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The Subscription Economy: New Name, Recurring Issues

11 Oct, 2016 By: Randal M. Shaheen, Shahin O. Rothermel

The “subscription economy” receives a lot of buzz these days, but the truth is that the business model of selling to consumers on a recurring basis – commonly called “continuity” or “negative option” marketing – has been around for a long time. It is a great model, and it is extremely convenient for consumers.

Unfortunately, the subscription model is also a favorite enforcement target of the Federal Trade Commission (FTC), state attorneys general, and class action plaintiff attorneys. Marketers should keep the following factors in mind when developing and executing continuity campaigns.

Automatic Renewal

The Federal Restore Online Shoppers Confidence Act (ROSCA), as well as various state laws apply to products sold on an automatically renewing basis. Although the FTC has not brought as many ROSCA cases as observers expected when the law was passed in 2010, federal ROSCA cases are becoming increasingly common. In addition to federal enforcement, ROSCA allows state regulators to bring enforcement actions under the statute, and the states have used ROSCA in enforcement cases with much greater frequency than the FTC.

ROSCA requires that marketers clearly and conspicuously disclose all material terms before taking consumers’ billing information. Marketers must also obtain consumers’ express informed consent to the terms of the offer before accepting payment. Lastly, marketers must provide consumers with a simple means to cancel the order.

But Wait, There’s More

In addition to ROSCA’s requirements, various states laws impose additional requirements on continuity/negative option/subscription offers. These include renewal reminders and specific standards for what constitutes a “clear and conspicuous” disclosure, how and when a marketer must send confirmations and renewal reminders, and the amount of advanced notice require before a customers’ subscription renews.

Renewal Reminders

In Florida, if the renewal period is more than 31 days, marketers must remind customers that they are going to be charged. Marketers must also tell consumers how they can cancel the renewal. In New York, a renewal reminder is required regardless of the length of the renewal period. Other states require specific provisions that the renewal term is about to expire and must advise the customer that the subscription will be automatically renewed unless the customer gives notice to the contrary.

Clear and Conspicuous Disclosures

California law defines “clear and conspicuous” as “in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.” In addition, audio disclosures must be made in a volume and cadence sufficient to be readily audible and understandable.

Class Action Attorneys

If any group loves to target continuity/negative option marketing offers more than the FTC and state AGs, it is class action plaintiff attorneys. California’s Consumer Legal Remedies Act and the size of the consumer market make the state a veritable paradise for class action plaintiff attorneys. Frequent targets for attorneys pursuing class actions against continuity marketers include suits against Dropbox, Hulu, and Spotify under California’s Autorenewal Law and a suit filed against SeaWorld in the U.S. District Court for the Middle District of Florida alleging that the company automatically renews annual passes without consumers’ consent.

Making Sense of It All

Despite (and because of) their differences, state statutes are a frequent stumbling block for continuity marketers. Private plaintiffs, as well as government regulators, can enforce many of these laws. With hefty fines and equitable relief imposed by courts and state regulators alike, continuity marketers would be wise to make sure that they comply with laws of the states where they do business.

Developing and executing a comprehensive compliance plan can be an arduous, time-consuming task. However, consulting with legal counsel conversant in the state and federal laws governing continuity marketing can both speed and provide greater context to the process.

Randal M. Shaheen and Shahin O. Rothermel are attorneys in Venable LLP’s Advertising, Marketing, and New Media practice group. They can be reached at (202) 344-4000.

About the Author: Randal M. Shaheen

About the Author: Shahin O. Rothermel

Shahin O. Rothermel

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