Law Passed To Protect Customers From Non-Disparagement Clauses And Other Ridiculous Restrictions

from the back-to-bogus-libel-lawsuits-then,-I-guess dept

Sitting on the president's desk is a bill [PDF] that will finally prevent companies from tying customers up with restrictive contracts at the point of purchase -- including forbidding the insertion of non-disparagement clauses. The bill is called the Consumer Review Fairness Act, but it might as well be called the KlearGear Act, after the infamous tech toy also-ran that gained international notoriety after it ran a customer's credit rating into the ground attempting to collect a $3,500 fee for violating a non-disparagement clause it inserted into its Terms of Use after the customer had already posted her negative review.

There are any number of existing applications for the bill once signed into law. Companies are still including non-disparagement clauses in contracts, despite there being ample evidence all it really does is generate massive amounts of disparagement from parties not bound by the contractual language. It's basically a pre-emptive federal anti-SLAPP law narrowly focused on protecting consumers from litigious companies who feel the "service" part of "customer service" involves a process server. (That being said, there's nothing stopping companies from filing bogus libel lawsuits over negative reviews -- one of many reasons there needs to be a federal anti-SLAPP statute.)

But that's not the only thing the law will prevent. The language will also keep companies from placing a bunch of restrictions on customers as a thank you gift for choosing to do business with them. Paul Alan Levy of Public Citizen points to another all-too-frequent abuse of customers this law will address.

Readers of this blog may recall an article that I posted in late September, taking issue with a proposed contract that the local professional soccer team has transmitted to season ticket holders who are in the process of renewing their season tickets for the coming season. My concern that the contract includes language in which fans waive the right to post “in any media any description, account, picture, video, audio or other form of reproduction of any D.C. United game or any surrounding activities.” Regrettably, despite many fans having objected to the proposed contract, to the extent of telling team sales people that they won’t be renewing if signing this contract is required, and even though the team tried to deflect the adverse coverage by saying that its lawyers would be looking at possible changes to the contract language. However, late last week the team sent out the same contract for signature, and told me privately that the lawyers had decided not to make any changes because the language is “industry standard.”

Nothing says "thanks for supporting our team" like "shut up and stop talking about us." DC United wants to retain strict control of its social media presence, apparently feeling that any "social" aspect should be solely restricted to the official channels. With the new law in place, the ridiculous "industry standard" will no longer be legal. Presumably, this also means it will no longer be the "industry standard."

Levy points out that the law has received the most attention for its banning of non-disparagement clauses, but it's also written to address this sort of contractual overreach.

[I]t forbids a form contract that “prohibits or restricts the ability of an individual who is a party to the form contract to engage in a covered communication,” Section 2(b)(1)(A), and defines “covered communication” to include any “ written, oral, or pictorial review, performance assessment of, or other similar analysis of . . . the goods, services, or conduct of a person by an individual who is party to a form contract.” Section 2(a)(2). The DC United contract that forbids fans from posting written descriptions or pictures of a game (that is, a review or performance assessment of the team’s conduct) is squarely within the law’s prohibition.

While companies should take care to protect their intellectual property and reputations, this can all be accomplished without forcing customers to accept ridiculous restraints in exchange for a product or service. Companies may point to such concerns when writing these clauses, but underneath it all, it's usually just an attempt to control public perception -- either by discouraging negative reviews or shutting down social media postings that don't align with the official company narrative.

Filed Under: anti-slapp, consumer review fairness act, crfa, free speech, gag orders, non-disparagement, non-disparagement clauses
Companies: kleargear

Senate Passes Bill Banning Non-Disparagement Clauses

from the silencing-the-silencers dept

Despite it being transparently obvious that non-disparagement clauses hidden in fine print serve the singular purpose of deterring complaints about bad products and services, companies still deploy them with little fear of retribution. To date, only one state has actually banned the use of non-disparagement clauses: California.

