[Senate Hearing 114-269]
[From the U.S. Government Publishing Office]
S. Hrg. 114-269
ZERO STARS: HOW GAGGING HONEST REVIEWS HARMS CONSUMERS AND THE ECONOMY
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 4, 2015
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri MARIA CANTWELL, Washington
MARCO RUBIO, Florida CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire AMY KLOBUCHAR, Minnesota
TED CRUZ, Texas RICHARD BLUMENTHAL, Connecticut
DEB FISCHER, Nebraska BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas EDWARD MARKEY, Massachusetts
DAN SULLIVAN, Alaska CORY BOOKER, New Jersey
RON JOHNSON, Wisconsin TOM UDALL, New Mexico
DEAN HELLER, Nevada JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado GARY PETERS, Michigan
STEVE DAINES, Montana
David Schwietert, Staff Director
Nick Rossi, Deputy Staff Director
Rebecca Seidel, General Counsel
Jason Van Beek, Deputy General Counsel
Kim Lipsky, Democratic Staff Director
Chris Day, Democratic Deputy Staff Director
Clint Odom, Democratic General Counsel and Policy Director
C O N T E N T S
----------
Page
Hearing held on November 4, 2015................................. 1
Statement of Senator Thune....................................... 1
Statement of Senator Nelson...................................... 3
Statement of Senator McCaskill................................... 44
Statement of Senator Fischer..................................... 46
Statement of Senator Moran....................................... 48
Statement of Senator Schatz...................................... 50
Statement of Senator Daines...................................... 51
Statement of Senator Klobuchar................................... 54
Statement of Senator Blumenthal.................................. 56
Statement of Senator Markey...................................... 57
Witnesses
Adam Medros, Senior Vice President, Head of Global Product,
TripAdvisor LLC................................................ 5
Prepared statement........................................... 7
Robert Atkinson, President, Information Technology and Innovation
Foundation..................................................... 9
Prepared statement of Daniel Castro, Vice President,
Information Technology and Innovation Foundation........... 10
Jennifer Kulas Palmer, Plaintiff, Palmer v. KlearGear............ 14
Prepared statement........................................... 16
Eric Goldman, Professor, Santa Clara University School of Law.... 18
Prepared statement........................................... 20
Article dated November 2, 2015 entitled ``How Congress Can
Protect Online Consumer Reviews ''......................... 21
Article dated March 27, 2015 entitled ``Court Might Enforce A
Contract Ban On Consumer Reviews''......................... 23
Article dated September 10, 2014 entitled ``California Tells
Businesses: Stop Trying To Ban Consumer Reviews''.......... 23
Article dated August 7, 2014 entitled ``Fining Customers For
Negative Online Reviews Isn't New...Or Smart............... 24
Article from The Next Digital Decade:Essays on the Future of
the Internet entitled ``The Regulation of Reputational
Information''.............................................. 28
Article from Medical Ethics entitled ``Patients' Online
Reviews of Physicians''.................................... 34
Ira Rheingold, Executive Director, National Association of
Consumer Advocates............................................. 35
Prepared statement........................................... 37
Appendix
Scott Michelman, Staff Attorney, Public Citizen, prepared
statement...................................................... 63
Angie Hicks, Founder and Chief Marketing Officer, Angie's List,
prepared statement............................................. 67
Letter dated November 3, 2015 to Hon. John Thune and Hon. Bill
Nelson from George P. Slover, Senior Policy Counsel, Consumers
Union.......................................................... 68
Letter dated November 4, 2015 to Hon. John Thune and Hon. Bill
Nelson from Mike Godwin, R Street Institute; Mytheos Holt,
Institute for Liberty; and Steve Pociask, American Consumer
Institute...................................................... 69
Letter dated November 4, 2015 to Hon. John Thune and Hon. Bill
Nelson from Michael Beckerman, President and CEO, The Internet
Association.................................................... 70
Letter dated November 3, 2015 to Chairman Thune and Ranking
Member Nelson from the companies: Demand Progress, Engine,
Electronic Frontier Foundation, Fight for the Future,
Glassdoor, Information Technology & Innovation Foundation
(ITIF), Public Knowledge, Public Participation Project,
RealSelf, R Street and Yelp.................................... 71
Letter dated November 3, 2015 from Chi Chi Wu, National Consumer
Law Center (on behalf of its low-income clients)............... 72
ZERO STARS: HOW GAGGING.HONEST REVIEWS
HARMS CONSUMERS AND THE ECONOMY
----------
WEDNESDAY, NOVEMBER 4, 2015
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10:02 a.m., in
room SR-253, Russell Senate Office Building, Hon. John Thune,
Chairman of the Committee, presiding.
