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CALIFORNIA CORPORATE & SECURITIES LAW

Congress Voids Form Contract Provisions That Impede Consumer Reviews

To paraphrase William Somerset Maugham’s Of Human Bondage, businesses may ask you for a review, but they only want praise.  Indeed some businesses have tried to ensure only good reviews by including non-disparagement clauses in their consumer contracts.

Two years ago, I wrote about a new California law intended to protect reviews of consumer products and services. See A Bad Review For California’s New Non-Disparagement Law.  A few days after that post, U.S. Representatives Eric Swalwell and Brad Sherman, both Democrats from California, introduced the Consumer Review Freedom Act, H.R. 5499.  That bill never made it out of the House Subcommittee on Commerce, Manufacturing, and Trade.  This year, Congressman Swalwell took another run at the legislation, teaming up with Congressman Darrell Issa, a Republican also from California, to introduce H.R. 5111.  Yesterday, President Obama signed H.R. 5111 into law.

H.R. 5111, the Consumer Review Fairness Act of 2016, voids a provision of a form contract if that provision:

  • prohibits or restricts the ability of an individual who is a party to the form contract to engage in a covered communication;
  • imposes a penalty or fee against an individual who is a party to the form contract for engaging in a covered communication; or
  • transfers or requires an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content, with the exception of a non-exclusive license to use the content, that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person.

A “covered communication” is “a written, oral, or pictorial review, performance assessment of, or other similar analysis of, including by electronic means, the goods, services, or conduct of a person by an individual who is party to a form contract with respect to which such person is also a party”.  A “form contract” is a contract with standardized terms (i) used by a person in the course of selling or leasing the person’s goods or services; and (ii) imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms.  Importantly, a “form contact” does not include an employer-employee or independent contractor contract.

The bill includes numerous significant exceptions.  Notably, the CRFA is not to be construed as affecting “any civil cause of action for defamation, libel, or slander, or any similar cause of action”.  Be sure to read all of the exceptions.

The CRFA grants enforcement authority to the Federal Trade Commission and state attorney generals, with the latter authorized to bring suit, parens patriae, in federal court.

After posting the above, I received the following clarification of the legislative history from Representative Swalwell’s office: “H.R. 5111 actually was introduced by Rep. Leonard Lance (NJ-07) and Rep. Joseph Kennedy III (MA-04).  This new law was indeed based on Rep. Swalwell’s H.R. 5499, the Consumer Review Freedom Act of 2014. He and Rep. Darrell Issa (CA-49) introduced a bipartisan version, H.R. 2110, in April 2015; they became original cosponsors of this bill, H.R. 5111, in April 2016.”

 

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