The issue appears to have finally reached the critical mass needed to propel it onto the national legislative radar. Back in May, multiple representatives started pushing for a federal ban on these clauses, prompted in part by the high-profile KlearGear debacle, in which a couple had their credit rating ruined by the online retailer in its pursuit of a BS $3,500 fee tied to its (nonexistent at the time of the negative review) non-disparagement clause.

The Senate's version of this bill -- which also forbids companies from requiring customers to sign over IP rights to their reviews (so they can be targeted with bogus DMCA takedown notices) -- has cleared another significant hurdle, as The Consumerist reports.

A nationwide ban on the use of tricky “non-disparagement” or “gag” clauses — which prevent consumers from providing their honest opinions in public forums — cleared the Senate today, bringing it one major step closer to becoming law.

If passed by the full Congress, the Consumer Review Freedom Act [PDF] would give the Federal Trade Commission and state attorneys general the authority to take enforcement action against businesses that attempt to these ethically questionable clauses to quiet consumers.

The House version hasn't moved forward since May. The Senate's passage of a nearly identical bill should prompt some action from this side of Congress. Both bills would seem to have enough support to make this a reality.

If passed, the new law would authorize the Federal Trade Commission to take action against companies deploying non-disparagement clauses. Unfortunately, the Senate version does not authorize $16,000/day fines for violating the law like the House version does, instead limiting the FTC's actions to civil proceedings. But either way, a ban at the federal level would give shady American companies no place to hide.

Filed Under: feedback, free speech, gag clause, non-disparagement clauses, reviews, senate

FTC: 'Roca Labs Has An Adversarial Relationship With The Truth'; Suggests Plans To Crack Down On More Gag Clauses

from the good-news dept

Roca Labs threatened to sue us here at Techdirt twice for publishing accurate articles about the company, its sketchy practices and legal threats -- and especially for its ridiculous "gag clause" that told customers they could never say disparaging things about the product online. Among other things, Roca Labs threatened others for claiming its products were "snake oil" and us for merely repeating statements that were in court filings. So we were certainly pleased last week when the FTC finally took Roca Labs to court, for both deceptive and misleading advertising and over the gag clause itself.

On Monday, the FTC put out a blog post about this where it went into more detail about why it was targeting Roca Labs:

“Roca Labs had an adversarial relationship with the truth,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Not only did they make false or unsubstantiated weight-loss claims, they also attempted to intimidate their own customers from sharing truthful – and truly negative – reviews of their products.”

I can't wait to see Roca Labs' "Independent General Counsel" Paul Berger now try to threaten the FTC with one of his standard "You're defaming us!" letters.

In the meantime, though, there is a more important element in all of this, which is that this is the first time we've seen the FTC go after these gag clauses. We've been writing about such gag clauses for many years, going back to a dentist who billed someone $100 per day for a negative review. Then there was the infamous KlearGear case, where the online retailer demanded $3,500 for a negative review (from a non-customer!).

A year ago, we had a post highlighting a bunch of these kinds of gag clauses from a variety of different companies. California passed a state law outlawing such non-disparagement clauses, and a federal bill was introduced earlier this year -- though it has gone nowhere.

But the fact that the FTC directly called out the practice suggests that, while we wait for Congress to get its act together, the FTC may be willing to go after the more egregious providers of such clauses.

In a complaint filed in federal court, the FTC alleges that Roca Labs, Inc.; Roca Labs Nutraceutical USA, Inc.; and their principals have sued and threatened to sue consumers who shared their negative experiences online or complained to the Better Business Bureau, stating that the consumers violated the non-disparagement provisions of the “Terms and Conditions” they supposedly agreed to when they bought the products. The FTC alleges that these gag clause provisions, and the defendants’ related warnings, threats, and lawsuits, harm consumers by unfairly barring purchasers from sharing truthful, negative comments about the defendants and their products.

A full law would be nice to have, but in the meantime, having the FTC step in seems like a useful tool to stop these gag clauses from silencing consumers.