Present: Senators Thune [presiding], Blunt, Ayotte,
Fischer, Moran, Gardner, Daines, Nelson, Cantwell, McCaskill,
Klobuchar, Blumenthal, Schatz, Markey, and Manchin.
OPENING STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
The Chairman. Good morning. This hearing will come to
order.
Today, we convene to examine a growing and disturbing trend
affecting consumers in the United States.
Imagine you are a consumer who purchases an item online,
but the product isn't what you bargained for. Because you don't
want other consumers to waste their time or money, you take to
social media to post an honest account of your experience. You
are then aggressively approached by the company that sold you
the substandard product and threatened with a stiff penalty
unless you immediately take down the critical review.
Little did you know that buried in the fine print of the
website's terms and conditions was an anti-consumer clause
forbidding you from posting a negative review about the
company, even if it is true. This scenario sounds farfetched,
but the sad reality is that it is happening every day across
the country.
So-called non-disparagement or gag clauses are being forced
on consumers and then being used to intimidate them. These gag
provisions are egregious from a consumer protection standpoint,
but they are also doing harm to our Internet ecosystem.
Our committee spends a significant amount of time focusing
on how we can increase broadband adoption and create policies
that unlock the true potential of the Internet, but speech-
stifling contract terms undermine what we are trying to
accomplish in Internet policy.
A core tenet of the Internet is the ability to freely share
information with whomever you like. What good is information if
it has been sanitized to remove truthful criticism?
Simply put, imposing consumer gag clauses can result in
unfair bullying. The practice is frequently about a larger
entity abusing its power and insulating itself from legitimate
and constructive criticism.
Often, consumers don't believe they have any power against
companies that treat them poorly, but online review sites and
social media have given American consumers a tremendous amount
of power. Consumers rightfully place high value on the
experiences of other consumers and therefore frequently rely on
the wisdom of the crowd when deciding where to spend their
money.
Do some consumers sometimes abuse the Internet with false
reviews? Sure, they do. But businesses that face unfair reviews
have existing remedies available to them, including the ability
to sue for defamation. In addition, businesses should be able
to offset phony reviews with positive assessments from
satisfied customers.
Regrettably, there are a growing number of businesses in
the marketplace that are blocking honest consumer speech
through gag clauses rather than responding to negative
criticism by providing a better product or service.
Today, we are joined by Jen Palmer, who will share her
personal experience fighting against an unscrupulous company
that sought a $3,500 penalty simply because she told the truth
about poor customer service. Fortunately for the Palmers, they
were able to challenge this abuse in court and persevered.
The Palmers are far from alone in their experience. In one
case, a dentist included a non-disparagement clause in her
contract, as well as a clause that purported to grant the
dentist the copyright to anything the patient may later write
about the dentist. When a patient posted an online review
complaining about being overcharged, the dentist sent a take-
down notice to the review site. The dentist also sent the
patient a series of invoices demanding payment of $100 for each
day the complaints continued to appear online. The patient sued
the dentist, and a court found the clause to be unconscionable
and void, awarding the patient nearly $5,000.
In another case, a consumer who did not receive her order
from an online retailer informed the company she would report
the matter to her credit card company. In response, the company
demanded the consumer pay $250 for violation of its fine-print
terms of sale, which prohibited a customer from even
threatening to make a negative public statement about the
retailer. The consumer filed suit against the retailer,
alleging its actions were unfair, deceptive, and contrary to
public policy, and the court ultimately found in the consumer's
favor.
Going even a step further, in a wedding contract, one hotel
went so far as to inform prospective newlyweds they could be
fined if they or any of their guests violated a gag clause by
leaving a negative review. After this clause was reported
widely in the press, the business changed its terms.
