Your business booked a large charity event. However, the customer contact turns out to be a nightmare. She complains (during and after the event) that the service was slow, the food looked and tasted like a frozen meal, and the drinks were watered down. She even claims she was overcharged. You reviewed the situation and, while you disagree, you offer her a credit. She declines and instead decides to post scathing reviews on Yelp, TripAdvisor, and several other review sites. She also gets her friends to post similar reviews. You remember, however, that the booking contract this irate customer signed barred her from posting negative reviews and imposes a $200 per negative review penalty. You ring up your attorney and ask her to send Ms. Nasty Customer a demand. Your lawyer tells you there may be a problem with this approach – under a new law signed by President Obama in December, the Consumer Review Fairness Act of 2016 – form contracts restricting reviews or imposing penalties are void.
Exceptions and Carve-Outs
There are several significant exceptions to the new law, offering some protections to organizations. First, individually-negotiated agreements are not covered by the new legislation. Second, Congress carved out employer-employee and independent contractor agreements from the “form contract” definition. Thus, under the new Act, employment provisions barring negative online reviews of an employer are not void. However, the National Labor Relations Board strongly disfavors restrictions on employees’ rights to discuss wages and working conditions in public forum. Further, some states may also seek to bar restrictions on online reviews. California and Maryland already have enacted laws barring non-disparagement clauses in consumer contracts.
Third, the Act does not bar an organization or individual from suing for defamation, libel, or slander. Thus, companies may still file suit for reviews containing false statements (and presumably include a clause in a form agreement or terms and conditions addressing such statements). Fourth, the law preserves any confidentiality required by law – such as HIPPA. Fifth, the Act expressly allows a party to remove or to refuse to display on a website/webpage operated by that party the content of a “covered communication” : (1) that contains personal information or the likeness of another person; (2) is libelous, harassing, abusive, obscene, vulgar, sexually explicit “or is inappropriate with respect to race, gender, sexuality, ethnicity or other “intrinsic characteristic”; or (3) that is false or misleading. Thus, companies that host their own webpages for customer comments and interactions may remove customer reviews meeting these standards. It would also appear lawful to advise customers in company terms and conditions or form contracts that such content may be reviewed.
Congress further created a carve-out from the Act’s consumer review protections for trade secrets or commercial or financial information considered privileged or confidential, personnel and medical files where disclosure would result in an invasion of personal privacy, records compiled for law enforcement purposes, content that is unlawful, and content containing computer viruses, worms, or other damaging code.
Federal Trade Commission Enforcement
The Federal Trade Commission (“FTC”) will enforce the Consumer Review Fairness Act of 2016. State Attorney Generals may also bring a civil action in federal court to obtain relief for their residents. The new law requires the FTC (within 60 days) to conduct education and outreach to businesses, including non-binding “best practices” for complying with the Act. Companies get 90 days (until March 14, 2017) before their contracts containing the now-proscribed practices are considered void.
The FTC may target a few “brand name” organizations in early enforcement actions to garner industry attention. Companies should be aware, however, that they retain the right to object to assessments that are exempted, including those that disclose confidential or personal information, or that are defamatory, misleading, obscene, vulgar, or unrelated to the products and services offered on the company’s webpage. So, while consumers cannot be penalized through a form contract by posting reviews, their rights to post are not unfettered. Contrary to the popular adage, as the Union Street Guest House learned, not all press is good press – and companies may still address false or defamatory reviews and those reviews containing other exempted content.
In e-commerce, user reviews can make or break a business. Review sites such as Yelp are a double edged sword for merchants and service providers: on one hand satisfied customers can generate buzz about the company and bring in new customers, and on the other hand dissatisfied customers can use it as a very public platform to air their grievances and discourage new business.
Review sites such as Yelp maintain policies protecting users’ anonymity, a major source of frustration among business owners. By remaining anonymous, users can make potentially defamatory statements and leave the businesses with little recourse to hold the individuals accountable. A recent ruling by the Virginia Supreme Court has demonstrated the long and tortured road that businesses must take to challenge the anonymity of these unnamed users.
In 2012 a small Virginia company, Hadeed Carpet Cleaning Inc., brought suit against unnamed Doe defendants for allegedly defamatory statements published about Hadeed on the Yelp review website. According to Hadeed, a number of negative reviews did not match up to records of the company’s existing customers, and therefore the company suspected that the false statements were published by individuals who had never used the company’s services. The Circuit Court for the City of Alexandria, Virginia, issued a subpoena to Yelp requiring it to provide identifying information about the anonymous users. Yelp refused to comply, and the Circuit Court held Yelp in contempt.
Yelp appealed, arguing that the court’s order violated the First Amendment by forcing the company to identify the anonymous users. In January 2014 the Court of Appeals upheld the Circuit Court’s order, applying a six-prong procedure Virginia’s “unmasking statute,” which provides that the court may issue a subpoena to unveil the identity of an individual speaking anonymously over the internet where (1) notice of the subpoena was served on the anonymous speaker through his internet service provider, (2) the plaintiff has a legitimate, good faith basis to contend that communications may be tortious or illegal, (3) other efforts to identify the speaker have been fruitless, (4) the identity of the communicator is important, (5) there is no pending motion challenging the viability of the lawsuit, and (6) the entity to whom the subpoena is addressed is likely to have responsive information.
The Court of Appeals noted that Hadeed had followed the proper procedure in requesting the subpoena. The court found that the company’s evidence that the reviews did not match customer records was sufficient to establish they were not published by actual customers of the company, and were therefore likely to be false.
Yelp appealed the Circuit Court decision to Virginia’s Supreme Court. Last month, the Virginia Supreme Court issued an anticlimactic ruling dismissing the case on jurisdictional grounds, stating that the case should have been brought in California where Yelp is headquartered and where the responsive records are located.
If Hadeed chooses to resume the case in California, if will face a somewhat higher burden in obtaining the names of the users. Notably, Virginia is the only state in the country to have enacted an unmasking statute. In most states, the courts will no issue a subpoena until the plaintiff has established a prima facie case for defamation—significantly more than the “legitimate, good faith basis” used in Virginia.