Liability for Use of Non-Disparagement Clauses in Form Contracts with Consumers

In early 2017, the Consumer Review Fairness Act (CRFA), 15 U.S.C. §45b, took effect. With the passage of this law, the Federal Trade Commission has begun using the CRFA to crack down on businesses that use non-disparagement provisions in consumer contracts to attempt to prevent consumers from posting negative reviews in order to make a product seem more favorable than it really is. To date the FTC has launched numerous investigations into suspected violations of the CRFA and has brought and settled a handful of administrative actions against companies.

The CRFA is meant to protect consumers’ ability to share their honest opinions about a business’s products, services, or conduct in any forum, including in online reviews and via social media. According to the FTC the CRFA:

makes provisions of form contracts between sellers and individual consumers void from inception if the provisions: (1) prohibit or restrict individuals from reviewing sellers’ goods, services, or conduct; (2) impose penalties or fees on individuals for such reviews; or (3) require individuals to transfer intellectual property rights in such reviews. The Act also bars sellers from offering form contracts with such provisions. The Act contains certain exceptions, including for contract provisions that bar the submission of confidential, private, or unlawful information.

The FTC has set forth some basic guidelines for businesses to ensure CRFA compliance. These guidelines include advice such as removing from all consumer contracts provisions that prohibit honest reviews or threaten legal action over such reviews. According to the FTC, these types of provisions in form consumer contracts harm people who rely on reviews when making purchasing decisions. These guidelines warn that the prohibition against the use of non-disparagement provisions also applies to language that seeks to prevent honest consumer evaluations of a company’s customer service.

In August 2018 the FTC brought and soon settled one of its first cases enforcing the CRFA against a company for misrepresenting its earnings. The defendants, in that case, a business opportunity company, and its owners sold a system to consumers for increasing sales on online marketplaces like Amazon. According to the FTC, the business practices of the defendants were deceptive and violated, among other statutes, the CRFA by making false or unsupported earnings claims and using contracts that restrict individual consumers’ ability to review products and services they purchased.

The FTC has investigated and brought actions against several other companies for similarly using non-disparagement clauses in form contracts. These companies include a Pennsylvania-based HVAC and electrical provider, a Massachusetts-based flooring firm, and a Nevada-based horseback trail riding operation. In each case, according to an FTC press release, the FTC settlement with the defendants included injunctive and other relief prohibiting the use of form contract terms that prohibit, restrict, penalize, or transfer rights in consumer reviews from consumers to the companies. In addition, the settlement orders require the companies to notify customers who entered contracts containing the allegedly unlawful non-disparagement clauses on or after March 14, 2017, that the non-disparagement provisions are void and cannot be enforced, and that those customers can publish their honest reviews, even if they are negative.

Lubin Austermuehle’s Chicago consumer fraud and class action defense lawyers assist businesses accused of fraud or deceptive business practices defend against actions, investigations, or class action lawsuits by the FTC or Illinois Attorney General.

Our Chicago business lawyers have more than thirty-five years of experience helping business clients on unraveling complex business fraud and breach of fiduciary duty cases. Additionally, our Chicago business, commercial, and class-action litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Elmhurst and Wilmette, near Waukegan, and Oak Brook, we serve clients throughout Illinois and the Midwest.

If you’re facing an FTC investigation or a class-action lawsuit, or the possibility of one, and you would like to discuss how the experienced FTC and Illinois attorney general investigation defense attorneys at Lubin Austermuehle can help defend your business, we would like to hear from you. To set up a consultation with one of our Naperville and Chicago business law attorneys and class action and consumer trial lawyers, please call us at 630 333-0333 or contact us online.

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