Cybertelecom Federal Internet Law & Policy An Educational Project

Consumer Review Fairness Act

You Cant Tell Your Customers to 'Shut Up' Anymore

Bad idea: Set up a business and provide poor goods or services; receive bad reviews online for your poor goods or services.

Worse idea: Instead of treating your customers' feedback as free expert advice and listening to their suggestions on how to improve your business, sue your customers - experience the Streisand Effect - resulting in increased media coverage highlighting your lousy goods, service, and treatment of customers.  Ensure that negatives reviews of your business get the widest exposure possible.

Businesses attempted to substantiate gag clauses with claims of Patient / customer assigns copyright of any reviews to business Trademark infringement Breach of Contract Privacy Confidentiality

Worser Idea:  Attempt to solve this problem by telling your customers to shut-up. Insert a gag-clause in your terms of service so that it is a breach of contract for your customers to provide negative reviews of your service.

Jennifer Kulas Palmer testified before Congress about her negative experience with online business KlearGear.com.  According to Palmer, in 2008 her husband ordered about $20 worth of Christmas gifts from KlearGear.  When it did not arrive, they attempted to reach out to the company, but to no avail.  Like so many consumers who have had a bad experience, they wrote a negative online review.  Three years later, Palmer heard from KlearGear, claiming that Palmer had violated their Terms of Sale and that Palmer owed KlearGear $3500. Attorneys from Public Citizen represented the Palmers and filed a successful lawsuit against KlearGear. See Palmer v. KlearGear.

If there was any doubt that this type of thing is a bad idea, in this year of divided and partisan politics, Congress unanimously voted to end attempts to silence customer reviews. The Consumer Review Fairness Act was signed into law by President Obama on December 14th.

Prohibition: "In summary, the Act makes it illegal for a company to use a contract provision that:

1. bars or restricts the ability of a person who is a party to that contract to review a company’s products, services, or conduct;
2. imposes a penalty or fee against someone who gives a review; or
3. requires people to give up their intellectual property rights in the content of their reviews." [FTC] [Sec. 2(b)(1)]

The Consumer Review Fairness Act establishes that you cannot tell consumers to shut up - it does not, however, protect consumers from liability for what they say.  Businesses can, for example, still seek redress for defamatory reviews. [CRFA § 2(b)(2)(B)]. Consumers can review but they may still be held responsible for their words.

There is lots more detail and exceptions in the statute.

Remedy: According to the new law, 'form contracts' (those terms of service or standard forms shoved in front of customers to sign without ability to negotiate individual terms) provisions are "void" if they prohibit customer reviews. [Sec. 2(b)(1)]  Any such gag provisions are also "unlawful" [Sec. 2(c)] and are subject to enforcement by the Federal Trade Commission (FTC actions pre-empt state actions. [Sec. 2(e)(4)] or the states. [Sec. 2(d)&(e)] [FTC] There is no private right of action. [Ponte, Glass Half Full p. 11] See also anti-SLAPP laws.

Of course, one of the best remedy is to take advantage of reviews as free feedback on business performance, and as good businesses provide good service, encourage customers to provide positive reviews. Going to war with your own customers has a habit of backfiring, highlighting a business's poor service, resulting in the Streisand Effect. [Barbara Ross, Manhattan Dentist Sues Five Patients in Four Years Over Negative Web Reviews, Daily News July 26, 2016] [Pet Sitting Business Bites Back After Getting Bad Yelp Review, CBSNews Feb. 16, 2016] Encouraging positive reviews results in a high review count, and can thereby position a business higher in rankings than a business with a small review count or reviews that are out of date. Happy customers tend to give positive reviews. [Lin] According to the FTC, "The wisest policy: Let people speak honestly about your products and their experience with your company." [FTC]

All of this comes about in the context of the Good Samaritan provisions of the Communications Decency Act, 47 USC 230(c), which says that an online services are not liable for the third party content.  This means that Yelp, TripAdvisor, Amazon, Google, and all the other review sites can encourage people to provide reviews of goods and services - without those online services becoming liable for those reviews. 47 USC 230(c) legally set the foundation for the interactive web where many third parties contribute without the host becoming liable for every utterance.

