Update Consumer Contracts Review Clauses Now

These days, consumer reviews posted online can make or break a business. Some businesses have sought to prevent negative reviews through “gag clauses” – contractual provisions buried in form contracts that customers rarely read, much less are able to negotiate. New law now bars such blanket prohibitions while providing businesses new protections to deter and deal with false and malicious postings.

Effective March 14, 2017, the federal Consumer Review Fairness Act of 2016 (CRFA) prohibits non-negotiable form contracts used in selling goods or services from barring or restricting customer reviews. The CRFA protects the right to make any “written, oral, or pictorial review, performance assessment of, or other similar analysis,” including those posted electronically.

Any clause in a form contract is void if it:

• Prohibits reviews;
• Imposes any fee or penalty against someone for posting a review; or
• Requires transfer of ownership of the intellectual property rights to such a review to the company being reviewed.

Companies may still prohibit (and utilize contract terms prohibiting) the posting of trade secrets or other financial or confidential information; private personnel or medical files; private law enforcement records; or content that is otherwise unlawful or tainted by computer viruses, worms, or the like.

The CRFA of course does not restrict a business’s ability to defend itself against false postings by filing civil claims for defamation. Websites also may remove or refuse postings typically prohibited by terms of service – ones that are “clearly false or misleading,” unrelated to the goods or services on that website, or containing someone’s personal information or likeness. A website also may remove or refuse a posting that is “libelous, harassing, abusive, obscene, vulgar, sexually explicit, or inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristic.”

The Federal Trade Commission (FTC) will enforce the CRFA, and state Attorney Generals and state consumer protection agencies may also bring civil actions under this law, but must notify the FTC. Penalties for violation are the same as those for unfair and deceptive trade practices under the FTC Act, with a maximum of $40,000 per violation.

Enforcement of CRFA will commence December 14, 2017. If you have such clauses in your consumer sales contracts, review and, as appropriate, remove them promptly. This is particularly important in California or other states that already have laws in place banning blanket “gag clauses.” California was the first nationally to enact a statute protecting consumer reviews, Civil Code 1670.8. Under California’s law, in effect since January 1, 2015, no contract for consumer goods or services may prohibit a consumer from making statements about the company or the goods or services purchased. Violations of that law contain penalties ranging from $2,500-$10,000 per offense.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin
March 24, 2017