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FTC Charges Companies For Prohibiting Negative Consumer Reviews

The FTC recently brought action against two companies for including non-disparagement provisions that bar or impose financial penalties on consumers for writing negative reviews in their form contracts, without a meaningful opportunity for consumers to negotiate such terms.

The FTC’s Complaints

According to the complaints, from June to August 2017, Shore Please Vacations LLC included terms in its vacation rental contract which prohibited consumers from defaming or leaving negative reviews, including reviews of less than a “5 star” rating, about their vacation property or Shore Please Vacations. Renters were required to pay $250,000 for any violations. Additionally, from February 2016 to October 2018, Staffordshire Property Management LLC included terms in its apartment rental application which prohibited applicants from disparaging Staffordshire, its employees, or any communications related to Staffordshire, including the application and the application process.

The Consumer Review Fairness Act

According to the FTC, these terms violate the Consumer Review Fairness Act, which makes provisions of form contracts void from inception if the provisions:

  1. Prohibit or restrict individuals from reviewing sellers’ goods, services, or conduct;
  2. Impose penalties or fees on individuals for such reviews; or
  3. Require individuals to transfer intellectual property rights in such reviews.

The Consumer Review Fairness Act defines “form contracts” as a contract with standardized terms used in the course of selling or leasing goods or services and imposed on an individual without a meaningful opportunity to negotiate the standardized terms.

Among other things, the FTC settlements prohibit Shore Please Vacations and Staffordshire Property Management from including non-disparagement terms in their form contracts and require the companies to notify affected consumers directly that the non-disparagement provisions are void and that consumers may write and post honest reviews, “even if their comments are negative.” Shore Please Vacations must also dismiss a lawsuit it previously brought against a renter for posting a negative review.

Primary Takeaway

These cases coupled with three similar FTC Consumer Review Fairness cases demonstrate the FTC’s increasing efforts to enforce the Consumer Review Fairness Act and protect consumers’ ability to share their honest opinions about a business’s products, services and conduct. While companies who distribute form contracts may include language prohibiting false or misleading reviews, any prohibition of honest and non-deceptive reviews should be excluded unless consumers are given a meaningful opportunity to negotiate such terms. What constitutes a meaningful opportunity to negotiate will vary on a case-by-case basis. Additionally, companies who have signed form contracts that were not negotiated and include such terms should notify consumers directly that the terms are not enforceable.

Contacts

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