Consumer Review Fairness Act of 2016

Who is Affected?

All companies that have the prohibited clauses (see below) in their consumer contracts will have to review and update these contracts for compliance with the CRFA.

What Do You Need to Know?

We’ve compiled some of the things that you ought to know about the CRFA:

The CRFA applies to a “form contract.”  The CRFA defines a form contract as (1) a contract with standardized terms used in the course of selling or leasing goods, and (2) imposed on an individual without a meaningful opportunity to negotiate such terms. This would include terms of service and use and other consumer contracts that consumers are unable to negotiate.

The CRFA prohibits 3 types of clauses. The three types of prohibited clauses under the CRFA are clauses that:

1. prohibit or restrict an individual’s ability to engage in a review;
2. impose a penalty or fee against an individual engaging in a review; and
3. transfer or require an individual to transfer to any person anyintellectual property rights in review or feedback (except for a non-exclusive license to use the content).

The CRFA also provides explicit exceptions for 5 types of clauses. We note that the CRFA does not invalidate clauses that prohibit the disclosure of:

1. trade secrets or commercial or financial information obtained from a person and considered privileged or confidential;
2. personnel and medical files and similar information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy;
3. records or information compiled for law enforcement purposes, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy;
4. content that is unlawful, contains personal or private information, is unrelated to the goods or services offered, and is false or misleading; and
5. content that contains any computer viruses, worms, or other potentially damaging computer code, processes, programs, applications, or files.

Remember the cases that brought the CRFA into existence. In reviewing contracts and practices, companies should recall that the CRFA came into existence after a number of cases where companies with contract clauses attempted to stifle negative user reviews and subsequently threatened legal action and punitive monetary damages. Contract drafters should keep these cases in mind in reviewing form contracts. For example, the Better Business Bureau (BBB) notes the Palmer v. Kleargear.com case, in which the Palmers bought items from Kleargear.com but never received such items, driving the Palmers to write a negative review against the company. The company proceeded to send the Palmers a demand letter for $3500, citing a violation of their site Terms of Use’s non-disparagement clause. When the Palmers did not pay the company’s demand, they were reported to credit agencies. The Palmers we awarded compensation and punitive damages in the ensuing suit.

The CRFA is subject to enforcement by the FTC and State AGs. While the FTC is the CRFA’s primary enforcer, State Attorneys-General and other state consumer protection officers can also bring a civil action in federal court to obtain relief on behalf of their state residents. The state regulators must provide notice to the FTC, unless it is unfeasible.

Track important CRFA dates.  The CRFA directs the FTC to provide compliance guidance by February 12, 2017. Companies must remove any offending clauses in covered contracts before March 14, 2017.

What Are the Next Steps?

In light of the new CRFA, we have summarized the following next steps for companies to take: :

• Inventory and review your company’s “form contracts” for the prohibited clauses;
• Remove any CRFA prohibited clauses;
• Bolster your exception clauses, or add them if you do not already have them;
• Keep an eye out for the FTC’s CRFA guidance, which is expected by February 12, 2017; and
• Update your form contracts by March 14, 2017, to comply with the CRFA.