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California AB 2426, signed by Governor Gavin Newsom on September 24, 2024, introduces groundbreaking consumer protection measures for digital goods in the state. Taking effect on January 1, 2025, AB 2426 mandates clear disclosures from companies when they sell a revocable license to digital goods, ensuring consumers understand they are purchasing access rather than unrestricted ownership. In this article, we will explore the implications of AB 2426, detailing who it affects, the requirements, how to comply, and more.

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What is California AB 2426?

California AB 2426 is a consumer protection law aimed at increasing transparency in the sale of digital goods to California residents. By requiring companies to disclose when digital goods are sold as revocable licenses rather than owned assets, this law helps consumers understand the true nature of their digital purchases. Examples of digital goods covered under this law include:

  • E-books
  • Digital music and audiovisual works (like songs, movies, and games)
  • Digital applications and codes

The law addresses common consumer confusion, where people mistakenly believe they fully own digital items, only to lose access under certain conditions, such as when a provider’s Terms and Conditions are violated or the company ceases operation.

Why AB 2426 Matters

Digital goods are often sold in a way that implies ownership similar to physical products, but many consumers end up purchasing only a license for access. This model allows sellers to revoke access to digital products, sometimes unexpectedly. AB 2426 aims to eliminate this confusion by requiring sellers to make clear distinctions between licensing and ownership.

For example, if a consumer purchases an e-book online, they may not truly “own” the book. Instead, they have a revocable license, meaning the seller could terminate access based on company policies. AB 2426 ensures that consumers are fully aware of this arrangement at the point of sale.

Prohibited Advertising Terms

Under AB 2426, companies must avoid terms like “buy” or “purchase” unless one of the following is included at the time of sale:

  • Affirmative Acknowledgment – The consumer must acknowledge they understand they are purchasing a license, not ownership, by checking a box or similar action.
  • Clear and Conspicuous Statement – Companies may provide a distinct disclosure that informs consumers they are purchasing access to digital goods, not ownership. The statement should include a hyperlink or QR code to access full licensing terms.

Both the acknowledgment and the disclosure must be distinct from any other terms related to the transaction, so the licensing information is not buried or overlooked.

Exceptions to the Law:
AB 2426 provides some flexibility for certain transactions, including:

  • Subscription-Based Services – Transactions involving access limited to a subscription duration are exempt.
  • Non-Revocable Digital Goods – If digital goods are sold with unrestricted access, meaning they can be downloaded and stored offline, they are also exempt.
  • Free Digital Goods – AB 2426 does not apply to free digital downloads or other no-cost digital goods.

These exceptions help avoid unnecessary regulation of transactions where revocable access is not a concern.

Compliance Requirements for Businesses

  1. Obtain Affirmative Acknowledgment
    One way to comply with AB 2426 is by securing an affirmative acknowledgment from the consumer. This means creating a clear, separate check-box or acknowledgment form that confirms the consumer understands they are buying a license and not outright ownership. The acknowledgment should:

    • Clarify that the consumer is purchasing a license with potential restrictions.
    • Provide a link to Terms and Conditions that outline any relevant limitations.
    • Clearly state that the seller may terminate access if the consumer violates the agreement.
  2.  Provide a Clear and Conspicuous Disclosure
    As an alternative to affirmative acknowledgment, businesses may display a statement at the point of sale that clearly and conspicuously describes the purchase as a license. This disclosure should be:

    • Visible and Attention-Grabbing – Using larger fonts, colors, or symbols can help ensure the statement is not overlooked.
    • Informative – The statement should clarify that terms like “buy” or “purchase” refer to a license and direct consumers to the full Terms and Conditions.
    • Including a visible link to the licensing terms in this statement is essential to help consumers understand the scope of the license they’re purchasing.
  3.  Maintain a License Terms and Conditions Agreement
    To meet AB 2426 requirements, businesses should keep an updated License Terms and Conditions agreement specific to digital goods. This document should include:

    • Clear definitions of license terms, highlighting that access may be revoked if terms are violated.
    • Any limitations or restrictions applied to the license.
    • The duration of access, if applicable, and any renewal or termination conditions.
    • Keeping this document accessible on the company website and linking to it at the point of sale will further help meet compliance standards.
  4.  Penalties for Non-Compliance
    Violating AB 2426 falls under Section 17500 of the California Business and Professions Code, which governs false advertising. Non-compliance may result in:

    • Civil Penalties – Companies may face fines and penalties for misleading advertising practices.
    • Misdemeanor Charges – Severe violations may result in misdemeanor charges.
    • Consumer Actions – AB 2426 violations may open companies to individual or class-action lawsuits under California’s Unfair Competition Law

To avoid these penalties, businesses should prioritize compliance by incorporating the required disclosures and consumer acknowledgment measures into their sales processes.

Why Was AB 2426 Enacted?

California legislators responded to growing consumer concerns about the “disappearing media” problem, where digital goods bought by consumers can vanish due to company policies or technical limitations. Assemblymember Jacqui Irwin, who authored AB 2426, emphasized the law’s role in addressing “a potential source of consumer confusion” regarding the purchase of digital goods. Digital goods—advertised similarly to physical goods—can be revoked, leaving consumers without access to their purchases.

AB 2426 is part of a larger initiative in California to safeguard consumer interests across various industries. By amending existing false advertising laws, AB 2426 enhances transparency in digital transactions, ensuring Californians understand what they’re buying when purchasing digital media.

Key Takeaways & Future Implications

California AB 2426 sets a precedent in digital goods sales and consumer protection, especially as digital transactions continue to increase. Although California is the first state to implement such a law, other states or the federal government may soon follow with similar regulations, particularly as concerns over “disappearing media” persist. In 2016, the U.S. Department of Commerce reported that consumers often do not fully understand whether they own or license digital products. This ongoing issue could spur additional regulations beyond California.

For businesses, AB 2426 emphasizes the importance of clarity in digital goods transactions and may necessitate adjustments to advertising and sales models. Companies are encouraged to keep abreast of evolving regulations at both the state and federal levels.

Wrapping Up

California AB 2426 offers a new level of protection for digital consumers, addressing the evolving nature of digital media and the often-overlooked complexities of digital ownership. As of January 1, 2025, businesses selling digital goods to California consumers will need to be transparent about the licensing structure of digital content purchases, ensuring consumers understand they are not acquiring permanent ownership.

For additional support, resources, & more, consider utilizing GetTerms. For more information, you can visit our website here. We offer a simple solution, ensuring you meet legal standards while maintaining user confidence in your data handling practices. Create an account and get started in 5 minutes. For any further questions or assistance, the GetTerms support team is always ready to help.

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