In response to reporting on the 8^th Circuit Court of Appeals vacating the FTC’s amended Negative Option Rule, we have received countless cards and letters from across the country asking … now what … can we put our pencils down and go outside and play kickball with all the cool kids who don’t have to deal with this nonsense, or should we continue to work toward compliance? And what happens on July 14 (next Monday!), when the Rule was to go into effect? 

Our short answer … don’t put pencils down just yet. 

The FTC has the right to seek a rehearing or appeal the decision within 45 days, though it is not entirely clear whether an appeal would go to the full en banc 8^th Circuit (the decision was made by a 3 judge panel) or to SCOTUS.  And if they do appeal, they will also need to file a motion to stay the vacatur (hella fancy word… but only 11 Scrabble points), as the mere filing of an appeal will not automatically stay the panel’s decision setting aside the Rule and gutting the July 14 effective date.  And since SCOTUS is now in recess, that pathway, if even proper, will not be available until the Fall, so the panel’s decision vacating the Rule would hold until then and July 14 would remain a nothing-ball.

As for the 8^th Circuit, it is our understanding that appealing a panel decision to a full en banc is only available in limited circumstances, such as where the decision conflicts with another decision within the circuit or is of “exceptional importance.”  Our brief research on this issue revealed no conflicts in the 8^th Circuit, and we don’t exactly know what constitutes “exceptional importance,” though it sounds like the matter has to be pretty serious (like a Peek Frean cookie).  So that too may not happen, and again, July 14 = nothing-ball.

But will they even appeal at all? 

As we have previously reported, Chairman Ferguson actually voted against issuing the Rule last October and joined Commissioner Holyoak’s scathing 13 page dissent, which effectively handed the petitioners in the 8^th Circuit suit a road map for challenge.  So the folks currently running 601 Pennsylvania are not exactly fans of the Rule and may be relieved to see it vacated.   And, given the current administration’s disdain for agency rules and restraints on trade generally, we believe there is a strong likelihood the FTC will not file an appeal and let the vacatur (11 more points) stand.  This way, the current FTC leadership can dodge responsibility can’t be criticized for gutting the Rule themselves (though they are, after all, a consumer protection agency), and instead just say they respect the judicial process, which validates their position that the prior administration didn’t comply with proper administrative processes and overstepped their rulemaking authority.

Despite the Rule being vacated, don’t forget that the FTC still has statutory authority to regulate negative option offers through ROSCA (Restore Online Shoppers’ Confidence Act) and the Telemarketing Sales Rule, both of which permit the FTC to seek and obtain civil penalties for violations.

What to Do Now

For companies that have invested time and resources preparing for the Rule to come into effect, all may not be lost.  While some of the Rule’s requirements are/were unique and required special build-outs, some of those efforts can be applied to satisfy various similar state law requirements, such as consent recordkeeping requirements, like a new Arkansas law requiring these records to be maintained for 3 years or a year following termination of the contract.

Similarly, for companies that considered or began implementing a checkbox in anticipation of the Rule’s requirement to obtain consent for a Negative Option Feature “separate from any other part of the transaction,” where the FTC said using a checkbox would provide a compliance safe harbor, we note that while not expressly required in recent amendments to the California auto renewal law, state and local regulators in the Golden State have for years expressed a preference for a checkbox for these types of offers and we anticipate they will continue to do so in the future.

There is obviously a lot to unpack here with this development, and Cobalt operators are standing by waiting for your calls (while passing the time eating Peek Frean cookies and playing Scrabble).