grapes or fear based reactionism.

    I dont think the contests are illegal. And yes, there is a chance the contest holder will fail to pick a winner and withdraw the prize. If I dont win, I keep the legal rights to my design and can use it elsewhere.

    Also, Id rather compete in a design contest that I dont have to pay to be a part of, then a site like guru.com where I have to bid, bids per month are limited, and based on monthly fees. No fee, two bids allowed per month. Pay a fee X amt of bids per ONE category. Want to cross categories? Pay another fee. so I could end up spending that monthly fee for nothing. Not to mention, winning a bid is NO guarantee the buyer will be satisfied and pay up.

    I like the contests because it keeps me ON my toes. Do I lose more than I win, you betcha, but its the best designer that wins, so I feel like Im in good company and I learn from my losses. So, NO, I dont want a limit on how often someone can win a month. If the winning designer is that good, sooner or later he or she will become well known enough that they wont need the design contest to hone skills or fill up the portfolio. Or, Ill keep trying and trying and maybe one day, Ill be the winner!

    Its all good. I may not be winning every contest, but at least Im doing something that keeps my wheels turning. And thats essential in this very depressing economy.

    Not all the contests are peanut pay either. So, if your a skilled designer, keep your eyes open for the right contest, you could win just as much as you could from a client that you spent time hunting for yourself.

    Im only hoping that those who are anti-contest don’t change their minds about participating. While some of the entrants could be said to know little about design, there’s enough quality competition out there in the design contests already! Note, how I am very carefully NOT mentioning my fav design contest sites…Id like to keep the glory of the win for myself, thank you very much! :-)

    So, if you are anti-contest, hip-hip hooray! More pickens for moi!

    dizeyner

    • WhyMeLord says:

      “If I don’t win, I keep the legal rights to my design and can use it elsewhere.”

      Don’t be to sure about that on many levels.

      Recall you can’t sell from an empty wagon.

      “I don’t have to pay to be a part of” Typically there is a given that a designer has 2000 hours a year in productive time. What with over head that’s, real world, a lot less. Just how much time can you afford to invest in unproductive work before you’ve nothing left in the creative wagon to sell?

      Maybe I’m old fashioned but I don’t bid, I quote and for the most part the quotation format is boiler plate. After the client commits the real work and creativity begins.

      I just happen to be an engineer (another somewhat similar creative field) I’m paid not only for what I do but what I can do and the associate skill set and knowledge base I bring to the table. There is never a question or the option that a client should consider much less expect that should they not like the design my work and my skill set are free.

      As to the restaurant analogy if the food is bad (say prepared in rancid oil) then not paying is a legitimate option but if I order something and change my mind then I should by rights be expect to pay for what I ordered.

      When you tip is the tip based on the physical service delivered by the wait staff or the flavor of the food?

  5. dizeyner says:

    @ steve, I dont think its true that “most” contests demand that all the entries rights are automatically transferred from the designer to anyone. In fact, if you use a legit contest site it will clearly state that your designs are yours unless you win, and even then, they are yours until you hit the transfer of rights button.

    So, yes, there may be some rip off contest sites out there, but there are also rip off freelance sites, rip off clients etc.

    Read the fine print and dont use sites that ask you to give away the rights to your work unless you win.

    And with regard to “At first blush, any design contest is temporarily beneficial to the individual that wins the ‘prize’. Not so much to those that don’t.”

    How is that any different than expending the time to make a bid and losing to another designer, or spending time searching for and working for a client who in the end isnt satisfied and walks away?

    This is like saying, if I bid on the project and win, its not competing, whereas if I actually enter a contest and win, Im taking food out of someone elses mouth. That argument just does not hold up.

    And yes, I know if I bid on a project and ask for one-quarter up front, at least I get something if the client walks away unhappy, deciding not to take what I designed. But I dont like working that way.

