The Prinz Law Office

The FTC has just filed a complaint against a Silicon Valley software company over its “Annual Paid Monthly” subscription contract.  The FTC has separately also sought the expansion of its “Negative Option Rule” to amend the provisions to specifically apply to subscriptions by adding a “Click to Cancel” provision.  A copy of the FTC notice of proposal is linked here.

What is the FTC’s Negative Option Rule?

The Negative Option Rule was adopted by the FTC in 1973, to address “negative option offers,” which the FTC defines as offers containing “a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer.”

According to the FTC, negative option marketing utilizes four types of offers: prenotification plans, continuity plans, automatic renewals, and free trial conversion offers.

However, the FTC’s original Negative Option Rule only pertained to prenotification plans, excluding the continuity plans, automatic renewals and free trial offers that have become commonplace in 2024.  Also, in the case of the original Negative Option Rule, prenotification plans were limited to the sale of goods, where sellers provided periodic notices to participating customers and then sent and charged for those goods only if the consumers took no action to cancel and decline the offer (i.e. the example of a wine club).

Also, the Negative Option Rule required clear and conspicuous disclosure of certain terms before a subscription agreement was reached.  According to the FTC, those terms were as follows:

• how subscribers must notify the seller if they do not wish to purchase the selection;
• any minimum purchase obligations;
• the subscribers’ right to cancel;
• whether billing charges include postage and handling;
• that subscribers have at least ten days to reject a selection;
• that if any subscriber is not given ten days to reject a selection, the seller will credit the return of the selection and postage to return the selection, along with shipping and handling; and
• the frequency with which announcements and forms will be sent.’

Finally, under the existing Negative Option Rule, sellers were required to define particular periods for sending merchandise, to give consumers a defined period to respond, to provide instructions for rejecting merchandise, and to promptly honor written cancellation requests.

What is “Click to Cancel’?

What would change with the FTC’s newly proposed “Click to Cancel” amendment?

Under the FTC’s proposed “Click to Cancel” rule change, the scope of the Negative Option Rule would be increased to make it pertain to not only prenotification plans but also to continuity plans, automatic renewals, and free trial conversion offers.  Also, the proposed “Click to Cancel” rule provisions would mandate the following:

• Businesses would be required to make cancelling a subscription or membership at least as easy as it was to start it;
• Businesses would have to ask consumers if they want to hear new offers when they ask to cancel before they would be able to pitch new offers;
• Businesses would be required to provide an annual reminder if enrolled in a negative option program involving anything other than physical goods, before they are automatically renewed.

Another “Click to Cancel” change is that the under the new provisions any misrepresentation of a material fact related to any of the four negative option offers, whether expressly or by implication, would constitute a violation of not only the Negative Option Rule but also an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act.

What is the Potential significance of “Click to Cancel” to the SaaS, Tech, and Digital Health Industries?

The potential significance of the “Click to Cancel” change to the average SaaS, tech, and digital health company is that, if this proposed rule is adopted, SaaS, tech, and digital health companies who sell directly to consumers will need to update consumer contracts and terms of service to confirm that they are compliant with the requirements of the Negative Option Rule, as amended.

If your company is concerned about its compliance with “Click to Cancel” please schedule a consultation today at https://calendly.com/prinzlawoffice.

Every year on June 5th, the world unites for a singular, urgent purpose: to celebrate and protect our shared home. This is World Environment Day, the United Nations’ principal vehicle for encouraging worldwide awareness and action for the environment. Far more than just a date on the calendar, it has evolved into the largest global platform for environmental public outreach, a day when millions of people, governments, and corporations come together to focus on the planet’s most pressing challenges and champion its preservation.

The genesis of World Environment Day dates back to 1972, a landmark year for global environmental consciousness. The United Nations Conference on the Human Environment in Stockholm, Sweden, held from June 5-16, was the first major international summit to place environmental issues at the forefront of global concerns. Later that year, on December 15, the UN General Assembly adopted a resolution designating June 5 as World Environment Day, marking the conference’s opening day. The very first World Environment Day was celebrated one year later, in 1973, with the fitting slogan, “Only One Earth,” a simple yet profound message that continues to resonate five decades later.

A central pillar of the day’s effectiveness is its annual, thematic focus. Each year, the UN designates a specific theme to highlight a particularly critical environmental issue. This strategy concentrates the global conversation, forcing the world to collectively examine a single problem, understand its complexities, and explore tangible solutions. These themes are a mirror of our planet’s evolving crises. Recent years, for example, have seen campaigns like #BeatPlasticPollution, a powerful call to action against one of the most visible and pervasive forms of pollution devastating our oceans and ecosystems. Other themes have focused on biodiversity loss (“Time for Nature”), air pollution, and the urgent need for ecosystem restoration.

In 2024, the global focus was directed toward “Land restoration, desertification, and drought resilience,” under the slogan “Our land. Our future. We are #GenerationRestoration.” This theme underscores the critical reality that healthy land is the foundation of our survival. With billions of hectares of land worldwide degraded, affecting billions of people, the call to action is to revive these ecosystems, combat the encroaching deserts, and build resilience against climate-driven droughts.

