“30-day free trial,” “Cancel anytime,” “Risk-free” – if you’ve read or heard these terms associated with a subscription-based program, you may want to ensure that you are up to speed with the regulations governing automatic renewals.  Programs with automatic renewals have long been a source of regulatory scrutiny, as they can trigger consumer complaints when cancellation is challenging or if the terms of such programs are unclear.  Today, automatic renewals are back in the press as the subscription-based weight-loss app Noom, Inc. (Noom) has agreed to pay $62 million in a preliminary settlement to resolve claims that it offered a deceptive automatic renewal scheme to about two million consumers across the United States.  In addition, several states are currently considering revising their laws or have revised their laws to clarify and broaden the requirements for these programs.  Given this, any company offering such a program should consider a refresh of the terms to ensure it remains in compliance.  Otherwise, these programs risk class action lawsuits – as faced by Noom.

Noom settlement

The Noom case started at the height of the pandemic, in May 2020, when a group of consumers filed a class action suit against Noom in the U.S. District Court for the Southern District of New York.  The plaintiffs alleged that the company used a deceptive automatic renewal scheme that lured users into expensive subscriptions that were hard to cancel.   Specifically, the complaint argued that users who initially signed up for a “risk-free” or low-cost trial, and subsequently tried to cancel their subscription before the expiration of the trial period, were unable to do so because of Noom’s complicated cancellation policy, which required users to cancel through a virtual coach, rather than directly by other means such as the app, email, or website, which meant that their subscription converted to an auto-recurring membership.  Notably, plaintiffs alleged that they were unable to stop the trial membership from converting to an automatically renewing subscription unless they had a smartphone; and, when they were unable to cancel, the assessed charge was an advance payment for “multiple months of membership.”  Plaintiffs alleged that this “difficult by design” subscription practice forced users to pay nonrefundable renewal payments.

If the $62 million preliminary settlement is approved by the court, Noom would pay $56 million in cash and offer $6 million in subscription credits.  The plaintiffs claim that “the cash portion of this settlement is the largest-ever cash recovery for consumers in an autorenewal case, far exceeding payments in past private and public cases.”  Noom also agreed to make changes to its automatic renewal practices.  Such changes include providing clear disclosures about the company’s automatic renewals, email reminders before the trial periods expire, and an easily accessible “cancel” button located on a user’s account page.

Regulatory review

Noom is far from the only business that employs the use of automatic renewal subscriptions.  In today’s society, automatic renewal subscriptions are the norm, providing not only consumer convenience, but also a more certain revenue stream for businesses.  Given the common practice of such subscriptions, regulators have become more and more concerned about the explicit consent of consumers, particularly as it relates to automatic renewals that include a free trial.  In an effort to protect consumers in this evolving area, many states have, or are considering the expansion of, laws governing auto-renewals.

The Federal Trade Commission recently issued a release about automatic renewals in an effort to deter deceptive subscription practices.  The FTC’s policy statement on the issue warns companies to refrain from using “dark patterns” that trick a consumer into being trapped by a subscription service.  The FTC stated that companies will face legal action, including civil penalties, if their subscription programs fail to (1) clearly and conspicuously disclose all material terms of the product or service, including how to cancel, deadlines a consumer must act by to stop further charges, and the amount and frequency of such charges; (2) obtain the consumer’s express informed consent before charging for products and services; and (3) provide a simple and easy method of cancellation that is at least as easy to use as the method of initial purchase.

In addition, several states have laws currently on the books regarding these programs, including California.  California’s existing automatic renewal law requires businesses to, among other things: (1) clearly and conspicuously present the terms of any automatic renewal; (2) obtain the consumer’s affirmative consent to the automatic renewal’s terms before charging for an automatic renewal; (3) provide consumers with an acknowledgement of the automatic renewal’s terms and cancellation policy in a manner capable of being retained by consumers after purchase; (4) provide consumers with an easy way to cancel the automatic subscription; (5) allow consumers who sign up online to terminate the automatic renewal exclusively online; and (6) provide notice of material changes in the terms of the automatic renewal before implementation of said material changes.  Cal. Bus. & Prof. Code § 17602.

Recent amendments to California’s current automatic renewal law will require businesses to also: (1) send an additional notice explaining how to cancel three to 21 days before the expiration of free or promotional trial subscriptions that last more than 31 days; (2) provide an option for subscribers who signed up online to immediately cancel subscriptions online at will; (3) send a reminder notice 15 to 45 days before a subscription with an initial term of one or more years renews; and (4) include a link or other electronically accessible method directing consumers to the cancellation process, if notice is sent electronically.  2021 Cal. Assembly Bill No. 390.

