A New California Digital Content Law Establishes New Requirements for Advertisers and Vendors

Background

Effective January 1, 2025, California’s Assembly Bill 2426 (AB 2426) mandates that companies clearly disclose when consumers are obtaining a revocable license to “digital goods” (broadly defined to include digital audiovisual works, audio works, books, code, applications, and games) rather than full ownership. This legislation, signed by Governor Newsom in September 2024, aims to strengthen consumer protections and set new standards for transparency and accountability.

Among other things, the law requires companies to clarify when consumers are purchasing revocable licenses for digital goods rather than permanent copies, and whether access to such content may be terminated, for example, due to expiring third-party licensing agreements or discontinuation of technical support. The bill’s sponsor, Assemblymember Jacqui Irwin, pointed to high-profile instances where consumers faced the prospect of losing access to digital goods they believed they owned after purchasing them on online platforms.

This gap between market practices and consumer expectations was previously addressed in 2016 by a Department of Commerce Internet Policy Task Force white paper, which found that consumers often lacked clarity on their rights to digital content, with terms often contained in complex end user license agreements (EULAs). The report recommended that consumers would benefit from more information on whether they were “paying for access to content or ownership of a copy.”

What Does AB 2426 Mean for Companies and Advertisers?

AB 2426 applies to sellers of digital goods who advertise or offer for sale such digital goods. The law prohibits the use of terms like “buy” or “purchase”—which a reasonable consumer might interpret as conferring full ownership—unless specific conditions are met. After January 1, 2025, companies using such terminology must either:

(1) Provide a complete list of license restrictions and conditions and receive the consumer’s acknowledgment at the time of purchase that (a) they are purchasing a license to access content, and (b) access may be revoked if the seller no longer has rights to the content (if applicable); or

(2) Include a “clear and conspicuous” statement that the item purchased is a license as well as method of accessing the full terms and conditions of the license (e.g., hyperlink, QR code).

Exemptions

AB 2426 does not apply to:

• Subscription-based services where access to digital goods is limited to the duration of the subscription
• Free digital content
• Non-revocable digital goods

Penalties and Enforcement

Non-compliance with AB 2426 may be considered a false or misleading advertising practice under California’s False Advertising Law and Unfair Competition Law, exposing companies to civil penalties (fines up to $2,500 per violation), misdemeanor charges (punishable by imprisonment for up to six months and/or fines), and consumer claims.

Industry Response

In anticipation of AB 2426, some companies have proactively updated their platforms to enhance transparency. For instance, three months before the law took effect, Valve added a notice in Steam users’ shopping carts informing them that they were purchasing a license to access games on the Steam platform. This move aligns with the law’s requirements to clearly communicate the nature of digital goods transactions.

Looking Ahead

Companies engaged in the sale of digital goods in California should:

• Review and update marketing materials: Ensure that terms like “buy” or “purchase” are used appropriately and accompanied by the necessary disclosures.
• Modify purchase processes: Incorporate steps to obtain affirmative acknowledgment from consumers or provide clear and conspicuous statements about the nature of the digital goods being licensed.
• Revise licensing agreements: Clearly outline the terms, conditions, and potential revocability of access to digital goods.

MoFo will continue to observe the impact of AB 2426 and provide updates on similar legislative developments affecting digital content providers.

Addison Yang, an associate in our New York office, contributed to the writing of this article.