From SheppardMullin By Brittany Walter & James Gatto Posted in Digital Assets, NFTs
Introduced in response to certain digital media sellers (e.g., game publishers) revoking consumer access to purchases with little to no recourse, AB 2426 forces sellers of “digital goods,” such as movies, apps, games, books and music to clarify what a consumer is actually receiving in connection with their “purchase.” Often companies refer to the “purchase” or “sale” of digital goods, yet the associated terms of service make clear that the buyer only receives a revocable license to such goods. In some cases, if a buyer violates the terms of service, the license is revoked, and the user is denied further access to the digital goods. In other cases, a buyer may be denied access to digital goods it has “purchased” if the digital media platform shuts down.
In an attempt to remedy any misunderstanding about this, under the new law, unless the buyer is getting an unrestricted ownership interest in the item, the law prohibits a seller of a digital good from advertising or offering such item for sale using terms like “buy” or “purchase” unless it satisfies one of two conditions:
- The seller gets an affirmative acknowledgement from the buyer confirming that it is only receiving a license to access the digital good. Such acknowledgment must also include a complete list of applicable restrictions and conditions as well as a statement that the digital good may be unilaterally revoked by the seller, if applicable; or
- The seller must provide a “clear and conspicuous statement” that states in “plain language” that the “buying” or “purchasing” of the digital good is only a license and includes a link or other method to access the full details of such license (e.g., in the terms of service).
The law excludes subscription-based services that advertise or offer for sale access to any digital good solely for the duration of the subscription, free digital content and other digital goods that the seller cannot revoke access to after the transaction (including by making the digital good available for permanent offline download)
The legislative history for AB 2426 is silent on non-fungible tokens (“NFTs”) and other blockchain-based digital assets, so it is unclear whether the law was intended to apply to such assets. Yet, although the purchaser of an NFT typically acquires a full ownership interest in and to the token itself, the purchaser generally receives only a limited license to any digital asset associated with such NFT, unless otherwise specified. So, to the extent that the digital asset associated with the NFT falls within the definition of a “digital good,” it arguably could fall within the purview of the law.