Colorado and Delaware also have automatic renewal laws that went into effect this year.  These laws mirror California’s current law and generally require: (1) clear and conspicuous disclosure of key terms; (2) consent to automatic renewal terms; (3) notice of renewal reminders 25 to 40 days before any automatic renewal in Colorado, and 30 to 60 days before any cancellation deadline in Delaware; and (4) an easy mechanism for canceling the subscription.

Takeaway: Businesses offering automatic subscriptions should stay up to date on this rapidly evolving area of the law.  When developing automatic subscription policies, companies should provide consumers with clear information about the business’ automatic renewal program, especially concerning renewal dates, cancellations, and the expiration date of any free trials.  Consumers should also be given an easily accessible way to cancel automatic subscriptions.

As anticipated by those watching this space, Hermès filed a lawsuit in New York federal court against Mason Rothschild, an individual who created a collection of non-fungible tokens (NFTs) called “MetaBirkins,” which depict fuzzy versions of the iconic Hermès Birkin bag. The complaint alleges that Rothschild advertises the MetaBirkins “using the Hermès Federally Registered Trademarks” and “rips off Hermès’ famous BIRKIN trademark by adding the generic prefix ‘meta’ to the famous trademark BIRKIN” and that the use of the Birkin trademark misleads consumers and misidentifies the source of goods. As a result, Hermès’s complaint asserts claims for trademark infringement of the Birkin word mark, trade dress infringement, trademark dilution, false designation of origin, cybersquatting, and injury to business reputation and dilution under federal and state law.

In early December 2021, Rothschild started selling the MetaBirkins, the first of which sold online for a whopping $42,000. (By contrast, an authentic Hermès Birkin bag retails for approximately $13,000.) Shortly thereafter, Hermès sent a cease-and-desist letter to Rothschild and asked OpenSea, the NFT marketplace selling the MetaBirkins, to remove the infringing NFTs from its website, asserting that the MetaBirkin NFTs violated Hermès’s intellectual property. Although OpenSea removed the listings, Rothschild moved the MetaBirkins to another online exchange and continued to advertise and sell the MetaBirkins on his website. And in a futile attempt to appease Hermès, Rothschild added a disclaimer to his website stating that the MetaBirkins were “not affiliated, associated, authorized, endorsed by, or in any way officially connected” with Hermès, but inexplicably linked the disclaimer to the Hermès website, thus eliciting an allegation from Hermès that the disclaimer only caused further confusion among consumers that Hermès was sponsoring the MetaBirkin NFTs.

Additionally, after receiving the cease-and-desist letter, Rothschild took the dispute to social media to publicly defend his actions. In a series of Instagram posts, Rothschild asserted that his actions were protected from liability by the First Amendment and that the MetaBirkin NFTs were his artistic interpretations, likening his work to that of Andy Warhol’s famous Campbell Soup artwork. He also claimed that his activities constituted fair use and thus were permissible under the law.

Previewing Rothschild’s defenses in its complaint, Hermès pushed back on Rothschild’s First Amendment argument by asserting: “Although a digital image connected to an NFT may reflect some artistic creativity, just as a t-shirt or a greeting card may reflect some artistic creativity, the title of ‘artist’ does not confer a license to use an equivalent to the famous BIRKIN trademark in a manner calculated to mislead consumers and undermine the ability of that mark to identify Hermès as the unique source of goods sold under the BIRKIN mark.” Hermès further stated that the success of the MetaBirkin NFTs “arises from [Rothschild’s] confusing and dilutive use of Hermès’ famous trademarks.”

The luxury brand also maintained that Rothschild is not entitled to fair use protection because the use of the Hermès marks in connection with advertising the MetaBirkin NFTs is commercial in nature. Further, Hermès alleges that Rothschild’s use of the MetaBirkin term as his own trademark also stands in the way of his fair use defense. This is because a fair use defense does not provide protection from liability if the defendant uses the allegedly infringing mark as the defendant’s own trademark or source of goods. The MetaBirkins themselves were facing issues of counterfeits – where counterfeiters were creating tokens with similar names and selling fake versions of the MetaBirkin NFTs. Ironically, as outlined in the complaint, Rothschild claimed trademark rights in the term “MetaBirkins” when complaining of counterfeiters. To Hermès, Rothschild’s attempt to claim the term “MetaBirkins” as a source identifier is fatal to Rothschild’s fair use defense.

As in most trademark infringement cases, the remedies sought by Hermès include injunctive relief (e.g., stop selling and turn over access to the MetaBirkin NFTs) and damages (Rothschild’s profits). What makes this case different, however, is that the infringing goods are stored on blockchain technology, and in most cases, such transaction records cannot be changed once they have been entered. It also raises issues as to the third parties who purchased a MetaBirkin NFT and whether they will be allowed access to their NFT if a court rules against Rothschild.

