Banning Negative Reviews in Consumer Contracts Might Generate Backlash and Bad Legal Results

Posted September 21, 2016.

Do you know what the Streisand Effect is? Prestigious Pets, a pet-care company in Dallas, Texas, learned the hard way.

In 2002, Streisand complained that an online album showing aerial pictures of the California coastline included a photo of her Malibu mansion.

She felt the photo invaded her privacy, so her attorney sent a letter demanding that the picture be taken down. She later sued the photographer and two image-hosting services.

Streisand’s lawsuits were dismissed, but she fanned the flames of interest. It appears the offending picture had been downloaded only six times (two of them by Streisand’s attorneys) prior to the lawsuits. Because of publicity generated by the lawsuits, the website hosting the picture got over 400,000 hits in the month after the suits were filed.

Prestigious Pets suffered a similar fate. A local family hired the company to feed their fish during their vacation. While away, the family noticed by monitoring their security cameras that the water in the tank became cloudy, which they thought indicated overfeeding.

A family member posted a scathing review of the pet business on Yelp. The pet company struck back with a lawsuit alleging not just defamation but also breach of a non-disparagement clause in the form contract the family had signed with the pet company.

That clause prevented customers from posting negative reviews online. A local CBS affiliate ran a story over that outrageous clause, which attracted much attention. That led the pet store to file another lawsuit against the family seeking up to $1 million in damages, claiming that the pet business had suffered major losses because of negative publicity.

At the end of August, a Texas trial court threw out the pet business’s claims. The court also awarded the family recovery of their attorneys’ fees. The court also stated its intention to award monetary sanctions to deter the pet business from bringing similar cases again.

This illustrates the danger of putting a consumer-review ban in a consumer contract.

Businesses use different approaches to enforce such bans. Some sue in small claims court. Some deduct a penalty from a security deposit. Some report the breach as a debt to a credit agency. Some even use their contract to take copyright ownership of all reviews customers post online and then try to use that ownership to have negative reviews taken down.

Some states have enacted laws prohibiting such anti-disparagement clauses in standard-form consumer contracts. Virginia has not done so.

A bill prohibiting and punishing use of such clauses was passed unanimously by the U.S. Senate last December and made it out of committee in the House. Despite bipartisan support, the House hasn’t voted on it yet. That bill might not get a House vote before this session of Congress expires.

Even if a state has no law against anti-disparagement clauses, sometimes a consumer can use a state “anti-SLAPP” law to defeat a suit by a merchant to enforce a non-disparagement clause, and sometimes the consumer can use such a law to recover a penalty from the suing merchant.

SLAPP stands for “strategic lawsuit against public participation.” Anti-SLAPP laws target the use of lawsuits to intimidate and silence critics. About half of the states have anti-SLAPP laws, but Virginia does not.

As our society increasingly relies on online consumer reviews for purchasing advice, this legal issue will get more scrutiny.

With that in mind, here is advice for each side:

For consumers:

While the law is shifting against these clauses, don’t get cocky. If you post something online that is false and damaging to a business, you can be successfully sued for defamation.

If you post a negative review online, stick to opinions rather than stating things as fact. Make certain any factual claims are true and verifiable.

Assume you are not anonymous online. If you post something defamatory, your target could use legal proceedings to unmask your identity, in order to sue you.

Read agreements before signing them. If you see a non-disparagement clause, refuse to sign. Consider taking your business elsewhere.

For businesses:

Non-disparagement clauses have their place. They are acceptable in agreements between companies, and in employment agreements, including severance agreements. If a business-consumer dispute gets to the lawyers stage, it makes sense to include such a clause in a settlement agreement.

Rather than attempting to ban negative reviews, successful businesses generate many positive reviews online to water down the few naysayers. They also engage unhappy customers to try to mollify them.

If you use a negative-review ban in your consumer agreements, you may find yourself asking the question Streisand asked in “The Way We Were”: “If we had the chance to do it all again, tell me would we? Could we?”

Written on September 20, 2016.

by John B. Farmer

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