On December 14, 2016, President Obama signed into effect the “Consumer Review Fairness Act of 2016” (the “Act”), making it more difficult for businesses to bring lawsuits over negative reviews. The Act, which passed with bipartisan support, was crafted in response to the increased use of so-called “non-disparagement clauses” or “gag clauses” that prohibit consumers from sharing their honest opinions about a seller’s goods, services, or conduct. These non-disparagement clauses interfere with the benefits of crowd-sourced reviews, restricting the public’s access to useful, accurate information about businesses and products. The Act was passed to preserve the credibility and value of online consumer reviews.

Specifically, the Act voids any provision in a form contract (like a website’s terms of use) that (1) restricts a party’s ability to leave reviews, (2) imposes penalties for leaving negative reviews, or (3) transfers intellectual property rights in reviews or feedback content to the other party in the contract. This last provision closes a loophole that allowed businesses to remove any unwanted reviews without a court order by sending a takedown notice under the Digital Millennium Copyright Act.

Beyond protecting online written reviews, the Act also protects photographs, videos, and applies to reviews not available online. Further, the Act empowers state attorneys general and the Federal Trade Commission (“FTC”) to enforce the new law when necessary, but it does not preempt state law. So, for instance, California’s existing law, which prohibits contracts from including provisions that waive a consumer’s right to review a seller’s goods or services, will remain in effect. ¹

The Act only applies to “form contracts,” as opposed to those that have been meaningfully negotiated, and it does not cover contracts between employers and their employees and independent contractors. Nor does it protect consumers from civil actions for breach of confidentiality, defamation, slander or libel. Moreover, the Act does not prohibit a party from removing reviews from their own site that are defamatory, obscene, explicit, harassing, false, or misleading or reviews that are unrelated to the goods or services offered by the business.

Despite these limitations, the Act is a major step in protecting consumers’ right to leave critical reviews by making it clear that non-disparagement clauses are void and unenforceable without the need for protracted litigation, and in providing users of online review websites with more complete information so that they make informed choices about products and services. Because the Act applies to non-disparagement clause in effect on or after 90 days from the enactment of the Act – that is March 14, 2017 – the benefits of the Act will be felt soon.

FOOTNOTES
1 Under some jurisdictions' existing law, non-disparagement clauses are arguably unenforceable and constitute an unfair business practice. See, e.g., Prestigious Pets v. Duchouquette, Case No. DC. 16-03561 (Dallas County, Tex., Aug. 30, 2016) (dismissing both a libel claim and a non-disparagement clause claim arising from a negative review); FTC v. Roca Labs, Inc., Case No. 8:15-cv-02231-MSS-TBM (M.D. Fla. filed Sept. 28, 2015) (FTC enforcement action arising, in part, from the use of non-disparagement clauses).