The FTC has just sued a local Bay Area tech company over its deceptive subscription practices.

The FTC sued Uber Technologies, Inc. and Uber USA, LLC in the Northern District of California on April 21, 2025, alleging that Uber utilized deceptive billing and cancellation practices.  A copy of the FTC complaint is attached at this link.  A copy of the press release issued by the FTC on the case is linked here.

The key factual allegations of the complaint include as follows:

• Consumers were promised a specific amount of savings that did not take into account the monthly price of the subscription.
• Consumers say they were charged without their consent, and in some cases were charged when they did not even have an account.
• Consumers say they were charged before their billing date, including before their free trials ended, despite being promised by Uber that they could cancel at no charge during their free trials.
• Consumers say that it was extremely difficult to cancel, and that they were often charged the renewal subscription fee while they were waiting on customer service to respond and grant the cancellation.

The FTC alleges that Uber’s deceptive billing and cancellation practices violate the FTC Act and the Restore Online Shoppers’ Confidence Act (“ROSCA”).  According to the FTC, these regulations require online retailers to  do the following:

• clearly disclose the terms of the service;
• obtain consumer’s consent before charging them for a service; and
• provide a simple method to cancel recurring subscriptions.

In particular, the FTC alleges in its complaint that Uber failed to clearly and conspicuously disclose before obtaining consumer billing information all the material terms of the transaction, including

• that they are being enrolled in a recurring paid subscription;
• the amount of money that consumers in these subscriptions actually save;
• when they will be billed or charged; and
• the method of cancellation.

According to the FTC, Section 4 of ROSCA, 15 U.S.C. § 8403, prohibits charging consumers for goods or services sold in transactions effected on the Internet through a negative option feature, as that term is defined in the Commission’s Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.2(w), unless the seller provides text that “clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, obtains the consumer’s express informed consent for the charges, and provides simple mechanisms for a consumer to stop recurring charges.”

Also, the FTC claims that the TSR defines “negative option feature” to constitute a term in an offer or agreement for goods or services “under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”

What are the lessons to be learned from the Uber case by tech companies–and other non-tech businesses-operating under a subscription model?

First, prior to obtaining credit card information from a consumer, provide clear and very obvious notice of all the material terms of the subscription, including:

• the fact that the consumer is enrolling in a recurring paid subscription;
• the cost of the subscription;
• the frequency of the billing;
• how to cancel.

Second, make sure you have records that this notice was provided to the consumer.

Third, make sure that you have a very simple method for cancellation, i.e. the “click to cancel button,” and refrain from engaging in conduct that appears to frustrate cancellation.

Fourth, refrain from making promises or other statements that are not true about promotions or discounts.

Companies providing software or services to consumers under a subscription model should review their subscription practices today to ensure that they are in compliance with these best practices.   If you have questions or concerns about your company’s current subscription or membership agreement and practices, schedule a consultation today with me to discuss.

Silicon Valley Business Law Blog is pleased to announce that the recording of the recent presentation by  Business Lawyer Kristie Prinz on “Best Practices for Launching a Software Development Project” is now available at this link:  https://theprinzlawoffice.vhx.tv/products/best-practices-for-a-software-development-project. 

Tech Business Lawyer Kristie Prinz’s article on “Managing the Legal Risks of Artificial Intelligence on Intellectual Property and Confidential Information” has just been published online by the American Psychological Association’s Consulting Psychology Journal. Digital access is available for purchase at this link.

The Federal Trade Commission (“FTC”) has just announced the final version of its “Click to Cancel” Rule for consumer software subscriptions. The Rule will go into effect 180 days after it is published with the Federal Register.  This Rule will directly apply to all companies selling on a subscription or membership basis to consumers.

Full Text of FTC Rule

The full text of the FTC Rule is linked here, at pages 222-230.

Fact Sheet of FTC Rule

The FTC has also made available a fact sheet which briefly summarizes key provisions of the “Click to Cancel Rule,” which is attached here.

