Vermont Passes Strictest Subscription Renewal Law

Companies that offer subscriptions that renew automatically now have to pay attention to tiny Vermont, which just passed the strictest automatic renewal law in the country. Several states, including California, have laws governing subscription renewals that require sellers to clearly and conspicuously present the terms of the offer, get express consent from the consumer, provide an easy method to cancel, and send a reminder prior to the start of a renewal term. Vermont’s law adds two new twists, however. First, the auto-renewal provision must be presented in boldface type. Second, consumers have to take two actions to accept the renewal offer.

California, which prior to passage of the Vermont law had perhaps the most restrictive law on the subject, gives companies a great deal of latitude in deciding how to meet the “clear and conspicuous” standard – it can be boldface, larger type face than surrounding text, contrasting color or font, or text that is set off by surrounding text by symbols or other marks. Vermont’s law will give no such latitude. If the renewal plan text is larger font, contrasting color, and surrounded by symbols, but is not in boldface, it will not comply.

The two-action consent requirement means that in both online and written offers, the company must get a consumer’s consent through both:

  1. A check box, signature, or other similar method that shows consent specifically to the auto-renewal terms, and
  2. A separate consent (like a “Submit” or “Purchase Now” button) to the overall order.

The Vermont law covers both business-to-consumer and business-to-business subscriptions, although there is an exemption for insurance contracts and contracts between a consumer and a financial institution or credit union. By including B2B, the Vermont law goes well beyond California’s law, which only protects consumers. This means a wide variety of SaaS businesses need to look at their subscription and renewal practices, if they are doing business with Vermont companies.

Vermont’s new law will take effect on July 1, 2019, and only applies to contracts with an initial term of one year or more, and subsequent terms that are longer than one month. So, if a company offers a product or service with an initial term of less than a year, and the term renews on a monthly, quarterly, or semi-annual basis, the company is not covered. Similarly, companies that offer simple monthly subscriptions, like many streaming services and subscription boxes, are not covered. Many magazine subscriptions have an initial term of one year, and typically renew for terms of a year, so these most likely will be covered by the new law.

 

New Federal Law Prohibits “Anti-Yelp” Contract Terms

Congress recently passed a new law that restricts a company’s ability to include an “anti-Yelp” type of non-disparagement provision in a standardized contract. The new law, called the Consumer Review Fairness Act of 2016,” is designed to protect individuals who post negative online reviews. The CRFA applies to reviews of goods and services made by an individual who is a party to a “form contract.” The CRFA defines a form contract as a contract with standardized terms used in the course of selling or leasing goods or services, and imposed on an individual without meaningful opportunity for that individual to negotiate the standardized terms. Because the act repeatedly refers to “individuals,” it seems directed more at the B2C arena, and will likely not apply to business-to-business contracts. In addition, the act specifically exempts employment agreements and independent contractor agreements.

A covered non-disparagement provision in a form contract will be void from the start if it prohibits or restricts the ability of an individual who is a party to engage in a review of the goods or services. The CRFA also voids any provision in a form contract that would impose a penalty or fee against an individual for engaging in a review of the goods or services.

The CRFA does not affect the right to pursue a claim for defamation, libel, or slander, however. Nor does the CRFA prevent any party’s right to remove or refuse to display on a website owned by such party any content in a review that:

  • Contains the personal information or likeness of another person, or which is libelous, harassing, abusive, obscene, vulgar, sexually explicit, or inappropriate with respect to race, gender, sexuality, ethnicity, or some other intrinsic characteristic;
  • Is unrelated to the goods or services offered by or available at the website; or
  • Is clearly false or misleading.

The CRFA doesn’t just void these provisions, however. It makes it a violation of law to offer a form contract containing a provision that would be void under the law. Such a violation also will be considered an unfair or deceptive act or practice, The CRFA gives the Federal Trade Commission the power to enforce the act, and also grants individual states the power to pursue violations.

Consequently, we recommend that companies that sell goods or services to individuals review all of their standard contracts, including their website terms of service, to ensure compliance with the CRFA.

Follow me on Twitter @PaulHSpitz

Why Should I Use You Instead of Legalzoom or Clerky?

