HBA-MPM C.S.H.B. 2530 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2530 By: Junell Business & Industry 4/8/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Numerous Texas citizens receive sweepstakes entries from businesses such as Publishers Clearing House and American Family Publishers that invite people to enter a sweepstakes in which the prize money is millions of dollars. Because of the sometimes misleading presentation of the sweepstakes material, many people have been deceived into thinking that they have already won money or another prize. New York, California, Florida, Ohio, and Illinois are among 31 states that have filed suit against Publishers Clearing House for deceptive trade practices. In October 1999, Texas Attorney General John Cornyn filed a lawsuit against Publishers Clearing House for numerous violations of the Deceptive Trade Practices Act Consumer Protection Act. The suit alleges that the sweepstakes company made a variety of misleading representations through mail order solicitations designed to deprive money from recipients, primarily from elderly recipients. C.S.H.B. 2530 delineates conduct which a person may not perform when offering a sweepstakes and provides penalties. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 2530 amends the Business & Commerce Code to prohibit a person offering a sweepstakes primarily through the mail, exclusive of mailed newspapers and magazines, from: _requiring an individual to order or purchase a good or service or promise to purchase a good or service to enter a sweepstakes; _automatically entering an individual in a sweepstakes because the individual ordered or purchased or promised to order or purchase a good or service; _soliciting business using an order form or purchasing mechanism that has any role in the operation of the sweepstakes; _using a mechanism for entering a sweepstakes that has any connection to ordering or purchasing a good or service, that is not identical for all individuals entering the sweepstakes, and does not have a statement informing a consumer that purchasing a good or service will not help the person win; _soliciting an individual to enter a sweepstakes by invitation and allowing the individual to choose or indicate the preferred characteristics of a prize unless the choices are made on the sweepstakes entering mechanism and do not appear on and are not connected in any way to an order form or other purchasing mechanism; _offering any non-sweepstakes prize or other incentive other than a competitive price on goods or services during the same calendar year in which a person is offered an opportunity to enter a sweepstakes; _offering any opportunity to enter a sweepstakes during the same calendar year in which the person is offered a non-sweepstakes prize or other incentive other than a competitive price on goods or services; _asking an individual for information or action that would be consistent with the individual winning a sweepstakes prize unless the person has won the prize; _providing an individual who has not yet won a sweepstakes with any document or item that simulates any event, circumstance, or condition connected with winning the sweepstakes; _sending material accompanying or relating to a sweepstakes or an offer to enter a sweepstakes that states or implies that an individual must comply with a restriction or condition to enter unless all individuals are required to comply with the identical restrictions or conditions; _using a scratch-off device or other game piece that suggests an element of chance or luck to convey information about a sweepstakes or an offer to enter a sweepstakes; _sending material accompanying or relating to a sweepstakes that states or implies that: _an individual's chance of winning a prize is raised, lowered, or different or than the winner of a prize will be selected at a time or place due to a factor that is irrelevant to the way in which a winner is selected; _that the individual has received any special treatment or personal attention from the offeror of the sweepstakes; _that an individual who orders a good or service will receive a benefit or be treated differently in the sweepstakes or that failure to purchase a good or service will cause the individual to suffer a disadvantage; or _that the recipient of the material is a winner or if the recipient is not a winner, the recipient may be a winner, will be a winner under certain conditions, is, may be, or will be among a group from which a winner is selected, or has a better chance than another individual of winning the sweepstakes. _publishing or causing to be published different advertisements for the same sweepstakes that contain inconsistent descriptions of the grand prize; _offering more than one sweepstakes at the same time; _awarding multiple prizes in a sweepstakes unless all prizes are awarded on the same date through the same selection process; _publishing or causing to be published official rules that do not uniquely identify the prizes to be awarded and the date they will be awarded; or _providing for entry in a sweepstakes by mail and using more than one address to accept entries or using the address for entry in the sweepstakes for any purpose other than entry in the sweepstakes (Sec. 43.002). The bill does not prohibit a person from making a statement in the official sweepstakes rules describing the method used in choosing a winner or from notifying a winner after the sweepstakes has ended (Sec. 43.003). C.S.H.B. 2530 authorizes the attorney general to initiate an action by filing suit in the applicable court or county, and requires the court to award a plaintiff a civil penalty of no less than $5,000 or more than $50,000 for each violation found. The bill provides that if the material accompanying or relating to a sweepstakes or offer to enter a sweepstakes contains multiple statements, implications, representations, or offers prohibited by this bill, each is considered a separate violation and shall result in a separate civil penalty. If prohibited material is sent by mail, facsimile, electronic mail, or other similar mass distribution, each individual receiving the material constitutes an additional and separate group of violations. The bill provides that if another person knew or should have known that a person offering a sweepstakes was committing a violation, and if the person provided names and addresses of residents of this state to the person offering the sweepstakes or provided any service connected to the mass distribution of the sweepstakes, the other party is also jointly and severally liable. If the attorney general prevails, the court is required to award the attorney general reasonable expenses incurred in recovering a civil penalty. The bill requires a civil penalty to be deposited in the state treasury. The court is also authorized to award injunctive relief or other equitable or ancillary relief that is reasonably necessary to prevent future violations specified in this bill. EFFECTIVE DATE September 1, 2001. COMPARISON OF SUBSTITUTE TO ORIGINAL C.S.H.B. 2530 modifies the original bill by expanding the list of conduct that a person is prohibited from performing when offering a sweepstakes. The substitute removes the provisions in the original bill that prohibit a person from publishing an advertisement that includes an invitation or opportunity to enter a sweepstakes if the advertisement offers any gift or other economic incentive except for a competitive price on the goods or services advertised and from sending an advertisement by mail, facsimile, electronic mail, or other means of similar mass distribution that includes an offer for any other gift or incentive except for a competitive price on the goods or services originally advertised before 45 days after the date of the original advertisement (Sec. 43.002). The substitute provides that a person is not prohibited from making a statement in the official sweepstakes rules describing the method used in choosing a winner or from notifying a winner after the sweepstakes has ended (Sec. 43.003). The substitute expands the types of conduct that constitutes an additional violation, and provides that a third-party who aids a sweepstakes offeror in the commission of a violation is jointly and severally liable for cumulative civil penalties. The substitute requires a court to award a prevailing plaintiff between $5,000 and $50,000 for each violation found in a suit brought against a sweepstakes offeror, whereas the original bill specified that a civil penalty for a violation is not to exceed $50,000. The substitute authorizes the court to award injunctive relief or other equitable or ancillary relief reasonably necessary to prevent future violations (Sec. 43.004).