Hulu Runs Afoul of California Automatic Renewal Law

Online purchasesIt seems as though nearly every subscription-based service offers a free trial with an automatic renewal feature.  Often touted as a “convenience” feature, the automatic renewal of a subscription (also known as a negative option plan) is far more convenient to the company offering it.  Hulu is one of the many companies that enjoy the benefit of automatic renewals, and this month it was hit with a proposed class action for allegedly violating California’s law governing subscription services that automatically renew at the end of the initial term.

The 2010 law requires that companies whose services include an automatic renewal feature:  (1) clearly and conspicuously disclose the material offer terms before a consumers subscribes; (2) obtain a consumer’s affirmative consent to the terms before the consumer is charged; (3) provide a confirmation to the consumer that includes the terms, a description of the cancellation policy, information on how to cancel, and, if the offer includes a free trial, that the consumer may cancel before being charged; and (4) provide an easy-to-use method for canceling.

The suit alleges that Hulu’s website doesn’t clearly disclose the material terms of the offer.   Moreover, although free trial registration flow on a mobile phone includes a mechanism to obtain affirmative consent, the registration flow on desktop computers allegedly fails to include that mechanism. The plaintiffs also allege that the confirmation e-mails Hulu sends don’t sufficiently disclose that the service will automatically renew, the company’s cancellation policy, or how to cancel.

Previous posts have discussed some of the dangers of offering automatic renewals and free trials, not the least of which is a high degree of regulatory scrutiny.   Most complaints arise due to the lack of adequate disclosure, and a difficult cancellation procedure.   Accordingly, it is important to ensure that consumers understand the offer terms and have an opportunity to cancel.

There are two relatively simple ways to do this:

Get consumer’s affirmative consent.  Require consumers to take an affirmative step to demonstrate their consent.  Use an unchecked affirmation box on a website accompanied by a few simple sentences that clearly describe the renewal feature.

Don’t make it too difficult to cancel. Establish a simple system for handling cancellations.  By doing so, you’ll protect your business from violations and fines, but will also establish some customer goodwill.



    Author: Seth Heyman
    Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.
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