Keep in mind, the vast majority of non-disparagement
clauses never see public light. This is because consumers often
succumb to pressure and remove the negative review.
Understandably, they would rather avoid the fight than face the
threat of excessive penalties, costly litigation, or damage to
their credit scores.
The proliferation of this problem led Senators Moran,
Schatz, Blumenthal, McCaskill, and me to introduce the
bipartisan and bicameral Consumer Review Freedom Act that would
ban non-disparagement clauses in form contracts while still
permitting companies to pursue good faith defamation claims.
Our bill empowers the Federal Trade Commission and State
Attorneys General to enforce against these anti-consumer
provisions. The FTC recently filed suit against one company
over a consumer gag clause, and the Consumer Review Freedom Act
would guarantee the Commission's ability to fight against these
provisions.
Since introduction, we have worked with stakeholders and
plan to make a few changes prior to marking up the bill. I am
looking forward to moving this pro-consumer legislation through
our committee and the Senate so Americans can continue to help
each other make informed decisions.
We have an excellent panel here today with diverse
experiences on this issue. You each bring a unique perspective,
and I look forward to hearing about your experiences and
thoughts on our legislation. So I want to thank you for
agreeing to testify and to be with us today.
Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Thank you, Mr. Chairman.
So companies want to muzzle consumers, and these companies
are using their size and unequal bargaining power to force
consumers to sign these take-it-or-leave-it agreements or
contracts.
In some cases, these agreements are just online pop-up
items that a consumer clicks on, usually without reading all
the small print, to purchase a good or service on the Internet.
Almost no one reads them, but they can have major consequences.
Now, when I was in law school, they called these
``contracts of adhesion.'' They are called ``adhesion'' because
you are stuck with them. You can't modify the contract in any
way. You are bound by the fine print that lawyers are so good
at drafting.
And the idea that some companies are suing or threatening
to sue their customers for truthfully reviewing their consumer
experiences because of these so-called non-disparagement
clauses in contracts in the fine print, I think it is
appalling.
So we need to do something about it. And, thankfully, Mr.
Chairman, you are.
In a state like mine, Florida that is so dependent on
tourism, we want visitors to share their experiences.
Businesses that do a good job should be rewarded with good
comments, and those who do not, they ought to be punished by
telling the truth.
So, Mr. Chairman, I am glad that your bill would stop this
practice by voiding contracts of adhesion that punish consumers
for sharing their experiences and their opinions with other
consumers.
Now, I think this hearing is timely, Mr. Chairman, because
this issue and your bill brings up, in my mind, a related issue
that needs to be discussed. Just a few weeks ago, the Los
Angeles Times reported that Fiat Chrysler was requiring
consumers who wanted to receive a family discount on a car to
sign a mandatory arbitration clause as part of the sales
contract.
So if the car is defective and kills or injures that
consumer, as was the case with Toyota's sudden acceleration or
GM's faulty ignition switches or Takata's exploding airbags,
then you are potentially barred from seeking redress because of
that take-it-or-leave-it arbitration clause. This type of
provision is obviously outrageous.
And beyond the automakers themselves, many dealers are also
trying to use these arbitration provisions to shield
themselves.
This committee has seen too many examples lately of
companies getting away scot-free for killing and injuring and
hiding the truth. And these non-disparagement and arbitration
clauses are just another way for companies to avoid
accountability by silencing consumers.
So, yes, consumers ought to be able to write a negative
review about their business experience, but consumers should
also have the ability to seek justice in a court of law when
businesses fail to hold up their end of the bargain, especially
if that failure ends up in injury or death. We just simply
can't let people continue to get off scot-free.
So thank you, Mr. Chairman. Thank you for the hearing.
The Chairman. Thank you, Senator Nelson, for those
comments.
And I want to, for the record, just add a couple of letters
of support for the legislation.
This one is from Angie Hicks of Angie's List, in which she
says, ``The bipartisan Consumer Review Freedom Act would
prohibit the use of these clauses, agreements, and waivers,
which are blatant though often cleverly disguised efforts to
strip Americans of their right to honestly discuss their
service experience.''
