On July 8, 2025, the Eighth Circuit issued a per curiam decision that vacated the Federal Trade Commission’s (FTC) revised Negative Option Rule in its entirety. The opinion will become final when the court issues its mandate, which should happen within seven weeks unless the FTC seeks further review.
The Negative Option Rule was issued last fall by a 3-2 vote, with the two Republican Commissioners, Holyoak and Ferguson, voting no. The Rule was quickly challenged by a coalition of industry groups, and that litigation was subsequently consolidated in the Eighth Circuit. Despite the 3-2 partisan vote on the Rule, the new Republican Commission filed a brief defending the Rule in its entirety earlier this year.
The Eighth Circuit’s decision vacates the amended Negative Option Rule on procedural grounds. Specifically, the court faulted the FTC for failing to conduct a preliminary regulatory analysis, which is mandated by the FTC Act when a rule amendment will have an annual effect on the national economy of $100 million or more. See 15 U.S.C. § 57b-3(a)(1)(A). The statute specifically provides that a court may set aside a rule “if the Commission has failed entirely to prepare a regulatory analysis.” See id. § 57b-3(c)(1).
The decision comes only six days before the amended Rule was scheduled to take effect and many businesses are likely wondering what to expect now that the Rule has been vacated. Below, we’ve explained the key points in the rulemaking process that led to this outcome, described important points from the Eighth Circuit decision, and set forth key takeaways for businesses in the subscription industry going forward.
The Negative Option Rulemaking
The FTC initiated this rulemaking in 2019, followed by the Notice of Proposed Rulemaking (NPRM) in April 2023. The NPRM briefly noted that the FTC had “preliminarily determined” that the Rule did not meet the $100 million threshold to require a preliminary regulatory analysis. The Commission briefly reasoned that the Rule “should not create any substantial added burden” because most sellers already provide some form of disclosures, consent, and cancellation mechanisms.
Commenters requested an informal hearing on the Rule–a procedure provided for by statute–and put forward the economic impact of the Rule as a disputed issue of material fact. The hearing was held in early 2024, and the presiding Administrative Law Judge (ALJ) issued a recommended decision concluding that the Rule would have an impact on the national economy surpassing the $100 million threshold.
Instead of conducting the preliminary regulatory analysis, the Commission proceeded to issue only a final regulatory analysis alongside the final Rule.
The Eighth Circuit Decision Vacating the Rule
Petitioners challenged the Rule on three grounds: (1) the Rule exceeded the scope of the FTC’s statutory authority; (2) the Rule was arbitrary and capricious under the Administrative Procedure Act; and (3) the Commission failed to issue the statutorily required preliminary regulatory analysis.
The court ruled for the petitioners on their procedural argument, and did not reach the two substantive arguments. The court reasoned that the plain text of the FTC Act mandated the preliminary regulatory analysis, and it rejected the Commission’s arguments that it was not required to conduct one later in the rulemaking process after the informal hearing. The court explained that after the ALJ’s decision, the Commission could have reissued the NPRM with the required preliminary regulatory analysis, but it chose not to do so. This error was not harmless, according to the court, because it deprived interested parties of the chance to engage with the FTC’s cost-benefit analysis at an earlier point in the rulemaking process. The court also noted that concluding this error was harmless could “open the door to future manipulation of the rulemaking process” by providing the FTC with a “procedural shortcut” to limit the need for public engagement and more substantive analysis of the potential effects of a Rule.
Finally, although the court did not reach petitioners’ substantive arguments, it signaled agreement with the concerns petitioners had raised about the FTC’s attempts to expand its ability to obtain civil penalties. The court stated: “the Commission has attempted to import § 5’s general standards prohibiting unfair or deceptive acts or practices into § 18’s more circumscribed rulemaking process. This would allow the FTC to commence civil actions for monetary penalties directly against regulated entities, rather than following the administrative cease-and-desist process (with potential judicial review) laid out in § 5.” The FTC has taken similar expansive approaches to its remedial powers in other contexts as well, and this section of the opinion indicates the courts may be skeptical of such approaches.
What’s Next?
Barring further review, the amended Negative Option Rule has been entirely vacated and will no longer come into effect. The FTC could attempt to cure the procedural error by re-doing the rulemaking process, including by at a minimum issuing a preliminary regulatory analysis, seeking comments, and responding to those comments. But that would involve a significant amount of time and resources at a time when the agency is facing resource constraints. The FTC could also seek rehearing or cert, but that appears to be unlikely given the unanimous decision and the relatively straightforward path the FTC could pursue to cure its procedural error.
Although the amended Rule is vacated, companies offering subscription programs should keep in mind that the FTC continues to actively bring enforcement actions involving automatic renewals relying upon other authorities, including the Restore Online Shoppers’ Confidence Act (ROSCA), which provides for civil penalties. Furthermore, the FTC has previously taken the position in a non-binding policy statement that many of the requirements it eventually incorporated into the Rule are also required by ROSCA. The existing Negative Option Rule continues to be enforceable, albeit with a much more limited scope, as it applies only to pre-notification plans (i.e., product of the month clubs).
Finally, state laws remain unaffected by the vacatur of the Negative Option Rule. And since the Rule was proposed, many states have incorporated concepts from the Rule into their own state autorenewal laws. In particular, major updates have recently come into effect in California and will soon come into effect in New York.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Advertising and Consumer Protection Investigations practice.
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