Key Provisions of the FTC Rule

According to the FTC announcement, the “Click to Cancel” Rule will apply to “almost all negative option programs in any media.” The key provisions of the FTC Rule will prohibit:

• misrepresenting any material fact made while marketing goods or services with a negative option feature;
• failing to “clearly and conspicuously disclose” material terms prior to obtaining a consumer’s billing information in connection with a negative option feature;
• failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer; and
• failing to provide a simple mechanism to cancel the negative option feature and immediately stop the charges.

Revisions to Final Version of the FTC Rule

Also according to the FTC announcement, the FTC  dropped from its final Rule an annual reminder requirement that would have required vendors to provide annual reminders to consumers advising them of the negative option feature of their subscription, as well as a requirement that vendors had to ask canceling consumers for approval before a vendor could tell a canceling subscriber about reasons to keep the existing agreement or of possible modifications that could be made without canceling the subscription.

Reasons for Adoption of the Rule

Why did the FTC adopt a Click to Cancel Rule?  According to the FTC Announcement, the FTC was receiving 70 consumer complaints per day over negative option programs, and this number was “steadily increasing over the past five years.”

The FTC’s announcement follows a recent California enactment of a more comprehensive “Click to Cancel” law.

Does the FTC Rule Supersede California Law?

The FTC Rule should not supersede California’s more comprehensive law;  in fact, the Rule specifically states in its text that the Rule will not be construed to supersede any State statute, regulation or order “except to the extent that it is inconsistent with the provisions of this part, and then only to the extent of the inconsistency.”  The expected impact of the FTC Rule is primarily to bring federal regulatory law closer to California regulatory law as it pertains to subscriptions and memberships.

What do Companies Utilizing the Subscription or Membership Model Need to do in Response to this Announcement?

All companies utilizing a subscription or membership model should revise consumer contracts and processes to comply with the FTC Rule over the next 180 days (whereas revisions must be made to comply with the new California law sooner: by the end of 2024).   Companies utilizing the subscription or membership model with a business-focused customer base should similarly consider what changes to make to their contracts and processes as public policy will likely change regarding subscriptions generally along with the new FTC Rule and California law changes.

If you have questions or concerns about how new FTC “Click to Cancel” Rule or the new California ”Click to Cancel Law” will impact your company, please schedule a consultation with me today at https://calendly.com/kristieprinz.

California has just adopted a new law that will apply to consumer subscriptions, along with memberships and other autorenewing or continuous service arrangements with consumers.   The “click to cancel” bill will impact not only the technology industry but also industries like gyms, telecommunications and streaming services providers, Internet businesses, and other services businesses selling on a recurring monthly fee basis.

AB 2863 amends California’s existing autorenewal law to add additional protections for consumers with respect to autorenewing or continuous billing charges.

Text of AB 2863

To view the full text of AB 2863, please click here. The law goes into effect on January 1, 2025, applies to all contracts entered into, amended, or extended after that date.

New Requirements for Consumer Subscriptions, Memberships

Under the new California law, it will now be unlawful for any business in the state that makes an autorenewal or continuous service offer to a consumer in the state to do any of the following:

• Fail to present the terms of the offer in a clear and conspicuous manner in visual proximity to the request for consent of the offer, which includes if there is a free gift or trial, a clear and conspicuous explanation of the price that will be charged when the trial ends;
• Charge the consumer’s credit or debt card or any third party account for the automatic renewal or continuous service without first obtaining affirmative consent from the consumer to the automatic renewal or continuous service agreement;
• Fail to provide an acknowledgement that includes the automatic renewal offer terms or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that the consumer can retain, and if the offer contained a free gift or trial, the acknowledgement must include a disclosure of how to cancel and must permit the consumer to cancel before the consumer pays for the goods or services;
• Fail to obtain express affirmative consent from a consumer to the automatic renewal or continuous service offer terms;
• Include terms in a contract that interfere with, detract from, contradict, or otherwise undermine the ability of consumers to provide their affirmative consent to automatic renewal or continuous service terms;
• Fail to maintain verification of consumer’s affirmative consent for at least three years, or one year after the contract is terminated, whichever is longer;
• Misrepresent expressly or by implication a material fact related to the transaction;
• Fail to provide consumer with a notice, before confirming the consumer’s billing information that clearly and conspicuously states:
  • The service will automatically renew unless the consumer cancels;
  • The length and any additional terms of the renewal period;
  • The amount or range of costs consumer will be charged and the frequency of those charges, unless consumer stops the charges;
  • One or more methods which consumer can cancel the autorenewal or service;
  • If sent electronically, the notice must include a link that directs consumer to the cancellation process, or another electronic method that directs the consumer to cancellation; and
  • Contact information for the business.

