California's New Digital Goods Law AB 2426: What You Need to Know

On September 24, 2024, California Governor Gavin Newsom signed AB 2426, a bill that expands existing consumer protection laws to cover the sale and advertising of digital goods.

Under this law, sellers and advertisers of digital goods — such as digital games, movies, music, or e-books — must explicitly disclose to consumers when they are obtaining a license to access or use digital media rather than purchasing an unrestricted ownership interest. Taking effect on January 1, 2025, this law is part of a package of bills that aims to strengthen protections for consumers across various industries.

New Requirements of AB 2426

AB 2426 adds requirements to California’s existing false-advertising laws, which are codified at Section 17500 of the California Business and Professions Code. Currently, it is unlawful for any company in California to make any false or misleading advertising claims in connection with the sale of physical goods or services.

AB 2426 expands this rule, now requiring companies to make it clear to consumers when they are obtaining access to a digital game, movie, music, or e-book where such access can eventually be revoked.

Specifically, the new law prohibits digital sellers and advertisers from using terms that a reasonable person would understand to confer unrestricted ownership in a digital good — such as “buy” or “purchase” — unless the seller does one of the following, subject to certain conditions:

1. receives affirmative acknowledgment from the consumer indicating that the consumer understands that they are receiving a license to access the digital good as well as the restrictions and conditions of the license or
2. provides the consumer with a clear and conspicuous statement that makes it obvious that “buying” or “purchasing” the digital good is a simply a license and includes a hyperlink, or similar method, to access the full terms and conditions of the license.

Applicability of AB 2426

AB 2426 will apply to all transactions, and related advertising, involving the license to access a digital good. As defined by the new law, a digital good will encompass digital applications, digital games, digital audio works (such as music or other sound recordings), digital audiovisual works (such as motion pictures, musicals, and videos), and digital e-books.

A limited number of services is exempt from the requirements of AB 2426: subscription-based services (where a digital good is offered solely for the duration of the subscription), the advertising or offering of digital goods for no monetary consideration (such as no-cost downloads), and digital goods to which the seller cannot revoke access after the transaction (such as digital goods that can be permanently downloaded and stored).

Legal Ramifications and Compliance With AB 2426

Violations of AB 2426 can constitute a misdemeanor and can expose companies to civil penalties as well as government enforcement actions and individual or class actions by consumers under California’s Unfair Competition Law.

To ensure compliance with AB 2426, companies involved in transactions in the digital landscape should begin to examine their current business practices — both at the point of purchase and in the consumer-facing interactions, such as advertising, surrounding the transaction — to ensure the additional safeguards required by the new law are instituted for consumers before January 1, 2025.