    Maybe its just me? but I dont want the buyer to have to pay for anything he/she isnt 100% satisfied with. Id rather have a contract that says, I own everything I design, UNTIL you decide you want the design, and then I decide to give it to you, and in that case, you dont get it until you pay for it. BUt we all know, thats not how freelance has traditionally worked. You give it to them and then you wait, and sometimes you wait past the due date, and then you wait until they feel like paying you.

    And no, as someone else recently said to me, design contests are not like going to a restaurant, ordering food, eating the food and then deciding not to pay because you didnt like the whole meal you just ate. Its like going to a restaurant, ordering the food, its not what you ordered and you send it back. if it comes back and its still not what you ordered, you dont accept it and you dont have to pay.

    I am a designer, and Im not fresh out of school, and I want the people who take my work, via contest or otherwise, to take it and pay for it, not because they had to, but because they loved it.

    dizeyner

  6. Music Pro says:

    dizeyner – it is interesting that you think “tits the best designer that wins” – Do you have ultimate faith in those who judge?

  7. nido says:

    so is it illegal?… I didn’t have the mental energy to read the whole thing…. some one please summarise in a “yes” or “no” kinda way…

    thanks

  8. [...] honest – most clients couldn’t give a rat’s ass about design crowdsourcing, the legality of logo design contests or any of the issues that I can write about from [...]

  9. [...] Essentially, design contests are like a lottery to the extent that some even question the legalities of them. [...]

  10. [...] toglie dignita’ all’idea stessa di lavoro. Alcuni sollevano anche che ci possano essere considerazioni legali in merito da tenere in [...]

  11. intrepidguppy says:

    The government (in Canada) looks at crowdsourcing ‘contests’ as works for hire. They’re legal because they’re not actually contests despite the wording. And in Canada they are not subject to GST (a value added tax) if the ‘contest’ holder is not Canadian, which is a good reason to identify the location of a client.

    They are contests only in principle, not fact. Anybody who thinks they are really contests by the legal definition and doesn’t report their income is kind of dense.

    • Steve Douglas says:

      @interpid Thanks for taking the time to comment (I think you’re the designer that created the Crowdspring and Logo Tournament logos, no?)

      I think you may be conflating several issues here. The first (not dealt with in the piece) is how income from design contests is viewed for tax reporting purposes. That’s neither here nor there, in terms of what design contests are, or aren’t. Though I’d agree that anyone who doesn’t report income from ALL sources is “kinda dense”.

      As an aside, taxation of design services in Canada is a quagmire. For example, if you’re in Ontario, and e-mail Ontario-based clients files, it is considered a service and therefore not subject to PST. If you hand over a CD, then the artwork becomes a physical product and is taxable. If you FAX a proofs to a client, they’re using their paper so the design work remains a service. If you hand them sheets of paper printed on your system, it may well be considered a product and taxable under PST. A lot of my knowledge in this area comes first hand, thanks to an aggressive crack-down on the design industry a few years ago.

      The second issue is how design contests are marketed to people entering (wherein lies the rub). There’s lots of precedent for ‘creative’ contests being viewed, legally speaking, as actual contests, including design, writing and video production. Read the terms and conditions of a promotional design contest (a large corporation for example) and you’ll see how complex they are (several links in the article above), especially when compared with the standard user agreements of your typical design contest site. There’s even a few instances where large corporations, holding contests on sites like 99designs and Crowdspring, have added their own terms and conditions, obviously to follow accepted contest laws and regulations that aren’t covered in the base site version. Apparently, their lawyers know something that we don’t.

      Work-for-hire is a legal concept and is more relevant to authorship and ownership of artwork and the transfer of same. That’s hot button issue too – many have opined that work-for-hire agreements claimed by contest sites go beyond what is generally acceptable. Traditionally, work-for-hire applied to actual employees where hardware, software and allowances for time are covered by the employer, and included in the contract. Many view the shifting of work-for-hire provisions to freelance contractors (or in this case, design contest participants) who now have to shoulder all the expenses, to be unethical at best. The designer assumes all the expense, and risk, while giving away at least some ownership of their work, usually under some dodgy user agreement. Some designers have taken on that fight and there’s a few anti work-for-hire campaigns around, including Stop Work For Hire, promoted by some outfit called PAL (Professional Artists League).

