The FTC has recently announced that it has reached a settlement with Ed Tech provider Chegg, a Silicon Valley-based business, for $7.5 million over its cancellation practices. The Complaint charged that Chegg violated ROSCA, 15 U.S.C Sections 8401-8405 by failing to provide simple mechanisms for consumers to cancel their subscriptions. According to the Complaint, Chegg provided two methods for cancellation: the main Chegg website and a customer service line.  The Complaint alleged that the website cancellation link was difficult to find and only worked on a PC browser, and that the cancellation link itself did not actually cancel the subscription, it took customers to pages that encouraged them to accept a discount in lieu of cancellation or pause the subscription for three months in lieu of cancellation, and even if the customer found the button to continue cancelling, this did not cancel the subscription, it took the customer to a survey about why they were cancelling.  Once the customer provided a reason for the cancellation, the customer still could not cancel, the customer would be directed to a page explaining all the consequences of a cancellation, and only if the customer reached the bottom of that page would the customer be able to see a button that actually cancelled the subscription, provided that the customer was using a PC browser.  According to the Complaint, the cancellation button on the final page did not work on a mobile browser until July 2024.  There were similar problems on Chegg’s other websites.  For those customers who utilized customer service to request to cancel, the Complaint alleged that those customers were often still charged even after they requested cancellation.  The FTC alleged that since 2020, Chegg had charged nearly 200,000 customers after they had requested cancellation. Section 4 of ROSCA, 15 U.S.C. Section 8403 prohibits charging consumers for a good or service through a negative option feature unless the seller (a) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information; (b) obtains the consumer’s express informed consent before making the charge; and (c) provides simple mechanisms to stop recurring charges. The FTC’s Telemarketing Sales Rule (“TSR”) defines a negative option feature as: “in an offer or agreement to sell or provide any goods or services, a provision under which the consumer’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.” The FTC’s Order requires Chegg to provide a simple mechanism for a consumer to cancel the negative option feature, avoid being charged or charged an increased amount for the good or service, and immediately stop recurring charges.  Also, the FTC Order provides that the simple mechanism must be at least as easy to use as the mechanism the consumer used to consent to the negative option feature, and that the “simple cancellation mechanism must be easy to find when the consumer seeks to cancel.”  Also, for cancellation by phone, the cancellation must be made promptly “via a telephone number that is (a) answered by Defendant or records messages, (b) available during Defendant’s normal business hours, (c) not more costly to use than the telephone call the consumer used to consent to the negative option feature, and (d) easy to find and clearly displayed on the Defendant’s websites.” What is the lesson SaaS and software companies should learn from the FTC’s enforcement action against Chegg? The lesson to be learned from the Chegg matter is that compliance requires more than just good contract terms: compliance requires good practices.  In the case of cancellation, federal law requires simple mechanisms to stop recurring charges, and that includes making the simple cancellation mechanism easy to find.  The sales strategy of discouraging cancellation by offering discounts and other options besides cancellation is not going to meet the FTC’s scrutiny.  Also, cancellation by phone needs to be easy and straightforward as well as effective. Do your company’s cancellation practices in effect meet current federal and state requirements?  To consult with a SaaS and tech contracts attorney with expertise in these regulations, schedule a consultation today at this link.

The FTC has recently announced that it has secured a $14 million order against Match Group on a variety of claims, including misleading users about guarantees and making it difficult for customer to cancel subscriptions.

While Match Group businesses are a unique class of dating app businesses, the facts of this case resulting in the $14 million order are still relevant for software and SaaS companies to consider.

The FTC’s complaint in this matter alleged the following:

• customers were deceptively induced to subscribe with the promise of a free six-month subscription “if they did not meet someone special” without adequately disclosing the onerous requirements they had to meet before the company would honor the guarantee;
• customer accounts were unfairly suspended if they successfully filed a billing dispute, and Match group kept their money without providing the paid-for services; and
• the Match Group made it difficult for users to cancel their subscriptions.

In addition to making the payment of $14 million to the FTC, the Match Group was required by the terms of the FTC Order to:

• clearly and conspicuously disclose that consumers registering for a “six-month guarantee” must, to the extent applicable, (a) secure and maintain a public profile with a primary photo approved by Defendants within the first seven days of purchase; (b) message five unique subscribers per month, and (c) use the progress page to redeem the free six months during the final week of the initial six-month subscription period;
• clearly and conspicuously disclose any material restrictions, limitations or conditions to purchase, receive, or use a “six-month guarantee” or any similar guarantee; and
• provide a simple mechanism for the customer to stop recurring charges from being placed on his/her credit card, debit card, bank account or other financial account.

