Legality

Paybuyer will, initially, have a No Purchase option.

Paybuyer gives users novel chance payments - each payment is a chance to win a prize, and each payment has an explicit expected value, which is currently set at $1.

These chance payments are similar to, but very different from, conventional sweepstakes entries and lottery tickets. As explained below, they're different in such a way that Paybuyer is not required to offer a No Purchase entry option.

However, attorneys have advised us that our system is so new that if this conventional entry option is missing, shakedown lawsuits could result. To obviate such suits, Paybuyer will initially offer No Purchase Necessary entries.

Expected Value (EV) payments in Paybuyer aren't gambling instruments.

In U.S. law, gambling has three elements: prize, chance, and consideration. If an offer, game or payment vehicle is missing one of these elements, it's not a gambling instrument.

EV payments in Paybuyer certainly have chance and a prize, but they're missing consideration.

What is consideration? Consideration is what a person pays or gives in exchange for the chance to win a prize.

  • Example: If you pay $1 to a convenience store for a lottery ticket, that $1 is consideration, and that ticket is a gambling instrument.

In the U.S., it's illegal for a company to give you a sweepstakes entry or lottery ticket on the condition that you buy that company's product. That's because part of your purchase payment could be thought of as payment for the entry or ticket.

  • Example: It's illegal for Proctor & Gamble to offer you a sweepstakes entry on the condition that you buy a tube of their toothpaste, Crest.

Therefore, when companies offer sweepstakes entries when you buy their products, they also offer a No Purchase entry option. They cannot require you to buy their product.

By contrast, in a Paybuyer-type system, while you must buy a product to receive a valid EV payment (a chance to win a prize), your purchase is not consideration. Here's why: if you receive an EV payment from an advertiser, that payment is valid if you buy from the advertiser's competitor.

  • Example: Proctor & Gamble can give you an EV payment that's valid only if you buy their competitor's toothpaste, Colgate.

In Paybuyer, if an advertiser gives you an EV payment in exchange for your attention before a purchase, that EV payment can be voided if you buy from the advertiser. IF it is voided, you can't pay -- that is, can't give consideration to -- an advertiser for a valid EV payment.

It's true that to receive an EV payment you must spend a bit of time on a call with the advertiser. But sweepstakes laws don't regard this bit of time as consideration:

"Today, consideration for gambling almost always means betting money. This is particularly true when it comes to Internet gambling. Even if players have to spend time at a web page and effort in filling out a form or playing a game, and the web site operator gets more eyeballs looking at its banner ads, there is no consideration." I. Nelson Rose in Gambling and the Law, 2001

In short, EV payments in Paybuyer aren't gambling instruments because recipients don't pay for them. Legally speaking, they're gifts.

Still, initially, we will not void any EV Payments

In its initial phase, while Paybuyer has a No Purchase Entry option, we will not void any payments. That's more user friendly.

The reasoning above will apply when Paybuyer enables advertisers to offer payments with EV's over $1. With EV's well over $1, we would be flooded with free entries, which would kill our model, so we may have to void entries, as envisioned above. We will see how the authorities view the consumer-friendly Paybuyer model.

For now, with the No Purchase Entry option, the legality of the model is not in question.

Mandated purchases are a more obvious case.

A mandated purchase is a purchase required by law, such as the purchase of auto insurance. In these rare cases it's especially obvious that in a Paybuyer system no consideration flows from buyers to the advertisers that give those buyers EV payments. Imagine Progressive Insurance offers you $10 EV for calling them, on the condition that you buy auto insurance from GEICO within 7 days of your call. Obviously, you aren't buying the insurance to collect this $10 EV; you're buying it because it's the law. The purchase of auto insurance from GEICO in no way stems from your receiving an EV payment from Progressive, so no consideration flows from you to Progressive for the EV payment.