Autorenewal Update: CA Appeals Court Limits No-Harm Actions, Ancestry.com Heads to Arbitration & FTC Continues ROSCA Enforcement
CA Appeals Court: Mayron v. Google
A California appeals court recently confirmed that California’s auto-renewal law (“ARL”) lacks a private right of action itself and limited consumer standing to bring actions under California’s unfair-competition law (“UCL”) based on ARL violations. The case, Mayron v. Google (Cal. Ct. App. 6th Dist. Case No. H044592), centered on Google’s Drive service and alleged failure by Google to properly disclose the terms of an auto-renewing subscription entered into by users purchasing upgraded storage capacity.
In Mayron, the Court first held that the ARL provides for no independent private right of action - either in its remedies provision or a secondary provision that renders “any goods, wares, merchandise, or products” sent without first complying with the ARL’s requirements to be “an unconditional gift to the consumer.” This is in line with previous federal-court holdings that reach the same conclusion.
The Mayron Court went on to hold that the plaintiff at issue lacked standing to bring an action under the California’s UCL. A consumer may base a UCL action on conduct that violates the ARL, but such a claim can be brought only “by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Per the Court: “To establish standing, plaintiff would [] need to allege that he ordered increased Google Drive storage but would not have done so had the [ARL-mandated] disclosures been provided, or that he would have cancelled the additional storage had it been easier to do so” – allegations that the plaintiff had not made.
The Court also rejected an argument that the unconditional-gift provision referenced above could itself establish harm to the consumer based on the theory that he paid for services that were, under the law, a gift. The Court held that this argument “misses the crucial requirement of causation” and that a “consequence imposed on a defendant for violating a statute is not the same thing as a loss caused by the defendant’s conduct.” In so holding, the Court declined to follow previous decisions from the Ninth Circuit and a pair of federal district courts that had reached the opposite conclusion. The Court then sidestepped as moot the question of whether the ARL’s unconditional-gift provision reaches intangible services, like Google Drive, or only tangible products.
Takeaway:
This case is, for now, a win for subscription service operators – but one that comes with some caveats.
First, it may yet be appealed to the California Supreme Court.
Second, it does not obviate the risk of an enforcement action brought by government authorities for ARL violations. County and City attorneys in California have worked in concert often over the last few years to bring significant ARL actions, as previously discussed here.
Finally, California consumers may still be able to establish standing to sue under the UCL (or California’s false-advertising law) by alleging actual harm. They may also bring ARL-based suits under the state’s Consumer Legal Remedies Act, which prohibits certain advertising practices and has a different standing threshold.
If your business operates a subscription service or otherwise offers any kind of automatically renewing consumer contract, remember that prevention remains the most cost-effective approach: ensure now that you are clearly disclosing and securing agreement to your service terms and that your compliance obligations are otherwise buttoned-up. (Note that there are other federal and state laws to be considered beyond California’s ARL.)
Ancestry.com Gets $250M Complaint Sent to Arbitration
Ancestry.com was sued this past summer by a purported class alleging violation of the ARL, a suit Ancestry acknowledged could have potentially cost it an eye-catching $250M in restitution.
Last week, a federal court granted Ancestry.com’s motion to compel arbitration based on the plaintiff’s agreement its site Terms and Conditions - which require disputes to be settled by arbitration on an individual basis. In its motion, Ancestry.com argued that its Terms were clearly disclosed at sign-up and that the arbitration provision within its Terms was prominent (and substantively enforceable). Ancestry.com also had the benefit of citing two other recent decisions in which courts (including the N.D. Cal) upheld its arbitration provision.
An arbitrator will still need to determine that Ancestry.com’s arbitration provision is enforceable in the immediate instance. However, if the arbitrator does so hold, Ancestry.com will have successfully converted a potentially huge class-action lawsuit into a single, individual arbitration.
Takeaway: Including an arbitration provision in your Terms or other consumer agreements, and getting clear consent to those agreements from users, can help cabin the risk of having to defend against class-action suits.
FTC Settles with ABCMouse
Finally, in September, the FTC announced that it had settled a complaint against online educational service Age of Learning, Inc. (d/b/a ABCMouse) over autorenewal practices. ABCMouse will pay $10M to settle charges that it violated the Restore Online Shoppers Confidence Act (or “ROSCA,” previously discussed here) and the FTC Act by failing to clearly disclose that its subscription products renewed automatically at the end of the advertised service period and by constructing an especially byzantine cancellation process to discourage user churn – after claiming to offer “Easy Cancellation.”
Takeaway: In addition to state actions over subscription disclosures, the ABCMouse case is a reminder that the FTC continues to steadily enforce ROSCA – and non-compliance can be costly.