In addition, the FTC Order “permanently restrained and enjoined [Match Group] from retaliating, threatening to take, or taking any adverse action against a customer who threatens to file or files a billing dispute with their financial institution or with any law enforcement or consumer protection agency by denying to such consumers access to and use of paid-for goods and services”.  The FTC, however, also stated that nothing was to preclude the Match group from suspending a customer’s service during a billing dispute; suspending or termination customer’s service if a refund has been issued; or keeping a customer’s account active but not visible to other users until the customer seeks to make the account visible again.

What lessons should software and SaaS companies learn from the Match enforcement action?

First and foremost, material terms for discounts, refunds, or free offers need to be clearly and conspicuously disclosed up front, before a customer’s payment information is collected.  Far too often, companies just list these types of terms on a billing schedule or web page without ever explaining in detail how the special offer will work, but that level of detail is not going to be sufficient to meet FTC requirements.

Secondly, recurring subscription charges need to be easy to cancel.

Finally, customers who dispute recurring subscription charges cannot be retaliated against.

Does your company work on a subscription model?  If yes, have you had your customer terms and/or agreements recently reviewed to confirm its compliance with FTC regulations, as well as new state regulations?  Schedule a consultation today with a software and technology attorney who has expertise in subscriptions at this link.

The FTC recently sued nationwide gym chain LA Fitness over its recurring membership and cancellation practices, based on alleged violations of Section 5(a) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. Section 45(a) and Section 4 of the Restore Online Shoppers’ Confidence Act (“ROSCA”).

Although this case involves a gym membership rather than a SaaS subscription, given the recent enforcement priority of the FTC on subscriptions, the facts and circumstances of the case are still relevant to SaaS and software companies.

In this case, the FTC alleged that LA Fitness enrolled customers in monthly memberships with negative option features, either via a website or at the gym.  However, once customers became members, they were required to cancel the membership in one of two ways: either by submitting a difficult-to-access form in person at the gym to a particular manager and wait for that manager to process the cancellation, or by mailing the same difficult-to-access-form via registered or certified mail at the member’s expense.

The FTC particularly noted that most gym services were accessed exclusively through an app but LA Fitness did not make the cancellation form available through the same app: it was only available through the website.  Also, according to the FTC, customers could not access or download the form without first logging into the website, and they couldn’t submit the form in person without first accessing a printer to print the form. Then, according to the FTC, if customers complied with all these steps, cancellations were only accepted by the gym locations between the hours of 9 a.m. and 5 p.m. M-F, even though the locations were generally open 19 hours a day/7 days a week, and then cancellation requests were only accepted by a single employee: the Operations Manager, despite employing multiple other employees at each location. Finally, according to the FTC, to further frustrate cancellations, the Operations Manager was often not available to accept the cancellation, and never followed up, despite LA Fitness promising he would do so.

According to the FTC, the mail cancellation procedures often worked no better, and that customers often sent multiple cancellation forms to LA Fitness but could never obtain a cancellation.

In addition, the FTC alleged that the LA Fitness often signed customers up for additional services with recurring charges such as towel service or childcare using the same membership contract but imposed “different and inconsistent cancellation” procedures.  According to the FTC, LA Fitness failed to disclose that the additional services were “separate negative option programs, distinct from their base membership, which. . . could be [canceled] independently.”  FTC alleged that LA Fitness further frustrated the cancellation process by not allowing customers to cancel all the services at once: the gym required that each service had to be cancelled by a separate form.  Consequently, even where consumers were able to cancel one recurring membership, they were often still billed for another.

The FTC further alleged that customers who complied with the restrictive cancellation procedures were often still billed for their memberships, and that the FTC had received tens of thousands of customer reports on these problems.  According to the FTC, even when the customers cancelled their cards to escape the charges, LA Fitness would manage to bill the same charges to replacement cards.

The FTC complaint alleged that LA Fitness’s cancellation practices constitute “unfair acts or practices in violation of Section 5 of the FTC Act, 15 U.S.C. Section 45(a), (n).”

