Recent Legislation Affects Business’ Ability to Contract Against Negative Online Content

By November 7, 2017 Business, Intellectual Property

In the age of the viral tweet and YouTube channel, it’s no wonder that many businesses expend significant resources to manage and cultivate a positive online footprint. As 2017’s seemingly endless supply of high profile corporate PR disasters has thus far demonstrated, it has never been easier for a business to lose control of its online reputation. Well aware that online reviews increasingly inform and influence consumer choices, the prudent business owner may well wonder how he or she can best protect the company from negative online content.

Given the high stakes involved, some business owners might even wonder if contract law offers the key to reducing exposure to online criticism. A hotel manager, for instance, might wonder if she can add a clause to the hotel’s standard guest contract purporting to prohibit negative online reviews. If the business is particularly creative, it might even think about making its customers sign over intellectual property rights to future reviews they may write about the business, with the hopes of being able to force the removal of negative content from websites like Yelp. Although these may seem like easy ways to protect the business from exposure to negative online content, Congress recently passed a law making it illegal under most circumstances for a business to elicit such promises in form customer contracts.

Since becoming law in December 2016, the Consumer Review Fairness Act of 2016 (the “Act”) has protected “covered communications,” which include written, oral, and pictorial reviews, performance assessments and analyses of “the goods, services, or conduct of a person by an individual who is party to a form contract.” See 15 U.S.C. § 45b (2016). It seems likely that the most common example of a covered communication is the review of a business with which a customer has a contractual relationship, such as the hypothetical hotel discussed above. The Act provides that “form contract” provisions which restrict or prohibit individuals from engaging in a covered communication, or which penalize an individual for doing so, are void from inception. The Act also voids most provisions providing for the transfer of an individual’s intellectual property rights in a covered communication.

Thus, business owners should be aware that the Act renders void most attempts to contractually control or prohibit negative consumer reviews. Although there are some narrow exceptions to the Act’s general protection of covered communications, such as exceptions for confidential and libelous materials, the difference between a provision that is permissible under the Act and one which the Act prohibits will often be nuanced. Additionally, the consequences for violating the Act are potentially much more serious than simply incurring the risk that a given contractual provision could be ineffective. If a contractual provision violates the Act, effective December 14, 2017, such violation is subject to prosecution at either the federal level (via the Federal Trade Commission’s enforcement authority) or at the state level, as an unfair or deceptive practice under the Federal Trade Commission Act. In other words, by including a provision that violates the Consumer Review Fairness Act in its form contracts, a business may subject itself to civil liability without actually achieving the reputational protections it had sought. As such, businesses wishing to include provisions in form contracts that could be construed as restricting a customer’s ability to publicly review or assess the business or its products should proceed with extreme caution. Some common clauses that are particularly prone to violating the Consumer Review Fairness Act are those dealing with confidentiality/proprietary information, and those which attempt to set liquidated damages for libel or slander. Business owners who are considering adding these types of clauses to their form customer contracts in particular should seek advice from counsel to avoid inadvertently violating the Consumer Review Fairness Act or other applicable law.

The Perkins Thompson Business and Intellectual Property practice groups are comprised of attorneys with experience in helping entities develop standardized contracts to cover their customer relationships. If you would like more information about the Consumer Review Fairness Act of 2016 or alternative approaches to protecting your business’s online reputation, please email Ian Green or call him at 207-774-2635.