Contracts Prohibiting Customer Online Reviews are Illegal

 Provisions Banning Negative Reviews are Void

In 2016, the United States established a federal law voiding provisions in contracts that prohibit customers from writing online reviews. Officially named the Consumer Review Fairness Act of 2016, or CRFA, the law voids non-disparagement clauses that businesses have in form contracts with customers.

While businesses can still sue for defamation when a review is false, businesses cannot simply prohibit customers from writing negative reviews.

Before enactment, the legislation went by other names, including the “Consumer Review Freedom Act.”

Example of the Consumer Review Fairness Act

In 2008 a couple ordered some holiday thoctchkes from an online retailer called KlearGear. When the gifts never arrived and KlearGear’s customer service proved unhelpful, the couple blasted the company on an online business review site.

Four years later, they recieved an email from KlearGear demanding they remove the negative review. The company accused the couple of violating a “non-disparagement” clause in the terms of service, essentially a caveat in the fine print restricing customers from publically reviewing their experience with KlearGear. The company warned the couple that they would be subject to a $3,500 fine if they did not comply.

The couple refused to remove the review or pay the fine. When KlearGear passed the fine on to a collections agency and reported it to credit bureaus as an unpaid bill, the couples’ credit took a huge hit. They did eventually find pro bono legal representation and after a legnthy process won a default judgement in federal court, restoring their credit.

Their experience is atypical. Experts say that most customers comply, when they recieve demands to remove negative reviews citing non-disparagement clauses. Due to widely publicized cases, like the KlearGear example, Congress passed the President the Customer Review Fariness Act, which was signed into law by President Obama.

Summary of the Consumer Review Fairness Act

Consumer Review Fairness Act of 2016

(Sec. 2) This bill makes a provision of a form contract void from the inception if it: (1) prohibits or restricts an individual who is a party to such a contract from engaging in written, oral, or pictorial reviews, or other similar performance assessments or analyses of, including by electronic means, the goods, services, or conduct of a person that is also a party to the contract; (2) imposes penalties or fees against individuals who engage in such communications; or (3) transfers or requires the individual to transfer intellectual property rights in review or feedback content (with the exception of a nonexclusive license to use the content) in any otherwise lawful communications about such person or the goods or services provided by such person.

A “form contract” is a contract with standardized terms: (1) used by a person in the course of selling or leasing the person’s goods or services, and (2) imposed on an individual without a meaningful opportunity to negotiate the standardized terms. The definition excludes an employer-employee or independent contractor contract.

The standards under which provisions of a form contract are considered void under this bill shall not be construed to affect:

  • legal duties of confidentiality;
  • civil actions for defamation, libel, or slander; or
  • a party’s right to establish terms and conditions for the creation of photographs or video of such party’s property when those photographs or video are created by an employee or independent contractor of a commercial entity and are solely intended to be used for commercial purposes by that entity.

Such standards also shall not be construed to affect any party’s right to remove or refuse to display publicly on an Internet website or webpage owned, operated, or controlled by such party content that: (1) contains the personal information or likeness of another person or is libelous, harassing, abusive, obscene, vulgar, sexually explicit, inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristic; (2) is unrelated to the goods or services offered by or available at such party’s website; or (3) is clearly false or misleading.

A provision shall not be considered void under this bill to the extent that it prohibits disclosure or submission of, or reserves the right of a person or business that hosts online consumer reviews or comments to remove, certain: (1) trade secrets or commercial or financial information; (2) personnel and medical files; (3) law enforcement records; (4) content that is unlawful or that a party has a right to remove or refuse to display; or (5) computer viruses or other potentially damaging computer code, processes, applications, or files.

A person is prohibited from offering form contracts containing a provision that is considered void under this bill.

Enforcement authority is provided to the Federal Trade Commission (FTC) and states.

The FTC must provide businesses with nonbinding best practices for compliance.

Nothing in this bill shall be construed to limit, impair, or supersede the Federal Trade Commission Act or any other federal law.

Full Text of the Consumer Review Fairness Act

 

 H.R.5111

                     One Hundred Fourteenth Congress

                                 of the

                        United States of America


                          AT THE SECOND SESSION

           Begun and held at the City of Washington on Monday,
           the fourth day of January, two thousand and sixteen


