Does your company use form service agreements, purchase contracts, or online terms to conduct its business with customers? If so, you should review those documents immediately to make sure you are compliant with the new Consumer Review Fairness Act of 2016 (CRFA), which makes it unlawful in many cases to use your “standard terms” to control what your customer says about you, your products, or services.
The rise of social media and online review sites have provided consumers with an expansive ability to obtain instantaneous evaluations (good and bad) from others regarding a product or service. This feedback can be great for businesses that receive good reviews posted online. But, as often is the case, there is nothing like a disgruntled customer to lead to a poor review being posted online.
As such, some businesses have attempted to restrict customers’ ability to publish negative reviews by inserting non-disparagement or “gag” clauses in their form contracts and online terms of service. These gag clauses limit consumers’ ability to post negative reviews by giving the company an express right to take legal action (and sometimes to recover money damages or specified penalties) against customers who post negative reviews or who complain to the Better Business Bureau. Some companies even attempted to exert control over consumer commentary by requiring that the consumers transfer copyrights in their reviews or other “feedback” about the products and services to the company.
The inclusion of these clauses, and companies’ attempts to enforce them, not only gained media attention, but also caught the attention of regulators at the state and federal levels. In 2015, the Federal Trade Commission (FTC) filed a complaint against Roca Labs, Inc. and its principals for taking or threatening to take legal action against consumers who purportedly violated certain non-disparagement provisions that were included in their website’s “Terms and Conditions.” Under Roca Labs’ terms, purchasers allegedly agreed to not “speak, publish, cause to be published, print, review, blog, or otherwise write negatively about [Roca Labs], or its products or employees in any way.” These efforts by Roca Labs, the FTC alleged, constituted unfair acts or practices in violation of Section 5 of the Federal Trade Commission Act.
The Consumer Review Fairness Act of 2016 – Things to Do Now
As of March 2017, the CRFA makes certain clauses in “form contracts” void and unenforceable if the clause: prohibits or restricts an individual from sharing reviews of a seller’s goods, services, or conduct; imposes a penalty or fee against an individual who writes a review; or purports to transfer intellectual property in review or feedback content. Furthermore, the CRFA makes it unlawful to even offer a form contract containing such a gag clause (meaning that it may be an illegal “unfair or deceptive trade practice” to continue to have such provisions in your contracts, even if you have no intention of enforcing them).
The CRFA broadly defines “form contracts” as any contract “imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms,” and includes a website’s terms and conditions, as well as a company’s “standard terms” for purchasing products or services (whether in paper or electronic form). (The term “form contract” does not, however, include employer-employee or independent contractor contracts.)
More specifics about the CRFA are provided below – but your company should be taking steps immediately to review its form contracts – including any online terms and conditions – and to remove provisions that:
- restrict individuals from sharing their honest reviews about you, your products, or services, or penalizes those who do; or
- claim copyright in an individual’s reviews or feedback about you, your products, or services.
What Specific Conduct Does the CRFA Prohibit?
Specifically, under the CRFA a provision in a form contract is void if it:
- prohibits or restricts an individual who is a party to such a contract from engaging in written, oral, or pictorial reviews, or performance assessments or analysis of, including by electronic means, the goods, services, or conduct of a person by an individual who is a party to a form contract;
- imposes penalties or fees against individuals who engage in such communications; or
- transfers or requires the individual to transfer intellectual property rights in review or feedback content.
Furthermore, the mere presence of one of these prohibited terms in a form contract constitutes a violation of the CRFA – even if you never try to enforce the provision.
There Are Limits to the CRFA – Not All Customer Commentary is Protected.
The CRFA does not require businesses to permit people to post reviews on their company’s website. However, if a business does solicit and allow consumers to provide feedback on its website, then it should keep in mind that the CRFA does not safeguard all content contained in consumers’ reviews.
In essence, the CRFA seeks to prevent companies from including provisions in their form contracts that threaten or penalize people for posting honest reviews about a company’s products, services, or conduct. However, the CRFA does not protect defamatory or obscene posts. In addition, a business may still include provisions in its form contracts that prohibit postings that: breach confidentiality obligations imposed by law; reveal confidential information or trade secrets; contain personnel, medical, or law enforcement information; or contain computer viruses or malware.
Websites that permit consumer reviews also retain the right to remove or refuse to display content if it is unrelated to the goods or services offered, or is clearly false or misleading. However, the FTC cautions businesses that it is “unlikely that a consumer’s assessment or opinion with which you disagree meets the ‘clearly false or misleading’ standard.” Finally, businesses may also continue including “feedback clauses” in their agreements with consumers, which give the company certain rights to use feedback provided by customers, as long as such clauses take the form of a non-exclusive license (rather than requiring the consumer to transfer ownership of the feedback).
What Are the Penalties for Violating the Consumer Review Fairness Act?
Violations of the CRFA will be treated the same as violating a FTC rule that defines an unfair or deceptive trade practice. The FTC and state attorneys general have authority to enforce the CRFA. Enforcement will begin on December 14, 2017, and will apply to contracts with clauses in effect on or after that date.
Companies that violate the act by including prohibited gag clauses in their form contracts could be subject to steep financial penalties, as well as a federal court order. While the CRFA does not include a private right of action, individuals may still be able to sue under various states’ deceptive trade practice statutes (or “mini-FTC acts”), if those statutes provide for a private right of action. The CRFA specifically states that it shall not “be construed to affect any cause of action brought by a person that exists or may exist under State law.”
For Further Guidance:
If you have questions regarding complying with the CRFA or how to effectively respond to a negative review left for your business, contact Laura Arredondo-Santisteban at LArredondo@fh2.com or (770) 399-9500 for more guidance.