The Internet Association says, ``We applaud today's hearing
on the bill,'' a bipartisan bill introduced, as I mentioned, by
several of our colleagues.
American Consumer Institute: Center for Citizen Research, R
Street, and the Institute for Liberty, also a letter of
support.
And then one, as well, from another coalition that includes
Yelp, Public Knowledge, Public Participation Project, RealSelf,
among many others.
So I want to enter those for the record.
[Please see Appendix for these letters.]
The Chairman. And I now want to open it up, and look
forward to hearing from our panel today.
We have with us, beginning on my left, Mr. Adam Medros, who
is the Senior Vice President for Global Product at TripAdvisor;
Mr. Robert Atkinson, who is the President of the Information
Technology and Innovation Foundation; Ms. Jennifer Palmer, who
I mentioned earlier is one of the named plaintiffs in Palmer v.
KlearGear; Mr. Eric Goldman is a Professor at Santa Clara
University of Law and is also the Director of the school's High
Tech Law Institute; and then, finally, Mr. Ira Rheingold, who
is the Executive Director of the National Association of
Consumer Advocates.
So welcome to all of you. Great to have you here today.
And we will start on my left and your right with Mr.
Medros, and please proceed with your statement. If you could,
confine it as close to 5 minutes as possible, and then we will
get into some questions here from the panel.
STATEMENT OF ADAM MEDROS, SENIOR VICE PRESIDENT, HEAD OF GLOBAL
PRODUCT, TRIPADVISOR LLC
Mr. Medros. Good morning, Chairman Thune, Ranking Member
Nelson, and members of the Commerce Committee. Thank you for
inviting me to testify in today's hearing on what we believe is
a very important topic. I am encouraged by the Committee's
attention to this issue and very much appreciate your recent
introduction of the Consumer Review Freedom Act.
My name is Adam Medros. I am the Head of Global Product for
TripAdvisor, the world's largest travel website. I lead the
team within TripAdvisor that is responsible for all customer-
facing aspects of the TripAdvisor site, including the
collection, moderation, and display of travelers' reviews.
For those who don't recall what it was like to plan and
book a trip prior to the advent of the Internet, let's rewind
15 years.
Making travel purchases, because of their significant
costs, the infrequent nature of travel, and the importance that
we place on vacations, was a risky proposition. You either had
to research and plan the trip on your own, calling multiple
hotels and airlines to check availability and pricing, or rely
on a travel agent looking up brochures filled with marketing
language and staged photographs. If you were really lucky,
maybe a friend had visited that city or country before. But to
put it simply, you were buying blind.
The Internet and platforms like TripAdvisor drastically
improved that experience for consumers. With access to millions
of customer reviews, our ability to make informed purchasing
decisions is no longer constrained to what products our friends
and family purchased or where one's local travel agent thinks
you should stay on vacation.
As a result, American consumers can make significantly more
informed decisions about how to spend their hard-earned money.
Although most businesses have come to embrace this shift in
consumers' knowledge, a minority of holdouts refuse to let
consumers share their experiences. A popular tactic among such
businesses is to try and use their contractual leverage to
silence their critics. This underhanded practice harms those
writing reviews, those seeking transparency through other
consumers' experiences, and those businesses that are playing
by the rules.
TripAdvisor hosts more than 250 million reviews and
opinions from our community, covering more than 5 million
businesses all over the world. TripAdvisor encourages our
members to share their reviews and opinions, good or bad, of
their experiences at hotels, restaurants, and attractions, and
we strongly believe in their right to do so.
We also give all businesses the right to respond to those
reviews in order to ensure that consumers are presented with
both sides of the story.
As you know, TripAdvisor is far from the only source of
consumer reviews. Americans are ever-increasingly turning to
websites like Amazon, Yelp, ZocDoc, and Angie's List to educate
themselves in their purchasing decisions on everything from
what doctor to visit to whom they should hire to remodel their
kitchens. In fact, a recent study revealed that approximately
70 percent of all American shoppers rely on online reviews
before making a purchase.
