California Assembly Bill No. 2426, recently enacted into law, introduces significant amendments to the Business and Professions Code, specifically targeting consumer protection against false advertising in the realm of digital goods. This legislation, approved by the Governor on September 24, 2024, aims to address the misleading practices often associated with the sale of digital goods, such as video games sold through Steam or other platforms. The bill adds Section 17500.6 to the Business and Professions Code, establishing new requirements for sellers of digital goods to ensure transparency and honesty in their advertising practices.

AB 2426 applies to digital applications or games, digital audio works, such as music, digital video, digital books, and digital codes that provide access to books or other content. It specifically prohibits sellers from using terms like “buy,” “purchase,” or any other term that a consumer would understand to mean that they are receiving a digital good without conditions. Said another way, consumers must know that they are not purchasing a digital good, only licensing it.

At the time of sale, sellers must either get confirmation from a consumer at the time of purchase that the consumer knows he or she is receiving a license to access the digital good, along with a complete list of restrictions and conditions of the license, and that access may be unilaterally revoked by the seller if they no longer hold the right to the digital good. Alternatively, sellers can provide a clear and conspicuous statement before executing each transaction, stating in plain language that “buying” or “purchasing” the digital good is a license, and include a method to access the full terms and conditions of the license. These confirmations must be distinct and separate from other terms and conditions of the transaction; they cannot be hidden in an agreement.

There are some exceptions to this requirement. Subscription based-services, free services, or goods that are available for permanent offline download are exempt. The law expands the scope of false advertising to include digital goods, and it imposes new obligations on sellers and provides additional protections for consumers. Violations of these provisions can result in civil penalties and misdemeanor charges, thereby enhancing the enforcement mechanisms available to regulators.

Assembly Bill No. 2426 represents a significant step forward in consumer protection, particularly in the rapidly evolving digital marketplace. By requiring clear and conspicuous disclosures and prohibiting misleading advertising practices, this legislation aims to ensure that consumers are fully informed about the nature of their transactions involving digital goods. This not only enhances consumer trust but also promotes fair competition among sellers by holding them to higher standards of transparency and honesty. As digital goods continue to proliferate, such regulatory measures are crucial in safeguarding consumer interests and maintaining the integrity of the marketplace.

What AB 2426 Actually Requires

The practical compliance requirements under AB 2426 are more demanding than a quick read of the statute suggests. Sellers must build affirmative disclosure steps directly into their checkout flows — not buried in a terms-of-service accordion that most consumers never open. The Legislature was deliberate about that. The bill’s text says the disclosure must be “distinct and separate” from other transaction terms. A blanket terms-of-service click-through is not sufficient.

There are two compliant paths. The first is a pre-transaction confirmation screen that: (a) uses the word “license” in plain language, (b) lists every material restriction and condition, and (c) states clearly that access can be revoked if the seller loses distribution rights to the content. The second is a “clear and conspicuous” written statement — again, separate from other terms — with a working link to the full license terms. Retailers offering both options should document which flow a particular consumer completed, because in any enforcement action or civil litigation, that documentation will be the key evidence.

Enforcement: Civil Penalties and Misdemeanor Exposure

AB 2426 enforces its requirements through the existing false advertising framework in California Business and Professions Code § 17500 et seq. That means violations are prosecuted by the California Attorney General, city attorneys, county counsel, and district attorneys. It also means private litigants can bring unfair competition claims under Business and Professions Code § 17200 — the UCL. UCL plaintiffs can seek injunctive relief and restitution without proving individual harm, which makes class actions a realistic threat for any seller with a substantial California customer base.

On the criminal side, knowing violations of the false advertising statute can be charged as misdemeanors. Individual employees or officers who designed a non-compliant checkout flow could face personal exposure. That exposure is rare in practice, but it is real and it illustrates how seriously the Legislature took the problem of consumer deception in digital goods markets.

The Exemptions and Why They Matter

Three categories of digital goods are exempt from AB 2426: subscription-based services, free services, and goods available for permanent offline download. Each carve-out reflects a policy judgment. Subscription services are exempt because consumers purchasing a subscription already understand they are paying for ongoing access — there is no confusion about permanence. Free services are exempt for obvious reasons. Permanent offline downloads are exempt because the consumer genuinely receives a copy that cannot be remotely revoked.

Note what is not exempt. A one-time purchase of a digital movie on a major streaming platform is not a subscription and is not a permanent offline download unless the consumer downloads a DRM-protected local copy that the seller cannot remotely delete. Most platform-based digital purchases do not qualify for the permanent-download exemption. Sellers should audit their product categories against these exemptions before concluding that AB 2426 does not apply.

Interstate Commerce and Preemption Questions

California laws governing commercial transactions routinely generate questions about whether federal law preempts state requirements. AB 2426 is unlikely to face preemption challenges because it regulates advertising and disclosure rather than the substantive terms of a license. There is no federal statute comprehensively regulating digital goods licensing disclosures, and the FTC Act’s general prohibition on unfair or deceptive acts does not occupy the field in a way that would displace California’s more specific requirements.

Out-of-state sellers who sell to California consumers are covered. The statute reaches any “seller” that makes digital goods available for sale to California residents — physical presence in California is not a precondition. This is consistent with California’s long history of applying its consumer protection statutes extraterritorially to protect in-state consumers, a position the courts have generally upheld under the Commerce Clause analysis applied to state consumer protection laws.

Steps Retailers Should Take Now

• Audit every digital product SKU to determine whether it falls within a statutory exemption
• Redesign checkout flows to insert the required disclosure as a distinct, required step — not a checkbox in a larger terms scroll
• Train development and product teams on what “clear and conspicuous” means under California law — the FTC’s standard is instructive and courts borrow from it
• Retain records of each consumer’s disclosure acknowledgment, with timestamps, for at least three years given California’s statute of limitations on UCL claims
• Review affiliate and reseller agreements to confirm that downstream sellers in your distribution chain are also compliant, since liability can travel upstream in unfair competition cases

If you sell digital goods to California consumers and have not yet updated your checkout flow, the time to act is now. The Attorney General’s office has shown increasing appetite for enforcement actions in the digital consumer protection space, and private class action plaintiffs’ firms are actively monitoring major platforms for non-compliance. Contact the e-commerce and internet law attorneys at Revision Legal through the form on this page or call (855) 473-8474.