By Gonzalo E. Mon

Apple recently changed the terms of its iPhone Software Development Kit (SDK) to allow companies to offer certain promotional games on applications. 

Although some news reports have suggested that Apple is now allowing companies to run ?lotteries? on the iPhone, that is incorrect. 

Section 3.3.17 of the SDK states that an ?Application may include promotional sweepstakes or contest functionality provided that You are the sole sponsor of the promotion and that You and Your Application comply with any applicable laws.? 

Accordingly, developers need to understand the legal boundaries.

Laws in the United States and most other countries prohibit private parties from running lotteries. 

In general, a lottery is a promotion that includes the following three elements: (1) a prize; (2) awarded on the basis of chance; (3) to people who were required to pay money or other consideration. 

Therefore, you cannot require people to pay money to enter a chance-based promotion. 

In most cases, a developer can comply with lottery laws by ensuring either that no payment is necessary to play or that winners are selected on the basis of skill, rather than chance.

There are, however, there are several limitations to this general rule.

Pari passu
If a sweepstakes has a method of entry that involves a payment, a developer may be able to comply with lottery laws by adding a free method of entry. 

It is important to ensure, however, that people who play for free are treated equal to people who pay to play. That may take some creative thinking to accomplish. 

For example, the traditional approach of allowing people to enter for free by mail may not work if winners are selected based on the speed of their responses and people who pay can enter faster. 

Be sure to eliminate any bias towards people who pay and make sure you clearly disclose the free option.

Even a free method of entry may not always provide immunity from a lawsuit, however. 

Plaintiffs in a California class action have challenged various sweepstakes in which consumers could enter by sending a text message that was subject to a 99-cent charge or by filling out a free online entry form. 

The plaintiffs are arguing that the sweepstakes constitute lotteries because individuals who entered by paying a premium fee did not get anything of value for that fee, other than the opportunity to win prizes. 

Not a game
These cases are pending, but you should be wary of charging people money for nothing more than the opportunity to win a prize.

Removing the element of chance and replacing it with skill may offer developers some more flexibility, but that may be easier said than done. 

Different states use different tests to evaluate whether a game is skill-based or chance-based and there are various instances in which two states have evaluated the same game and reached different conclusions as to whether the game was lawful. 

If you can ensure that a game is skill-based, that may allow you to require a payment, but that strategy may not work in all states. Some states still prohibit payments, even if a promotion is skill-based.

Although Apple?s new SDK may give developers more freedom to develop promotional applications, that freedom is limited by a patchwork of laws across all 50 states. 

As Apple states in the SDK, developers are required to comply with these laws and must ?clearly state in binding official rules for each promotion that Apple is not a sponsor of, or responsible for conducting, the promotion.? 

Accordingly, developers need to first make sure that they understand what laws apply before they start to develop an application. Failure to comply with those laws can lead to rejection by Apple, as well as to costly lawsuits and regulatory investigations.

Gonzalo E. Mon is an attorney in Kelley Drye & Warren?s advertising and marketing law practice in Washington. Reach him at .