Hello, this is Bradley Bailyn, and this is episode #8 of the Surprise! Legal Podcast.
Today, we’re going to be talking about e-commerce and the common situation where you offer a free trial followed by a recurring monthly or quarterly or annual fee for the online service or merchandise which is being provided.
This is becoming a very hot issue lately with many large companies, including Birchbox… and not even large companies, smaller companies too are getting sued by consumer rights, governmental and private attorneys because they did not properly comply with the law.
The investigations, the lawsuits can come from the Federal Trade Commission. They can come from the state attorneys general and they can come from private plaintiffs’ law firms that are allowed to collect their legal fees if and when they win or settle pursuant to the laws of certain states, notably California.
So we’re going to be talking about some of those laws and what you can do to make sure that you don’t become enmeshed in a problem.
So the three elements that we’re going to need to discuss today of a valid agreement to perform recurring charges are informed consent, clear and conspicuous disclosure and notice.
In terms of the informed consent, there are two things you’re going to need to keep in mind. The first thing is that you must make a clear distinction between the free trial period and the period of recurring charges. So in other words, for the free trial period, you cannot put any charges on during the free trial period, or subsequent to the free trial period charge them for anything that occurred during the free trial period.
The second thing is how you’re going to get their consent. You can either get their online signature or you can give them a checkbox. But the one thing that it’s really better not to do is have it already checked off. And they are deemed to agree by having clicked the NEXT button or something like that. They call that negative opt in where they’re already opted in unless they choose to opt out. That’s not very good and I definitely don’t recommend doing that. All right.
So now let’s talk about clear and conspicuous disclosure. The first thing that you need to keep in mind is on the website. When they’re signing up, you need to make a clear distinction between the free trial period and the automatic renewal period (when they are charged), in plain clear English, in a plain clear font and so on and so forth. Right near the part where they click next and, you know, and agree to move on and sign up for it.
It needs to be disclosed to them that they are agreeing to both of these things, not just to the free trial, but also to the part where they get charged.
And there needs to be a link to the full terms, unless you’ve got the full terms right on the page, then right over there where you’re making that disclosure, right over there where they agree, you need to make it very easy for them to find out what are the full terms that they are agreeing to.
In particular, it should explain that it’s possible to cancel during the free trial period and not have to become a subscriber and explain what is the process to go about doing that.
So people have to have a good understanding right when they sign up, of what it is that they are signing up for- the full picture of it. And that’s why they call it clear and conspicuous disclosure. All right.
So now we’re on notice. The first requirement of notice is giving them a copy that they can maintain of whatever it is that they agreed to. This is very important because you could end up in a lawsuit a while later after the website or app has changed many times already. And no one can even prove anymore who was shown what at the time that the alleged breach occurred.
But when you have sent them a notice, showing them all of the terms that they agreed to, including how they can cancel and so on and so forth, then that becomes a hard copy that helps them, protects them and protects you at the same time.
Next, there has to actually be a valid cancellation option, such as the ability to cancel online, an email address to email to cancel, or a phone number that the person can call to cancel. That someone actually will answer or respond to.
If there is no way to cancel, then obviously it’s not a very legitimate opportunity to cancel if you don’t want to accept the free trial and subscribe. If the terms of the agreement change between when they signed up and when you started charging them, you must make sure that you again notify them in a permanent writing, such as an email that you have a copy of and they have a copy of.
And lastly, it’s a very good practice to send them a timely reminder of the fact that they’re about to be charged again for the next recurring payment.
So now that’s a very high level overview of the bare minimum that you need to understand to even consider doing business across the whole country or perhaps even internationally over the Internet for these kind of subscription based services. This is not a time when I’m going to say you should consult an attorney, but you must consult attorney or you are going to end up with a nasty, expensive lawsuit that could end up you closing your business sooner or later.
If you have any questions that you would like me to address on this podcast or just anything you would like to ask me please call or email.
And as for my standard disclaimer. This is a video. I don’t know your specific set of facts. This is a highly complex area of law that truly requires a good attorney to analyze your situation and figure out what to do.
Since the law is constantly evolving and if you try to go out on your own based on this video or based on something you read or based on anything other than a competent attorney’s advice, then you cannot hold me liable for whatever might be the outcome of that. Thank you and see you at the next episode. Have a good day.
