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One-star review? You’re free to Yelp

Consumer Review Fairness Act blocks companies from including ‘gag clauses’ in contracts.

January 20, 2017
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Thanks to recent bipartisan legislation, it’s now a little safer for consumers to post honest reviews of less-than-stellar experiences.

The Consumer Review Fairness Act, which took effect last month, targets the ability of companies to include nondisparagement clauses in the fine print of commercial agreements, such as hotel room rentals or vendor contracts.

Known more commonly as “gag clauses,” the formerly common practice of companies including language that restricted what customers can say about their service, now is prohibited in the context of form contracts — where the terms and conditions of the contract are set by one party and the other party has little to no ability to negotiate for more favorable terms.

Tim Eagle, a partner at Varnum who specializes in intellectual property, e-commerce and litigation, said advocates are hailing the statute a big “step forward” for consumer rights.

“It protects things like reviews and performance assessments,” he said. “It covers words, but also stars or thumbs up, those types of image-related statements.”

In 2014, according to a widely publicized story by the New York Post, a hotel in Hudson, New York, started charging couples $500 for every negative review posted online by a member of the wedding party because of its contract’s gag clause.

And, as the Business Journal reported in 2013, a Grandville-based online company called KlearGear charged a Utah customer a penalty of $3,500 for posting a bad review of the company online — and reported the customer to a credit-reporting agency, damaging her credit.

At the time, then-Varnum lawyer Stephen MacGuidwin told the Business Journal that particular case may or may not have been legal, but in general, a disparagement clause with a monetary penalty could hold up in court.

Not so anymore, Eagle said. The new statute effectively erases the “three arrows” companies previously could aim at consumers who posted negative reviews.

“All the statute says is that those three mechanisms that companies were previously using to stop bad reviews are no longer allowed,” he said. “No. 1, you can’t post a bad review, No. 2, if you do, you have to pay a penalty and No. 3, companies can transfer the intellectual property rights of what’s in reviews to the company, so they can go to the third party hosting the review and say ‘I own the copyright in that review, take it down.’”

Eagle said a lot of times, companies succeeded in getting what they wanted with the third “arrow.”

“The site hosting the review might take it down because the intellectual property owner (was) asking for it,” he said. “But Congress has said you cannot now engage in that tactic (under the Consumer Review Fairness Act).”

There are some exceptions to the new law, Eagle said.

“This statute does not apply to employer-employee contracts or independent contractor-employer relationships,” he said, where, for example, an employee or contractor could post a negative review of their employer that violated contracts with the employer.

Another exception is if the review is dishonest, inaccurate, defamatory or libelous.

“The company that the review is being posted regarding their goods or services would still have the opportunity to pursue claims of defamation or libel or slander,” he said.

Eagle said there still are several gray areas that remain to be determined when it comes to implementation of the law.

“There are still a number of things we’re going to have to wait and see how the courts handle,” he said. “It’s not quite clear how the courts will treat this statute when it’s dealing with an intra-state contract (state to state).

“It’s also not clear whether courts will permit individuals to bring suits. The statute just contemplates that only the governmental and commercial entities will be the parties bringing suit. And it’s also not clear whether Congress will require a party hosting comments to take down the negative comments.”

In the meantime, Eagle said consumers should know the law before they Yelp.

“Read the terms and conditions,” he said. “Do try and read the small print, the language on the back of the document or on the online form, so you can make sure you are compliant.”

Companies, he said, have an even greater onus of compliance than individuals in this case.

“Businesses are going to have to make sure they comply,” he said. “It’s more important for the businesses to be aware of this statute than it is for an individual consumer.

“The (Federal Trade Commission) will issue guidelines for how to comply” within the next month or so, Eagle said.

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