Filed Under: ftc, gag clause, non-disparagement clauses
Companies: roca labs

Legislators Introduce Bill Calling For Nationwide Ban On Non-Disparagement Clauses

from the the-'KlearGear-Law' dept

Non-disparagement clauses are one of the stupidest things any company can enact. In most cases, it's almost impossible to enforce them, no matter how artfully crafted. Most aren't. Most non-disparagement clauses found lying around the internet have been lazily copied and pasted from pre-existing bad ideas instituted by other companies.

On top of the legally-dubious aspects, there's the potential for severe backlash -- something that completely underscores the futility of these half-assed gag orders. Instead of heading off criticism, these clauses tend to invite negative reviews, often from internet denizens who've never patronized the company they're bashing at multiple review sites.

But still, these clauses persist. Up until recently, the court of public opinion has had to do most of the heavy lifting when it came to the enforcement of these clauses. Last September, California became the first state in the nation to ban non-disparagement clauses, threatening violators with fines up to $10,000 (for repeated violations).

Now, the federal government is taking another swing at bad companies hiding behind worse legal language.

Today, Representatives Darrell Issa, Eric Swalwell, Blake Farenthold, and Brad Sherman (two Democrats and two Republicans) jointly proposed in Congress the Consumer Review Freedom Act of 2015, which would ban non-disparagement clauses nationally. We at Public Citizen have litigated cases against the use of such clauses (for instance in the KlearGear case, as well as the Cox case). The proposed bill, which is similar to one introduced last session (by Democrats only), also prohibits a business from imposing a clause requiring consumers to sign away their intellectual property rights in communications about the business. We've challenged that type of clause, too. Today's bill authorizes enforcement by the Justice Department and by state attorneys general.

The proposed law includes fines that could add up to real money fairly quickly.

The Attorney General shall bring an action against any business who violates subsection (d) for a civil penalty of not more than $16,000 for each day that the business so requires the use of such a contract by a distinct person.

No company will be penalized for existing clauses but will be expected to remove them as soon as possible. One year after the bill's enactment, any clauses still in existence (or new clauses enacted past this point) will subject companies to daily fines.

As noted above, the bill would also prevent IP landgrabs by companies that allow them to issue DMCA takedown notices targeting critical review they now "own" thanks to the fine print on Terms and Conditions pages.

How effective a law like this will be in keeping the KlearGears of the nation in line is open to debate. Some shady companies may maintain their US "presence" for only as long as it remains beneficial to them. In the wake of the default judgment against KlearGear for its bogus non-disparagement clause, the company -- which had claimed to be located at multiple locations throughout the US over the past several years -- suddenly revealed itself to be a very French corporation and thus out of reach of the $350,000 fee.

Hopefully, the law -- if implemented -- will deter future companies from ambushing unhappy customers with egregious fees and damaged credit records. The fines mooted here should act as a deterrent, especially when pursuing these fines doesn't appear to hinge on the enforcement of these questionable clauses, but rather their mere existence.

Filed Under: blake farenthold, brad sherman, congress, darrell issa, eric swalwell, free speech, gag clauses, non-disparagement clauses, reviews
Companies: kleargear

Federal Legislation Introduced To Strengthen Consumer Free Speech Rights Online

from the about-time dept

Last week, Tim Cushing wrote about California's new law that outlaws consumer-silencing non-disparagement clauses. Apparently momentum is on consumers' side, as Rep. Eric Swalwell, along with Rep. Brad Sherman, introduced similar federal legislation this week to protect all consumers from this shady tactic.

The bill, cited as the "Consumer Review Freedom Act of 2014," voids any provision of a contract that:

1. prohibits or restricts the ability of a person who is a party to the form contract to engage in a covered communication;
2. imposes a penalty or fee against a person who is a party to the form contract for engaging in a covered communication; or
3. assigns or provides an exclusive license, or requires a person who is a party to the form contract to assign or provide an exclusive license, to any business, other person, or entity any intellectual property rights that such party to the adhesion contract has or may have in a covered communication.

The bill later defines "covered communication" as "a person's written, verbal, or pictorial review, performance assessment of, or other similar analysis of, the products, services, or conduct of a business which is a party to the form contract."

While the bill does not specify fines for violations like California's new law, it is still a step in the right direction (and better than nothing).

