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Education
The lawsuit further alleges the prices McAfee charges the agreement (for example, scrolling through the text of
auto-renewal customers are not only higher than the pric- the agreement, and selecting the "I Agree" button) prior to
es McAfee charges other customers, they are also higher completing the subscription or purchase transaction, and
than the suggested "list" prices McAfee provides to retail- provide the consumer with an acknowledgement that in-
ers of McAfee software. cludes the automatic renewal or continuous service offer
Based on this conduct, plaintiffs sued McAfee for breach terms, and cancellation policy and instructions for cancel-
of contract, unlawful, unfair, and fraudulent business ing, in a manner capable of being retained by the consum-
practices, false advertising and violating California's Au- er. If the offer contains a free trial, the acknowledgment
tomatic Renewal Law, among other causes of action. must also disclose how to cancel to avoid paying for the
Under the terms of the settlement, McAfee will pay $11.50 goods or services.
(in the form of cash or as credit toward future purchas-
es of McAfee products) to each consumer in the United If there is a material change to the terms of the automatic
States who paid for the automatic renewal for McAfee renewal offer (such as pricing), a business must provide
software between January 10, 2010, and February 10, 2015, the consumer with prior notice of the change and how to
and whose first auto-renewal charge was greater than the cancel before the change takes effect in a clear, conspicu-
price paid for the initial subscription license. In the aggre- ous manner.
gate, such payments are estimated to exceed $80 million.
The settlement also requires McAfee to change its policy Failure to comply with any of these requirements may re-
regarding auto-renewal transactions and its advertising of sult in restitution damages of all of the renewal revenues
past reference prices. collected from California customers, regardless of wheth-
Prior consent er they actually wanted and used the service, were actu-
In addition to the clear and conspicuous disclosure re- ally deceived or suffered any damages.
quirements, California's Automatic Renewal Law requires
businesses to obtain the consumer's affirmative consent to Best practices
46 It bears emphasis that California's Automatic Renewal
Law applies to any contract entered into by any consumer
in California that provides for automatic renewal by a
recurring charge to his or her credit card or bank account,
regardless of where the business is located. Again,
while state laws vary dramatically, compliance with
the California law will effectively ensure your business
satisfies the requirements of other state laws, as well as the
FTC Act and ROSCA.
In addition to satisfying California's notice, consent and
acknowledgement requirements at the front end of the
subscription relationship, we believe the best practice is
to send consumers an additional email notice in advance
of the automatic renewal date. That notice needs to
prominently disclose the renewal price and renewal date,
and advise the consumers their subscriptions will be
automatically renewed at that price on that date unless
they cancel or disable the automatic renewal function
beforehand.
Although the practice is not required under California law
and may cause businesses to lose some automatic renewal
subscriptions, it offers the benefit of further protection
against being the subject of a class action lawsuit and
paying millions of dollars in restitution damages or
settlement.
The information contained in this article is for educational purposes
only. Please consult an attorney before relying upon it for your specific
legal needs. Theodore F. Monroe is an Attorney whose practice, TFM Law,
focuses on the electronic payment and direct marketing industries.
Bradley O. Cebeci is Of Counsel with TFM Law. For more information
about this article or any other matter, please e-mail monroe@tfmlaw.
com or call 213-233-2273.
