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.