Also, the FTC complaint alleged that its practices violate Section 4 of ROSCA, 15 U.S.C. Section 8404(a) by [failing] “to clearly and conspicuously disclose all material terms of the transaction” in connection with a negative option feature “before obtaining the consumer’s billing information, including a. the method of cancellation; and b. that their add-on services and amenities are separate negative option programs that are subject to separate cancellation requirements.”

Finally, the FTC complaint alleged that the practices in not “providing simple mechanisms for a consumer to stop recurring charges” constitute a violation of Section 4 of ROSCA, 15 U.S.C. Section 8403(3).

What are the lessons to be learned by software and SaaS companies from the LA Fitness case?

Well, first and foremost, the LA Fitness case highlights the risks of relying on what the FTC refers to as a “negative option feature.”  The FTC’s Telemarketing Sales Rule (“TSR”) defines “negative option feature” as “an offer or agreement to sell or provide any goods or services, a provision under which the consumer’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.”  The best practice is to avoid utilizing negative option features altogether.

However, if your company elects to utilize a negative option feature notwithstanding the risk, you are required to do the following:

• clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information;
• obtain the consumer’s express informed consent before making the charge; and
• provide simple mechanisms to stop recurring charges.

Third, to the extent you have multiple negative option features, each with different terms and cancellation policies, the material terms need to each be clearly and conspicuously disclosed before obtaining the consumer billing information, and the consumer’s express informed consent needs to be obtained before making the charge.

Then, fourth, you need to timely process cancellations upon receipt.

Does your company utilize a subscription or membership agreement?  Are your terms compliant with the FTC Act, ROSCA, and other state regulations governing subscriptions or memberships?  Schedule a consultation with a subscription law attorney today at this link.

Santa Clara County just recently announced that it has obtained a $7.5 million settlement in a consumer protection lawsuit against HelloFresh over its subscription and advertising practices.

The case was filed as a civil matter in Santa Clara County and was led by the Santa Clara County and Los Angeles County district attorney’s offices for the California Automatic Renewal Task Force, which also includes the district attorney’s offices of San Diego, Santa Barbara, and Santa Cruz counties, as well as the Santa Monica City’s Attorney’s.

While HelloFresh is a meal kit delivery company rather than a software or SaaS company, it operates on a subscription model, which makes the recent action noteworthy to the software and SaaS communities.

According to Santa Clara County’s published press release, the complaint alleged that HelloFresh did not clearly and conspicuously disclose the required subscription terms before enrolling consumers in automatic renewal product subscriptions, obtain consumer’s affirmative consent, provide consumers with the proper post-purchase acknowledgement, or offer an easy-to-use-mechanism for cancellation, all of which were violations of California’s Automatic Renewal Law as well as its False Advertising Law.

The settlement requires HelloFresh to pay $6.38 million in civil penalties, $120,000 in investigative costs, and $1 million in restitution to eligible California consumers. The DA’s office will receive $1,063,334 of the $6.38 million in civil penalties.

What are the lessons to be learned by software and SaaS companies from the HelloFresh case?

First and foremost, software and SaaS companies need to know that California counties are actively enforcing California laws on subscriptions–not just the California state government. There is a California Automatic Renewal Task Force comprised of multiple counties that is selecting subscription cases to pursue.

Second, the key issues flagged by Santa Clara County in prompting them to purse this case was “misleading consumers” and “making it difficult for them to cancel their subscriptions.”  In particular, Santa Clara County cited failure to disclose the material terms and conditions for “advertised free meals”, “surprise gifts,” and “free shipping offers.”  In other words, not being completely transparent about the terms of items consumers were offered, and then the subsequent trouble those consumers encountered with cancelling subscriptions were the issues prompting Santa Clara County to pursue litigation against HelloFresh.

Third and finally, the specific compliance obligations that were not met in this case, in violation of California law were as follows:

• clear and conspicuous disclosure of subscription terms before enrolling consumers in automatic renewal subscriptions;
• procuring consumers’ affirmative consent to the subscriptions;
• providing consumers with the required post-purchase acknowledgement containing the material terms of the subscription; and
• providing an easy-to-use mechanism to cancel the subscription.

If your company utilizes a subscription model in its business and has not recently updated your subscription to comply with the updated California regulations on subscriptions, it may be worthwhile to have your terms or contract reviewed by a lawyer with expertise in this field.  To schedule a initial consultation with an attorney, please make an appointment at this link.

