California Mandates Clarity in Digital Goods Purchases
California’s newly enacted AB 2426 law represents a major shift in how digital goods are marketed and sold to consumers. Signed by Governor Gavin Newsom on September 24, 2024, and effective January 1, 2025, the legislation requires transparency from companies selling digital products, such as e-books, video games, and audio files, when describing the nature of their purchase terms. The law targets a long-standing ambiguity in digital storefronts that use terms like “buy” or “purchase” while only granting users limited licenses, often leaving consumers with far less control than they might assume over their digital acquisitions.
Under AB 2426, businesses offering digital goods must clearly state when a consumer is only obtaining a license rather than outright ownership. If terms like “buy” or “purchase” are used, they must be accompanied by conspicuous disclosures explaining that the goods are subject to conditions and can potentially be revoked. This requirement applies to a wide range of digital content, from music and movies to non-fungible tokens (NFTs) and in-game purchases. Sellers must also ensure consumers affirmatively acknowledge these terms before completing a transaction.
The push for AB 2426 stems from rising public frustration over the perceived lack of clarity surrounding digital purchases. Two high-profile incidents highlighted the issue: the removal of popular digital content from an online platform due to licensing disputes and the discontinuation of an online-only game that consumers had paid to access. These events sparked significant backlash and caught the attention of Assembly Member Jacqui Irwin, who introduced the bill.
Irwin, a member of the California Assembly’s Privacy and Consumer Protection Committee, emphasized that the transition from physical to digital media necessitates stronger consumer protections. She stated that misleading advertising, which gives the impression of outright ownership while delivering only conditional access, must be addressed. By signing AB 2426 into law, California aims to ensure greater transparency and reduce consumer misunderstandings in the evolving digital economy.
The new statute enforces significant changes in how digital products are marketed and sold. Companies that use “buy” or “purchase” must provide disclosures at the point of sale, separate from other terms and conditions. These disclosures must explicitly state that the consumer is obtaining a license, list all restrictions on the license, and clarify that access to the digital product could be revoked if the seller loses rights to the product. Sellers can also opt to provide a hyperlink, QR code, or similar means to direct buyers to the full licensing terms.
The law offers specific exemptions for subscription services, free content, and downloadable digital goods that remain accessible without restrictions. However, the requirements are likely to create new challenges for businesses, particularly in areas like in-game purchases or NFTs, where ownership concepts can blur. For instance, in-game currencies or temporary power-ups could fall into a gray area, potentially requiring disclosures that could interrupt the user experience.
For companies selling digital goods, AB 2426 underscores the need for diligence in reviewing marketing language and updating transaction processes. Digital storefronts will need to audit their advertising, terms of service, and purchasing flows to ensure compliance. Failure to do so could result in fines of up to $2,500 per violation, potential misdemeanor charges, and civil actions under California’s Unfair Competition Law.
While the penalties may appear limited, the reputational risks and potential for consumer litigation amplify the stakes. Companies operating nationwide may also find it challenging to create state-specific policies for California consumers, prompting some to consider applying these changes across all markets to streamline operations.
AB 2426 reflects a broader trend of holding companies accountable for how they treat consumers in the digital marketplace. By compelling transparency and placing the onus on businesses to clarify purchase terms, the law protects consumers while encouraging a more honest approach to digital transactions.
For consumers, this law offers greater clarity about what they are actually paying for, reducing the chance of unwelcome surprises when a digital good disappears or becomes inaccessible. For businesses, it is a call to adopt clearer communication and prioritize user trust.
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This article is for information purposes only. It is not intended to be and should not be relied on as legal advice for any particular matter.