New California Law Requires Disclosure When Using A Chatbot

Beginning on July 1, 2019, a new California law will require websites that use chatbots to clearly disclose that it is a bot communicating online, and not a person.

The use of online chatting with ecommerce and other types of websites is becoming more widespread on a daily basis. Online chat tools allow potential customers to ask questions about products and services and get answers on a real-time basis. These tools also enable companies to address service and support issues on a real-time basis. I’ve used these tools to get help from wide spectrum of websites, ranging from the Delaware Secretary of State, when I needed guidance on a corporate filing on behalf of a client, to Goulet Pens, when I dropped an expensive fountain pen and needed guidance on a replacement nib.

The new California law makes it “unlawful for any person to use a bot to communicate or interact with another person in California online, with the intent to mislead the person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase or sale of goods or services in a commercial transaction or to influence a vote in an election.”

However, there’s no liability if the person using the bot discloses that it is, in fact, a bot. The disclosure must be “clear, conspicuous, and reasonably designed” to inform persons that they are communicating with a bot. While the law doesn’t provide any more specific information on how a disclosure can comply with that standard, we can look to some general principles and Federal Trade Commission (FTC) guidelines that have evolved over the past few years. For example:

  1. Placement and prominence of the disclosure
  2. How close the disclosure is to the related claim
  3. Whether the disclosure can be avoided
  4. Whether other parts of the advertisement distract from the disclosure
  5. Whether the language is understandable

 

Considering that more than 39 million people live in California, it is highly likely that some California resident is using your website, no matter where your company is based, and no matter whether you sell to businesses or consumers. Consequently, we strongly recommend that all companies that sell goods or services and that use online chat tools comply with the California law. As mentioned at the top, this law goes into effect on July 1, 2019.

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.

 

California’s Subscription Renewal Law About To Change

On July 1, 2018, California’s subscription auto-renewal law is about to change in a couple of important ways. This law applies to e-commerce vendors who sell to consumers on a subscription basis, where the subscription renews automatically. For example, companies that offer subscription box services are generally subject to this law. Under the law as it currently stands, vendors must disclose the terms of the automatic renewal policy in a clear and conspicuous manner at the time of the original purchase, get the consumer’s affirmative consent before charging the consumer, and explain how to cancel the subscription.

Beginning July 1, vendors will have to allow online cancellation if the subscription was originally commenced online. Such vendors cannot require that their customers use phone or snail-mail to cancel. Also, if the subscription offer includes a free gift, trial subscription, or promotional pricing, vendors must notify consumers how to cancel before they are charged (or before the promotional pricing expires and they are charged full price). Vendors must explain the price to be charged when the promotion or free trial ends. If the initial offer is at a promotional price that will increase later, the vendor must obtain the consumer’s consent to the non-discounted price prior to billing.

Auto-renewing subscriptions have been fertile ground for California class action attorneys, who have made a cottage industry out of shaking down vendors that fail to comply with the state law. Consequently, it’s important for any company whose business model is based on consumer subscriptions that renew automatically to update their terms of service and selling processes before the new law takes effect. It doesn’t matter if the company isn’t based in California, either – the law applies if the consumer is a resident of California. Finally, keep in mind that more than half of US states have a law dealing with auto-renewing subscriptions.

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

The Attributes of Successful Companies

At a recent board meeting for a non-profit I am a director of, the executive director asked board members to identify the attributes of successful organizations. Lots of ideas went flying around, and several were quite interesting, so I’m going to make these attributes the topic of today’s blog post, as well as upcoming posts.

A SUCCESSFUL COMPANY MAKES IT EASY FOR CUSTOMERS TO DO BUSINESS WITH IT

An example of this is Square, the credit card payment processing company. Square identified two key pain points that retailers, and especially smaller retailers, suffer when dealing with their credit card processor. The first pain point is that there is no transparency as to rates. The typical credit card processor can have dozens of rates, depending on the kind of card, rewards programs, affinity programs, whether the card is swiped or the number is keyed in, etc. So the average small business has no idea what rate they will be paying on any given transaction. It also makes it very difficult for the average retailer to compare one processor against another.

Why is this so hard???
Why is this so hard???

How did Square solve this problem? The solution is actually pretty simple: two rates. Square charges 2.75% on every swiped transaction or online store transaction, and 3.5% plus $0.15 on every keyed transaction (which are much less common). Those rates apply whether the card is a Mastercard, Visa, Discover, or Amex. If you have ever run a retail business, you know that Amex rates are usually higher than Mastercard or Visa, which is the primary reason many small businesses don’t accept Amex. By using the same rate for each major card, Square takes away any excuse retailers have for not accepting Amex, which in turn makes it easier for people to do business with those retailers, too. See how it works? There are no special rates for travel rewards cards, or university alumni cards, or any nonsense like that. The rates are disclosed right on the Square website, in easy-to-read language. Interestingly, Square isn’t competing by having the lowest prices, because its rates aren’t really low. They are average, at best. The key is the transparency.

The second pain point is that many small businesses don’t want to invest in expensive card-swiping machines, and in particular, there are a lot of mobile businesses that need some kind of card-processing technology for when they take payments at flea markets, craft fairs, customer home visits, etc. Square’s solution to this is pretty simple, too. It provides a very small credit card reader that plugs into the headphones jack of any tablet or smartphone, and works on both the Android and iOS platforms. The thing is about the size of a postage stamp, where the conventional card readers are more like the size of a ladies size 5 shoe. Because it is mobile, you don’t need to have it hard-wired to a fax or phone line. Here’s the best part of it – it’s FREE. The average card-swiping machine can cost several hundred dollars, by contrast.

To summarize, Square identified a discrete market segment (small retailers) that was frustrated by their credit card processing options. Square identified two very common frustrations that segment experiences on a regular basis, and completely eliminated those frustrations with pretty obvious solutions. Your processor charges a bewildering array of rates that could confuse a mathematician? We’ll simplify things down to two rates, and tell you upfront. You don’t want to invest in expensive equipment that limits your mobility? We’ll provide an easy device to free you from your phone line, and we’ll make it free.

So if you want to be successful, follow Square’s example and make it really easy for your customers to do business with you.

Follow me on Twitter @PaulHSpitz