Andrew Lustigman, Chair of Olshan's Advertising, Marketing & Promotions Group and Co-Chair of the firm’s Brand Management & Protection Group, and associate Morgan Spina published an article in Bloomberg Law entitled “FTC’s Focus on Subscriptions Protects Consumers: Legal Insight.” In the article, Andy and Morgan provide a comprehensive overview of the complexities surrounding automatic renewal subscriptions, a payment model increasingly used by e-commerce businesses. The article offers critical advice for companies looking to navigate the evolving regulatory landscape, particularly in light of recent state and federal developments. Andy and Morgan highlight key areas of focus, including the importance of clear enrollment terms, streamlined cancellation processes and the implications of the FTC’s recent actions against major players like Amazon and Adobe. "Companies should ensure customers aren’t forced to reject a barrage of offers before the cancellation request is processed or are somehow taken out of the cancellation path if they are considering a save offer," they advise. Andy and Morgan emphasize that businesses must stay ahead of regulatory changes to avoid costly litigation and maintain consumer trust.
Automatic renewal programs and frictionless cancellation processes continue to garner significant regulatory scrutiny. Now, the Federal Trade Commission (“FTC”) is taking action against the software company, Adobe, and two of the company’s executives, Maninder Sawhney and David Wadhwani, regarding the company’s automatic renewal subscription practices, particularly as such practices relate to the company’s subscription enrollment and cancellation pathways. After investigating the company’s subscription practices, the FTC referred the matter to the United States Department of Justice, who in turn filed a complaint in federal court in the Northern District of California.
Andrew Lustigman, Chair of Olshan's Advertising, Marketing & Promotions Group and Co-Chair of the firm’s Brand Management & Protection Group, and associate Morgan Spina published an article in New York Law Journal entitled “Regulation of Automatic Renewals Remains Key Issue for Lawmakers.” In the article, Andy and Morgan discuss the revision of statutes surrounding subscription renewal fees, specifically those that are relevant to the cancellation of automatic renewals.
Both federal and state legislators and regulators continue to focus on auto-renewal/continuous service programs, particularly emphasizing the necessity of online cancellation for orders initiated via the Internet. In March 2023, the FTC aimed to modernize its “negative option rule,” aligning it with state laws and increasingly common continuity programs. The proposed FTC Rule Concerning Recurring Subscriptions and Other Negative Option Plans would mandate disclosure of continuity program terms and cancellation processes before acquiring a consumer's billing ...
The Federal Trade Commission (“FTC”) has been interested in pursuing amendments to the Negative Option Rule for several years. In 2019, the FTC published an Advance Notice of Proposed Rulemaking (“ANPR”), soliciting public comment on certain issues related to negative options and automatic renewal contracts, including disclosures, consent, and cancellation. Following receipt of such comments, the FTC issued an Enforcement Policy Statement Regarding Negative Option Marketing in 2021. Now, in its latest and potentially most impactful effort, the FTC has issued a Notice of Proposed Rulemaking (“NPRM”), proposing several specific changes to the Negative Option Rule, as the existing rule was woefully out of date.
* Rachel Gold is a law clerk in the Corporate/Securities Law practice group.
Panera Bread Company (“Panera”) is facing a class action lawsuit that alleges its Unlimited Sip Club (“Club”) is in fact not so unlimited. According to Panera’s own promotional materials, the Club is a refill program where members pay $10.99 per month for access to lemonade, soda, coffee, and tea drinks of “any size” at “any time.”
On July 1, 2022, California Assembly Bill 390 will take effect, adding new notice and cancellation requirements to California’s existing Automatic Renewal Law (“ARL”).
Weight-loss app Noom has agreed to make substantial changes to its enrollment processes and pay $56 million, in addition to providing $6 million in subscription credits, in order to resolve a federal court case where the plaintiffs alleged that the company utilized deceptive automatic renewal tactics.
