Protecting the Right to Criticize: How the Consumer Review Fairness Act May Require Changes to Your Online Terms

Published On January 4, 2017 | By Nick Jackson | General, Litigation

Thanks to the Internet, consumer reviews have grown both more ubiquitous and more influential in recent years. Likely in reaction to that trend, there have been a number of publicized examples of businesses attempting to restrict negative feedback from their customers. Those attempts have often involved the use of deterrent provisions in form consumer contracts such as non-disparagement clauses, financial penalties, and transfers of copyright ownership over such reviews (to facilitate efforts to take them down from third-party websites). There have also been some efforts by consumers and regulators to challenge such provisions on a case-by-case basis, usually successfully but often only after litigation.

This trend caught the attention of Congress. In November 2015, the Senate Commerce Committee held a hearing titled “Zero Stars: How Gagging Honest Reviews Harms Consumers and the Economy,” where witnesses testified about the positive impacts of online consumer reviews, the problematic contractual practices of some companies, and the need for stronger protections in this area. A little over a year later, President Obama signed into law the Consumer Review Fairness Act of 2016 (H.R. 5111), bipartisan federal legislation that “prohibit[s] the use of certain non-disparagement clauses in form contracts that restrict the ability of a consumer to publicly review the goods or services offered in interstate commerce that were the subject of the contract.” (H. Rept. 114-731.)

The CRFA applies only to “form contracts”: contracts used in the course of selling or leasing goods and services that have standardized terms and are imposed without a meaningful opportunity to negotiate. Online companies involved in business-to-consumer transactions should pay particular attention to the law, as online terms of service and similar agreements may be covered by the CRFA. Employment contracts are specifically excluded, and business-to-business contracts are also likely not covered (to the extent they are not imposed on an “individual”).

The law prohibits two categories of form contract provisions, deeming them both automatically void and unlawful. The first category encompasses provisions that prohibit or restrict an individual’s ability to engage in a “covered communication,” or that impose a penalty or fee for doing so. A “covered communication” is defined as any review, performance assessment, or similar analysis of goods, services, or the conduct of the person providing them, made by an individual who is party to a form contract with that person. Covered communications can take any form—written, oral, graphical, or audiovisual—and include communications made through electronic means.

The second prohibited category covers form contract provisions that “transfer[] or require[] an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content . . . that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person.” Note this provision applies only to transfers of “review or feedback content” to the person or business that is the subject thereof. Importantly, the statute explicitly permits taking a non-exclusive license to use such content.

The statute provides a number of clarifications regarding its intended scope, including that:

  • It does not affect a party’s right to remove or refuse to display on its website any covered communication that is libelous, harassing, vulgar, or the like, contains personal information, is clearly false or misleading, or is unrelated to the goods or services offered on such website;
  • It does not apply to form contract provisions that prohibit individuals from submitting or disclosing—or permit a website operator to remove—trade secrets, confidential information, personnel or medical records, law enforcement records, unlawful content, or malicious computer code;
  • It does not limit businesses’ ability to bring defamation, libel, or similar cases;

The CRFA empowers the Federal Trade Commission as well as states to enforce violations of its requirements. The statute does not preempt state law, and thus has no impact on existing laws affecting consumer review rights (such as California’s consumer review law passed in 2014).

There is a brief grace period before the CRFA’s requirements take effect—it applies to contracts in effect on or after March 14, 2017. The FTC’s and states’ enforcement authority is delayed somewhat longer, applying only to contracts in effect on or after December 14, 2017 (one year after the law’s enactment). Under the law, the FTC must provide continuing education and outreach to businesses regarding (non-binding) best practices for compliance with CRFA, so companies potentially affected by the law should remain on the lookout for any interpretive guidance the FTC may release.

 

About The Author

Nick’s practice focuses on representing clients in complex litigation in federal and state courts, including the defense of class action lawsuits. Nick has represented clients in matters involving federal privacy statutes, constitutional privacy rights, intellectual property, contractual disputes, and federal and state securities laws. He also assists clients in responding to investigations by federal and state regulators, as well as handling demands for user data. In addition, he has counseled clients on the privacy, intellectual property and litigation-related aspects of significant commercial transactions.

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