Consumer Review Fairness Act Prohibits Contracts Banning Bad Reviews

Consumer Review Fairness Act Prohibits Contracts Banning Bad Reviews

Online reviews are poised to become more credible in the New Year. Former President Barack Obama recently signed the Consumer Review Fairness Act of 2016 into law. The new law prevents businesses from contractually prohibiting consumers from posting negative online reviews.The new law addresses the increasing use of consumer agreements to deter negative criticism via websites like Yelp. In basic terms, non-disparagement clauses impose monetary or other penalties on customers who post negative online reviews about a company’s products or services. In one highly publicized case, a New York hotel required couples that rented its wedding facility to sign a contract stating that they would be required to pay a $500 fine for every negative review posted by the couple or their guests.

Cracking Down on Non-Disparagement Clauses

The Consumer Review Fairness Act of 2016 voids a provision of a form contract if such provision:

• Prohibits or restricts the ability of an individual who is a party to the form contract to engage in a covered communication;
• Imposes a penalty or fee against an individual who is a party to the form contract for engaging in a covered communication; or
• 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.

Under the law, a “covered communication” is defined as “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.”

Limitations and Enforcement of Consumer Review Fairness Act

Businesses should be aware that the Consumer Review Fairness Act only applies the non-disparagement clauses in consumer contracts and not other types of business agreements. For instance, the Act expressly states it does not apply to employer-employee or independent contractor contracts. It also does not interfere with civil actions for defamation, libel, or slander; a party’s right to establish terms and conditions for content created by an employee or independent contractor; or a party’s right to remove or refuse to display content that contains personal information or obscene or inappropriate material.

The Federal Trade Commission (FTC) is empowered to penalize violators under its authority to prevent deceptive trade practices and unfair competition. On the state level, attorneys general are also authorized to bring actions under the new law.

The Consumer Review Fairness Act mandates that the FTC publish best practices for compliance within 60 days of the its enactment. We encourage businesses to check back for updates.

Do you have any questions about the Consumer Review Fairness Act or how it may affect you? Would you like to discuss the matter further? If so, please contact me, Dennis Linken, at 201-806-3364.