In the information economy, the information of reviews have become a currency. The reviews generated by third parties enable better informed consumers who can take advantage of the wisdom of those who came before them. Most consumers consult review sites to determine which restaurant has the best pizza, which bike shop has the best service, or which toaster makes the best toast. [Local Review Consumer Survey 2016, Brightlocal ("91% of consumers read online reviews for local businesses")] Businesses that invest in themselves and provide the best service are rewarded with positive reviews and exposure. They get more business and they can raise prices. [Anderson, C. (2012). The impact of social media on lodging performance. Cornell Hospitality Report, 12(15), 6-11 ("transactional data from Travelocity illustrate that if a hotel increases its review scores by 1 point on a 5-point scale (e.g., from 3.3 to 4.3), the hotel can increase its price by 11.2 percent and still maintain the same occupancy or market share.")] [How Much Are Online Reviews Actually Worth, RevLocal ][The Importance of Online Customer Reviews, Invespcro ("Customers are likely to spend 31% more on a business with 'excellent' reviews.")] Businesses that provide inferior service, that have fewer reviews or have reviews that are out of date, lose. [Brian Sparker, 7 Online Review Tactics to Boost Your Social Media Marketing, SproutSocial Nov. 16, 2015 ("4 out of 5 consumers reverse their purchase decisions based on negative reviews")] [Dan Hinckley, New Study: Data Reveals 67% of Consumers Are Influenced by Online Reviews, Moz Sept. 2, 2015 ("Have four or more negative articles about your company or product appearing in Google search results? You’re likely to lose 70% of potential customers")]

See also FTC Guides Concerning the Use of Endorsement and Testimonials in Advertising - requiring individuals to disclose when they are paid for online endorsements

Law

• HR 5111 Consumer Review Fairness Act of 2016 Pub. L. No. 114-258, 130 Stat. 1355 (2016) ("To prohibit the use of certain clauses in form contracts that restrict the ability of a consumer to communicate regarding the goods or services offered in interstate commerce that were the subject of the contract, and for other purposes.")
  • "(b)(1) IN GENERAL.—Except as provided in paragraphs (2) and (3), a provision of a form contract is void from the inception of such contract if such provision—

    (A) prohibits or restricts the ability of an individual who is a party to the form contract to engage in a covered communication;

    (B) imposes a penalty or fee against an individual who is a party to the form contract for engaging in a covered communication; or

    (C) transfers or requires an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content, with the exception of a non-exclusive license to use the content, that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person. "

    . . . . .

  (a)(2)COVERED COMMUNICATION.—The term “covered communication” means a written, oral, or pictorial review, performance assessment of, or other similar analysis of, including by electronic means, the goods, services, or conduct of a person by an individual who is party to a form contract with respect to which such person is also a party

  (a)(3) Form contract

  (A) In general: Except as provided in subparagraph (B), the term form contract means a contract with standardized terms—

  (i) used by a person in the course of selling or leasing the person’s goods or services; and

  (ii) imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms.

  . . . . .

   

Legislative History

• HOUSE REP. 114-731 at 5, Consumer Review Fairness Act of 2016, Sept. 9, 2016
• Senate Sends Thune’s Bipartisan Legislation That Protects Consumer Reviews to President, Sen. John Thune Nov. 28, 2016 (unanimous passage - The Commerce Committee held a hearing on gag clauses on November 4, 2015, featuring testimony from Ms. Jen Palmer, a plaintiff in Palmer v. KlearGear, where a company demanded the removal of a negative online review or payment of $3,500 in fines because the online merchant’s terms of service included a non-disparagement clause. When the review was not taken down, the company reported the unpaid $3,500 to a credit reporting agency as an outstanding debt, which negatively impacted the Palmers’ credit.)