Happy holidays! We hope you are safe and healthy. As we enter the new year, Olshan’s Advertising and Branding law groups shares their list of hot topics that look to be on the horizon for 2022. If you have any questions on these or other issues, please reach out to us.
On July 9, 2021, the Colorado Governor signed Colorado House Bill No. 1239 into law, resulting in Colorado becoming the latest state to enact new automatic renewal and cancellation procedures applicable to consumer sales contracts. In addition to addressing general automatic renewal contracts, the new Colorado law establishes certain requirements regarding the execution and enforcement of dating service contracts.
Olshan’s Advertising, Marketing & Promotions Practice Group chair Andrew Lustigman and associate Morgan Spina have authored an article published in NYSBA Inside entitled “Check Your Enrollment Path: New York Enacts Comprehensive Automatic Renewal Law.”
Class-action lawsuit seeks recovery of fees obtained through subscription renewal plan.
Vermont, which already has one of the most unique automatic renewal laws on the books, has further increased the compliance obligations for sellers utilizing continuity arrangements. On March 5, 2020, Governor Phil Scott signed Vermont Senate Bill 110 into effect. This new law primarily tackles issues surrounding privacy, but also updates Vermont’s automatic renewal provisions to bring cancellation of consumer contracts in line with California’s online requirements. The law goes into effect on July 1, 2020.
In the wake of several state-enacted regulations and restrictions on automatic renewal provisions in consumer contracts, on May 10, 2019, Rep. Mark Takano (D-Calif.) introduced the federal Unsubscribe Act of 2019, H.R. 2683, to increase consumer protection with respect to online negative option agreements. Negative option agreements include by definition automatic renewal contracts, continuity plan contracts and free-to-pay conversion contracts.
Following other states that have recently enacted regulations and additional restrictions on automatic renewal provisions in consumer contracts, on April 9, 2019, North Dakota House Bill 1195, which enacts a new chapter of the North Dakota Century Code relating to certain marketing practices involving automatic renewal, was signed by Governor Doug Burgum and filed with the Secretary of State.
As we have discussed in previous blog posts, subscription-based business models and the automatic renewal techniques they popularly employ have garnered attention from regulators in recent years. The District of Columbia has now passed its own law regulating automatic renewals. With the passage of this law, D.C. joins many other states in requiring specific disclosures from advertisers who utilize automatic renewals as an integral part of their business model. The law has provisions similar to those in certain states, but also has important timing requirements.
Reflecting California’s continuing challenge to automatic renewal programs, direct marketing firm, Guthy-Renker, agreed to settle claims brought by multiple California city and district attorneys (CART) alleging that the direct marketing firm engaged in improper automatic renewal practices with respect to its sale of ProActiv skin products and Wen hair products.
Many online ecommerce companies operate on a subscription model. Such companies need to be cognizant of federal and state laws governing advertising and enrollment in continuous service plans. The failure to consider particular state requirements can have significant consequences given the aggressive plaintiffs’ bar. A recent federal-court approved settlement between Yahoo Inc. and users of Rivals.com highlights this exposure.
Following up on other states recently enacting additional restrictions on automatic renewal provisions, on May 28, 2018, Vermont House Bill 593, an omnibus consumer protection bill, was allowed to go into effect without the signature of Governor Phil Scott, making Vermont the first state to require a “double opt-in” with respect to automatic renewal provisions.
Andrew Lustigman published an article in Leading Internet Case Law entitled “eHarmony Settlement Illustrates Changes Required in E-Commerce Subscriptions Programs.”
Many marketers rely on advance consent auto-renewal programs, particularly for online subscription sign-ups. In the wake of the booming subscription-based business model and a rise in class action filings under state automatic renewal laws, many states are enacting or updating their laws to strengthen consumer protection. California’s recently enacted Senate Bill 313 enhances what was already one of the most stringent auto-renewal laws in the nation.
Lustigman discusses the challenges of advance consent in Inside Counsel article.
Georgia has recently passed new legislation aimed at regulating the use of automatic renewal provisions in service contracts.