Imagine this: you have built a successful business based on subscriptions (like many startups and business), but now you are sued under the California automatic renewal law. Never heard of it? You’re not alone, and it’s a killer. Among other penalties, you could be forced to return all revenue (that’s revenue, not profits) derived from non-compliant subscription contracts.
What is the California Automatic Renewal Law?
The California Automatic Renewal Law came into effect in 2010 and (obviously) governs how subscription services are run in the state of California (and it does apply even if you are an out of state business with California customers). It does a few things:
- It requires that the automatic renewal offer be displayed in a “clear and conspicuous manner”.
- It requires that a consumer give “affirmative” consent” before being charged for an automatic renewal.
- It requires that the customer have a retainable cancellation policy and it must provide a “cost-effective, timely, and easy-to-use mechanism for cancellation”.
- The company must provide “clear and conspicuous” changes to the terms of service.
As you might have guessed, each of the terms in quotes (and possibly some not in quotes) are defined in the statute and in prior law.
The main bit to know about is that companies that have not complied with the California Automatic Renewal Law will be deemed to have made an “unconditional gift” of goods to the consumer. Accordingly, consumers may be able to seek refund of all amounts paid for those goods.
Who Should Care About The California Automatic Renewal Law?
Anybody who plans to do a subscription-based business should care about the California Automatic Renewal Law and consult counsel to ensure that they are in compliance.
The law is a big deal when you consider that companies who are deemed to have violated the California Automatic Renewal Law could face potentially huge class action lawsuits. Companies like Hulu, Spotify and Dropbox have already been sued under this law.