Just this year, the United Kingdom's Competition and
Markets Authority found that 54 percent of U.K. adults rely
upon online reviews and that nearly 70 percent of hotel
shoppers consider online reviews to be more important than
other sources of information.
No matter what population is being researched, it is clear
that consumer reviews have become a critical part of today's
marketplace.
While consumer reviews have become so ubiquitous that many
Americans won't make a significant buying decision without
first researching those opinions, we know that some businesses
don't like the transparency that online reviews have brought to
the world.
Some bully or intimidate consumers as a means to get
critical reviews removed or to stop them from even being
submitted. Others seek the same result by hiding small print in
contracts stipulating that any negative review will incur a
hefty fine or assigning the intellectual property in any review
to the business.
Consumers usually have no idea that they are signing up for
such agreements, which are usually only provided in small print
at the moment of check-in or purchase. And even those who
actually read these types of clauses lack the leverage to have
the non-negotiable clauses removed while standing at the check-
in desk with their family in tow and their well-earned vacation
hanging in the balance.
While the intention behind such clauses is always the
same--namely, to gag any negative opinions--the exact language
can vary. Examples of language that TripAdvisor has received
from travelers include: ``Since bad reviews are detrimental to
our business, we place a fine for unwarranted reviews under the
terms of property. If the hotel receives a poor review and is
out of context and or control of the hotel management, then a
fine of $300 will be charged on the credit card on file.''
Dealing with companies and individuals that try to include
these types of clauses in their customer agreements can be
tricky for a platform like TripAdvisor. While the easiest
solution would be to simply remove the business's listing from
our website, that is often exactly what the company wants: to
eliminate the ability for consumers to comment on them. Doing
so would chill speech and be a disservice to all travelers.
So TripAdvisor has instead taken the approach of posting a
red text box on the business's listing warning travelers of
this unscrupulous behavior. This is an imperfect solution and
one which would be improved upon by passage of Chairman Thune's
Consumer Review Freedom Act.
Placing a muzzle on one's customers with contractual
boilerplate goes against everything we stand for at
TripAdvisor. Just as a consumer can tell her family and friends
about her experience with a business in the ``offline world,''
she also has a right to share that experience and opinion
online, allowing businesses and other customers to learn and
benefit therefrom.
When a business includes a ``gag order'' in its agreements
with its customers, everyone is harmed. The consumer is
improperly censored. The consuming public at large is less
informed than it otherwise would be about quality of service,
or lack thereof, at a given business. Even the business doing
the silencing is harmed, as it loses the opportunity to learn
from the experiences of its customers.
These types of clauses serve no positive role in the
American marketplace and stand in the way of consumer
transparency.
In conclusion, Mr. Chairman, TripAdvisor looks forward to
working with you and the entire committee to ensure that
American consumers are not prevented from openly sharing their
opinions and experiences with other potential customers,
whether it is done in person or via the Internet.
I welcome your questions on this important topic.
[The prepared statement of Mr. Medros follows:]
Prepared Statement of Adam Medros, Senior Vice President,
Head of Global Product, TripAdvisor LLC
Good morning Chairman Thune, Ranking Member Nelson, and members of
the Commerce Committee. Thank you for inviting me to testify in today's
hearing on what we believe is a very important topic. I am encouraged
by the Committee's attention on this issue, and very much appreciate
your recent introduction of the Consumer Review Freedom Act.
I. Introduction
My name is Adam Medros, and I am the Head of Global Product for
TripAdvisor, the world's largest travel website. I lead the team within
TripAdvisor that is responsible for all customer-facing aspects of the
TripAdvisor site, including the collection, moderation and display of
travelers' reviews.
For those who don't recall what it was like to plan and book travel
prior to the advent of the Internet, let's pause and rewind fifteen
years. Making travel purchases--because of their significant cost, the
infrequent nature of travel and the importance that we place on
vacations--was a risky proposition. You either had to research and plan
the trip on your own, calling multiple hotels and airlines to check
availability and pricing, or rely on a travel agent discussing
destinations they chose to promote and looking at brochures filled with
marketing language and staged photographs. If you were really lucky,
maybe a friend or family member had visited that city or country
before, and could give you an opinion based on their limited
experiences. But to put it simply, you were ``buying blind.''
