Over the past few years, we have noticed a significant increase in the use of internet contests and sweepstakes to promote business. Industries such as automobiles, apparel, health care, online dating and education have all stepped up their use of contests to bring more attention to their brands, products and services. This article focuses on two trends: the failure by most businesses to clearly explain the mechanics of their online contests; and the failure by most businesses to obtain all of the important rights and licenses needed from entrants and winners to conduct and advertise their online contests and the products or services they are trying to promote.

It may surprise you to learn that many companies do not consistently think through all aspects of their contest mechanics. This is likely the result of several factors, including lack of awareness of contest-related and consumer-protection laws, the difficulty of covering each and every detail in the rules themselves, the conflicting laws among various states in the U.S. and in foreign jurisdictions, and working through the more complex mechanics of contests that are administered both online and at retail.

Most companies understand that a contest must give participants information about basic contest requirements, such as the start date, duration, entry process, prizes, and how the winner will be selected and notified. Online contests raise more vexing problems, such as whether automated or repetitive electronic submissions will be accepted, how the contest website will detect violations, restrictions on length, size or format of content submitted, compliance with online-data-privacy laws, and compliance with the Can Spam Act of 2003 (if you market the contest through email).

If you decide to post audio-visual entries on YouTube or feature a contest on Facebook or Twitter, you must understand and comply with each site's guidelines for on-site promotions.

You have no doubt seen the phrase "No Purchase Necessary"plastered across many contest promotions. This statement specifically targets state laws that prohibit illegal lotteries. Games of chance may not require consideration of any kind, including purchase, from an entrant. The phrase "No Purchase Necessary" attempts to emphasize that anyone can enter the contest, regardless of whether he purchases the product or service that is the subject of the promotion.

It is only natural for a contest sponsor to want to condition a contest submission to a specific task or action that benefits the company, product or service being promoted. For example, a company may want to require that a contest entrant fill out a survey, watch a marketing video, consent to receive marketing emails, subscribe to its website or download free software as a condition to entry. The problem is, while some states narrowly define "purchase" as including only a direct payment by the entrant, the majority of states define "purchase" in broad terms. This means that, in the majority of states, any condition to entry (other than filling out a simple entry form) turns your contest into an illegal game of chance.

One relatively easy solution to the "illegal lottery" problem is to make the contest one of skill, rather than chance. For example, if your company wants to encourage Twitter users to re-tweet information about a company promotion or event, you might consider a skill-based contest where the most creative and original re-tweet wins the prize.

If your contest involves user-generated content, such as photos, videos or short stories, the rules must contain specific language granting you the necessary rights and licenses to use the content. You may want the content for marketing purposes, such as featuring winners in a post-contest event or newsletter, or using the winner's submission as part of a future public-service announcement.

You should obtain a liability and publicity release from every individual who appears in the photos or videos that are displayed on your website. The official rules should prohibit content that is defamatory, obscene, inappropriate, or contains content owned by a third party.

As a general rule, if you plan to continue to display the winner's content or likeness, or use either or both for marketing purposes after the contest has ended, you will need a license from the winner, which should be disclosed in the official rules as a condition to receiving the prize.

If your products or services target purchasers under the age of 18, you may want to invite minors to participate and submit entries. Many states have minimum-age requirements for contests. Some companies successfully employ age-screening mechanisms (such as a timed cookie) to prevent entrants from hitting the "back" button to change their age.

If the online entry form collects personal information from persons under the age of 13 (including email addresses), you must comply with the Children's Online Privacy Protection Act.

COPPA requires, among other things, that you disclose what information is being collected, obtain "verifiable parental consent" to collect it and disclose how it will be used. Minors lack capacity to enter contracts in many jurisdictions. A minor's "acceptance" of official contest rules without parental consent may be ineffective.

Age eligibility issues aren't limited to just minors or children under the age of 13. For example, hotels typically do not allow check-in by an individual under the age of 21. If hotel accommodations are part of the prize being offered and your contest is open to entrants under 21, you should require the winner to be accompanied by someone over 21. You will also need to specify whether the expenses of the winner's travel guest (e.g., parent or guardian) are part of the prize awarded.

In addition to legal risks, serious public-relations problems can result from a poorly administered contest, particularly in online social environments.

For example, Malibu Caribbean Rum faced an uproar of conspiracy theories and complaints on YouTube message boards after the company announced the winner of its user-generated advertising contest earlier than required by its rules, and advertised conflicting and inaccurate descriptions of its judging process.

When designing and advertising your contest, in addition to managing the legal risks, consider how the public is likely to perceive the fairness and transparency of your contest mechanics.