“Why should I use you to set up my business, instead of Legalzoom or Clerky? You cost more money.”

I get that question occasionally from clients, and I usually answer by explaining that all those sites do is provide documents, which may or may not suit your needs. You may not know whether the documents are good quality, and nobody is available to explain every single sentence in the documents, much less make changes. I, on the other hand, provide legal services. And those legal services that I provide include advice on what is best for your business, as well as providing customized documentation to ensure that we are meeting your needs.

Well, last week a prospective client asked me that question, and as I started to formulate an answer, I went to the website of the document provider – incorporate.com, to see what it offered. In this case, we were talking about forming a multi-owner LLC. Incorporate.com didn’t specify as to whether the operating agreement was designed for a single-owner LLC or a multi-owner LLC. There’s a big difference in complexity, as well as in the kinds of issues you need to address, so it was a significant area of confusion on the website. Then I notice a convenient live chat function, so I decided to dig deeper. Here’s the transcript, and I think you’ll find it quite illuminating.

Thank you for choosing incorporate.com. A representative will be with you shortly. You are now chatting with ‘Jaron’

Jaron: ‪Hello, how are you?

you: fine, thanks. So I’d like to know, for your LLC formation package, is the operating agreement a single-member or multi-member operating agreement?

Jaron: ‪The operating agreement can go either way

you: Well, which is it?

Jaron: ‪Is this something you are looking to have set up today?

you: maybe

Jaron: ‪It is whatever you need it to be

you: and does it include transfer restrictions?

Jaron: ‪like heir to heir?

Jaron: ‪Or ownership?

you: like a right of first refusal if my co-owner wants to sell to an outside party

Jaron: ‪Yes, you can include that in the operating agreement. We also provide a guidebook with further instruction on that as well.

you: and all of this is the same price, regardless of what I want included? regardless of whether it’s a single-member or multi-member?

you: all for $385.95

Jaron: ‪YEs

you: How many drafts of it will you do for me, to ensure it’s the way I want it?

Jaron: ‪I can also provide priority handling at no extra charge.

Jaron: ‪Yes

you: how many?

Jaron: ‪Let me double check. Bare with me [spelling error his, not mine – another nice touch from the experts]

you: double check on all those questions, please

Jaron: ‪Sure… one moment [long delay]

Jaron: ‪You can supply the operating agreement after writing it out. We provide the template. You can update it at anytime with written consent. The only time there is a fee is if you have a third party update it

you: So you provide a basic template, and I have to make all the changes? You don’t write these in for me?

Jaron: ‪We do not. You will write them up, we will file them internally

you: So the transfer restrictions and all that aren’t in the agreement you provide. I have to write all that up for you?

Jaron: ‪Correct. We file it for you, you provide the structure that you want.

you: What do you mean, you file it? [note: you don’t file an operating agreement with anyone; it’s a contract between the business owners and the LLC]

Jaron: ‪You will supply us with the language and draft of the operating agreement. Once you notarize it and send it in, we can update it to your liking at anytime [another tip – you don’t have to notarize an operating agreement]

you: Well, if I have to write the operating agreement, why do I pay you?

Jaron: ‪We provide the template. If you want to submit it yourself without our template, than I can customize a package for you to save you money without the operating agreement

you: I want the operating agreement, but you told me you could customize it with whatever I want, and now you are saying that you can’t, that I have to provide the customized language. Is that correct?

Jaron: ‪Yes, meaning you can make the operating agreement anyway you want it. There is no structure that you are stuck to.

Jaron: ‪If you need to update or make changes, we can do that. No fee

you: But I provide the language

Jaron: ‪Yes

Jaron: ‪We provide a template. You can use it if you wish

Jaron: ‪Or provide your own language [kind of like going to a restaurant, but bringing your own ingredients and cooking them yourself]

you: One last question. On your website, you say the Ohio LLC filing fee is $125 plus a $5 document retrieval fee. But the LLC filing fee in Ohio is $99. Why the difference?

Jaron: ‪I will get you the breakdown, one moment [long delay]

Jaron: ‪Sorry for the delay

you: Yes?

