New California Law Addresses Digital Purchase Disclosures

Starting January 1, 2025, California's AB 2426 introduces a major shift in how digital goods are marketed and sold through its focus on digital purchase disclosures. This law aims to combat misleading advertising practices by requiring greater transparency in consumer transactions involving digital products. Sellers of digital goods must now adhere to strict guidelines, using precise language to describe their offerings and avoiding terms like "buy" or "purchase" unless specific conditions are met.

The Core of AB 2426: What It Regulates

AB 2426 aims to address confusion over ownership rights for digital goods. Often, when consumers “buy” digital products like movies, music, or e-books, they’re not actually purchasing full ownership rights. Instead, they typically receive a revocable license; essentially a temporary right to access or use the product, which can be withdrawn under certain conditions.

The law mandates that sellers of revocable digital goods must either: (1) clearly disclose that consumers are obtaining a license subject to specific terms and conditions, or (2) obtain the consumer’s explicit acknowledgment that they are receiving a revocable license.

The required digital purchase disclosures must be presented in a “clear and conspicuous” manner, ensuring that consumers are fully aware of what they’re agreeing to before completing the transaction. The statutory definition of “clear and conspicuous” included in AB 2426 focuses on making disclosures stand out through the use of larger text, bold fonts, contrasting colors, or spacing to draw attention.

Who Does the Law Affect?

The law applies broadly to “sellers of digital goods”, which includes:

• Providers of online media, such as movies, music, recordings, e-books, and games.
• Vendors offering virtual items or in-app purchases.
• Sellers of physical goods that include access codes for digital content (e.g., bundled software or digital game codes).

There is, however, an exemption for subscription-based services (e.g., Netflix, Spotify) and free digital products, which fall outside the scope of AB 2426.

How Businesses Can Comply to Digital Purchase Disclosures

Companies offering revocable digital goods under the new regulation should take the following steps to ensure compliance with the Digital Purchase Disclosures before January 1, 2025:

1. Revise Advertising Language: Replace terms like “buy,” “purchase,” or “sell” with language that reflects the true nature of the transaction. Phrases such as “access a license” or “get digital rights” are safer alternatives.

2. Assess Licensing Practices: Decide whether licensing is the most appropriate model for your digital goods. Keep in mind that licensing may have unintended tax implications, depending on the jurisdiction and product type.

3. Provide Clear Disclosures: If you continue to use terms like “buy” or “purchase,” make it explicitly clear, using plain language, that consumers are obtaining a license subject to terms and conditions. These terms must be easily accessible, such as via a hyperlink, QR code, or similar method.

Legal and Financial Implications

AB 2426 is part of California’s False Advertising Law (FAL). Violations can lead to criminal penalties, including fines of up to $2,500 per violation and/or up to six months of imprisonment.

Moreover, violations may also be cited under California’s Unfair Competition Law (UCL), which provides a private right of action. This opens the door for civil lawsuits from affected consumers or competitors, potentially resulting in costly litigation and reputational damage.

Looking Ahead: A New Standard for Digital Purchase Disclosures

California’s AB 2426 reflects a growing recognition of the complexities surrounding digital ownership. As technology continues to evolve, lawmakers are increasingly focusing on transparency and fairness in the digital marketplace.

For businesses, adapting to these changes isn’t just a legal requirement—it’s an opportunity to build trust with consumers by being upfront about what they’re offering. For consumers, the law offers greater clarity and protection, ensuring they can make informed decisions in the ever-expanding digital landscape.

The road to compliance may require effort, but the long-term benefits of increased consumer confidence and reduced legal risks make it a necessary step forward. As January 1, 2025, approaches, businesses should act now to align their practices with the new standards.