Join top executives in San Francisco on July 11-12, to hear how leaders are integrating and optimizing AI investments for success. Learn More

Last month, the U.S. took a big step toward safeguarding consumers’ right to leave honest online reviews without fear of retribution. Senators John Thune (R-S.D.), Brian Schatz (D-HI), and Jerry Moran (R-Kan.) introduced S. 2044, which will be better known as the Consumer Review Freedom Act, to outlaw non-disparagement clauses in consumer contracts.

While the Consumer Review Freedom Act has yet to be passed, if, or when, it does, it will serve to bolster a long-standing tenet of the U.S. Constitution. The First Amendment states [emphasis ours]:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Although non-disparagement clauses have been shown to be effectively worthless in the eyes of the law, given the prominence of free speech rights, the Act signals a push to protect consumers from intimidation or threats by companies that shoehorn spurious paragraphs into contracts.

The unhappy customer

Complaints Folder

The concept of the “unhappy customer” is nothing new, but the rise of social media has heralded a power shift such that the consumer firmly holds the trump card. This power can be abused, of course, but an individual’s ability to leave honest online feedback is generally accepted as something positive and worth protecting.

“Reviews on where to shop, eat, or stay on websites like Yelp or TripAdvisor help guide where consumers do business every day,” said Senator Schatz. “Honest reviews from real people have made these sites successful and are the reason why so many of us have come to rely on them. Every consumer has the right to share their experiences and opinions of any business. Our bill would protect that right and ensure consumers are free to share their views, free from intimidation.”

The rise of Facebook, Twitter, TripAdvisor, Yelp, and other social platforms has led to an almost tangible tension between businesses, consumers, and old-world regulations, as lawmakers struggle to keep pace with the fast-changing online revolution.

In August 2014, a New York hotel faced backlash for its threat to charge guests $500 for each online negative review it received. The policy stated [emphasis ours]:

If your guests are looking for a Marriott type hotel they may not like it here. Therefore: If you have booked the Inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any internet site by anyone in your party and/or attending your wedding or event.

That may seem extreme, but it is just one of many such recent instances.

Perhaps the most high-profile court case was Palmer v., which saw a Utah couple on the receiving end of a $3,500 fine for a bad review they posted against etailer Kleargear on Ripoff Report.

While there were many ins and outs to the case, the gist was that the couple didn’t pay the fine and Kleargear reported them to a debt-collection agency, which adversely impacted their credit rating. Eventually, the company was taken to court and ordered to pay John and Jennifer Palmer more than $300,000 in damages.

“Non-disparagement clauses stifle consumer speech by silencing fair criticism in public forums, particularly on websites,” said Schatz. “The Consumer Review Freedom Act would prohibit business practices like [Palmer v.], while still allowing business owners to sue reviewers who make dishonest misrepresentations about their business.”

The Streisand Effect

Barbra Streisand

Above: Barbra Streisand

Non-disparagement clauses nearly always end up hurting any company that tries to enforce them. The usual analogy here is to entertainer Barbra Streisand, who once attempted to suppress photos of her Californian residence, thereby generating publicity and attracting even further public attention. The “Streisand Effect” is now used to describe any situation in which an attempt to censor information has the opposite result.

America’s push to protect consumers has been well-documented in the media, but what about elsewhere in the world? What about Europe?

Last year, a British couple visiting a hotel in Blackpool, England, were charged an extra £100 to their credit card after describing the place as a “rotten, stinking hovel” in an online review. Little did they know that the hotel had this policy:

Despite the fact that repeat customers and couples love our hotel, your friends and family may not. For every bad review left on any website, the group organiser will be charged a maximum £100 per review.

Yet again, the Streisand Effect came to the fore, and the widespread negative publicity forced the hotel owners into swiftly backing down and refunding the couple’s money. No court action was necessary.

Consumer protection in U.K. / Europe

Last week, the U.K.’s all-new Consumer Rights Act took effect, in a move to simplify U.K. consumer law by pulling eight separate pieces of legislation into one. This legislation covers such things as consumer contracts for goods, digital content and services, and unfair (contract) terms. It bears similarity to existing laws, but strives to update and unify them, making them easier for both consumers and merchants to understand.

There are no specific laws against non-disparagement clauses in the U.K., but that’s not to say there aren’t regulations protecting consumers from such clauses. Even if a consumer has unwittingly signed a contract relinquishing their right to complain about a company in a public forum, they may still be protected under “unfair terms” regulation.

For contracts signed prior to the new Consumer Rights Act taking effect yesterday, consumers can refer to the Unfair Terms in Consumer Contract Regulations (1999). This older legislation and the new Consumer Rights Act share this paragraph:

A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

Technically, a non-disparagement clause in a consumer contract could override this regulation. For the clause to stick, however, it’s likely that the company would have to demonstrate that the terms have been specifically negotiated, or at the very least, that the consumer’s attention has been directed to the clause. “If you have a clause like that, it has to be in big red letters with a big red hand pointing to it,” said Jonathan Armstrong, a technology and compliance lawyer with Cordery Compliance. “I think that’s the sort of attitude you’ll need to hold a clause like that up. You’re going to have to direct someone’s specific attention to it.”