Hearings

• Senate Commerce Committee Hearing Zero Stars: How Gagging Honest Reviews Harms Consumers and the Economy November 4, 2015 ("One of the witnesses, Ms. Jen Palmer, is a plaintiff in Palmer v. KlearGear.com, where a website demanded that she remove a negative online review or pay $3,500 in damages because the website’s terms of service included a non-disparagement clause. When she refused to pay the penalty, the website reported the $3,500 to credit reporting agencies as an unpaid debt.")
  • Written Testimony of Jennifer Kulas Palmer before the U.S. Senate Committee on Commerce, Science & Transportation at the hearing “Zero Stars: How Gagging Honest Reviews Harms Consumers and the Economy” November 4, 2015 ("More than three years later, in May 2012, out of the blue, John received an email from KlearGear demanding that John have the review on RipoffReport.com removed within 72 hours, or pay KlearGear $3500 for violations of their Terms of Sale and Use. We were shocked and scared by the demand. It seemed this could not be legal. KlearGear claimed that my review violated a “non-disparagement clause” in KlearGear’s Terms of Sale and Use, the text of which barred the customer – who was John, not me, but that didn’t matter to them – from “taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees.” John did some research via the Internet Archive and was able to discover that the clause wasn’t even present in the Terms of Sale when he placed his order back in December 2008. He found that the clause did not appear until February 2012.") See Palmer v Kleargear
  • Eric Goldman, An Assessment of the Consumer Review Freedom Act of 2015, Santa Clara Univ. Legal Studies Research Paper No. 2-15 (Nov. 5, 2015)
  • Angie Hicks letter to US Senate Committee on Commerce, Science & Transportation re: Consumer Review Freedom Act, Nov. 3, 2015,

USG Activity

• Consumer Review Fairness Act: What Businesses Need to Know, FTC Feb. 2017 ("Contracts that prohibit honest reviews, or threaten legal action over them, harm people who rely on reviews when making their purchase decisions. But another group is also harmed when others try to squelch honest negative reviews: businesses that work hard to earn positive reviews.")

Caselaw

• McWhorter v. Duchouquette, DC-16-03561 (Tex. Dist. Ct. Aug. 26, 2016),
  
• FTC v. Roca Labs, Inc., No. 8:15-cv-02231-MSS-TBM (M.D. Fla. filed Sept. 28, 2015) ("In Roca Labs, for example, the FTC alleged the defendants not only promoted unproven weight loss supplements, but also threatened to sue consumers who shared their negative experiences online, claiming that the consumers violated the non-disparagement provisions of the company’s “Terms and Conditions.”")
• Galland v. Johnston, 2015 WL 1290775 (S.D.N.Y. Mar. 19, 2015) (Eric Goldman "a vacation rental contract required tenants to agree that they would not “use blogs or websites for complaints, anonymously or not.” We have no idea how many tenants self-censored due to this contract clause, but we know two tenants defied the ban and criticized the vacation rental online. The landlord sued the tenants in federal court. The court held that the reviews weren’t defamatory but the tenants nevertheless may have breached the rental contract. ")
• McWhorter v. Duchouquette, DC-16-03561 (Tex. Dist. Ct. Aug. 26, 2016)
• Palmer v. Kleargear.com, no. 13-cv-00175 (D. Utah, filed Dec. 18, 2013)
  • Palmer v. KlearGear, Public Citizen
  • Judge Awards Utah Couple $306,750 in Case Against Retailer That Tried to Impose Fine for Critical Online Review, Public Citizen June 26, 2014 ("On Wednesday, Judge Dee Benson of U.S. District Court in Utah awarded Public Citizen clients John and Jen Palmer $306,750 ($102,250 in compensatory damages and $204,500 in punitive damages) against the online retailer KlearGear.com. The company had demanded $3,500 from the Palmers for writing a critical online review of the company, then ruined John’s credit when he refused to pay.")
  • Chris Morran, “KlearGear.com Ordered To Pay $306K To Couple Who Wrote Negative Review,” Consumerist, June 26, 2014
  • KlearGear must pay $306,750 to couple that left negative review Lawyer: CYRUS FARIVAR - 6/25/2014 Ars Technica ("On Wednesday, the judge awarded $306,750 in compensatory and punitive damages plus attorneys fees to Jennifer and John Palmer, who wrote their review in 2009. KlearGear lost in a default judgement in federal court in Utah in May 2014.")
  • Ars Technica; Jon Brodkin, It will soon be illegal to punish customers who criticize businesses online Ars Technica 11/29/2016.
• Center for Democracy & Technology Complaint & Request for Investigation, Injunction and Other Relief before the Federal Trade Commission, In the Matter of Medical Justice Corp. 1, 15 (Nov. 9, 2011) (regarding review sites that remove negative reviews in order to avoid litigation when they receive cease and desist letters)
• People v. Network Associates, Inc., 758 N.Y.S.2d 466 (2003) (anti-review clause in EULA void)
• Lee v. Makhnevich, 2013 WL 1234829, 2013 U.S. Dist. LEXIS 43760 (S.D.N.Y. Mar. 27, 2013)
  • Complaint, Civil Action No. 11-civ-8665 (S.D. N.Y. Nov. 29, 2011)
  • Joe Mullion, Dentist who copyrighted patient reviews must pay $4,766, Ars Technica 3/4/2015, 2:47 PM ("The short default order, first published by GigaOm, makes it clear that Lee's comments are a "non-infringing fair use." It goes on to say the agreement itself is illegal under New York law and violates dental ethics.")
  • Joe Mullin, Dentist who used copyright to silence her patients is on the run, Ars Technica, 7/28/2013, 6:00 PM ("Makhnevich is nowhere to be found, won’t defend the lawsuit, and her lawyers have asked to withdraw from the case.")
  • Gergana Koleva, Dentist to the Stars Sued for Suppressing Bad Reviews Online, FORBES (Dec. 8, 2011, 1:10 PM) ("The complaint, filed last week by a former patient of Stacy Makhnevich, a Manhattan dentist who specializes in providing care for classical singers and wind instrument musicians, pivots on a privacy agreement Makhnevich allegedly asked would-be patients to sign before receiving service")