The Federal Trade Commission (“FTC”) has just obtained a $2.5 billion settlement against Amazon over its “deceptive” subscription practices. To view the announcement by the FTC click here.    Amazon will be required to pay a $1 billion civil penalty, provide $1.5 billion in refunds back to affected consumers, and cease its unlawful enrollment and cancellation practices.

Consumer subscriptions have become a recent focus for the FTC as well as other state regulatory agencies around the country over enrollment, auto-renewal and cancellation practices, which state and federal governments have deemed to be deceptive and unfair.   In the case of Amazon, the FTC alleged that “the evidence showed that Amazon used sophisticated subscription traps designed to manipulate consumers into enrolling in Prime and then made it exceedingly hard for consumers to end their subscription.”

The FTC alleged that Amazon had violated Section 5 (a) of the FTC Act, 15 USC Section 45(a) prohibiting “unfair or deceptive acts or practices in/or affecting commerce” when it charged customers for subscriptions without their express consent.

Also, the FTC alleged that Amazon  had violated the Restore Online Shoppers Confidence Act (“ROSCA”), 15 USC Sections 18401-05, by charging consumers through a negative option feature without (a) clearly and conspicuously disclosing all the material terms of the transaction before obtaining the consumer’s billing information, (b) obtaining the consumer’s express informed consent before making the charge, and (c) providing simple mechanisms to stop recurring charges.   The FTC’s Telemarketing Sales Rule (“TSR”) defines a negative option feature to constitute “an offer or agreement to sell or provide any goods or services. . . under which the consumer’s silence or failure to take an affirmative action to reject goods or services or cancel the agreement is interpreted by the seller as acceptance of the offer.”

The FTC’s settlement with Amazon requires Amazon to stop these subscription practices and make the following changes:

1) Include a clear and conspicuous button for customers to decline Prime.  In particular, Amazon can no longer have a button that says “No, I don’t want free shipping.”

2) Include clear and conspicuous disclosures about all material terms of Prime during the Prime enrollment process, such as the cost, the date and frequency of charges to consumers, whether the subscription auto-renews, and cancellation procedures.

3) Creating an easy way for consumers to cancel Prime, using the same method that consumers used to sign up.  The process cannot be difficult, costly, or time-consuming and must be available using the same method that consumers used to sign up; and

4) pay for an independent, third-party supervisor to monitor Amazon’s compliance with the consumer redress distribution process.

What do software companies utilizing the subscription model need to know about the Amazon case?

First and foremost, if your software company is utilizing the subscription business model, you need to comply both with the FTC Act and with ROSCA.  This means that you need to obtain express consent from customers to enter into the subscription, and before you charge your customer, you need to (a) clearly and conspicuously disclose the material terms of the transaction before obtaining billing information from the customer, (b) obtain express informed consent from the customer before making the charge, (c) provide a simple mechanism to stop recurring charges.   You also need a clear and conspicuous button for your customers to decline the subscription (that identifies itself as a button to cancel the subscription); you need to describe clearly the cost, date and frequency of charges, whether the subscription auto-renews, and the cancellation procedures.  Finally, you need to create an easy method for consumers to cancel the subscription, using the same method the customers used to sign up.  The process cannot be difficult, costly, or time-consuming.

These requirements apply to consumer-focused subscriptions; however, it is my position that these requirements should be viewed as best practices for the industry, even where the customers are businesses, and that businesses should adhere to the requirements as well.

Has your software company obtained a recent review of its subscription practices and subscription terms by a SaaS and software contracts lawyer?  Schedule a new client consultation today at this link.

AI Lawyer Kristie Prinz will be presenting a webinar on “Managing the Legal Risks of Artificial Intelligence on Intellectual Property and Confidential Information” for the Orange County Bar Association, Health Care Law Section on August 27, 2025 from 12 p.m. to 1 p.m. PT.  The event is approved for 1.0 MCLE Credit.  To register for the event, please sign up at www.ocbar.org.  Alternatively, you may register with this Orange County Bar Association Registration Form: View Link.

Kristie Prinz discusses lessons to be learned from FTC Suit against Uber in this video recorded 5.15.25:

Prinz Law Founder Kristie Prinz speaks on the story of The Prinz Law Office in this video recorded on 5.5.25:

 

I am pleased to announce that the recording of my recent presentation 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. 

Prinz Law Founder Kristie Prinz discusses Firm Solutions in this video recorded 4.22.25: