Subscribe

RSSAdd blog to your RSS reader

All Topics

Contact Us

212.451.2258

ADVERTISING@OLSHANLAW.COM

California Federal Court Approves Settlement in Automatic Renewal Case

Many online ecommerce companies operate on a subscription model.  Such companies need to be cognizant of federal and state laws governing advertising and enrollment in continuous service plans.   The failure to consider particular state requirements can have significant consequences given the aggressive plaintiffs’ bar.  A recent federal-court approved settlement between Yahoo Inc. and users of Rivals.com highlights this exposure.  

Rivals.com comprises a network of websites that focus on recruitment for college basketball and football. Although access to the base website is free, users may elect to pay for a subscription in order to access additional content and features, such as message boards and exclusive interviews. Users can pay $99.95 for an annual subscription, or $9.95 per month for a monthly subscription. The class action lawsuit alleged that Rivals.com engaged in “unlawful and unfair business practices” when it sold these subscriptions but failed to clearly and conspicuously disclose its automatic renewal terms in the manner required by California’s Automatic Renewal Law. Rivals.com subscribers affected by the automatic renewal policy also claimed they were unable to obtain refunds for their payments.

Further, the lawsuit claimed that Rivals.com failed to display those automatic renewal terms in close visual proximity to the request for consumer consent to the automatic renewal, that it charged consumer accounts without first obtaining affirmative consent to the automatic renewal offer, and that it failed to sufficiently inform consumers as to the cancellation process they would need to invoke if they wished to terminate their subscription.

The suit was initially dismissed in September last year when the judge found the named plaintiff to be a Missouri resident who was therefore unable to allege violation of California’s Automatic Renewal Law. However, the proposed class filed an amended complaint with a California resident as the named plaintiff.

Under the approved settlement, annual subscribers may elect to receive either five months of free services or a $20 cash payment. Monthly subscribers may elect to receive three months of free services or $10 in cash. The settlement also includes $300,000 in attorneys’ fees and other expenses, and a $5,000 incentive award for the named plaintiff. The district court judge determined that the settlement was fair and appropriate, noting that the award of attorneys’ fees is appropriate in consideration of the amount of work undertaken by the plaintiff’s attorneys and the comparable pay rate for similar attorneys.

Yahoo has also agreed to change the website’s subscription pay to ensure its automatic renewal terms are clearer and more apparent to California consumers prior to purchasing a subscription.

Effective as of July 1, 2018, California amended its automatic renewal law to impose more stringent requirements on marketers utilizing subscription-based business models. Among other things, the revised California law requires businesses making a continuous service offer that includes a free gift or trial to include in the offer a “clear and conspicuous” explanation of the price that will be charged after the trial ends or the manner in which the pricing will change upon conclusion of the trial, prohibits businesses from charging a consumer’s credit or debit card or third-party account for an automatic renewal without first obtaining the consumer’s consent, requires businesses to disclose how to cancel the continuous service before the consumer pays for the goods or services, and mandates that companies provide an online cancellation mechanism for consumers who accepted the automatic renewal offer or continuous service offer online. In light of this recent settlement and California’s recent revisions to its law, companies utilizing subscription-based business models should ensure compliance with each state’s automatic renewals laws, including California, so as to avoid being on the receiving end of a similar lawsuit.

Takeaway:  As we have previously written, California’s automatic renewal provisions impose additional requirements beyond ROSCA. In order to minimize their exposure, marketers utilizing subscription-based business models need to carefully consider each state’s automatic renewal laws in crafting their advertising, enrollment and confirmation procedures.

Back to Page