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Automatic Renewal Class Actions Are On the Rise




by:
Rebecca B. Johns
John Nadolenco
Evan M. Wooten
Mayer Brown LLP - Los Angeles Office

 
June 3, 2014

Previously published on May 28, 2014

The automatic renewal of subscription services has become quite commonplace: typically, companies renew subscribed services and charge credit card numbers maintained on file until the customer cancels the service or either the credit card or the service expires. Companies, customers and even the environment benefit from the ease and efficiency of the automatic renewal process and the reduction of paper subscription renewal bills. Nonetheless, there has been a decided uptick in litigation and regulation relating to automatic-renewal services, primarily in response to consumers complaining that they were not properly informed about, or did not agree to, the automatic renewal policies.

Illinois was one of the first states to regulate automatic renewal; its 2000 Automatic Contract Renewal Act requires companies to disclose automatic renewal of contracts: the disclosure must be in writing if the term of renewal is for 12 months or more.1 Florida, Connecticut, Hawaii, Georgia and North Carolina have since enacted similar laws, and New York and Colorado restrict subscription services in certain contexts.

Oregon and California have perhaps the strictest automatic-renewal laws, requiring that businesses give clear and conspicuous disclosures, obtain affirmative customer consent, and provide cancellation instructions—all before automatically renewing a customer’s subscription.2 Oregon and California also require that companies provide customers with easy-to-use mechanisms for cancellation, such as toll-free telephone numbers, email addresses and (sometimes) mailing addresses. Importantly, the Oregon and California laws deem any automatically renewed product furnished without affirmative consent an “unconditional gift” to the consumer.

With these laws on the books, it was only a matter of time before the plaintiff’s bar began pressing class actions to determine the reach of automatic-renewal laws. Unsurprisingly, California has become an early testing ground. Late last year, a Pasadena resident sued the music-streaming service Spotify, claiming she did consent to automated renewal after an initial free trial; the district court later compelled the parties to arbitration pursuant to Spotify’s terms of use.3 More recently, a Beverly Hills plaintiff sued video-streaming service Hulu after his one-week free trial elapsed.4 In another case, a San Francisco resident sued cloud-storage provider Dropbox, claiming he did not consent to automatic renewal when upgrading his basic account to “Pro.”5 These cases primarily seek restitution of all amounts obtained through nonconsensual automatic renewal, theorizing that such products were “unconditional gifts” under the California Automatic Renewal Law (ARL), as well as injunctive and declaratory relief.

These and future cases pose important questions regarding the scope of automatic-renewal laws, including: the scope and extent of available remedies; whether cases qualify for removal to federal court, where Article III of the Constitution could provide barriers to standing; and what forms of disclosure and cancellation will satisfy the statutes. Companies that offer automatic-renewal services, particularly in connection with free trials, should follow these cases closely, while confirming that their practices conform to state law regarding disclosure, consent, and cancellation.


Endnotes:

1. 815 ILCS 601/10.
2. Or. Rev. Stat. Ann. § 646A.295 (eff. 2010); Cal. Bus. & Prof. Code § 17600 et seq. (eff. 2010).
3 Bleak v. Spotify USA Inc., N.D. Cal. Case No. 4:13-cv-05653.
4. Kruger v. Hulu, L.L.C., L.A. Super. Ct. Case No. BC540053.
5. Goldman v. Dropbox Inc., N.D. Cal. Case No. 14-cv-01453 CRB.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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