United States of America: Court of Appeals vacates Federal Trade Commission’s amended negative option rule over procedural error

On 8 July 2025, the United States Court of Appeals for the Eighth Circuit granted consolidated petitions for review filed by Custom Communications and other petitioners challenging the Federal Trade Commission’s (FTC) amended negative option rule and vacated the rule in its entirety. The rule, finalised by the FTC on 15 November 2024, extended the Rule on prenotification negative option plans to cover all forms of negative option marketing across all media, including continuity, automatic renewal, and free-to-play trial plans. The amended rule imposed new requirements prohibiting misrepresentation of material facts, mandating clear and conspicuous disclosure of material terms adjacent to consent mechanisms, requiring unambiguous affirmative consent separate from other transaction elements, and introducing an “equal dignities” requirement for cancellations. Petitioners contended that the rule exceeded the FTC’s authority under Section 18 of the Federal Trade Commission Act, 15 U.S.C. § 57a, arguing that it failed to satisfy the statutory requirements of specificity and prevalence. They also asserted that the FTC did not conduct the preliminary regulatory analysis required by Section 22 of the Act, 15 U.S.C. § 57b-3(b)(1). The Court agreed, finding that the FTC’s failure to issue a preliminary analysis, despite its own Administrative Law Judge determining that the rule would have an annual economic impact exceeding USD 100 million, amounted to a prejudicial procedural error. Relying on 5 U.S.C. § 706(2)(D) and 15 U.S.C. § 57a(e)(3), the Court concluded that this deficiency warranted vacating the rule.