FTC Obtains $2.5 Billion Settlement Against Amazon over Deceptive Subscriptions

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.

As the Silicon Valley Software Law Blog has previously reported, 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.