However, based on personal experience, the only way to have such a clause ruled on or “officiated” is to take the company to court, because as of yet, there is no real legal precedent to fall back on.

Tweet justice

Earlier this year, I had building work carried out on my house, and was unhappy with a wide range of things. So I posted some photos to the company’s Twitter account showing a couple of examples.

The company informed me of a non-disparagement clause in my contract stipulating that negative comments made in a public forum would result in a fine of £5,000 ($7,500). I checked the small print only to find that, yes, there was such a clause in there.

Unsure of my rights at the time, I naturally deleted the “offending” tweets until I could explore things a little further. The threat of the fine was removed once I deleted the tweets, but I’m still not 100 percent clear as to what my rights are as a European or U.K. resident in such a case.

In fact, I followed the official complaint procedures involving the Ombudsman and other regulators, but nobody was prepared to make any kind of intermediary judgment. I even spoke with my local member of parliament (M.P.), who advised that the practice of preventing consumers from giving an honest opinion of their experience may be considered an “unfair trading practice.” All advice has pointed towards the Citizens Advice Bureau (CAB), a network of charities that provide consumer and legal advice. Problem is, CAB have said it cannot become involved or refer such cases to Trading Standards, a local government body with the power to investigate unethical organizations.

While all signs suggest that the weight of the law does fall on the consumer’s side in terms, it’s a messy situation to navigate, which is why America’s Consumer Review Freedom Act could be groundbreaking — it removes the muddiness by focusing on the core of the problem: non-disparagement clauses.

Unfair terms

In an age when companies and consumers are often at loggerheads, social media and review sites have become key battlegrounds. I spoke with Oliver Fetiveau, a partner at U.K.-based media law firm M Law, to get his thoughts on clauses that impinge on freedom of speech in U.K and European law. It’s worth noting here that the business-to-business (B2B) realm is likely a different story — this relates specifically to B2C.

“[non-disparagement clauses are] just another example of an unfair contract term,” said Fetiveau. “In the same way as there might be an exclusion clause, or a limitation of liability clause, which are the more usual ones for the contract terms we’re used to dealing with.”

Essentially, ridiculous or unfair items could feasibly be squeezed into a contract, but that doesn’t mean that a court will make you honor it. When a company tries to impose an obligation on someone that contravenes what they’d normally expect to be able to do in real life — “Hey, don’t go to that restaurant, buddy, the burgers are awful!” — there is a good chance the court will view things favorably for the consumer.

“It’s all about deterring from doing it [leaving a negative review] in the first place, and then scaremongering to get them to delete the review,” said Fetiveau. “If they were actually called to account, and made to put their money where their mouth was and issue proceedings — I just can’t ever see it happening.”

Everyone I’ve spoken to has said that it’s unlikely a company would actively take a consumer to court to obtain money from them — in the U.K., at least — because the Streisand Effect is now well understood. But until non-disparagement clauses are ruled unlawful, there’s nothing to stop companies from trying anyway.

So as a consumer, in most markets, you basically have two choices when faced with a non-disparagement clause. You can go ahead and blab away on Yelp, assuming that the company won’t enforce the clause. Or you can proactively chase a court ruling to decide whether the clause is “unfair.” Fetiveau referred to what is known as a “Part 8 claim” in the U.K., which is when you want a court’s decision on a question “which is unlikely to involve a substantial dispute of fact.” In other words, the facts of the case should be clear, after which it’s simply a case of deciding whether or not the non-disparagement clause is deemed “unfair.”

However, before you go all gung-ho on TripAdvisor and make all kinds of wild accusations against that rude waiter who shot you a dirty look, it’s worth remembering that the law will likely only smile on you if what you say is opinion-based and doesn’t defame. You can’t just invent stories to make an establishment look bad. “If it’s an expression of honest opinion, then it’s safe,” added Fetiveau.

There is some precedent here. The Irish Times was sued by a Belfast restaurant owner over a scathing review it published — amazingly, the restaurant owner initially won the defamation case and was awarded £25,000; however, this was later overturned on appeal.

“The court granted incredible latitude to someone giving a review and found that all you needed to be able to prove if you’re giving a review is that you’d actually been to the restaurant and had the meal in question,” said Fetiveau. “If you can evidence malice, that may be different, but that’s difficult to do.”

U.S. vs. E.U.: Free speech

U.S. Constitution

Above: U.S. Constitution

Image Credit: Shutterstock

Much is made of the U.S.’s First Amendment right to free speech. But surely Europe has free speech at its core, even if it isn’t part of a so-called constitution?

The U.K. has the Human Rights Act (1998), which is based on the European Convention on Human Rights (ECHR). Article 10 of the ECHR states:

Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers.

While individual laws and regulations may vary from country to country, the fundamental tenets of “free speech” remain across the European Union. There is a limitation that seeks to protect companies or individuals from defamation, but it does not prevent people from publishing honest opinions.

