Just prior to the Federal Trade Commission’s (FTC or Commission) publication of its Click-to-Cancel Rule (the Rule) – which we wrote about in depth here – in the Federal Register, several trade associations filed petitions for review in four circuit courts. The litigation was then consolidated in an action in the Eighth Circuit, which quickly denied the petitioners’ motion to stay the Rule while the litigation was pending.[1] In the petitioners’ opening brief, filed in February, they argued that the Rule is invalid and requested that the court vacate the Rule because (1) it exceeds the Commission’s statutory authority, (2) there were procedural defaults in the rulemaking process, and (3) the rule is arbitrary and capricious. The petitioners’ brief makes particular note that “this is no ordinary administrative challenge” because “[i]n the final days of the Biden Administration, the Federal Trade Commission used a statute that limits the agency’s rulemaking power to hurriedly promulgate, by a 3-2 vote along party lines, a rule regulating over a billion recurring subscription agreements across all sectors of the U.S. economy.” At a high level, the Rule regulates automatic renewals/subscriptions by prohibiting material misrepresentations, requiring sellers to disclose material information, obtain the consumer’s express consent and provide a cancellation mechanism “at least as easy to use” as the method the consumer used to enroll.
Just the other day, the FTC filed its brief, and while there has been some speculation on how this brief might be impacted by the recent administration change and shift in FTC leadership, the brief provided a robust defense for the Rule on multiple grounds. The FTC argued that the Rule is valid in its current form, and in the event that the court finds any part of the rule invalid, the FTC urged the court to “tailor any remedy” by utilizing the severability provision in the Rule to preserve the remainder of the Rule.
The FTC’s brief sets forth five main arguments. First, the FTC argues that it has in fact met the requirement under Section 18 of the FTC Act to “define with specificity” unfair practices “in or affecting commerce.” It rejects the petitioners’ argument that the rule rather than the acts or practices must be defined with specificity. Second, the FTC rejects the petitioners’ argument that the Rule “overrides” statutes and violates the nondelegation doctrine because, among other things, the FTC Act’s “unfair or deceptive standard” provides an intelligible principle. Third, the FTC notes that the Rule “rests on copious evidence” in the form of “dozens of enforcement actions [and] tens of thousands of consumer complaint[s] ... showing that the unfair and deceptive negative option practices are prevalent.” The FTC further argues that this evidence, which resulted in its finding of prevalence, is not judicially reviewable, but even if it were, the “findings easily pass muster under the arbitrary-and-capricious standard.” The FTC also argues that the Rule “strikes an appropriate balance” while still allowing sellers to verify consumer identity, confirm intent to cancel and present information on the consequences of cancellation, and even offer discounts. Fourth, the FTC rejects the petitioners’ argument that the FTC failed to follow procedural requirements by not conducting a preliminary regulatory analysis. The FTC argues that it did not need to conduct a preliminary analysis, but even if it did, the error was harmless and did not result in any prejudice.
Finally, the FTC argues that if the court finds any part of the Rule violates the Administrative Procedure Act, the court should “limit any remedy to the offending provisions, and leave the ‘remaining provisions ... in effect” and that any such remedy should be limited to those who have standing. This argument is particularly important in light of the Rule’s somewhat controversial provision, Section 425.3, which prohibits the misrepresentation of any material fact, even one unrelated to the negative option feature. Commissioner Melissa Holyoak issued a strong dissent noting that the Rule is “nothing more than a back-door effort at obtaining civil penalties in any industry where negative option is a method to secure payment.” Because the Rule contains a severability provision, one possible remedy the court could fashion is to sever this provision of the Rule.
The FTC also spends a fair portion of the brief rejecting the “fallacy” that the petitioners have based their challenge upon – “that the FTC cannot adopt regulations affecting ‘multiple industries’ or ‘sectors of the economy.’”
You (and the rest of the industry!) may be wondering, Now what? Well, as we await a decision from the Eighth Circuit, the remainder of the Rule will go into effect on May 14, 2025 (the misrepresentation provision already went into effect in January 2025).
We would be remiss not to flag one other potential way the Rule could be undone. The Congressional Review Act (CRA) allows Congress and the president to overturn recently issued agency regulations, by a simple majority, during a special “look back” period. Congress has already passed two resolutions that would undo environment-related rules. Six other measures to block Biden-era rules have already been approved in either the House or the Senate. The Center for Progressive Reform tracker indicates that a total of 57 CRA resolutions have been introduced. Nothing related to the Click-to-Cancel Rule has been introduced yet; however, the Rule does fall within the relevant look-back period. We will continue to keep an eye on this litigation and provide any updates on any CRA resolutions related to the FTC.
[1] Custom Communications, Inc. v. Federal Trade Commission, No. 24-3137 (8th Cir. Jan. 17, 2025) (order denying petitioners’ motion to stay).
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