Takeaway
This complaint is likely to be the first of many, and it raises a multitude of new issues in the world of NFTs and virtual fashion. Many brands are developing their own NFTs, filing trademark applications for virtual goods and services, and many have already entered the brave new world of the metaverse. Trademark law provides protections for many tangible items, but the extent of these protections in the digital world as well as what remedies can be granted are yet to be explored. When entering and exploring the virtual realm, brands, artists, and consumers of virtual goods should be aware of the trademark implications.

The Fashion Sustainability and Social Accountability Act, a new New York Bill (the Bill), was introduced in October and was referred to a legislative committee on January 5, 2022. The goal of the Bill, which is sponsored by State Senator Alessandra Biaggi and Assemblywoman Anna R. Kelles, various fashion and sustainability nonprofits, and designer Stella McCartney, is to effectively address the environmental and social impact of large fashion companies and make them more accountable. If passed, the Bill would require any apparel or footwear companies doing business in New York with more than $100 million in annual global revenues to map out at least 50 percent of their supply chains, demonstrate where in the supply chains the companies have the greatest social and environmental impact, and set targets to reduce those impacts. “Doing Business” is broadly defined in the bill as “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.”

Continue Reading 2022 fashion trend: New York fashion legislation addressing environmental sustainability and social accountability

The Southern District of New York dismissed a putative class action against Bimbo Bakeries (the parent company of Entenmann’s) that alleged the packaging on Entenmann’s “All Butter Loaf Cake” was misleading because the product contained soybean oil and artificial flavors, not only butter.

Continue Reading Bimbo Bakeries Beats Back All-Butter Label Suit

Yesterday the Federal Trade Commission (“FTC”) announced that it sent “Notices of Penalty Offense” (the “Notice”) to over 700 companies in nearly every industrial sector, ranging from leading retailers, tech platforms, top consumer product companies, and major advertising agencies, warning them that they could incur significant civil penalties – up to $43,792 per violation – if they use endorsements in ways that run counter to prior FTC administrative cases.

Continue Reading FTC Gone Viral: Commission Puts 700+ Companies on Notice About Deceptive Endorsements

No one who plans and operates a promotional sweepstakes wants to litigate over the prizes. But one of the primary reasons an operator wants a set of experienced eyes on a set of Official Rules is to ensure that the operator is covered – just in case there is a dispute with one or more of the contestants. Sometimes, operators cleverly anticipate that an arbitration clause will help to lower the risk of a dispute involving a contest or sweepstakes. And, undoubtedly, there might be situations where arbitration can help the operator lower the risk of costly litigation. But, like many substantive provisions of the promotional contract between an operator of a sweepstakes and a participating consumer, the clever protections you and your attorney put in place are only effective if they are made a part of the contract.

Continue Reading Reliance on sweepstakes official rules to avoid litigation requires publication

The International Alliance for Responsible Drinking (IARD), which represents major global alcohol producers, partnered with leading advertising, public relations and influencer agencies to sign an Influencer Pledge that sets standards and rules for influencers who market alcohol on social channels. The Pledge is meant to prevent influencer alcohol marketing from reaching minors and to encourage influencers to promote responsible drinking. In addition to the Pledge, the companies created a set of five safeguards applicable to influencers that work with alcohol brands.

Continue Reading Joint Commitment: Alcohol Producers and Major Agencies Create Standards for Influencer Alcohol Marketing

A lucrative prize incentive can be the engine for an exciting and socially beneficial innovation competition. Despite the good intentions of the organizer, a lot can go wrong even when the sponsor is a nonprofit. An innovation contest generally promotes the generation of ideas or prototypes for new advancements in an industry. We have worked with many entities that seek to encourage innovation through prize incentives. Such promotions can involve very large prizes, and they can engender a lot of press coverage. Regardless of whether the purpose of the contest is for commercial, educational, or social purposes, a company or organization can still end up in federal court if the contest is not properly structured and conducted.

Continue Reading Personavera v. CHIME: An Innovation Contest Goes Sour

The Northern District of California has dismissed for the third and final time a proposed discrimination class action against Facebook that challenged Facebook’s former tool that allowed advertisers to select target audiences for their housing advertisements in violation of the federal Fair Housing Act. Plaintiffs alleged that this tool could exclude protected classes of consumers from seeing certain advertisers’ housing ads. Facebook moved to dismiss, arguing that plaintiffs lacked standing and its publishing conduct was protected under Section 230 of the Communications Decency Act.

Continue Reading Facebook Demolishes Housing Ad Discrimination Suit

On April 30, 2021, the Mexican Chamber of Senators and Deputies passed a new law on “Transparency, Prevention and Combating of Unfair Practices in Advertising Contracting.” The law seeks to eliminate and prosecute non-transparent media practices between advertisers, media owners, and agencies. The law will go into effect on September 1, 2021.

Continue Reading Mexico leads media transparency efforts with new law