Legal News

Publishers Clearing House did not learn its lesson the first time around, so they will have to learn it all over again, to the tune of $3.5 million. This payment will settle a suit brought by 32 states charging the company violated a 2001 agreement regarding deceptive marketing practices. The several million dollar settlement will cover the cost of the investigation by the states into the company's alleged unethical marketing practices. This includes the claim that the Port Washington, New York-based company led customers to believe that making purchases might increase their chance of winning the famed Clearing House sweepstakes.

According to a report by ABC News 15 in Arizona (one of the states party to the settlement) Publishers Clearing House will work with a compliance counsel and an ombudsperson to change any deceptive marketing practices in the future to make them more understandable to the consumer. In addition, PCH will send a letter to each customer who spends $1,000 or more yearly on company products, to notify them that purchases are not necessary to enter or win the sweepstakes.

The Federal Trade Commission says an ad is deceptive if its statements or omissions are likely to mislead reasonable consumers. The misstatement must also be "material," that is it must be important to a consumer's decision to buy or use the product. In this case, the states were concerned that decisions to purchase products were driven by the consumer's belief they would have a better chance of winning the PCH sweepstakes prizes.

BusinessWeek further reports the settlement will require the company to "screen" more of its customers to ensure they are not "disoriented" and not making excessive purchase under the impression that the purchases might help them win. Various states who are party to the agreement will receive varying amounts under the settlement. For instance, BusinessWeek reports Colorado will receive $320,000. According to the Baltimore Sun, the state of Maryland will receive $40,000, which it will use for consumer education.

Related Resources:

• Ore. AG announces $3.5M sweepstakes settlement (AP, Gazette-Times)
• Seven Rules for Legal Advertising (FindLaw)
• Marketing Basics (FindLaw)
• FTC Snaps Kellogg Co. for Misleading Claims about Cereal (FindLaw's Common Law)