Watch Out for Non-disparagement Provisions in Your Consumer Contracts-The FTC Takes Action
The Federal Trade Commission (FTC) is focusing efforts on enforcing non-disparagement provisions in contracts that restrict reviewers in what they can and cannot say in reviews they post about companies. Businesses should be aware of what these provisions are and how to avoid them. Signaling its focus, on May 8, 2019, the FTC announced that it issued three proposed administrative complaints and orders under the Consumer Review Fairness Act (CRFA).
The CRFA is a federal law that became effective in 2017 and has an underlying purpose of stopping businesses from standing in the way of consumers giving honest reviews. Generally, with some exceptions, CRFA does not allow form contracts that (a) prohibit/restrict people's reviews; (b) impose a penalty/fee for the review; or (c) requires transfer intellectual property in such review (except for non-exclusive licenses). Taken as a whole, the CRFA prohibits non-disparagement language in consumer contracts where the consumer does not have a meaningful opportunity to negotiate the contract. The CRFA refers to these as "form contracts." The FTC interprets the CRFA as covering a broad array of reviews including product reviews and evaluations of customer service, including those in online reviews, social media posts, uploaded photos, and videos. (See: Consumer Review Fairness Act: What Businesses Need to Know. ) These aren't the first actions that the FTC has taken related to the CRFA, however, it is the first time that it has taken actions that are "exclusively focused on enforcing the CRFA."
The proposed administrative settlements with the three companies (LVTR LLC; National Floors Direct, Inc.; and A Waldron HVAC, LLC. have language to ensure future compliance with the CRFA, and requires the companies to notify consumers that the questionable provisions are void.
The FTC simultaneously released a blog post with important tips about the CRFA, including: (i) direction to companies to review form contracts; (ii) a reminder that FTC and states can enforce the CRFA whether or not a company follows through on its threats in online contracts (the FTC didn't claim that any of the three companies actually tried to enforce the provisions); and (iii) a warning that questionable conduct is also subject to Section 5 of the FTC Act (which is the FTC's hammer for unfair and deceptive acts).
One final point, the provisions at issue don't have to be labeled "non-disparagement" to violate the CRFA. In one of the provisions in question, the allegedly violating language was in a section simply labeled “confidentiality clause.” In the announcement of these cases, the FTC included clauses from each of these three companies' form contracts that it believes are actionable (see below). These can be tricky to spot, and we recommend that businesses have trained legal eyes review their form contracts in their entirety to identify potential CRFA issues.
A Waldron HVAC, LLC. 1) “CUSTOMER and COMPANY agree that the within contract is a private and confidential matter and that the terms and conditions of the contract…shall not be made public, or given to anyone else to make public, INCLUDING THE BETTER BUSINESS BUREAU”; and 2) “Should the CUSTOMER breach this confidentiality clause, the CUSTOMER agrees to pay COMPANY liquidated damages....THE COMPANY MAY ALSO BE AWARDED COUNCIL [sic] FEES AND COSTS AS REQUESTED BY COMPANY.”
National Floors Direct, Inc. “By signing this purchase order you are agreeing, under penalty of civil suit…not to publicly disparage or defame National Floors Direct in any way or through any medium.”
LVTR LLC. 1) “CONFIDENTIALITY/NON DISPARAGEMENT – I agree not to call Animal Control or any governmental agency or individuals if there is a discrepancy to how the horses/animals or property are taken care of. You will be charged a minimum of $5,000.00 in damages if you report anything or making contact [sic] with any persons or agency or by having another individual(s) do it on your behalf”; and 2) “I agree to our non-disparagement and protection of reputation clause. For the purposes of this Section, ‘disparage’ shall mean any negative statement, whether written or oral including social media about our Company, Volunteers, Owners, Representatives, etc.”