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Over the past year, a growing number of companies have begun to sponsor promotions involving consumer-generated content. For example, Frito-Lay and Unilever each ran contests in which consumers were invited to create commercials and the winning spots were aired on television. These types of promotions offer many advantages for marketers. If a promotion is executed well, it could generate publicity for a relatively small investment. Consumers are also likely to spend more time on a company’s Web site watching videos and learning about the company’s products than they would otherwise. Moreover, a company may end up with a great commercial at a fraction of the price they would have had to pay an agency to develop it.

Along with these advantages come a number of legal challenges. Promotions like those sponsored by Frito-Lay and Unilever are subject to contest laws in every state, so sponsors need to make sure they comply with the laws in each state in which a promotion is offered. When a sponsor turns control of content over to consumers, it may lose the ability to ensure the content complies with applicable laws. Because sponsors could be liable for the content posted on their sites, they need to take steps to protect themselves against the possibility that consumer-generated content will infringe the rights of third parties or contain false claims. And, if sponsors aren’t careful, they may be limited in how they can use content submitted in a contest.

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