Takeaways

Under new federal law, companies are forbidden from restricting, prohibiting or penalizing consumer-posted reviews of the company or its goods or services.
The new law also makes it unlawful for companies to require individuals to transfer their intellectual property rights in such reviews. 
Any company with form contracts, policies, or other terms referring to user reviews should promptly review such terms for any clauses prohibited by the new law.

The Consumer Review Fairness Act of 2016 goes into effect on March 14, 2017, and declares unlawful any “form contract” that prohibits or restricts the ability of an individual to engage in a “covered communication,” which is broadly defined to include any review, performance assessment, or other similar analysis of the company’s goods, services, or conduct.

Executive Summary

  • Many e-commerce websites, social media channels, and other online platforms enable customers and other users to post reviews and comments about companies and their products and services.
  • In recent years, some companies have sought to suppress negative reviews or feedback posted online or elsewhere about their businesses, products or services. In response, President Obama signed into law near the end of his term the “Consumer Review Fairness Act of 2016”. The law goes into effect on March 14, 2017.
  • The new federal law declares unlawful any “form contract” that prohibits or restricts the ability of an individual to engage in a “covered communication,” which is broadly defined to include any review, performance assessment, or other similar analysis (posted by electronic or other means) of the company’s goods, services, or conduct.   
  • Specifically, the law (which is modeled after similar laws in Massachusetts and California) makes it unlawful for a seller or lessor of goods or services to offer or use a “form contract” that either (i) prohibits or restricts individuals from engaging in a written, oral or pictorial review or performance assessment of the seller/lessor’s goods, services or conduct, or (ii) imposes a penalty or fee against an individual engaging in such a communication.
  • The law also makes it unlawful for a “form contract” to require any individual to transfer to the company any intellectual property rights in such individual’s review or feedback content (except for a license authorizing the company to use the content).
  • In short, the law is designed to prevent companies from deleting, refusing to post, or otherwise seeking to suppress uncomplimentary reviews about the company or its products or services.
  • Action Items: Companies should review any form contracts, policies, or other standardized terms referring to user-posted reviews and similar content regarding the company or its products or services; identify any clauses prohibited by the new law; and (if needed) post updated terms on or before March 14, 2017.

The Details

I.        What is prohibited?

The new law provides that, except as otherwise provided, a provision of a “form contract” is void from the inception of such contract if it:

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.

A separate subdivision of the law provides that it is unlawful to “offer” such a form contract.

The term “form contract” is defined as “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;” except that it does not include employer-employee or independent contractor contract. The phrase “used by a person in the course of” is not defined, but it will likely be broadly interpreted to accomplish the goals of the new law.

In contrast, the term “covered communication” is defined very broadly, meaning a “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.” The term “electronic means” implies that it will be broadly interpreted to apply to mobile apps and social media channels to the extent they facilitate covered communications.

II.        What is still permitted?

As one would expect, the new law confirms that the prohibitions set forth above shall not 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 any webpage owned, operated, or otherwise controlled by it 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 website; 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 when created by an employee or independent contractor of a commercial entity and solely intended for commercial purposes by that entity.

Closing the loop, the new law confirms that the prohibitions set forth above “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;

D.    content that is unlawful; or

E.    content that contains any computer viruses, worms, or other potentially damaging computer code, processes, programs, applications or files.

III.      Are there penalties for noncompliance?

Yes. Violations of the new law are subject to the penalties provided in the Federal Trade Commission Act, 15 U.S.C. §§ 41 et seq. The law permits the attorney general and any other consumer protection officer of a State who is authorized by the State to bring a civil action on behalf of the State’s residents and to obtain appropriate relief. The Federal Trade Commission may intervene in any such action and it may also enforce the new law in the same manner, by the same means and with the same jurisdiction, powers, and duties as contemplated by the Federal Trade Commission Act.

Click here to read a copy of the Consumer Review Fairness Act of 2016.

Click here to read a copy of Pillsbury’s Internet & Social Media Law Blog post in December 2016, “The Freedom to Yelp: Congress Curbs ToS Overreach.