A unanimous three-judge panel of the Eighth Circuit has vacated the Federal Trade Commission’s (FTC) final rule of amendments to the Negative Option Rule days before the rule’s scheduled July 14, 2025 effective date. The rule’s original effective date was May 14, 2025, but the FTC had earlier voted 3–0 to postpone the effective date to allow additional time for compliance.
Background
The FTC announced its finalization of the rule near the end of the Biden Administration. The rule would have amended the FTC’s existing 1973 Negative Option Rule, which regulates certain offers or agreements to sell or provide goods or services “under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(w).
The new rule focused on subscriptions and free trials. Notably, the rule would have required symmetry in subscription-based enrollments: a business that offers a mechanism for a consumer to enroll in a subscription would also need to offer a cancellation mechanism as simple to use as the enrollment method. The rule would have further required businesses to obtain express informed consent before transforming a consumer’s free service into a paid service.
In October 2024, the FTC approved publication of the rule in a 3–2 vote. Current FTC Commissioners Melissa Holyoak and now-Chairman Andrew N. Ferguson voted against the rule.
Challenges to the rule
Multiple trade associations challenged the rule in lawsuits that were eventually consolidated before the Eighth Circuit. These challenges advanced arguments that the rule was unduly broad, exceeded the FTC’s authority, and also violated administrative rulemaking requirements.
Preliminary regulatory analysis and the Eighth Circuit’s order
The Eighth Circuit’s decision centered on procedural compliance with section 22 of the FTC Act, which requires a preliminary regulatory analysis if a proposed rule is expected to have an annual economic impact exceeding USD100 million.
The FTC acknowledged that it failed to prepare a preliminary regulatory analysis for the rule. In earlier rulemaking stages, the FTC stated that it had not conducted this analysis because it did not anticipate that the rule would meet the estimated USD100 million threshold. However, while the rule was still in its proposed form, an administrative law judge found that the estimated annual economic impact would exceed USD100 million. Despite this finding, the FTC proceeded to finalize the rule without conducting the preliminary regulatory analysis.
The Eighth Circuit vacated the rule, limiting its ruling to the procedural issue of whether section 22 of the FTC Act required the FTC to conduct the preliminary regulatory analysis. See Custom Commc’ns, Inc. v. Fed. Trade Comm’n, No. 24-3137, 2025 WL 1873489, at *9 (8th Cir. July 8, 2025). Finding that the analysis was required (and that the FTC failed to conduct it), the court vacated the rule.
The court acknowledged the rule’s severability provision, but reasoned that vacating the rule was appropriate due to the procedural harm experienced by the petitioners. While the court warned that it does not endorse “unfair and deceptive practices in negative option marketing, the procedural deficiencies of the Commission’s rulemaking process [were] fatal….” Id. at *9.
Key takeaways
Following the Eighth Circuit’s decision, several considerations are worth noting:
- The FTC’s next steps are uncertain. The existing 1973 Negative Options Rule is still in force, and the FTC maintains authority under section 5 of the FTC Act to enforce the prohibition against unfair or deceptive practices involving enrollment or cancellation. At the state level, similar laws remain in effect in several states such as California, New York, and Vermont. Additionally, similar regulations are expected to take effect in Massachusetts in September 2025.
- The Biden Administration developed the rule in 2023 and 2024. Despite Chairman Ferguson’s prior opposition to the rule, the Trump Administration continued to defend the rule. The cross-administration consistency demonstrates the FTC’s sustained interest in aligning the Negative Option Rule with the contemporary “negative options” landscape.
- More broadly, the FTC’s continued support of the rule suggests it continues to advance consumer protection, including oversight of business marketing representations. For example, the FTC has investigated how businesses promote the quality and capabilities of artificial intelligence technologies. Relatedly, Chairman Ferguson recently issued a statement noting the importance of accurately labeling a product “Made in the USA,” providing guidance on how to properly label a product “Made in the USA,” and proclaiming July 2025 “Made in the USA” month.
[View source.]
