Law Will Have Implications for Companies That Offer Automatic Subscriptions or Renewals

On October 4, 2021, Governor Gavin Newsom signed into law Assembly Bill No. 390, which amends California's Automatic Renewal Law (ARL), California Business and Professions Code Section 17600 et seq. The new law takes effect on July 1, 2022 and will have implications for companies that offer subscriptions or other services that automatically renew.

Background

Enacted in 2010, California's existing ARL imposes detailed disclosure requirements for any recurring delivery of goods or services in California. In particular, it requires a business to clearly and conspicuously disclose offer terms and cancellation policies in any automatic renewal offer. It also requires companies to obtain affirmative consent and to provide an "acknowledgment email" with the offer terms and cancellation information. And Section 17603 of the ARL declares that where a business's disclosures fail to satisfy the ARL, barring proof of good faith, any goods the business sends to a subscriber are to be treated as an "unconditional gift."

Although the law has been in place for many years, there remains significant disagreement regarding what it takes to comply with the ARL and the appropriate remedies in the event a customer believes the company is not strictly complying with the law's requirements.

The recent amendment keeps this structure in place and adds several new requirements, which will likely attract even more attention to this law.

First, and most prominently, the amended ARL creates a new obligation to send "reminder emails" before a free or discounted trial expires, or before an annual subscription renews. The law requires that these reminder emails include a clear and conspicuous statement that a) the service will renew automatically unless cancelled; b) the length and terms of the renewal period; c) a method for the consumer to cancel the service; d) if electronic, a link directing the consumer to the cancellation process (or other reasonably accessible means); and e) contact information for the business. 17602(a)(4)(A-E).

Second, these email reminders must be sent if a consumer accepts a free trial, promotional, or discounted price for a term greater than 31 days. In that instance, the business must send a notice that the discounted term is expiring between three and 21 days before the discounted price term expires.

Third, if a consumer signs up for an automatically renewing subscription with an initial term of "one year or longer," (regardless of any discounted pricing) a business must provide notice of the renewal term between 15 and 45 days before the subscription renews.

Fourth, if a business allows a consumer to sign up for an automatically renewing subscription online, the business must provide a method to terminate the subscription online as well. This method must be "at will" and "without engaging any further steps that obstruct or delay the consumer's ability to terminate the automatic renewal or continuous service immediately." 17602(d)(1). Compliance can be through a "prominently located direct link or button" located in either a "customer account or profile" or within "device or user settings." Alternatively, a business can provide an "accessible termination email formatted and provided by the business that a consumer can send to the business without additional information." 17602(d)(1)(B).

The amended law also provides additional details on how and when business may comply with each term of the law.

Any company that offers subscriptions or services that automatically renew should carefully review these amendments and the underlying requirements in California and any other state in which they offer services. Wilson Sonsini regularly advises clients of all sizes regarding compliance with automatic renewal laws as well as the frequent disputes that arise under them. As companies implement or modify their sign-up flows for subscription-based services, it is important to keep the ARL in mind and to consult Wilson Sonsini's team to stay abreast of recent development and best practices for compliance.

For more information on the ARL and its requirements for businesses selling automatically renewing subscriptions, please reach out to a member of the firm's litigation or technology transactions practices.