Consumer Review Fairness Act Prevents Companies From Stifling Negative Consumer Reviews

January 17, 2017 Advisory

Troubled by the effect of inaccurate or unfair negative online reviews of their businesses, some companies have inserted "anti-disparagement clauses" into their consumer-facing contracts. From the start, these clauses have faced legal hurdles because of their ability to prevent consumers from posting accurate, yet unflattering customer reviews. For example, over the past few years, courts have often sided with consumers in anti-disparagement contract cases, finding such provisions unconscionable. Congress and President Obama recently put the final nail in the coffin of "anti-disparagement clauses" by enacting the Consumer Review Fairness Act of 2016 (CRFA).

The CRFA prohibits businesses from inserting "anti-disparagement" clauses in contracts that stop consumers from giving negative online reviews. In general, CRFA imposes two substantive restrictions on form contracts. First, the law strikes down any provision in a form contract that "prohibits or restricts the ability of an individual" from reviewing another person's goods, services, or conduct and any provision that imposes a penalty or fee against an individual engaging in such reviews. Form contracts are defined as any agreements used in selling or leasing goods or services that lack a meaningful opportunity for the consumer to negotiate the standardized terms. Second, CRFA voids any provision that automatically gives a company intellectual property rights to an individual's reviews. This provision is meant to prevent companies from filing copyright takedown notices with website hosts.

There are a few notable exceptions to CRFA. First, the law does not apply to employment agreements. Next, consumers can still be liable for defamatory statements. Also, website hosts, such as Yelp, can remove reviews if the content is clearly false or misleading, libelous, vulgar, harassing or abusive, unrelated to the goods or services, or inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristics. Furthermore, the CFRA does not prevent companies from restricting the disclosure of confidential business information, law enforcement information, or personnel or medical files.

While the new law was enacted on December 15, 2016, companies have until March 31, 2017 to eliminate any problematic provisions in their contracts. Once that grace period ends, the inclusion of an anti-disparagement clause will be treated as an unfair or deceptive act or practice under the Federal Trade Commission Act, which is enforceable by both the FTC and state attorneys general starting on December 15, 2017. Moreover, plaintiffs may attempt to use violations of the law to assert claims under "Little FTC Acts," many of which include class action provisions, punitive damages and attorneys' fees for the winning plaintiff.

Moving forward, companies will need to review and update their consumer contracts to ensure compliance under the law. For additional information or assistance on complying with the Consumer Review Fairness Act, please reach out to Robert M. Langer or John Doroghazi