The Federal Trade Commission (“FTC”) recently announced approval of five Final Consent Orders in five different proceedings against companies that used non-disparagement clauses in their consumer contracts to prevent customers from posting negative online reviews. See FTC Release here. Note that the FTC actions relates only to consumer contracts. With respect to business-to-business contracts and contracts that are specifically negotiated between sophisticated parties, non-disparagement clauses can be drafted and enforced. An experienced San Diego corporate attorney can provide advice and counsel with respect to when and where a non-disparagement clause can be enforceable here in the Golden State.

The FTC is tasked with enforcing several federal laws including the Federal Trade Commission Act (“FTC Act”) and the Consumer Review Fairness Act. The FTC Act prohibited unfair and deceptive business practices and unfair and deceptive advertising. The Consumer Review Fairness Act was enacted by Congress to prevent companies from unduly interfering with consumers’ rights to post online reviews. Business reputation is important in the current business climate and a few bad reviews can have a devastating impact on sales and revenue and reputation. Many companies have aggressively sought to prevent negative reviews by adding non-disparagement clauses to their consumer contracts. The Consumer Review Fairness Act was enacted to prevent that type of behavior and the FTC has been bringing actions against businesses all across the country.

In particular, with much fanfare and public notice, the FTC brought five actions against companies earlier in 2019 seeking to nullify their anti-disparagement clauses. Two companies are rental companies, one is a horse trail riding company in Nevada, another is an HVAC service company in Pennsylvania, and the final company is a flooring installer in Massachusetts. Notably, the owners of each company were sued personally by the FTC. In each case, the companies used non-disparagement clauses in their form contracts that purported to prevent customers from posting negative online reviews of the company or disparaging the reputation of the companies in any other manner. Compliance with the non-disparagement provisions was a precondition for the companies providing their goods and services. The clauses allowed the companies to sue for damages and for injunctive relief that would allow a court to order the removal of the negative online reviews. Finally, some of the clauses went further and assigned ownership of the reviews to the companies. This was intended to allow the companies to contact the internet hosting websites to have the reviews removed.

However, as noted, such clauses are not allowed under the Consumer Review Fairness Act. As a result, the FTC brought proceedings against the companies. They have now all agreed to Consent Orders. The Consent Orders prohibit the companies from offering a form contract to any consumer that includes terms that prohibit, restrict, or penalize consumers who provide reviews for online (or other) platforms. The Consent Orders also prohibit the use of contract terms that attempt to transfer rights in consumer reviews from consumers to the companies.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.

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