Get Your Gripe On: The Consumer Review Fairness Act Is Live

by Morrison & Foerster LLP - Social Media
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Searching “millennials killed…” on the Internet returns over 1.5 million results in .65 seconds. Commentators have blamed the generation raised by tablets, smartphones, and apps for killing everything from marriage to brunch, often deriding today’s youth for being too opinionated and too obnoxious. It is a bit ironic, then, that the right to complain was almost a casualty of the technology generation.

Today, ecommerce and social media are ubiquitous and intertwined. For example, any ecommerce site worth its salt will include interactive user comments that enable purchasers to praise or critique products. Moreover, the power of online review sites, such as Yelp and Rotten Tomatoes, to set consumer tastes is only increasing. For example, a study conducted at Harvard Business School concluded that a one-star improvement on Yelp would lead to a roughly 9% increase in revenue for restaurants. Considering how thin profit margins are in the restaurant sector, 9% could make or break a small business.

In response to the growing significance of user reviews, some companies sought to protect their revenue streams by including non-disparagement clauses in form contracts, such as terms of service and other click-through agreements. Retailers, studios, restaurants and even hotels used these gag clauses to suppress bad reviews by levying fines and imposing other penalties on consumers.

In some cases, these practices were abusive. For example, one small town Utah couple told their story to the U.S. Senate Committee on Commerce, Science & Transportation. Jen Palmer left a negative review about a company after a twenty dollar Christmas purchase her husband made never arrived. Three years later, the company sent Ms. Palmer a demand for $3,500 claiming that her review violated the company’s terms of sale and use. When the Palmers were unable to pay, the company flagged them to credit agencies, creating a multi-year ordeal for their household. There have also been reports of doctors and dentists requiring their patients to agree to gag clauses in order to receive medical treatment.

Some time ago, we discussed in Socially Aware the possibility of the federal government taking action against such practices and, on December 14, 2016, President Obama signed into law the Consumer Review Fairness Act (CRFA). Now, as of March 14, 2017, the CRFA’s provisions prohibiting gag clauses in the context of customer reviews have become effective.

What Activities Are Banned?

The CRFA cracks down on three main activities. Specifically, companies are prohibited from using form contracts to restrict a consumer’s ability to leave reviews about goods or services they received, imposing penalties for leaving negative reviews, and requiring assignment by the consumer of intellectual property rights in reviews. Further, the CRFA is not limited to written reviews or the typical five-star rating system employed by many review sites. Even pictures and videos created by consumers fall under the protection of the CRFA.

The fact that the CRFA applies to pictures and videos, combined with the provision prohibiting compulsory assignment of intellectual property rights in reviews, effectively stops companies from using a particularly creative method of censoring reviewers. In written testimony to the state of Maryland, the Electronic Frontier Foundation (EFF) described a method whereby companies would require consumers to agree to assign to the company the copyright in any reviews created by the consumers. Then, if the consumers posted a video of themselves demonstrating or discussing a product to a website (such as YouTube), companies would send a takedown notice under the Digital Millennium Copyright Act (DMCA) to assert ownership of the video and demand that the website remove the video. The EFF called this practice a “disturbing trend” among companies and made reference to one medical organization actually instructing doctors to use the DMCA to restrict negative reviews.

Effectiveness of the CRFA

As noted above, the CRFA’s provisions prohibiting gag clauses became effective on March 14, 2017. These provisions apply to consumer contracts in effect on or after that date, meaning that companies are prohibited from enforcing gag clauses in such contracts even if the contracts were entered into previously (though companies are not subject to penalties for having entered into such contracts prior to March 14, 2017). The state attorneys general and the Federal Trade Commission (FTC) have authority to enforce the CRFA, but such enforcement will not begin until December 14, 2017 and will apply only to contracts in effect on or after that date.

Exceptions and Limits

As noted above, the CRFA only applies to form contracts containing boiler plate provisions that consumers are unable to negotiate. This means contracts that are meaningfully negotiated are not covered by the protections of the CRFA. Additionally, the CRFA does not protect would-be reviewers from civil actions where their content includes confidential, sensitive or private information, or constitutes defamation, libel or slander. Nor does the CRFA stop companies from removing posts on their own sites that are defamatory, obscene, explicit, harassing, false, unrelated to the business or misleading. The FTC has cautioned companies that a consumer’s pure opinion is not likely to meet the “clearly false or misleading standard.” Finally the statute does not apply to employment contracts or agreements between companies and independent contractors.

Penalties

The CRFA does not offer a private cause of action for consumers. As mentioned above, enforcement will not begin for a few more months, but once it does the state attorneys general and the FTC will be charged with enforcing the law. The CRFA states that companies may be subject to investigations, fines and lawsuits but does not identify specific penalties. Rather, it grants the FTC and the states the power to bring civil actions directly against companies that violate the CRFA. Additionally, the FTC is authorized to treat any violation of the CRFA as an unfair or deceptive business practice, as defined in the Federal Tort Claims Act. It should also be noted that the CRFA does not preempt state laws regarding consumer reviews, and such laws may provide consumers with additional remedies. For example, California’s “Yelp law” also banned gag clauses in consumer contracts and dates back to January 2015.

Conclusion

In short, while the CRFA does not spell the end of gag-clauses in all circumstances, the statute protects the rights of millennials to cry over spilled mimosa, empowers disgruntled holiday shoppers who didn’t get their “Tickle-Me-Sebastian” dolls in time to blast retailers and provides a safe harbor for anyone else who was done wrong by a company or business to “get their gripe on” in a public forum.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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