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Paul Zimmerman

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Provisions in Contest Rules are Held Enforceable

In 2012, the Federal Trade Commission (FTC) sponsored the “Robocall Challenge,” a contest whereby the agency invited contestants to develop a solution to the consumer problem of automated “robocalls.” One contestant submitted an entry, believing that his proposed solution was superior to the two winning submissions. He filed suit based upon a breach of contract theory, and he sought recovery of the $50,000 prize offered in the contest. The contestant alleged that the FTC’s designated judges failed to comply with The Official Rules of the Challenge for evaluating and ranking submissions.

The FTC has long pursued a number of approaches to stopping automatically dialed, prerecorded sales calls known as “robocalls.” These calls are frequently illegal, and the FTC has brought hundreds of lawsuits against companies and individuals for violations of the Do Not Call List. Still, Internet-based telephone technology has increasingly made robocalling easier and law enforcement more difficult. The FTC has undertaken a number of initiatives aimed at developing technology-based solutions to the robocall problem. Hence, the agency conducted the Robocall Challenge, offering a $50,000 prize to the most innovative, effective overall solution to blocking illegal robocalls.

The Rules described three criteria by which proposed solutions would be evaluated and assigned a weight to each:

(1) Does it work? (50%)

(2) Is it easy to use? (25%)

(3) Can it be rolled out? (25%)

The Rules also included a broad release absolving the FTC of liability arising from the contestants participation in the contest. Under paragraph 14 of the Rules, each contestant agreed to a clause which stated “[c]omply with and be bound by . . . the decisions of the Sponsor, Administrator, and/or the Competition Judges, which Rules and decisions are binding and final in all matters relating to this competition.”

The FTC received nearly 800 entries. After eliminating submissions deemed to be facially deficient, an FTC administrator forwarded 268 entries to the expert judges for review. The contestant's entry, which proposed a system of call tracing and law enforcement to prevent calls from registered robocallers, was included among these 268 submissions. The judges further narrowed the competition to approximately 115 entries that employed filtering-type solutions, which the judges felt most adequately satisfied contest criteria. The Plaintiff's submission did not employ a filtering solution, and was therefore excluded from the final 115 entries.   

The contestant, dissatisfied with the results of the competition, filed a protest with the Government Accountability Office (GAO), arguing that “the agency failed to evaluate his entry in accordance with the rules established for the contest.” The GAO dismissed the contestant's protest for lack of jurisdiction, finding that the FTC’s contest did not involve a procurement of property or services. On August 6, 2013, the contestant filed his complaint in the Court of Federal Claims, alleging that the FTC’s failure to adhere to the Rules constituted a breach of contract.

The main issue decided by the Court of Federal Claims was whether the Plaintiff could circumvent the exculpatory clauses found in the contract which stated that the FTC was released from liability in disputes arising from contestants’ participation in the challenge, and also that the decisions of the judges were final and binding. For the Plaintiff to prevail there had to have been a material breach in the form of fraud, bad faith, gross mistake or irregularity. The court held that no such breach had occurred.

This decision follows other rulings in which the courts have generally held that the official rules form a binding contract between the Sponsor and entrants, and that such exculpatory clauses are enforceable. It is imperative that when drafting rules, Sponsors should be sure to include such provisions in order to protect themselves and their final decisions.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.