Senate Passes Consumer Review Freedom Act
On the floor, the sponsors introduced a new version of the bill. I generated a redline (using Microsoft Word’s compare feature, so caveat reader) to show the changes between the December 8 version approved by the committee and the December 15 version approved by the Senate. The changes I see look pretty minor and mostly relate to how a company can manage consumer reviews on its own website. For example, Walmart.com may be able to remove critical reviews of the company from its own site, and as the committee report (discussed in a moment) cites, “a website owner may lawfully include in its terms and conditions a non-exclusive license to a comment left on the owner’s website and use the content for marketing purposes.”
Consumers increasingly rely on websites and other platforms that allow consumers to share information about goods and services and, as a result, to benefit from the experiences of others. In particular, consumer reviews have become a powerful informational tool because consumers place a high value on the truthful reviews of other consumers. As a result, businesses are at times frustrated by what they perceive as unfair criticism and some have turned to questionable legal remedies in an effort to protect their reputations, including non-negotiable terms in form contracts that prohibit consumers from publicly ‘‘disparaging’’ a business. Such clauses go beyond protecting businesses from defamation because they also restrict or bar truthful statements, often by imposing financial penalties if the provision is violated. For example, one online retailer assessed a penalty of $3,500 against a consumer for a truthful, yet negative, review. When the consumer refused to pay the penalty, the online retailer reported the penalty as a ‘‘debt’’ to credit agencies. Another online retailer prohibited consumers from even proposing to make negative public statements about the retailer. When one consumer did not receive her order from the online retailer, she informed the retailer she would contact her credit card company. In response, the retailer demanded the consumer pay $250 for violation of the company’s terms of sale.
The consequences of these non-disparagement clauses are far ranging. Penalties and lawsuits that emanate from non-disparagement clauses stifle the speech of consumers, and thus interstate commerce, by not permitting fair criticism of a business even when that feedback is an honest reflection of consumers’ experiences. Non-disparagement clauses also distort public reviews of a business because that business may receive more positive feedback than warranted, thus harming consumers who rely on such reviews.
The report contains this caveat:
It is the intention of the Committee that enforcement of the statute be focused on businesses or individuals imposing the non-disparagement clause on consumers.
The version passed by the Senate changed the main operative provision to address this issue. In the December 8 version, it said it was illegal to offer or enter into a prohibited contract. The Senate-approved version strikes the phrase “enter into,” simply making it illegal to offer the clause.
On the law’s economic impact, the report says:
This legislation would not have an adverse economic impact on the Nation. The bill would promote consumer protection by making certain non-disparagement clauses unlawful, thus allowing consumers to make better informed decisions when procuring goods and services, and rewarding companies that offer quality goods and services.
With the Senate’s quick progress on this bill, the action now shifts to the House. I hope they get moving!
* THOMAS page for S. 2044. GovTrack.us page.
* My testimony before the Senate Commerce Committee Hearing in early November, supporting the bill. The hearing page. The hearing video.
* Senate Commerce Committee Approves Consumer Review Freedom Act
* How Congress Can Protect Online Consumer Reviews
* Court Might Enforce A Contract Ban On Consumer Reviews
* Fining Customers For Negative Online Reviews Isn’t New…Or Smart
* California Tells Businesses: Stop Trying To Ban Consumer Reviews
* My 2010 article, The Regulation of Reputational Information