Articles

• Jessica Godell, Consumer-Generated Media and Advertising—Are They One and the Same? An Analysis of the Amended FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising, 10 J. MARSHALL REV. INTELLECTUAL PROP. L. 205, 207–09 (2010
• Sonia K. Katyal, Stealth Marketing and Antibranding: The Love that Dare Not Speak Its Name, 58 BUFF. L. REV. 795, 833-34 (2010);
• Ann Marie Marciarille, “How’s My Doctoring?” Patient Feedback’s Role in Assessing Physician Quality, 14 DEPAUL J. HEALTH CARE L. 361 (2012).
• Ponte, Lucille M
  • Ponte, Lucille M., A Glass Half Full? Enduring Small Business Frustrations under the Consumer Review Fairness Act of 2016 (May 15, 2017). Available at SSRN: https://ssrn.com/abstract=2968569 or http://dx.doi.org/10.2139/ssrn.2968569 ("Other businesses, from wedding photographers5 to hotels6 to e-commerce sites,7 took aggressive steps to suppress negative customer critiques through a range of adhesive speech suppression or “gag” contracts. 8 These speech suppression agreements relied upon broad nondisparagement clauses, inappropriate intellectual property claims, empty privacy promises, exorbitant monetary penalties, and other vague threats to silence online critiques.9 Certain businesses defended these gag contracts as necessary to protect their brand in a social media environment filled with dishonest consumers, unprincipled competitors, and lackadaisical review sites.")
  • Lucille M. Ponte, “Protecting Band Image or Gaming the System? Consumer ‘Gag’ Contracts in an Age of Crowdsourced Ratings and Review,, 7. WM. & MARY BUS. L. REV 59 (2015)
• Kendall L. Short, Note: Buy My Vote: Online Reviews for Sale, 15 VAND. J. ENT. & TECH. L. 441, 443, 437 (Winter 2013)
• Kaitlin A. Dohse, Note, Fabricating Feedback: Blurring The Line Between Brand Management and Bogus Reviews, 13 U. ILL. J.L. TECH. & POL’Y 363, 385 (2013);
• Robert Sprague & Mary Ellen Wells, Regulating Online Buzz Marketing: Untangling a Web of Deceit, 47 AM. BUS. L.J. 415, 420-24 (2010)
  

