In two recent cases, the California Supreme Court and the Federal Trade Commission (FTC), respectively, have addressed the overlap between consumer-protection laws prohibiting unfair and deceptive conduct, and laws imposing technical requirements for automatic renewal programs. Arguably, consumer-protection laws, such as California’s Unfair Competition Law (UCL), vitiate the need for separate automatic renewal laws (ARLs). Nevertheless, a recent settlement between the FTC and MoviePass signals the allure of penalties for the government to bring claims under the federal Restore Online Shoppers’ Confidence Act (ROSCA), 15 U.S.C. §§ 8401 et seq.

Automatic Renewal Laws—General Requirements

While state and federal ARLs vary, they all impose clear notice requirements so consumers are aware that they will automatically be charged on a recurring basis until they cancel. California’s ARL requirements are technically detailed: the terms of the subscription program must be 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,” and in “direct proximity” to the check-out button. Cal. Bus. & Prof. Code 17601(c), 17602(a)(1). It is that “direct proximity” element that has resulted in a significant amount of litigation over whether having the terms on the same page, as opposed to immediately adjacent to, the "Submit Order" button suffices. (The Ninth Circuit recently answered this question in the affirmative—see our alert here.)

On the other hand, the requirements of ROSCA are more general: clear and conspicuous disclosure of the material terms of an automatic agreement must be provided before obtaining the customer’s billing information; the customer’s express consent must be obtained prior to charging her on a recurring basis; and cancelling the auto-renew program must be as simple as it was to start it.

The reason for these laws is basic: Consumers should not be nudged into signing up for a “great deal” without clearly understanding that they are committing to ongoing payment obligations until they act affirmatively to cancel. Given the known power of inertia, these autorenewal programs are incredibly lucrative and are gaining popularity in areas from cosmetics, apparel, and nutritional supplements.

Mayron v. Google: ARL Does Not Provide Private Right of Action, but the UCL can Provide a Remedy

The California Court of Appeal in Mayron v. Google held in September 2020 that the ARL does not provide a private right of action, but that a plaintiff can maintain a claim under the state’s UCL if an economic injury can be established. (See our alert here.) Despite a lot of activity by the Plaintiffs’ bar to fight the Mayron holding, in December 2020, the California Supreme Court declined to review, leaving the Court of Appeal’s decision controlling law:

To establish standing, plaintiff would [] need to allege that he ordered increased Google Drive storage but would not have done so had the disclosures been provided, or that he would have cancelled the additional storage had it been easier to do so. [Citation.] But plaintiff makes no such allegation, which suggests he would have purchased and maintained the added Google Drive capacity even if Google had complied with the automatic renewal law.

Thus, under Mayron, a plaintiff can only maintain an ARL suit if the retailer’s actions caused the plaintiff to lose money—regardless of whether the retailer strictly complied with the ARL’s technical requirements. While Mayron reiterates that the UCL is broad enough to protect consumers who spend money as a result of deceptive conduct, the ARL serves little function other than imposing technical requirements to help reach the goal of preventing deception.

While Mayron was heralded as a win for the defense bar, in practicality, it has not been the hoped-for silver bullet, as many Plaintiffs have figured out ways to plead around the injury element to at least squeak by pleadings challenges.

Most Significant Threat—California’s Auto Renewal Taskforce

Mayron also lacks punch where public enforcers are concerned, since it does not limit their ability to enforce the ARL’s technical requirements. In California, the most significant settlements have been brought by the California Auto Renewal Task Force (CART), which prosecutes businesses for violations of California and federal autorenewal laws. CART—whose members include the district attorneys of Los Angeles, San Diego, Santa Clara, and Santa Cruz—have successfully secured staggering settlements, including: Guthy-Renker (Feb. 2019, $8.5M settlement); eHarmony (Jan. 2018, $2.28M settlement); J2 Global, Inc. (April 2019, $1.2M settlement); Spark Networks USA, LLC (Oct. 2018, $985K settlement); and, most recently, Bumble (July 2020, $22.5M settlement).

In Re MoviePass: FTC Can Use ROSCA to Obtain Penalties for Unfair Competition

While litigants' ability to bring ARL claims under general unfair competition statutes is well-established, the FTC recently took the opposite approach in its litigation against MoviePass, Inc., its parents, and its principles—bringing general allegations of deceptive conduct under an automatic renewal law.

The resolution on June 7, 2021 of the MoviePass case, resulted from the FTC's conclusion that consumers were hoodwinked by false advertising that they could watch the volume of movies represented, and that the defendant made it difficult for users to access their accounts to get the service they were promised.

While false advertising claims like this would have usually been brought under Section 5 of the FTC Act, which prohibits deceptive conduct, in MoviePass, the FTC also brought a ROSCA claim. This is significant, as it is the first time that the Commission has brought a ROSCA claim based on a deception about the characteristics of the underlying product—as opposed to the subscription aspects alone.

The Commission's pursuit of the Defendant under ROSCA followed right on the heels of the Supreme Court’s decision in AMG Capital Management, LLC v. FTC, which held that equitable monetary relief is not available under Section 13(b) of the FTC Act. See our alert here. ROSCA, unlike Section 5 (and in turn its remedy provision, Section 13(b)), provides for penalties of up to $16,000 per violation.

Given the bankruptcy status of the Defendant in the MoviePass matter, the Commission did not obtain any penalties, but Commissioner Christine S. Wilson stated in her concurrence that the case provides notice to others that violations of this type warrant civil penalties.

Conclusion

Although Mayron (and another recent decision, Hall v. Time, discussed here) are certainly helpful for retailers with subscription-based programs, this lucrative business model continues to carry with it potentially expensive liability exposure. Subscription retailers should take care to comply with the patchwork of state and federal laws that govern disclosures, consent, and cancellation procedures, while also ensuring clear disclosures so that their customers are on notice of automatic charges, and to make sure the subscription is as easy to cancel as it was to join.