                                 An Act


 
 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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
    This Act may be cited as the ``Consumer Review Fairness Act of 
2016''.
SEC. 2. CONSUMER REVIEW PROTECTION.
    (a) Definitions.--In this section:
        (1) Commission.--The term ``Commission'' means the Federal 
    Trade Commission.
        (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.
        (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.
            (B) Exception.--The term ``form contract'' does not include 
        an employer-employee or independent contractor contract.
        (4) Pictorial.--The term ``pictorial'' includes pictures, 
    photographs, video, illustrations, and symbols.
    (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.
        (2) Rule of construction.--Nothing in paragraph (1) shall be 
    construed to affect--
            (A) any duty of confidentiality imposed by law (including 
        agency guidance);
            (B) any civil cause of action for defamation, libel, or 
        slander, or any similar cause of action;
            (C) any party's right to remove or refuse to display 
        publicly on an Internet website or webpage owned, operated, or 
        otherwise controlled by such party any content of a covered 
        communication that--
                (i) contains the personal information or likeness of 
            another person, or is libelous, harassing, abusive, 
            obscene, vulgar, sexually explicit, or is inappropriate 
            with respect to race, gender, sexuality, ethnicity, or 
            other intrinsic characteristic;
                (ii) is unrelated to the goods or services offered by 
            or available at such party's Internet website or webpage; 
            or
                (iii) is clearly false or misleading; or
            (D) a party's right to establish terms and conditions with 
        respect to the creation of photographs or video of such party's 
        property when those photographs or video are created by an 
        employee or independent contractor of a commercial entity and 
        solely intended for commercial purposes by that entity.
        (3) Exceptions.--Paragraph (1) shall not apply to the extent 
    that a provision of a form contract prohibits disclosure or 
    submission of, or reserves the right of a person or business that 
    hosts online consumer reviews or comments to remove--
            (A) trade secrets or commercial or financial information 
        obtained from a person and considered privileged or 
        confidential;
            (B) personnel and medical files and similar information the 
        disclosure of which would constitute a clearly unwarranted 
        invasion of personal privacy;
            (C) records or information compiled for law enforcement 
        purposes, the disclosure of which would constitute a clearly 
        unwarranted invasion of personal privacy;
            (D) content that is unlawful or otherwise meets the 
        requirements of paragraph (2)(C); or
            (E) content that contains any computer viruses, worms, or 
        other potentially damaging computer code, processes, programs, 
        applications, or files.
    (c) Prohibition.--It shall be unlawful for a person to offer a form 
contract containing a provision described as void in subsection (b).
    (d) Enforcement by Commission.--
        (1) Unfair or deceptive acts or practices.--A violation of 
    subsection (c) by a person with respect to which the Commission is 
    empowered under section 5(a)(2) of the Federal Trade Commission Act 
    (15 U.S.C. 45(a)(2)) shall be treated as a violation of a rule 
    defining an unfair or deceptive act or practice prescribed under 
    section 18(a)(1)(B) of the Federal Trade Commission Act (15 U.S.C. 
    57a(a)(1)(B)).
        (2) Powers of commission.--
            (A) In general.--The Commission shall enforce this section 
        in the same manner, by the same means, and with the same 
        jurisdiction, powers, and duties as though all applicable terms 
        and provisions of the Federal Trade Commission Act (15 U.S.C. 
        41 et seq.) were incorporated into and made a part of this Act.
            (B) Privileges and immunities.--Any person who violates 
        this section shall be subject to the penalties and entitled to 
        the privileges and immunities provided in the Federal Trade 
        Commission Act (15 U.S.C. 41 et seq.).
    (e) Enforcement by States.--
        (1) Authorization.--Subject to paragraph (2), in any case in 
    which the attorney general of a State has reason to believe that an 
    interest of the residents of the State has been or is threatened or 
    adversely affected by the engagement of any person subject to 
    subsection (c) in a practice that violates such subsection, the 
    attorney general of the State may, as parens patriae, bring a civil 
    action on behalf of the residents of the State in an appropriate 
    district court of the United States to obtain appropriate relief.
        (2) Rights of federal trade commission.--
            (A) Notice to federal trade commission.--
                (i) In general.--Except as provided in clause (iii), 
            the attorney general of a State shall notify the Commission 
            in writing that the attorney general intends to bring a 
            civil action under paragraph (1) before initiating the 
            civil action against a person described in subsection 
            (d)(1).
                (ii) Contents.--The notification required by clause (i) 
            with respect to a civil action shall include a copy of the 
            complaint to be filed to initiate the civil action.
                (iii) Exception.--If it is not feasible for the 
            attorney general of a State to provide the notification 
            required by clause (i) before initiating a civil action 
            under paragraph (1), the attorney general shall notify the 
            Commission immediately upon instituting the civil action.
            (B) Intervention by federal trade commission.--The 
        Commission may--
                (i) intervene in any civil action brought by the 
            attorney general of a State under paragraph (1) against a 
            person described in subsection (d)(1); and
                (ii) upon intervening--

                    (I) be heard on all matters arising in the civil 
                action; and
                    (II) file petitions for appeal of a decision in the 
                civil action.

        (3) Investigatory powers.--Nothing in this subsection may be 
    construed to prevent the attorney general of a State from 
    exercising the powers conferred on the attorney general by the laws 
    of the State to conduct investigations, to administer oaths or 
    affirmations, or to compel the attendance of witnesses or the 
    production of documentary or other evidence.
        (4) Preemptive action by federal trade commission.--If the 
    Federal Trade Commission institutes a civil action or an 
    administrative action with respect to a violation of subsection 
    (c), the attorney general of a State may not, during the pendency

 

 

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