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Subscription-Based Business Models: An Overview of Auto-Renewal Regulations

The demand for subscription-based and recurring revenue business models is growing faster than ever.  According to a 2014 report by The Economist Intelligence Unit, 80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing.  As a result, most companies are changing, or are in the process of changing, how they price and deliver their goods and services.  With 6.8 billion potential subscribers on mobile, social and web, the market is ripe for the business models first made popular by companies such as BirchBox and Dollar Shave Club.

A natural corollary to the recurring revenue streams driven by subscriptions is the need to comply with laws regulating purchases that automatically renew.  While subscription services (sometimes referred to as auto-renewal programs) can be lucrative, companies should be mindful of the applicable laws to avoid the costs of fighting off the type of lawsuits that led to Sirius XM Radio settling an auto-renewal case for $3.8 million and Angie’s List settling a similar suit for $2.8 million.

Automatic Renewal Regulation

Automatic renewal programs are regulated by both the federal government and individual states.  Federally, automatic renewal programs are regulated by the Federal Trade Commission under 15 U.S.C. Section 41, et seq. and the Restore Online Shoppers’ Confidence Act.  Under these regulations, the FTC and the attorney generals for individual states have enforcement authority to bring actions against companies in violation of these rules.

On the state level, at least 24 states have enacted statutes regulating automatic renewals to

Recommendations for Evaluating Your Company’s Use of Social Media

The majority of retailers utilize social media to market their products and services, interact with consumers, and manage their brand identity. Many mobile applications and websites even permit users to sign-in with their social media accounts to purchase items or use the applications’ services.

While using third party social media websites has significant advantages for businesses, it also raises distinct privacy concerns. Specifically, the terms of use that apply to social media platforms may give the platform the right to share, use, or collect information concerning your business or your customers. To the extent that the social media platform’s privacy practices are not consistent with the practices of your own company, they may contradict or violate the privacy notice that you provide to the public.

Here is a list of issues to consider when evaluating your company’s use of social media:

  • How would a data breach of social media platforms affect your company? Do you have a plan if your social media account is breached?
  • Does your company share information with an intermediate service provider, such as a social media analytics company, to provide or analyze social media services?
  • Is your internal data or customer personal information protected under your agreements with third parties, including social media platforms?
  • What types of customer personal information are solicited, collected, maintained, or disseminated via your social media platforms (e.g., geo-location)?
  • Do you display information or images of users or other people, including your employees? Did the people in the images give their permission
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