Digital Disclosure Demands: What California's New Law Means for Publishers

In September, California Governor Gavin Newsom signed into law Assembly Bill 2426, a new consumer protection regulation concerning false advertising in the sale of digital goods.  While the law does not go into effect until January 2025, we have already begun seeing questions regarding the law’s applicability, enforceability, and how to best operate in line with its new requirements.

Background

It’s no secret that huge swathes of media enjoyed by people today are of a digital rather than physical format.  Home video has been largely superseded by video streaming services like Netflix; music is predominantly streamed on services like Spotify; and video games are often downloaded and played from a central distribution platform such as the PlayStation Store, Steam, or the Apple App Store.  While users pay for access to this media, they are not purchasing a traditional “copy” of the work—such as would be the case with a Blu-ray disc, a vinyl record, or a Nintendo cartridge—but instead are purchasing a license to access that media, often subject to several limitations.

This limited license framework has resulted in several instances where the licensor has, within their rights under the applicable license, revoked access to that media.  In late 2023 for example, Sony announced that due to content licensing arrangements with Warner Bros., users would no longer be able to view over 1,300 Discovery television shows—including MythBusters, Cake Boss, Shark Week, and many others—that they had specifically purchased access to.  Not only would these shows no longer be downloadable or accessible, but the content would be removed from the PlayStation digital libraries of users.  An updated licensing agreement with Warner a few weeks later saved users’ access to this content, at least temporarily.  In another example, in April 2024, Ubisoft sunset the 2014 online-only racing game The Crew, ceasing its server operations, delisting it from digital store fronts, and revoking users’ existing licenses to the game, offering refunds only to users who had recently purchased it.

These instances provoked an outcry from users, and in response California Assemblywoman Jacqui Irwin submitted AB 2426, and it was passed with near-unanimous approval.

The Law

AB 2426 makes it unlawful for sellers of “digital goods” to advertise in a way to imply an “unrestricted ownership interest” in the digital goods.  This includes using language like “buy” or “purchase” when what the user is acquiring is a limited license, absent either (1) an affirmative acknowledgement from the purchaser that they are receiving only a license, or (2) a clear and conspicuous disclosure that they are purchasing a license subject to certain terms, with a hyperlink to those terms.

The law defines “digital good” broadly, including digital applications and games, digital audio and audiovisual works, digital books, and digital codes that provide the holder a right to a separate digital good (for example, a Steam game redemption code).  The definition of “digital application or game” specifically includes “any digital add-ons or additional content for that application or game,” meaning that the law specifically includes, for example, optional in-game purchases in otherwise free-to-play games (so-called “freemium” games) and other DLC.

While this is a broad definition, the law does provide for several exclusions for certain types of digital goods.  Specifically, digital goods accessed solely through an ongoing subscription, digital goods offered at no monetary cost, and digital goods where access cannot be revoked—such as those that are permanently downloaded to an external device without further connectivity requirements to access it—are all outside the scope of the law.

What to Do?

This law is still very new, and enforcement will not begin until January at the earliest, so it is not yet entirely clear either how aggressively it will be enforced or what industry best practices will emerge as a result.  However, there are still a few practical notes to keep in mind in preparation for the law to go into effect.

First, if you’re a provider of digital goods for sale, including games, chances are good that you already have an applicable Terms of Service outlining what is granted to a user when they make a digital purchase—and if you don’t, you should change that!  Ensure that your Terms of Service are updated to clearly explain exactly what the limited license provided covers, what rights are granted to the user within the context of that license, and what rights are reserved by you in granting that license.

Second, begin auditing your online and in-game stores, as well as any advertising you do in relation to these store fronts, now to assess whether any of your messaging would imply an “unrestricted ownership interest” in what it is you’re selling.  Start thinking about whether using words like “buy” or “purchase” are necessary, or if you can present alternatives that are still compelling but in line with what this law requires.  Work with your marketing teams to update any guidelines or playbooks they may operate from to ensure compliance with these new requirements.

Finally, if there is a chance your messaging might imply an “unrestricted ownership interest,” consider including one of the two required disclosures enumerated in the law’s text.  Note that the law requires either option in such a situation, so depending on your customer journey one of the two might be more appropriate than the other.  You can opt to either (1) obtain an affirmative acknowledgement from purchasers that they are only acquiring a license each time they make a purchase, or (2) present a clear and conspicuous disclosure, separate and distinct from any other terms and conditions to the sale, before each transaction with a link to the appropriate terms.  Discuss these options with your game and marketing teams to weight their pros and cons and determine which approach is best for you.