On March 23, 2023, the Federal Trade Commission released a Notice of Proposed Rulemaking, Negative Option Rule (Rule), which proposes to substantially amend the existing Rule to cover all types of negative option marketing and sales, including but not limited to prenotification plans (sellers provide periodic notices offering goods to participating consumers and send and charge for hose goods if the consumers take no action to decline the offer), continuity plans (consumers agree in advance to receive periodic shipments of goods or provisions of services, until they cancel), automatic renewals (sellers automatically renew subscriptions when they expire, unless consumers affirmatively cancel), and trial marketing (consumers receive a free or discounted trial, and then the sellers automatically begin charging the full fee unless the consumers cancel or return the goods or services). The Rule would now cover auto-renewing contracts for any goods or services (think business contracts with autorenewing clauses, no-contract cell phones subscriptions, magazines and newspapers, and even autorenewing monthly residential and commercial real estate tenancies), including those negative option contracts offered in the business-to-business context.
The broad scope and extended reach of this proposed Rule cannot be understated. As we discuss this Client Alert, the proposed Rule will cover all forms of negative option marketing across all media whether online, in person, mail, or telephone. And the proposed Rule does not stop there. It also adds enhanced disclosure requirements, consent mechanisms, annual reminders, and “click-to-cancel” mandates. The proposed Rule includes a sweeping misrepresentation prohibition that will wrap traditional advertising claims (if part of a negative option offering) into the new Rule and will also give the FTC power to seek civil penalties for deceptive advertising, even in the wake of the Supreme Court’s AMG Capital ruling.
Since this is not the final Rule, there is time to address the FTC’s proposed changes through filing a public comment. Once the proposed Rule is published in the Federal Register, businesses and other interested parties will only have 60 days to submit a comment. For a deeper dive on the proposed Rule, please see our Client Alert. We look forward to discussing ways to help your company address this Rule and to help you file a tailored public comment to address your concerns.