Spotify USA, Inc.’s (“Spotify”) efforts to have class action claims regarding its automatic renewal practices dismissed were recently denied by a federal court in California. The decision represents another data point in the recent upward trend of class action lawsuits involving claimed violations of California’s Automatic Renewal Law (“ARL”).
How do Spotify’s services allegedly violate the automatic renewal law?
Spotify’s music streaming service provides both free and paid subscription models, each incorporating automatic renewal aspects. The paid service is offered on a monthly subscription basis, which automatically renews each month until subscribers cancel. The free service encourages new members to subscribe by offering a 30-day trial, after which time the subscriber is automatically charged the full amount for the next month, and each month thereafter, until s/he cancels the subscription. To register for the free trial plan, Spotify requires payment information from consumers, while also providing various disclosures to consumers advising them that if they do not cancel their subscriptions before the 30-day period expires they will be charged a fee.
This free-to-pay conversion practice has resulted in a class action lawsuit against Spotify for allegedly violating California’s ARL. The alleged violations include the following:
- failure to present automatic renewal terms in a clear and conspicuous manner in visual proximity to the request for consent to sign up for the offer;
- failure to obtain consumers’ affirmative consent for automatic renewal; and
- failure to provide an acknowledgment that includes automatic renewal terms in a manner capable of being retained by the consumer.
Having failed to get the ARL claims dismissed, Spotify is now potentially exposed to a significant class judgment or class settlement.
Protect Your Business from Automatic Renewal-Related Liability
The importance of clearly and conspicuously disclosing terms and conditions generally, and automatic renewal conditions specifically, should be illustrated plainly by the class action lawsuit filed against Spotify. When implemented properly, recurring billing methods (free-to-pay conversions, continuity plans) provide conveniences to both businesses and their customers. However, it is crucial that all details of the renewal are disclosed and that the consumers expressly agree to the automatic renewal in advance. In this regulatory environment, it is critical that businesses work closely with experienced counsel to ensure that such automatic renewal-related disclosures related to subscriptions and/or recurring fees are clearly and conspicuously presented to consumers at the time of sign up.