American Idol and Deal or No Deal seem to possess the Midas touch — except when it comes to texting.  Since 2007, NBC Universal, Fox Broadcasting companies and other media production companies have fought a class-action lawsuit claiming they conducted an illegal lottery under California Penal Code § 319. They also were accused of violating California’s unfair business practices law, Cal Bus. & Prof.Code § 17200.  After a federal district court denied defendants’ motion to dismiss consolidated, punitive class actions, the defendants  appealed to the U.S.  Ninth Circuit Court of Appeals, only to have the case remanded to the district courts. The defendants finally settled earlier this month.

So what got the TV shows in so much trouble?

During broadcasts of the two hit shows, viewers could participate in two cash giveaways. In American Idol, they were presented with a trivia question. In Deal or No Deal, they were shown briefcases and were asked to pick one corresponding to a winning number. In both games, they were to submit answers via SMS text for a 99-cent fee, or free via the internet. Viewers could submit up to 10 entries; each correct submission entered the viewer  in a drawing, whose winner was chosen at random.

Under California Penal Code §319, an illegal lottery has three elements: (1) distribution of a prize, (2) based on chance, (3) to an individual who has paid valuable consideration.  Plaintiffs argued that the 99 cents was the consideration. Defendants contended that the third element, consideration, was missing since viewers had the option to submit answers free on the Internet.

What was the settlement?

After the Ninth Circuit remanded and four years of litigation, the defendants settled: (1) agreeing to a five-year injunction barring them from conducting contests or sweepstakes where viewers make a submission via text for  a possible prize; (2) a refund of the 99 cent message fee to all participants; (3) paying all legal fees and expenses (estimated in excess of $5 million).

The judge has yet to approve the settlement. But this case underscores how legal teams must keep pace with innovative uses of technology.  With all the new means for marketing, including social media, what may seem to be an innovative way to engage audiences also  could lead to costly litigation.