Negative Option Marketing

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As we previewed last week, industry and trade groups wasted no time in filing challenges against the Federal Trade Commission’s (FTC) Final Negative Option Rule.

The Michigan Press Association and the National Federation of Independent Businesses filed a petition challenging the rule in the Sixth Circuit Court of Appeals, while a separate petition was filed by multiple trade associations in the Fifth Circuit. Both cases have asked federal courts of appeals to determine whether the FTC’s issuance of the rule exceeded the agency’s authority and if the FTC’s processes were arbitrary, capricious, and an abuse of discretion under the Administrative Procedure Act. The petitions also ask the courts to determine if the FTC complied with the agency’s Magnuson-Moss rulemaking requirements, claiming the rule was “unsupported by substantial evidence” and based on determinations that did not allow for consideration of “disputed material facts.”

The petitions request that the courts vacate and set aside the rule. If either petition is granted, the FTC will not be able to enforce its Negative Option Rule.

Additional challenges to the FTC’s Negative Option Rule might continue. And similar challenges against FTC rules have found success; for example, the FTC’s Non-Compete Rule was set aside and ruled unenforceable nationwide. That decision is currently on appeal at the Fifth Circuit.Continue Reading Business Groups Rush to File Federal Court Challenges to the FTC’s Negative Option “Click-to-Cancel” Rule

By a 3-2 vote, the Federal Trade Commission (FTC) announced its Final Negative Option Rule that covers negative option programs for both consumer and B2B transactions in any media, including online, telephone, print, and in-person. The rule finalizes many of the requirements we previewed last year. Commissioner Melissa Holyoak’s dissent outlines many of the issues that those challenging the legality of the rule are likely to soon raise. 

Under the rule, companies selling goods or services with a negative option feature will be prohibited from:

  • Misrepresenting any material fact in advertising and marketing. The FTC expressly declined to limit this prohibition solely to elements of a negative option program and instead defined “material” to mean “likely to affect a person’s choice of, or conduct regarding, goods or services.” A non-exhaustive list of potential misrepresentations includes the cost, purpose, efficacy, and health or safety of the good or service.
  • Failing to disclose material terms clearly and conspicuously prior to obtaining the consumer’s billing information. The rule specifies that disclosures must be “unavoidable” and not contradicted or mitigated by, or inconsistent with, anything else in the communication.
  • Failing to obtain the consumer’s unambiguous affirmative consent before charging them. This must be done separately from any other portion of the transaction, and no other information may be included that detracts from, contradicts, or undermines the consumer’s ability to provide their express informed consent.
  • Failing to provide a simple mechanism to cancel and immediately stop charges

Continue Reading FTC Announces Final “Click-to-Cancel” Rule on Negative Options, Autorenewals, Free-to-Pay, and Subscription Services

Join us as we spotlight select chapters of Venable’s popular Advertising Law Tool Kit, which helps marketing teams navigate the legal risk of campaigns and promotions. Click here to download the entire Tool Kit, and tune in to the Ad Law Tool Kit Show podcast, to hear the authors of this chapter dive deeper into the issue of negative option and continuity marketing in this week’s episode.

The Federal Trade Commission (FTC), state attorneys general, and class action plaintiffs continue to scrutinize negative option and continuity offers. Negative option marketing can include pre-notification negative option plans, continuity programs, automatic renewals, and free-to-pay (or discounted price-to-pay) conversions.Continue Reading Negative Option and Continuity Marketing: An Excerpt from the Advertising Law Tool Kit

The first episode of Venable’s Ad Law Tool Kit Show, Season 2,is now available. Listen to “Negative Option Marketing: Part 2” here, or search for it in your favorite podcast player.

Negative option marketing can include pre-notification negative option plans, continuity programs, automatic renewals, and free-to-pay conversions. This marketing strategy continues to invite scrutiny from the Federal Trade Commission (FTC), state attorneys general, and class action plaintiffs.

In this episode, I talk to my co-host on this podcast, Shahin Rothermel, and
Venable partner Ari Rothman about the keys to success in avoiding investigations and liability.Continue Reading Listen to Venable’s Ad Law Tool Kit Show Podcast– “Negative Option Marketing: Part 2”

This week, California amended its automatic renewal and continuous service offer law (ARL). Key provisions include the addition of “free-to-pay conversions,” consent obligations, misrepresentation prohibitions, request for cancellation procedures, price change notifications, and reminder and recordkeeping requirements. The new law takes effect July 1, 2025.

