On December 14, 2016, President Obama signed into law H.R. 5111, a bill that prohibits companies from including within their standard form contracts with its consumers a non-disparagement clause that would prevent such customers from making any statements about the company’s products, services or employees. The Consumer Review Fairness Act of 2016 (“CRFA” or “the Act”) passed overwhelmingly in both the House and the Senate, garnering bipartisan support. See also House Debate, 162 Cong. Rec. H5295-H5298 (daily ed. Sept. 12, 2016) (statements upon introduction by bipartisan cosponsors). In fact, H.R. 5111 passed in the Senate, without amendment, on Unanimous Consent on November 28, 2016. See Senate Debate, 162 Cong. Rec. S6520 (daily ed. Nov. 28, 2016). Upon signing by the president, the Bill became Public Law No. 114-258.

Provisions and Application of CRFA

The law prohibits any “person” (which could be an individual or an entity) from “offer[ing] a form contract containing a provision described as void in subsection (b).” Id. §2 (c). Such provisions that are “void from the inception of the contract” include at least one of the following prohibited characteristics:

(1) They prohibit or restrict the ability of any individual party to the form contract from engaging in any “covered communication,” which is:

(a) A “written, oral or pictorial review, performance, assessment of, or other similar analysis of . . . the goods, service or conduct” of a party to the form contract;

(b) Made by an individual who is also a party to the form contract; and

(c) May be made – but is not required to be made – by electronic means (Id. § 2(a)(2)); OR

(2) They impose a penalty or fee on the individual reviewer for publishing that review; OR

(3) They transfer or require the individual reviewer to transfer any intellectual property rights in the review to the other party.

These “form contracts” are also defined — they must be used in the course of selling or leasing goods or services by one of the parties; and must be imposed on the other party (an individual) who lacks any “meaningful opportunity . . . to negotiate the standardized terms.” Id. § 2(a)(3).

Note that this Act specific excludes from coverage either (a) restrictions on agreements with other companies (see id. § 2(a)(3), (b)) or (b) employer-employee agreements or independent contractor agreements (see id. 2(a)(3)(B)). Theoretically, these two types of agreements are subject to negotiation by both parties. This Act instead focuses on the imbalance in bargaining power of the retail customer in a transaction involving a form contract.

Who Can Sue?

The Federal Trade Commission (FTC), state attorneys general, and “any other consumer protection officer of a State who is authorized by the State to do so” may bring a civil action for violations of this Act. Id. § 2(d), (e).

This law does not provide a private right of action. In other words, individual customers who believe they have been wronged cannot file suit based on this Act. However, this Act does not change any existing state law under which the customer could sue. Id. § 2(g). This means that the various state anti-SLAPP statutes are still in force and could be asserted against a company for attempting to quell customer speech. (See below for more on anti-SLAPP laws.)

Remedies

The FTC can enforce this Act “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 . . . were incorporated into and made part of this Act.” Id. § 2(d)(2). Both penalties and privileges from the FTC Act apply. Id. § 2(d)(2)(B).

As a result, the FTC is permitted to seek relief from a defendant in the form of, by way of example, “rescission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice, as the case may be.” FTC Act, 15 U.S.C. § 57b(b). However, the FTC cannot impose exemplary or punitive damages. Id.

Similarly, state attorneys general are permitted to bring a civil action on behalf of the residents of their state, provided that the FTC has not first brought suit for the same violation. (The FTC’s action will preempt a state attorney general’s action.) Id. § 2(e)(4).

Effective Date

This Act takes effect immediately, however, certain provisions have been delayed. Specifically, the prohibitions against non-disparagement clauses being included in form contracts become effective with contracts that are in effect on or after (i.e., 90 days after enactment). Id. § 2(i). However, the enforcement provisions only apply to contracts that are in effect on or after December 14, 2017 (i.e., one year after enactment). Id. Between now and then, the Federal Trade Commission has been tasked with developing “non-binding best practices” to assist businesses in complying with the new requirements, with those first guidelines being due on or about February 14, 2017. Id. § 2(f).

State Anti-SLAPP Laws

At least 28 states plus the District of Columbia have enacted anti-SLAPP laws in one form or another. A SLAPP suit is basically one determined to be “Strategic Litigation Against Public Participation” – in other words, an attempt at gagging someone who is entitled to speak in public. SLAPP suits are generally disfavored – they are restrictions on First Amendment rights.

California apparently enacted the first Anti-SLAPP law (California Code of Civ. Pro. § 425.16), which remains a robust means to challenge companies’ attempts to silence their critics. For instance, “[t]he Legislature finds and declares that it is in the public interest to encourage continued participation in matters of public significance, and that this participation should not be chilled through abuse of the judicial process. To this end, this section shall be construed broadly.” Id. §425.16(a).

Among other things, the California law allow plaintiffs who have been sued based on “any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue” to file a motion to strike that pleading. Id. If they are successful, they can have the pleading stricken and might be able to recover attorney’s fees and costs under certain circumstances. Id. If an anti-SLAPP motion is found to have been frivolous, a plaintiff may be eligible to recover it’s attorney fees and costs. Id.

RECOMMENDATIONS

While it may have seemed appealing at first to require all customers to refrain from publicly criticizing a Company or its products, the law makes clear that such prohibitions are unlawful. The efforts to silence legitimate critics were also somewhat short-sighted.

Instead, consider the value that might be earned by developing better customer service or providing customers with a dedicated way to complain directly TO YOU about things that can be remedied, rather than taking their complaints to the Internet because they feel like they’ve been ignored. To the extent that you can encourage your customers to engage with you first – before seeking recourse through public shaming – you will be better served than by trying to implement and enforce blanket prohibitions on speech.

One company even retroactively imposed a monetary fine ($3,500) based on its later-modified Terms of Service on a couple who had posted their negative comments online three years earlier. See H. Rept. 114-731 at 5 (Sept. 9, 2016). The company then reported this fine to credit reporting agencies as a bad debt when the couple refused to pay, which apparently caused the couple to be denied credit for some big purchases that they were trying to accomplish at the time. See, e.g., Susanna Kim, “Utah Couple Fined $3500 by Online Merchant KlearGear Retains Lawyer, Turns Table,” ABC News (Nov. 26, 2013). The coupled hired a lawyer and obtained a default judgment in Utah against the company for $306K, although it is unclear whether they were able to collect. Cyrus Farivar, “KlearGear must pay $306,750 to couple that left negative review,” ArsTechnica (June 25, 2014). The court noted that the provision in the terms of service that the company relied on to impose the fine did not exist in the version of the terms of service that was in effect when the couple ordered the product at issue or posted their review. Thus, retroactive impositions of substantial monetary fines to punish speech are similarly disfavored – and under the current law would be clearly unlawful.

TOP 5 TIPS:

1. Develop a standard customer service protocol: With every encounter with your customers, request their feedback. Positive or negative. Ask how you can improve your goods or services (even more important if you are in a service industry). The more routine this process is, the less likely any single negative comment will have a significant impact on the Company’s ability to maintain its reputation.
   1. You can request that they leave this feedback with a specific company employee tasked with handling customer disputes or you can direct customers to a select few online review services where you try to keep your feedback current.
   2. Perhaps have this feedback request on a card that a sales person could leave with the customer during any in-person meetings. Perhaps request this feedback through interactive links on your website.
   3. In any event, make sure that all such locations are user friendly and geared to make it easier for customers to give you honest feedback so that their frustration with any difficult customer service systems does not translate into an immediate and public criticism.
2. Review and understand the Terms of Service of those “select few” online review services where you ask people to leave their comments. You need to know whether and on what basis the services would remove negative online reviews upon request. Some may require court orders requiring the take down, particularly in light of this new law. Even before the Act, however, many of these sites would have refused to take down negative commentary articulating that they believed any debate about the services and the company’s method of resolving any disputes should be held in the public eye (i.e., on that company’s online review site.)
3. Review the Company’s standard or form sales contracts (specifically relating to consumer purchases) and remove any anti-disparagement provisions that are present. Note that this requirement does not apply to employee agreements or independent contractor agreements, where the assumption is that the other contracting party had some ability to negotiate the terms.
4. Remember that while nothing deleted after it is from posted on the Internet can be truly deleted, there is enough competition for the public’s attention that the public’s attention span for any negative review is likely going to be short (unless that review becomes the focus of an on-line dispute. There is so much information on the Internet that a single negative review or even a few such reviews over the course of time should not have a long-lasting impact on the Company’s business. Public memory does fade – provided that the Company does not make a bad situation worse.
5. Avoid drawing additional attention to negative comments, but if it is necessary to respond online to any negative feedback, do so responsibly and thoughtfully. Bad experiences happen. Find ways to turn such potentially bad experiences into learning experiences, teachable moments and growth opportunities. These moments can become the basis for positive public relations if you handle a bad situation well – particularly if the Company responds promptly, with grace and professionalism and if you provide a concrete remedy to make the situation better. This conduct will also help enhance the Company’s reputation and goodwill associated with its business.