Sometimes, Timing is Everything

A recent appellate court decision vacating a Federal Trade Commission (“FTC”) rule on procedural grounds may spell the end of the effort to implement the “Negative Option Rule.”

For any blog reader who has ever missed that cancellation deadline and found themselves saddled with another month (or year) of a streaming service or gym membership, this decision may be of personal interest, but, for regulated industry, it highlights how a procedural win can sometimes be a full victory.

On July 8, 2025, the U.S. Court of Appeals for the Eighth Circuit delivered a major blow to the FTC’s efforts to simplify subscription cancellations, vacating the Commission’s finalized amendments to its “Negative Option Rule.”  This rule, finalized in October 2024, was designed to make it easier for consumers to cancel automatically renewing subscriptions and recurring charges—addressing widespread complaints about so-called “subscription traps.”

This ruling emerged from multi-district litigation (“MDL”) across four federal circuit courts, brought by numerous industry associations and businesses.

The FTC’s Now-Vacated Rule:  What Was It?

The FTC’s updated Negative Option Rule would have:

• Mandated a simple cancellation mechanism, such as a “click-to-cancel” button for online subscriptions,
• Required sellers to obtain express consent for recurring charges, and
• Obligated companies to provide clear, upfront disclosures about the terms of the deal—including the frequency and cost of recurring payments.

The rule applied broadly across industries, from streaming services and software providers to subscription boxes (e.g., Blue Apron, Stitch Fix) and even gym memberships.

The Court’s Rationale:  Procedural Slipup

The court’s three-judge panel unanimously found that the FTC’s click-to-cancel rule violated the procedural requirements for a preliminary regulatory analysis, triggered by the rule’s estimated annual economic effect of $100 million or more.  The Commission’s original estimate did not meet or surpass the $100 million threshold; however, in an April 2024 recommended decision, an administrative law judge subsequently disagreed with the FTC’s estimate, finding that the economic effect would reach this threshold based on practical considerations (e.g., cost of implementation).  Despite the administrative law judge’s finding, on November 15, 2024 (i.e., after the election but before the change in administration), based on a 3-2 vote, the FTC moved forward with the final rule.

This decision effectively nullifies the updated Negative Option Rule and sends the FTC back to the drawing board.  Considering the current makeup of the FTC commissioners, there is a very good chance that the Commission chooses to forego revising and attempting to re-implement the rule.

Why Should Our Readers Care?

Beyond the FTC Negative Option context, this decision highlights the importance of evaluating whether a potential procedural failure by the government is worth litigating—remember, not all procedural defects are created equal.  A company’s cost-benefit analysis may caution against pursuing litigation based on a procedural defect when, for example, the agency is able to cure the procedural defect, and, in the interim, the company would not obtain any relief.  When evaluating potential challenges to an agency action, it is critical to consider the legal and practical consequences of a “win.”  Here, because of the timing and change in administration, the petitioners were successful in seizing upon the procedural defect and upending agency rulemaking that was years in the making.