The Citizens Advice Bureau in the U.K. also pointed out that unfair terms’ regulations in consumer contracts is widely similar across the whole E.U. It said:

If you buy goods or services from a trader in the European Union (EU), your rights around unfair contract terms will be very similar to those you have with a UK seller. If you believe a seller or supplier in another EU country has used an unfair term in their contract, you can complain.

You may also be able to refer your complaint to the relevant European Consumer Centre.

Arbitrary fines

Another element of non-disparagement clauses that may work in a consumer’s favor in any lawsuit is the amount of money being asked for. In my case, it was $7,500 — how the company arrived at that figure, I’ve no idea. And in the case of Palmer v. Kleargear in the U.S., $3,500 seems equally arbitrary in relation to any perceived “losses.”

“When (non-disparagement) clauses creep into consumer contracts, I would suggest that the motive is there to deter customers from leaving negative feedback in the first place, not because the companies in question genuinely expect to be able to rely upon them in a court of law,” said Fetiveau.

A few years back, London law firm Davenport Lyons hit the headlines for the way it was bullying thousands of people suspected of illegal peer-to-peer (P2P) file-sharing. Lawyers wrote letters to people requesting £300 ($450) to avoid a date in court, but following complaints about the company’s behavior, it was fined £20,000 ($30,000) and accused of being “too concerned about making the scheme profitable for themselves and their firm.”

“The problem was, it [the requested money] wasn’t a reflection of what the actual damage was,” explained Fetiveau. “If you’re downloading a song, and it’s only one song, then what is your damage as the copyright holder? Your damage is how much it would’ve cost that person to buy that song — that’s the economic depletion, really.”

Hypothetically, if a judge were to rule that a non-disparagement clause was “fair” in principle, if the merchant was requesting a crazy amount of money in return, this would likely count against it.

The other side of the story

It’s all too easy to take the side of a consumer in a David and Goliath case where a corporation’s financial might pummels an irate consumer with threats and fines. But it’s worth acknowledging that consumer reviews play a huge part in buying decisions, so it’s understandable that a company would seek to protect its reputation.

Lawyer Jonathan Armstrong offered a degree of sympathy for firms fighting negative feedback. “I appreciate that some businesses have real issues with (for example) TripAdvisor — the issue is that in the past, if you had a bad meal on a Friday night, you might put it on TripAdvisor on Saturday, but then again you might not,” he said. “Even if you did do it on the Saturday, you’d probably have calmed down a bit.”

The point is, the always-on connected society we now live in means anyone can leave a review there and then, on the spot. You can be standing there with your finger on the trigger, so to speak, threatening a waiter with a negative review if you don’t get a discount or some other form of compensation.

“If you go out on a Friday night now, you might have drunk a bottle of wine, and the waiter sniffs at you because you didn’t leave a tip, so you go straight to your iPhone and tell the world never to visit the place,” he added. “I have some sympathy, particularly with small restaurants, where it can only take one or two reviews for their business to drop off the cliff. But I don’t think the way to combat that is by fining people.”

Armstrong said that while he hasn’t seen a great number of non-disparagement clause cases land on his desk, what he is seeing is businesses looking to avert social media disasters. “If it’s not the death of a company, then it can accelerate the company’s demise,” he said. “We’re seeing more businesses ask us to train their employees in how to engage with people on social media.”

The case against non-disparagement clauses

Though the U.S. Consumer Review Freedom Act is not yet law, individual states, such as California, have already outlawed punitive non-disparagement clauses, so there is a clear sign of where things are going. And the U.S.’s position on such clauses could lead the way for other countries to follow.

I spoke with Paul Miloseski-Reid, U.K. Trading Standards’ ecommerce lead, to see whether such legislation is likely to arrive in the U.K. It turns out that something similar has already been proposed by the Trading Standards Institute (TSI), though there is no guarantee it will be adopted.

The U.K. is about to take on the presidency of the International Consumer Protection and Enforcement Network (ICPEN), which is a global network of consumer protection authorities spanning more than 50 countries. The U.K.’s Competition and Markets Authority (CMA) will focus on the online reviews and endorsements sector. “I have raised my concerns about the need for action on anti-disparagement clauses with their working group, which plan to develop enforcement best practice in this area,” said Miloseski-Reid.

He also makes a good point about who decides what construes negative feedback. “So much feedback is mixed and two-sided — ‘it’s a great product, but slow delivery’ — and you can’t have that environment online where consumers are scared to give honest feedback,” he said.

Perhaps the biggest case against taking customers to court is highlighted by the absurdity of Med Express, an Ohio company that sells medical equipment through eBay. One South Carolina buyer left negative feedback after receiving the item with $1.44 (!) postage still due. Med Express, which admitted the review was entirely truthful, sued for defamation anyway, but ended up withdrawing the suit thanks to the Streisand Effect. And last month, it was ordered to pay $20,000 in legal fees in a counterclaim over frivolous conduct.

So non-disparagement clause or not, it’s rarely a good idea to bully a consumer with court action over leaving an honest opinion online.

VentureBeat's mission is to be a digital town square for technical decision-makers to gain knowledge about transformative enterprise technology and transact. Discover our Briefings.