Jaron: ‪$125 is the LLC filing fee of for Ohio anywhere

you: Not according to the Secretary of State’s website.

Jaron: ‪You will have to go to the Secretary of State yourself to retrieve the documents without the $5 fee in addition

Jaron: ‪Yes I see the $99

you: I’m not talking about that. I’m asking why you charge $125 for the basic filing fee, when according to the Ohio secretary of state website, the filing fee is $99 [note: the Ohio Secretary of State actually lowered the filing fee from $125 to $99 several months ago, something other states should consider doing. I’m talking about you, Illinois, Texas, and Massachusetts]

you: so please explain

Jaron: ‪I am really sorry about the confusion. I am not sure why the fee is more. All of the service companies charge the $125 rate… I honestly do not know why but I will happily discount it for you.

you: No, I’m just concerned that you wouldn’t know what the correct fee is. Aren’t you the experts?

Jaron: ‪Yes, most times there are things like “Walk in fees” that are built into the price. I think that may be the case here but for some reason it is not listed. Most of our state fees include the full breakdown. I am not sure why Ohio does not. I apologize

you: There’s no walk-in fee. Ohio lowered the filing fee several months ago, and you just don’t take the time to ensure that you are charging the correct amount.

So let’s note a few key things from the chat:

  1. The representative wasn’t very knowledgeable. That’s always a troubling sign.
  2. The representative started out by promising that I could get anything I wanted (at that low price), but quickly had to backtrack when I pressed him on the issue. By the time we were done, I was going to have to write the operating agreement myself!
  3. The company’s website was out-of-date when it came to the Ohio filing fees, and when I asked about it, the representative basically made up an answer out of thin air (or pulled it out of his ###, if you prefer). If I hadn’t forced the issue, they would have overcharged me.
  4. The representative was also completely wrong about the $5 document retrieval fee. Some state’s charge to download documents, but Ohio isn’t one of them. This is an unnecessary and dishonest fee, and you shouldn’t have to pay it.

I hope you have a better idea now of what you get with these document services, and why I charge more money.

Follow me on Twitter @PaulHSpitz

Can A Letter of Intent Be Binding?

Guy in Suit Scratching HeadThe answer is, sometimes.

When companies are exploring a potential deal – whether it is an investment, a merger, or the sale of real estate or some other asset – they often put together a “letter of intent” prior to finalizing and signing a definitive contract. The purpose of the letter of intent is to outline the key terms of the agreement, and to serve as a basis for negotiating all the details that will go into a definitive agreement.

Sometimes, however, the parties are unable to reach this definitive agreement. Some detail becomes a sticking point, or circumstances change, and one of the parties tries to walk away, thinking that the letter of intent won’t be binding. So what might make the letter of intent binding, and force the parties to conclude a deal?

First, if the letter of intent includes all the material terms in it, a court could decide that there is enough agreement between the parties to find an enforceable contract. This can be the case even if the letter of intent says that it is subject to reaching a comprehensive agreement satisfactory to both parties.

Second, if the letter of intent contains a provision saying the parties will negotiate in good faith, a court might require the parties to continue to do just that. There have been cases where circumstances have changed for one party, so that it wants to walk away, but there was a “good faith” clause that prevented the party from getting out of the deal.

If you want to maintain maximum flexibility, therefore, leave out one or more material terms, deferring agreement on those terms to further negotiation. Also, ensure that there’s no obligation in the letter of intent to continue to negotiate in good faith.

On the flip side, however, companies often expend considerable resources putting deals together, and they want to ensure that a letter of intent will lead to a final deal. For companies in this situation, by all means get those material terms nailed down in the letter of intent, and put in a clause requiring the parties to negotiate in good faith. Another tactic to discourage walkaways is to include a break-up fee clause. That clause provides that if one party walks away from the deal, it will be obligated to pay a break-up fee to the other party, to compensate for the time and other resources invested to date. The problem with this approach, however, is that after making efforts to ensure the letter of intent is binding, you may discover that you no longer want to be bound.

Follow me on Twitter @PaulHSpitz