By Andrew Lustigman, Esq. and Morgan Spina, Esq.
Major League Baseball’s recent announcement that it will air its “Friday Night Baseball” weekly doubleheader on Apple TV+ indicates the streaming service’s growing role in sports broadcasting. Aside from the potential fan reactions, the requirement that a viewer will now need to subscribe to Apple TV+ to watch games reflects a growing trend towards continuity subscription programs. Regulators have taken note of this trend, and have enacted and proposed enhanced compliance obligations triggered at all phases of the subscription, renewal, and cancellation journey.
Subscription-based business models continue to be very popular among marketers, particularly given the high cost of customer acquisition. On the one hand, automatically renewing contracts conveniently facilitates the continued delivery of goods or services to consumers without consumers needing to submit a request or a separate order each time they wish to receive such goods or services. On the other hand, regulators have been concerned that businesses’ reliance on consumers taking affirmative acts to cancel automatically renewing contracts, as opposed to consumers affirmatively renewing such contracts, can and has resulted in consumers paying for goods or services that they no longer use or desire.
As a result of this concern, states began enacting and enforcing highly specific laws regarding subscriptions. California has undoubtedly led the charge when it comes to enacting these particular laws and remains to have one of the most comprehensive state laws on the books. Many states have followed in California’s footsteps and enacted similar laws, in whole or in part. The obligations contained within these state laws encompass all aspects of a subscription journey – enrollment, order acknowledgment, reminders, and cancellation pathway. As more states continue to enact their own automatic renewal laws, businesses face various compliance obligations. With new state law bills being introduced monthly, compliance obligations constantly evolve and change over time.
The state laws are enforced by regulators, such as attorneys general. In California, the automatic renewal law is enforced by the California Automatic Renewal Taskforce (“CART”) – a task force of county district attorneys seeking to enforce the state’s complex law. In addition, enterprising plaintiffs’ attorneys have brought class actions against businesses that allegedly failed to provide proper enrollment or cancellation processes.
As the leading federal regulator for national advertising, one would expect, particularly in the context of borderless e-commerce, that the Federal Trade Commission (FTC) would establish uniform laws. Unfortunately, the FTC’s existing negative option rule (Negative Option Rule) was drafted and finalized in the context of an outdated subscription model, namely, the “book of the month” club model. That model is when a member receives advance notice of an upcoming publication and then has ten days to reject the offer. If the member failed to reject the offer, the publication would be sent to the member, and that individual would be responsible for paying for it.
Looking to update its Negative Option Rule, on March 23, 2023, the FTC published an Advance Notice of Proposed Rulemaking (ANPR) to establish a federal rule addressing the contemporary use of negative option plans. While the Proposed Rule is not currently in effect, businesses offering continuity service subscriptions are well advised to pay close attention as the Proposed Rule includes some of the most specific compliance obligations that are already addressed by existing state law.
The Proposed Rule would apply to all forms of negative option marketing, including pre-notification and continuity plans, automatic renewals, and free trial offers, in addition to covering offers made in all mediums, including internet, telephone, in-person, and printed materials. It would require sellers to provide specific information to consumers before obtaining their billing information, including the costs a consumer may incur, the date the charge will be submitted for payment, and cancellation information. Moreover, businesses would need to obtain express informed consent to the negative option feature. Such consent must relate only to the subscription and not any other part of the transaction. The Proposed Rule would require online cancellation where the consumer signed up online and would require businesses to ask the consumer if they wish to receive “save” pitches before making such offers during the cancellation process. Finally, the Proposed Rule would require sellers to send at least annual reminders to consumers in the event that the subscription does not involve physical goods. The Proposed Rule is now set for public comments before being finalized.
Unfortunately, the Proposed Rule would not supersede state laws as currently drafted. Thus, while the law sets the minimum standards for continuity programs, businesses offering continuous service programs must continue to look to the existing state laws and ensure enhanced compliance where necessary.
Andrew Lustigman is the Co-Managing Partner at Olshan Frome Wolosky LLP. He is the Chair of the firm’s Advertising, Marketing, and Promotion’s Group and Co-Chair of the Brand Management & Protection Group. He may be reached at alustigman@olshanlaw.com.
Morgan Spina is an associate at Olshan Frome Wolosky LLP. Her practice focuses on advertising, marketing, brand management, and intellectual property. She can be reached at mspina@olshanlaw.com