News

• Ashlee Kieler, Speak Freely America: New Federal Law Outlaws Gag Clauses That Punish You For Negative Reviews, Consumerist (Dec. 14, 2016)
• Paul Levy, i-Geniuses: Not Too Smart in Threatening Dissatisfied Customers, Consumer Law & Policy Blog, Jan. 30, 2017
• Paul Levy, Two Immediate Applications for the Consumer Review Fairness Act, Consumer Law & Policy Blog, Dec. 5, 2016,
• Andrew Tarantola, President Obama signs the Consumer Review Fairness Act into law Engadget Dec. 15, 2016 ("There have been a rash of incidents over the past couple of years in which companies attempt to stifle negative user reviews with "gag clauses" that threaten legal action and punitive monetary damages. The Union Street Guest House in Hudson, New York, for example, threatened a wedding party with $500 fines for every bad review the wedding's guests left on Yelp.")
• Eric Goldman, House Passes Consumer Review Fairness Act, Tech and Marketing Law Blog Sept. 13, 2016 ("The most recent ruling involved Prestigious Pets in Dallas, which sued a customer over a negative Yelp review and lost a Texas anti-SLAPP motion.")
• Texas Court Strikes Down Prestigious Pets’ Nondisparagement Clause Lawsuit by Paul Alan Levy Public Citizen Consumer Law and Policy Blog (Aug. 30, 2016)
• JON BRODKIN, It will soon be illegal to punish customers who criticize businesses online Ars Technica 11/29/2016 ("The Commerce Committee held a hearing on gag clauses a year ago and said it heard "testimony from Ms. Jen Palmer, a plaintiff in Palmer v. KlearGear, where a company demanded the removal of a negative online review or payment of $3,500 in fines because the online merchant’s terms of service included a non-disparagement clause. When the review was not taken down, the company reported the unpaid $3,500 to a credit reporting agency as an outstanding debt, which negatively impacted the Palmers’ credit."")
• Christopher Elliott, A pending bill would prohibit retribution for negative TripAdvisor and Yelp reviews WAPO Sept 22, 2016
• Retailer threatens critical reviewers on Amazon with “legal trouble” DAVID KRAVETS - 7/17/2014 Ars Technica ("Ubervita, a Washington state company that sells testosterone boosters, multivitamins, and weight loss supplements, has been responding in the comments section under its products to blast those leaving negative reviews. The firm has suggested that some of the negative reviews are libel and defamation and could land the reviewer in a "lot of legal trouble."")
• Chris Morran, “Wedding Company Contract Tries To Ban Bride & Groom From ‘Encouraging’ Negative Feedback,” Consumerist, April 20, 2015
• Eric Goldman, How Congress Can Protect Online Consumer Reviews, Forbes Tertium Quid, Nov. 2, 2015
• Elliot Harmon & Kit Walsh, Consumer Review Freedom Act Would Protect Customers’ Right to Post Reviews, EFF.org, Nov. 3, 2015,
• Joe Mullin, One Apartment Complex’s Rule: You Write a Bad Review, We Fine You $10k, Ars Technica, Mar. 10, 2015,
• Eric Goldman, Court Might Enforce A Contract Ban On Consumer Reviews, Forbes Tertium Quid, Mar. 27, 2015,
• Eric Goldman, California Tells Businesses: Stop Trying To Ban Consumer Reviews, Forbes Tertium Quid, Sept. 10, 2014,
• Eric Goldman, Fining Customers For Negative Online Reviews Isn't New...Or Smart, Forbes Tertium Quid, Aug. 7, 2014
• Mara Siegler, Hotel Fines $500 for Every Bad Review Posted Online, Page Six, August 4, 2014
• Eric Goldman, Congress May Crack Down On Businesses' Efforts To Ban Consumer Reviews, Forbes.com (Sept. 24, 2014, 1:05 PM),
• L. David Russell, Christopher C. Chiou & Zain A. Shirazi, Fake It Until You Make it? Battling Fake Online Reviews, LAW360 (June 9, 2014, 12:17 PM),
  
• Noah Davis, “The Yelper and the Negative Review: the Developing Battle Over Nondisparagement Clauses,” American Bar Association, Vol. 3, No. 10, May 2014
• Andrea Chang, Tempers flare at Yelp’s town hall for small business owners in L.A., L.A. TIMES (Aug. 21, 2013),
• Jerry Lin, Most Online Patient Reviews Rate Doctors Highly. Really., The Health Care Blog, Mar. 7, 2013,
• Paresh Dave, Small businesses struggle to manage online image, L.A. TIMES, Aug. 9, 2013
• Christopher Elliott, New Confidentiality Clauses Can Influence Vacation Rental Reviews, Elliott.org, Apr. 14, 2012,
• David Streitfeld, The Best Book Reviews Money Can Buy, N.Y. TIMES, Aug. 26, 2012, at BU1
• Erin Mulligan Nelson, “Why Terrible Online Reviews Are Actually Good For You,” Advertising Age, September 15, 2011
• Eric Goldman, Medical Justice Capitulates by “Retiring” Its Anti-Patient Review Contracts, Tech. & Marketing L. Blog, Dec. 1, 2011,