On July 19, 2018, it was announced that Operation Troop Aid (“OTA”) entered into a settlement with multiple states, including California, Delaware, New York, Pennsylvania, Virginia and Washington, for participating in an unlawful charitable commercial co-venture with Harris Originals of NY, Inc. (“Harris Jewelry”) a nationwide jewelry retailer for military personnel. In its simplest form, a commercial co-venture is when a for-profit company advertises that the purchase of a product will benefit a charity. Here, Harris Jewelry marketed a campaign called “Operation Teddy Bear,” in which it advertised that it would donate a specific amount of money to OTA when consumers purchased its teddy bears dressed in military uniforms”. Although Harris Jewelry passed along donations to OTA it did not document how the donated amount was calculated, and at times provided different information to consumers as to the amount of money to be donated. OTA did not oversee Operation Teddy Bear and the related marketing communications about how much would be donated to OTA, nor did it request an accounting of the number of bears sold or the rationale for the amount donated by Harris Jewelry to OTA. The parties also did not have a written contract governing the nature of their relationship, the calculation for donations to be made and how the donated funds were to be used. It was also discovered that OTA also improperly expended funds for non-charitable purposes and without any discussion, approval, or oversight by OTA’s board of directors. As part of the settlement, OTA agreed to dissolve the charity. There is a continuing investigation into Harris Jewelry.
Takeaway: Many states have laws that govern commercial co-ventures. These laws are designed to protect consumers and charities by ensuring that the for-profit company fulfills its promises to consumers and the charity and to protect the intellectual property of charities. Although these laws vary on a state-by-state basis, they all require that, at minimum, the parties to a commercial co-venture clearly memorialize the terms of the commercial co‑venture relationship in a written agreement and carefully account for funds. Some states also have statutorily-mandated contract language, marketing disclosures and registration and bonding requirements.