To spearhead this global conversation, a different nation is designated as the official “host country” each year. This role is not merely ceremonial; the host nation serves as the epicenter for the year’s official celebrations, policy discussions, and high-level events. By hosting, a country showcases its own environmental challenges and achievements while leading a global dialogue on the year’s theme. For 2024, the Kingdom of Saudi Arabia hosted the official celebrations, bringing global attention to the unique and severe challenges of land degradation and desertification faced by arid regions around the world.

The true power of World Environment Day, however, lies in its translation from a high-level concept into grassroots action. On June 5th, the globe comes alive with activity. In thousands of communities across more than 150 countries, individuals, schools, and local organizations participate in events tailored to their own environments. This can range from massive community clean-up drives along beaches and rivers to large-scale tree-planting initiatives aimed at restoring local forests.

Education is a fundamental component of the day. Schools and universities dedicate curricula to the year’s theme, while museums and public institutions launch exhibits. Governments and NGOs run widespread public awareness campaigns, using the day as a potent hook to disseminate information on sustainable practices, such as recycling, water conservation, and reducing one’s carbon footprint. For many corporations, it is a day to announce new sustainability commitments, launch green products, or engage employees in corporate responsibility projects.

Ultimately, World Environment Day serves as a critical annual checkpoint for humanity. It is a day to reflect on our relationship with the natural world, to acknowledge the damage inflicted, and, most importantly, to renew our collective and individual commitment to healing. It serves as a powerful reminder that the monumental challenges of climate change, pollution, and biodiversity loss are not insurmountable. They are the sum of billions of individual actions, and they can be solved by the power of billions of corrective, conscious, and collaborative ones. It galvanizes this collective energy, reminding us that we are all stakeholders in our planet’s future and that every action, no matter how small, contributes to the larger movement of change.

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California is currently considering the adoption of a bill that would impose unprecedented new regulations on the development of AI.  The bill under consideration is SB 1047, the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act.  A full copy of the bill is linked here.

SB 1047, the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act

The Safe and Secure Innovation for Frontier Artificial Intelligence Models Act or SB 1047 would create a new Frontier Model Division within California’s Department of Technology which would have oversight powers over the training of new AI models. Pursuant to SB 1047, developers of AI models would be required to build a so-called kill switch into the AI model and to potentially shut down the model until the Frontier Model Division deems that the AI model is subject to a “limited duty exemption,” which would be defined as:

a determination. . . . that a developer can provide reasonable assurance that the covered model does not have a hazardous capability, as defined, and will not come close to possessing a hazardous capability when accounting for a reasonable margin for safety and the possibility of posttraining modifications.

A “covered model” under SB 1047 would be defined to mean an AI model “that was trained using a quantity of computing power greater than 10^26 integer or floating-point operations, and the cost of that quantity of computing power would exceed one hundred million dollars ($100,000,000) if calculating using average market prices of cloud compute as reasonably assessed by the developer at the time of training.”

As currently proposed, “derivative” AI models would be exempt from the new compliance obligations: only “non-derivative” AI models would be subject to the obligations.

Under SB 1047, a  “derivative model” is defined to constitute an artificial intelligence model that is derivative of another AI model, including either ” a modified or unmodified copy of an artificial intelligence model” or “a combination of an artificial intelligence model with another software.  The “derivative model” is defined not to include “an entirely independently trained artificial intelligence model” or an “artificial intelligence model, including one combined with other software, that is fine-tuned using a quantity of computing power greater than 25 percent of the quantity of computing power, measured in integer or floating-point operations, used to train the original model.”

What constitutes a “hazardous capability” under the proposed legislation?

SB 1047 would define “hazardous capability” to constitute the capability of a covered model to be used in one of the following harms:

• the creation or use of a chemical, biological, radiological, or nuclear weapon in a manner that results in mass casualties
• at least $500 million dollars of damage through cyberattacks on critical infrastructure via a single incident or multiple related incidnts
• at least $500 million dollars of damage by an AI that autonomously engages in conduct that would violate the Penal Code if taken by a human
• bodily harm to another human
• the theft of or harm to property
• other grave threats to public safety and security that are of comparable severity to the harms described above.

Penalties for noncompliance with this legislation would include punitive damages and a civil penalty for a first violation not to exceed ten percent of “the cost of the quantity of computing power used to train the covered model to be calculated using average market prices of cloud compute at the time of training” and 30 percent of the same in case of a second violation.  The legislation authorizes joint and several liability against the developers directly where

(1) steps were taken in the development of the corporate structure among affiliated entities to purposely and unreasonably limit or avoid liability.

(2) The corporate structure of the developer or affiliated entities would frustrate recovery of penalties or injunctive relief under this section.

The reaction to SB 1047 from the Silicon Valley start-up community

Bloomberg also reported that the a key point of contention in the startup community is the idea that AI developers are responsible for people who misuse their systems, pointing to Section 230 of the Communications Decency Act of 1996, which has shielded social media companies from liability over content users create on platforms.

Author Jess Miers of the Chamber of Progress criticized the legislation on the basis that it would “introduce a high degree of legal uncertainty for developers of new models, making the risks associated with launching new AI technologies prohibitively high.”

The Prinz Law Office will continue following legislative developments relating to SB 1047 as this bill advances.

If you have questions regarding your software company’s potential compliance obligations under SB1047, please schedule a consultation with The Prinz Law Office at this link.