On December 14, 2016, President Obama signed the Consumer Review Fairness Act into law. The federal law is designed to clarify under what conditions businesses can manipulate user reviews.
Consumer reviews carry a lot of weight with shoppers. Studies have shown 94 percent of people will move forward with a purchase if a company has four or more stars as an aggregate rating on a review site. Given this influence, it is hardly a surprise to learn that online businesses have tried different tactics to control customer reviews – some more ethical than others.
One negative review on Yelp isn’t going to kill a business. Multiple negative reviews may well. With so much on the line, some online companies and their lawyers started incorporating non-disparagement clauses into their Terms and Conditions. These clauses essentially state that a person who purchases a good or service from the site is prohibited from leaving a negative review on another site such as Yelp. Let’s take a look at one of the more famous examples of a non-disparagement clause going bad – the Kleargear.com litigation.
Palmer vs Kleargear
“In an effort to ensure fair and honest public feedback, and to prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts Kleargear.com, its reputation, products, services, management or employees.”
A penalty of $3,500 was further noted in the Terms.
The Palmers refused to pay the fine or take down the complaint. Kleargear reported the debt to the credit agencies, negatively impacting the credit score of the Palmers. Word got out online, and parties raised enough money for the Palmers to sue Kleargear. The judge in the case was unimpressed with Kleargear, and rendered a judgment against the company in the amount of $300,000.
Despite this judgment, other companies have continued to try to use non-disparagement clauses with some success. In a rare bipartisan effort, Congress and the President are putting an end to such practices.
The Consumer Review Fairness Act
The critical elements of the CRFA read as follows. [A “covered communication” includes reviews.]
H. R. 5111 – Section 2.
(b) Invalidity Of Contracts That Impede Consumer Reviews.—
(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.
Interestingly, the Act authorizes the FTC and states to enforce the legislation. With FTC fines being as large as $40,000 per violation, that is no small thing.
Impact On You
Okay, so what impact does this have on your online business? The answer is pretty simple. You cannot use non-disparagement clauses to try to control user reviews on sites such as Yelp. Check your Terms to make sure none exist at this time.
Questions? Contact me or take a look at our legal services page.
Richard A. Chapo, Esq.