Roca Labs’ Anti-Review Clause Violates FTC Act–FTC v. Roca Labs

Good news: a court ruled that Roca Labs anti-review clause violates the law. It’s shocking that Roca Labs chose to defend this practice in court, so it’s not surprising that the judge didn’t endorse it. Bad news: the court relied on the “unfairness” prong of the FTC Act, and the FTC’s unfairness authority can be the basis of FTC overreaching. Good news: the Consumer Review Fairness Act will apply to future cases (this case was initiated before the CRFA’s effectiveness), so this topic won’t require the FTC to stretch its unfairness authority in the future. Thus, this case reinforces the prevailing wisdom: anti-review clauses are legally toxic; they don’t belong in any business’ toolkit; and if your contract still contains them, shame on you.

The Anti-Review Clause Constitutes an “Unfair” Practice

Substantial Injury. The FTC showed evidence that anti-review clauses create what I call lopsided databases, where only good reviews remain and negative  reviews are suppressed/excised, and lopsided databases are useless to consumers. The FTC also showed evidence that Roca Labs suppressed actual consumer reviews by asserting legal threats. The court accepts these arguments: “Because Defendants admittedly suppressed negative information about the products and because Dr. Pavlou testified that the absence of negative information could make a consumer more inclined to purchase Roca Labs products, the Court finds that
Defendants’ practices have caused or were likely to cause substantial injury to consumers. The record demonstrates that some consumers paid hundreds of dollars for the Roca Labs products and unsuccessfully sought refunds because of Defendants’ practice of issuing threats under the guise of enforcing the gag clause. ”

Roca Labs argued that unfairness requires the FTC to show tangible harm, not intangible harm. The court disagrees.

Consumer Avoidance. “Defendants offer no facts to support a claim that prospective customers could reasonably avoid a dearth of negative reviews, which the Defendants assiduously prevented from being available.”

Countervailing Benefits. Roca Labs argued that some consumers benefited from its products, but the court says these benefits aren’t attributable to the anti-review clauses.

Fair Notice. “Defendants offer no evidence that the FTC abruptly changed course in its enforcement guidelines or in its statutory provisions.”

Other Rulings

Roca Labs loses virtually all other contested points as well. Some highlights:

• Its weight-loss claims were deceptive and not adequately substantiated.
• Employee-authored testimonials, without disclosing the conflict, were also deceptive. “The financial relationship with the testimonialists and ownership of
  Gastricbypass.me is material…The financial relationship also is material because Gastricbypass.me website and testimonials involve health matters, weight loss claims, and other information important to the consumer in deciding whether to purchase Roca Labs products.”
• Roca Labs made false claims about keeping its customers’ health information private because it disclosed details to payment processors when fighting chargebacks.
• Roca Labs falsely advertised that it provided a price discount in exchange for consumers’ waiving their rights to post negative reviews. It created the “overall net impression” that the purportedly discounted price was, in fact, the actual price. This impression wasn’t overcome by obscure disclosures in the form contract.
• Roca Labs will have to disgorge its net revenues, starting with a gross revenue base of over $25M.
• Roca Labs’ principals are personally liable.

Implications

Other Anti-Review Clauses Probably Are “Unfair” Too. Roca Labs’ idiosyncratic and problematic business practices hurt them in litigation, so it’s not surprising to see a court rule against all of their arguments. Further, this opinion isn’t a model of clarity, which makes it hard to follow the judge’s thinking. However, I think this court’s ruling on anti-review clauses isn’t limited to Roca Labs and could apply to more sympathetic defendants. At minimum, this ruling offers a strong data point that anti-review clauses violate the FTC Act’s unfairness prong.

Anti-Review Clauses Violate the Consumer Review Fairness Act and State Statutes. Even if Roca Labs had won this ruling, Congress mooted the unfairness issue by passing the Consumer Review Fairness Act, which categorically bans anti-review clauses. See my CRFA primer. So expect the FTC to skip the unfairness arguments in the future and just rely on the CRFA. See its recent enforcement action against Sellers Playbook. Plus, California, Maryland and Illinois have also banned anti-review clauses (which I discuss more in this post). So the law remains crystal-clear: it’s illegal to deploy anti-review clauses.

Case citation: Federal Trade Commission v. Roca Labs, Inc.,  8:15-cv-02231-MSS-CPT (M.D. Fla. Sept. 14, 2018)