In his press release following the introduction, Swalwell said, "No country that values free speech would allow customers to be penalized for writing an honest review. I introduced this legislation to put a stop to this egregious behavior so people can share honest reviews without fear of litigation. I look forward to advancing this in a bipartisan manner, and protecting the right to speak one's mind."

Swalwell also cited Palmer v. Kleargear.com in his press release (the case involving a couple from Utah who was fined $3,500 by KlearGear for violation of a non-disparagement clause after they posted a negative review online about their experience with the company).

Palmer is just one example of recent headlines that shed light on the problem of non-disparagement clauses. From a hotel in New York that threatened to charge guests $500 for posting negative reviews online, to a contractor who voided his client's warranty because of a negative online review, numerous examples over the past few years have shed light on this shameful practice by businesses.

Though this is not an entirely new phenomenon. Consumers have been getting hit with Strategic Lawsuits Against Public Participation (SLAPPs) for years, where a plaintiff files a meritless lawsuit against a consumer for posting a negative review online. Yet, now businesses are attempting to avoid having to file a SLAPP by burying non-disparagement clauses in the fine print of consumer contracts.

Both tactics by businesses are aimed at chilling the First Amendment rights of consumers. Here's hoping Rep. Swalwell's bill becomes law and that federal anti-SLAPP legislation follows suit.

Evan Mascagni is the Policy Director of the Public Participation Project (www.anti-slapp.org), a nonprofit organization dedicated to enactment of strong federal and state legislative protections against SLAPPs.

Filed Under: brad sherman, consumer review freedom act, eric swalwell, free speech, non-disparagement clauses, reviews

California Outlaws Consumer-Silencing Non-Disparagement Clauses

from the seeking-redress-in-form-of-head-punching-tabled dept

In one state, at least, non-disparagement clauses like the one KlearGear tried to use to extract $3,500 from unhappy customers, will be illegal. California governor Jerry Brown has just signed a bill that will prevent companies from silencing customers with non-disparagement clauses buried in Terms and Conditions pages.

Here's the relevant text of the bill:

(a) (1) A contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.

(2) It shall be unlawful to threaten or to seek to enforce a provision made unlawful under this section, or to otherwise penalize a consumer for making any statement protected under this section.

(b) Any waiver of the provisions of this section is contrary to public policy, and is void and unenforceable.

Violating this could result in a fine of $2,500 for a first violation (up to $10,000 for "flagrant" violations), which unfortunately means KlearGear (which is specifically referenced in the discussion of the bill) would still net $1,000 -- at least the first time it gets away with it. (Which it hasn't, and apparently never will -- that clause has been removed from its website. Also, no one can seem to find an actual human being connected to the company selling so much stuff it can barely be described in a ridiculous press release.) Since most companies aren't willing to charge the equivalent of a low-end used car for negative reviews, this bill pretty much ensures no one will be seeking to enforce non-disparagement clauses in California. Simply having the clause -- even if it's never enforced -- could result in a fine.

This is a win for consumers, at least as far as it can be enforced. As has been noted here, there's more than a few companies combining crappy service with hefty fines that don't seem to actually exist outside of a Mailboxes, Etc. addresses. Laws are tough to enforce when you can't find anyone to hold accountable. The worst part is that by the time most consumers discover they're dealing with a company that will charge them for negative reviews, these companies already have their credit card information and can start adding these charges to their balances.

The good news is that it's illegal in this state. Preemptive action can be taken to uncover these illegal terms and conditions in order to either push the companies towards complying with the state law or (better) getting them to drop these clauses altogether.

A law preventing these is good, and there needs to be more of them, but the best steps are still preventive. Plenty of sites keep an eye out for consumers and are usually the first to call out this behavior. Enough public outcry and these sites are either blackballed or shuttered completely. The threat of enforcement may be enough to deter some behavior, but when it comes down to it, the entity that best serves the public's interests is still the public.

Filed Under: california, free speech, non-disparagement clauses, opinions, reviews
Companies: kleargear