Express Affirmative Consent Required

The law will require “express affirmative consent” for all automatic renewal and continuous service offers. While the ARL provides no definition, class action plaintiffs’ attorneys, the California attorney general (AG), and California’s Automatic Renewal Taskforce (CART) are likely to interpret it similarly to the Federal Trade Commission’s (FTC) definition of “affirmative express consent,” i.e., “freely given, specific, informed, and unambiguous indication of an individual consumer’s wishes demonstrating agreement by the individual, such as by an affirmative action, following a clear and conspicuous disclosure to the individual.”Continue Reading California Amends Autorenewal Law, with Stricter Consent Requirements and a “One Save” Rule: Fast VAST Update

Join us as we spotlight select chapters of Venable’s popular Advertising Law Tool Kit, which helps marketing teams navigate their organization’s legal risk. Click here to download the entire Tool Kit, and tune in to the Ad Law Tool Kit Show podcast, to hear the authors of this chapter dive deeper into the issue of negative option and continuity marketing in this week’s episode.

The Federal Trade Commission (FTC), state attorneys general, and class action plaintiffs continue to scrutinize negative option and continuity offers. Negative option marketing can include pre-notification negative option plans, continuity programs, automatic renewals, and free-to-pay (or discounted price-to-pay) conversions.

The key to success in avoiding investigations and liability can be as simple as making clear and complete disclosures (prominent, clearly explained, and placed where they will be read and where consumers’ attention is focused); obtaining consumers’ express, informed affirmative consent to the negative option offer; providing a simple cancellation mechanism; sending post-order confirmations and renewal reminders; and ensuring that refunds and cancellations are processed in accordance with disclosed policies.Continue Reading Negative Option and Continuity Marketing: An Excerpt from the Advertising Law Tool Kit

Episode 3 of the Ad Law Tool Kit Show, “Negative Option and Continuity Marketing,” is now available. Listen here, or search for it in your favorite podcast player.

Negative option and continuity offers have been under the microscope lately as the Federal Trade Commission (FTC), state attorneys general, and class action plaintiffs continue to scrutinize them.

In this episode, I talk to Venable partner and my co-host on this podcast, Shahin Rothermel, about how, in order to avoid investigations, marketers must ensure clear, prominent disclosures about offer terms, gain express consent from consumers, simplify cancellation processes, send confirmations and reminders … the list goes on. For companies that employ these marketing tools, what are the keys to avoiding liability?Continue Reading Listen to Episode 3 of Venable’s Ad Law Tool Kit Show – “Negative Option and Continuity Marketing”

Earlier this week, the Federal Trade Commission (FTC) held its informal hearing on the proposed amendments to the Negative Option Rule. Clearly on display was not only industries’ concern about the impact of the proposed rule, but also concern about the FTC’s haste toward implementing the rule changes.

As a refresher, the FTC generally must promulgate rules under the Magnuson-Moss Warranty Federal Trade Commission Improvements Act (Mag-Moss) instead of the less-stringent Administrative Procedures Act. Under Mag-Moss, the FTC must first issue an advanced notice of proposed rulemaking (ANPR) seeking public comment, issue a notice of proposed rulemaking (NPRM), have reason to believe that the conduct at issue is “prevalent,” conduct informal hearings allowing parties to present their views and finally publish the final rule with a “statement of basis and purpose” accompanying the rule.Continue Reading Unpacking the FTC’s Negative Option Rule Informal Hearing

On December 20, 2023, New York Attorney General Letitia James filed a Petition in state court alleging Sirius XM Radio’s autorenewal practices violated New York’s autorenewal law. In the lawsuit, New York alleges that Sirius XM, an audio entertainment company headquartered in New York, made it difficult for customers to cancel their subscriptions.

New York’s automatic renewal law requires any business that makes an automatic renewal offer or continuous service offer to provide a cost-effective, timely, and easy-to-use mechanism for cancellation. The AG alleges that Sirius violated this requirement by:Continue Reading New York Attorney General: Sirius XM Customers “Frustrated” When Trying to Cancel Subscriptions

In March, the Federal Trade Commission (FTC) asked for comments on a proposal to replace the Prenotification Negative Option Rule with a more expansive Negative Option Rule. Now that the FTC has had the chance to review those comments, the FTC has set an informal hearing to allow for testimony from six of the over 1,000 commenters.

Each presenter will be limited to ten minutes but can supplement their remarks with written content. The FTC has appointed Carol Fox Foelak, an administrative law judge at the Securities and Exchange Commission (SEC), to serve as presiding officer.Continue Reading New Year, New Rule: FTC to Review Updates to Negative Option Rule During January Informal Hearing