In recent months, Baker & McKenzie has represented a number of clients who have been targeted by consumer class action threats relating to their subscription services. While the statute underlying the cases is not new, its use as a basis for consumer class actions is increasing and may soon affect many companies who offer subscription services with an automatic renewal feature to residents in California.
The Auto-Renewal Statute
The class action trend stems from a California statute mandating the content and format of a company's description of its auto-renewal features to consumers: Business & Professions Code sections 17600-17606 ("Auto-Renewal Statute"). The Auto-Renewal Statute was effective as of December 2010, but seems to be increasing in popularity among plaintiff's firms recently as the basis for consumer class actions. This may be the result of the increased use of electronic billing and online subscription services by the web-based business industry. And, because the Statute is unique to California, companies based outside of the state may simply be unaware of its existence.
The critical mandates of the Auto-Renewal Statute are:
- Notice Before Sale: Provide notice of the automatic renewal features in the requisite "clear and conspicuous manner" before the initial subscription, and in close proximity to the request for consumer consent.
- Affirmative Consent: Obtain the consumer's affirmative consent to the agreement containing the automatic renewal provisions before charging the consumer.
- Retainable Notice: Provide the consumer with a retainable form of acknowledgement including the details of the automatic renewal feature and instructions on how to cancel the subscription.
- Contact Information: Provide a toll-free telephone number, email address or postal address for cancellation requests when billing the consumer directly.
The Statute provides that any service provided on an automatically-renewed basis without obtaining the consumer's affirmative consent will be considered an "unconditional gift to the consumer." Thus, the damages sought by the consumer class actions are usually full restitution to the consumer class for any products or services purchased during the period of non-compliance.
Protect Your Business From Becoming a Target
Compliance with the Auto-Renewal Statute will depend upon a company's unique products and services and also on the details of the specific automatic renewal feature at issue. However, a few recommendations are worth mentioning, and may demonstrate that the company attempted to comply with the Statute in "good faith" thus reducing the company's potential exposure:
- Regardless of the terms of the automatic renewal feature, make them conspicuous for consumers and set out the terms in clear language. The Statute is aimed at eliminating unexpected charges to consumers.
- Reference the fact of automatic renewal in descriptions of the product or service where advertised.
- Consider providing consumers with reminders prior to the next renewal period.
- Distinguish consumers who subscribe for personal uses versus business uses of the product or services, since business users are not covered by the statute.
- Conduct a review of the current automatic renewal feature procedures and the cancellation process, before the company is targeted by a lawsuit.
- Revisit the procedures and disclosures each time a new product or service is added to ensure compliance continues.
If the company does become a target of a class action, keep in mind that other unique facts pertaining to your specific product or service may provide a defense or make it an improper basis for class action treatment.