  12. bizlegal says:

    It is very important that you begin your movement to the new methods of doing business. Your Web site is your business card online. This is all the more true of the lawyers advising those businesses.

  13. tony689 says:

    This is a very interesting article and could be the chink in the armor that design societies could use. Will they? Probably not. The apathy of the design industry is, so far, very predictable.

    In response to Dizeyner:
    About the places you mentioned that charge a monthly fee, at what point have you wasted billable time that equals that fee, with the same no-win results.

    The world of professional design revolves around winning and losing quotes. Rather than wasting billable time drawing logos for sites where you are not winning or have very little chance of winning, why don’t you pursue bettering your skills, developing better marketing strategies, better clients, and aiming for higher goals?

  14. [...] Are logo design contest sites even legal? [...]

  15. [...] toglie dignita’ all’idea stessa di lavoro. Alcuni sollevano anche che ci possano essere considerazioni legali in merito da tenere in [...]

  16. S says:

    These site are not true contest sites. Crowd sourcing is no different than an a company going to different agencies and looking for a creative for a product, service or identity.

    Each company will attempt to convince the potential client to hire them in fact his is exactly how crowdsourcing sites work.

    To the person who wrote the blog is 100% misinformed and it’s sites like this one that give crowdsourcing a ban name.

    the funny thing all these people who complain about crowdsourcing are the one who actually use crowdsourcing

  17. John says:

    Crowd sourcing should be illegal. The bottom line is it’s work for hire without pay – which is the definition of slavery. The commenter who used the restaurant comparison was right on the money: that is, it would be like ordering a dinner from 10 different restaurant menus, tasting each one, and then deciding which one you’d pay for. It’s not the same thing at all as an RFQ. If you can’t understand the difference between collecting competing BUSINESS PROPOSALS and CONTRACTING FOR ACTUAL FINISHED, CUSTOMIZED PRODUCTS AND SERVICES – which is what these “contests” really are – you’re an imbecile … you’re an even bigger imbecile if you think that the virtues of the ‘Free Market’ justify it. But who cares if one more domestic business and industry goes down the drain and shipped oversees, huh. Let’s just keep on “Free Marketing” (what’s left of) our nation and ourselves right into a third-world existence.

  18. eliza says:

    It is not slavery, no one forces you to do a contest. Nor do you have to pay a fee to participate. If you see it is taking you too long, drop out. The clients are sometimes quirky and pick silly winners.

    It is fun and interesting, nice to see the ideas, one shouldn’t expect to make a living at it.

  19. John says:

    So in other words, corporate farm managers should be free to announce a “contest” such as the following: “Attention all Mexican day laborers: All of you need to come to my farm this Tuesday, between the hours of 6 AM and 6 PM, and pick my strawberries. At the end of the day, I’ll walk around and examine what everyone picked for me, and the person that, in my view, picked the best quality strawberries will be awarded a prize of $1000.” You know what buddy? I’m sure that there would be no shortage of Mexican day laborers showing up that day, and giving away their labor of their own free will. But hey, that’s the “free market”, right? No problem … right?

  20. WhyMeLord says:

    Every time I see someone attempt to justify contest and working for free for ‘exposure’ I’m reminded of that old pick up line “I’ll really and truly still respect you in the morning”.

    What artist/designers do for a living is a business. Even if the designer is a bit below average in skill set and experience they can make money if they apply the basic business practices.

    We (husband wife team) mentor our students/interns for both the skills needed for their craft and we likewise teach standard basic best business practices. Those of our students that paid attention are making a good living. Those that didn’t are typically in another line of work within 3 years.