New Requirements for Gifts and Trials

In addition, businesses offering free gifts or trials at promotional or discount prices that last for more than 31 days in conjunction with an automatic renewal or continuous service offer will now be mandated to provide the same kind of clear and conspicuous notice no less than 3 days before and no more than 21 days before the expiration of the gift or trial.  The only exception to this requirement is in cases of contracts that are not electronic, where the business has not collected or maintained the consumer’s valid email address, phone number, or other means of notifying the consumer electronically.  “Free gifts” for the purpose of this law does not apply to a gift that is different than the subscribed product or service.

New Requirements for Contracts or Offers with Initial Term of One Year or Longer

If the contract or service offer was for an initial term of one year or longer, businesses will now be required to provide the specified notice at no less than 15 days and no more than 45 days before the offer renews.

Online “Click to Cancel” Requirement

Businesses that sign-up or subscribe consumers online will be required to provide one of two methods to allow consumers to cancel at will by either (a) a prominent link or button within the customer account or profile or within device or user settings, or (b) an immediately accessible termination email formatted and provided by the business that a consumer can email to the business without any additional requirement.

Direct Billing Requirement

Businesses that direct bill consumers on an automatic renewal or continuous offer basis will be required to provide a toll-free telephone number, email address, and postal address or “another cost-effective, timely, and easy-to-use mechanism for cancellation” that is described in the acknowledgement.  If a telephone number is provided as the mechanism for termination, the business is required to answer calls promptly during normal business hours without obstructing or delaying the ability to cancel.  If a voice mail is left by the consumer requesting cancellation, the business shall be required to either process the requested cancellation in one business day or call the customer back regarding the request within one business day.

Customer Retention Offer Requirement

Requirement for Material Term Changes

Requirement for Annual Reminder

Implications of Requirements

While these new rules apply only to automatic renewal agreements and continuous service agreements with consumers, they may be applied to small businesses in cases where the businesses are run by sole proprietors.  Also, they may be applied in other contexts to businesses on public policy grounds, where the terms of service or contract terms in effect are not at least as good as what is required now by law in the case of consumers.

What does this mean for Silicon Valley Technology Companies?

Technology companies providing services on a subscription model basis need to start reviewing and updating their contracts and terms of service, as well as their practices and procedures, before the January 1, 2025 effective date of this new law.

If you have questions or concerns about how this new law will impact your subscription or membership-based company, please schedule a consultation with me today at https://calendly.com/kristieprinz.

I am pleased to announce that I am a new ProVisors home group leader in the Silicon Valley Region.  I will be leading a new Silicon Valley Virtual 1 Group, which will be an all-virtual home group for service providers engaged in Silicon Valley business.  The group will meet the first Friday of the month at 11:30 a.m. PT, and we are currently seeking our first members.  If you would like to learn more about ProVisors or Silicon Valley Virtual 1, please reach out to me for additional information, either through Linked In or email at kprinz@prinzlawoffice.com.  I am excited about this new opportunity and look forward to the challenge of leading a new ProVisors group in this dynamic region.  For more information on ProVisors, please view https://provisors.com.

Business Lawyer Kristie Prinz introduces The Prinz Law Office in this video recorded 8.20.24.

Kristie Prinz explains why companies should audit their key customer contracts in a sluggish economy in this 8.16.24 recording: