CONSUMER CORNER: Sign Here & Don't Tell Anyone

SHUSH – SIGN HERE AND DON’T TELL ANYONE - OR ELSE!

By Alan Marx

The internet, social media, and on-line review sites have changed the way consumers exchange and search for information about products and services. Yelp ( www.yelp.com/) and TripAdvisor ( http://www.tripadvisor.com/) publish reviews from customers about their experiences with restaurants, hotels, and local businesses. A website focused on medical services,  Healthgrades ( www.healthgrades.com/ ), publishes reviews and opinions from patients about physicians, dentists, and hospitals, as well as educational and professional details. Consumer’s Checkbook ( www.checkbook.org/sitemap/patient_central/memphis/) offers information from patients about physicians in the Memphis area. These are only a few examples.

Businesses that receive favorable reviews are pleased. When rated highly by Yelp or TripAdvisor, travel businesses and restaurants proudly put stickers on their doors and windows alerting the public. However, some businesses and professionals that receive unfavorable reviews are furious. They do not want to call attention to their bad ratings, and in recent years some have begun counterattacks. One of the tactics used is to require customers to sign contracts that purportedly bar online comments about the goods and services provided. These clauses are found in agreements that customers may not notice or may not read or understand, such as in the forms that are presented to medical patients or in online boxes that say that by checking the box, the customer agrees to be bound by the terms and conditions usually found in a link. A follow up tactic can take the form of threats to sue and, in some cases, actual litigation seeking a “gag” order or money damages, or both. An easy search on the internet shows horror stories about the damage and chilling effects these tactics have had on free expressions of opinion.

Of course, not every expression of opinion is candid. In some instances disreputable businesses have planted false reviews to injure their competitors. In others a particularly hard to please customer posts a negative review over trivial complaints. The anticompetitive false review can lead to litigation, while the second difficult consumer complaint usually is countered by the favorable responses from other consumers. A distinction can be drawn between honest expressions of views and opinions, on the one hand, and statements posted with a malevolent or anticompetitive motive. As shown below, the Federal Trade Commission (“FTC”) was silent on the matter until recently, when it brought a case that focused on the abuse of non-disparagement clauses. Members of Congress of both parties have now expressed their concern about this practice by introducing legislation in both the House of Representatives and the Senate.

Non-Disparagement Clauses

In September 2015 the FTC filed a lawsuit in federal court in Tampa against Roca Labs Inc., Roca Labs Nutraceutical USA Inc., and their principals, all engaged as marketers of dietary and weight-loss supplements. According to the FTC, the companies claimed that their products are safe, even for children, and effective alternatives to gastric bypass surgery, with weight loss of up to 21 pounds a month while a purchaser can continue “to eat what you like” with no diet restrictions or menus. The price is “only $480.”

The FTC alleged in its case that the defendants did not have scientific support for their claims. The case charged that the defendants made deceptive weight-loss claims, false establishment claims, unfair use of non-disparagement provisions, misrepresentations, deceptive privacy claim, and deceptive discount claims, and they failed to disclose material connections, all causing injury to consumers.

Most of this case is a fairly common deceptive practices action. What is unique is the FTC charge that the defendants included a hyperlink that customers had to click that said “I have read and agree to the terms, privacy, and money back reward/return policy.” When the customers received the product, one of the online terms was as follows:

You agree that regardless of your personal experience with RL, you will not disparage RL and/or any of its employees, products, or services. This means that you will not speak, publish, or cause to be published, print, review, blog, or otherwise write negatively about R L, or its products or employees in any way. This encompasses all forms of media, including and especially the internet.

In addition, Roca Labs included an insert in the package that said:

You were given a discount off the unsubsidized price of $1580 in exchange for your agreement to promote our product, and when possible share your weight loss success with us (keep the youtube videos coming). As part of this endorsement you also agree not to write any negative reviews about RLN or our products. In the event that you do not honor this agreement, you may owe immediately the full price of $1,580.

The FTC said the defendants not only threatened to enforce these provisions, but in some instances actually sued buyers who posted negative reviews, along with a website where consumers can post comments against companies.

Three review sites, Yelp, Mediolex Ltd. doing business as Complaints Board, and AVVO, a website that reviews attorneys, filed an amicus brief in the lawsuit in support of the FTC. They argued that they have an interest in encouraging the free exchange of consumer information.

This case is the first time the FTC has challenged the use of non-disparagement provisions in consumer contracts as an unfair practice. Mary Engle, Associate Director of the FTC's Division of Advertising Practices., said "The Commission believes that using a gag clause that prohibits consumers from saying anything negative, making any truthful negative comments about a company, is an unfair practice that violates the Federal Trade Commission Act … We're saying that as a matter of law it's an unfair practice to prohibit your customers from providing truthful negative information online or to the Better Business Bureau." Further, "If a marketer prohibits its customers from sharing this information, prospective customers are at a disadvantage."

After admitting that customers were required to agree not to publicly disparage the company, the defendants agreed to entry of a stipulated Temporary Restraining Order and a Preliminary Injunction, but they did not admit to liability or that they engaged in violations of the law or regulations.   Pending a final resolution after a full trial, the Court entered a Preliminary Injunction against several of the challenged business practices.

One of the enjoined practices prohibited the use of any contractual provision that purports to bar purchasers from speaking or publishing truthful or non-defamatory negative comments or reviews about defendants, their products, or their employees. The Order does allow the defendants to use a contractual provision that purports to prohibit purchasers from speaking or publishing untruthful or defamatory negative comments about the defendants, their products or employees, but if the defendants do use this provision they must include in its entirely and in bold print the portion of the Court’s Order relating to this subject. In addition, the defendants must notify the FTC and give the FTC fourteen days to review the challenged statement to determine whether it would object to any action by the defendants against the customer.

The Court also enjoined the defendants from representing that any purchaser owes or has agreed to pay the difference between the “discount price’ or any other price the customer was actually charged and the purported “full price” for the product if the purchaser speaks or publishes negative comments or reviews.

Scott Michelman, a staff attorney with the consumer group Public Citizen, applauded the FTC’s action. He said, "The bottom line is businesses should not be able to take away a customer's rights to criticize them, express their opinion and exchange information with fellow consumers… As long as consumers aren't reviewing businesses in a way that is false and defamatory, consumers have the right to make those reviews. And if it is false and defamatory, businesses have a defamation claim against them."

Bills Pending in Congress to Limit the Use of Certain Non-disparagement Clauses

Several months ago Senator John Thune (R-S.D.), Chairman of the Senate Commerce Committee, introduced the Consumer Review Freedom Act (S.2044), which was co-sponsored by Senators Brian Schatz (D-Hawaii) and Jerry Moran (R-Kan.). A similar bill was introduced in the House of Representative.

If enacted, these bills would prohibit the use of non-disparagement clauses that "restrict the ability of consumers" to communicate about goods and services. Senator Thune said the free market system cannot thrive if reviewers face intimidation against airing truthful criticisms, and that every consumer has the right to share their experiences and opinions of any business. The bill would ensure that consumers are free to share their views, free from intimidation.

 

As a rule of thumb, a business that tries to chill expressions of opinion about its goods or services probably is one you should avoid. Of course, some complaints are justified and some are not, but preventing the consumer from seeing any criticism is a sign that the business does not care what its customers think.

It is particularly impressive when the rating sites contain responses from the businesses that are rated. Responding to comments takes time, and the fact that a business willing to take that time and is paying attention to what its customers think is a good sign. When there is a good explanation for the facts that led to the low rating, it can be provided without insulting the rater. If a low rating cannot be explained, an apology can be offered when appropriate, or the business can just say it takes the comment to heart and will try harder. In any event, the forum remains open to all comers when gag orders are not used.