The Internet--and platforms like TripAdvisor--drastically improved
that experience for consumers. With access to millions of consumer
reviews in seconds, our ability to make informed purchasing decisions
is no longer constrained to what products our friends and family
previously purchased, or where one's local travel agent thinks you
should stay on vacation. As a result, American consumers can make
significantly more informed decisions about how to spend their hard-
earned money. Platforms like ours democratized purchasing and access to
information by crowdsourcing the experiences of others.
However, although most businesses have come to accept--and even
embrace--this shift in consumers' knowledge, a minority of hold-outs
refuse to let consumers share their experiences. A popular tactic among
such businesses is to try and use their contractual leverage to silence
their critics. This underhanded practice harms those writing reviews,
those seeking transparency through other consumers' experiences, and
those businesses that are playing by the rules, and, ultimately, the
American economy suffers.
II. TripAdvisor and The Importance of Consumer Reviews
TripAdvisor is visited by more than 375 million travelers a month
in order to help them research, plan and book the perfect trip. We host
more than 250 million reviews and opinions from our community covering
more than 5 million businesses all over the world. TripAdvisor
encourages our members to share their reviews and opinions, good or
bad, of their experiences at hotels, restaurants, and attractions--and
we strongly believe in their right to do so. We also give all
businesses the right to respond to those reviews, in order to ensure
that consumers are presented with both sides of the story.
As you know, TripAdvisor is far from the only source of consumer
reviews. Americans are ever-increasingly turning to websites like Yelp,
Amazon, ZocDoc and Angie's List to educate themselves and their
purchasing decisions on everything from what doctor to visit, to what
book or baby stroller to purchase, or even to whom they should hire to
remodel their kitchens. In fact, a recent study revealed that
approximately 70 percent of all American shoppers rely on online
reviews before making a purchase.\1\ Just this year, the United
Kingdom's Competition and Markets Authority found that 54 percent of UK
adults rely upon online reviews, and that nearly 70 percent of hotel
shoppers consider online reviews to be more important than other
sources of information. Further, in research commissioned by
TripAdvisor in 2015, PhoCusWright determined that 96 percent of
TripAdvisor users consider it important to read consumer reviews when
planning a vacation, and 82 percent agreed that reading those reviews
helped them plan better trips than they could without reviews. No
matter what population is being researched, it is clear that consumer
reviews have become a critical part of today's marketplace.
---------------------------------------------------------------------------
\1\ The Consumerist (Jun. 3, 2015), http://consumerist.com/2015/06/
03/nearly-70-of-consu
mers-rely-on-online-reviews-before-making-a-purchase/; Ashlee Kieler,
Nearly 70% Of Consumers Rely On Online Reviews Before Making A
Purchase.
---------------------------------------------------------------------------
III. Businesses' Use of Contracts to Silence Critics
While consumer reviews have become so ubiquitous that many
Americans won't make a significant buying decision without first
researching those opinions, we know that some businesses don't like the
transparency that online reviews have brought to the world. Some bully
or intimidate consumers as a means to get critical reviews removed or
to stop them from even being submitted. Others seek the same result by
hiding small print in contracts stipulating that any negative reviews
will incur a hefty fine, or assigning the intellectual property in any
review to the business.
Consumers usually have no idea that they are signing-up for such
agreements, which are usually only provided in small print at the
moment of check-in or purchase, and even those who actually read these
types of clauses lack the leverage to have the non-negotiable clauses
removed while standing at the check-in desk with their family in tow
and their well-earned vacation hanging in the balance. While the intent
behind such clauses is always the same (namely, to gag any negative
opinions), the exact language can vary. Examples of language that
TripAdvisor has received from travelers include:
``Guest agrees that no negative comment will ever be initiated
. . . on any site on the Internet . . . that damages the
reputation of the hotel and staff . . .''
``Since bad reviews are detrimental to our business, we place a
fine for unwarranted reviews under the terms of property . . .
[I]f the hotel receives a poor review and is out of context and
or control of the hotel management, then a fine of $300 will be
charged on the credit card on file.''
``[I] any actual opinions and/or publications are created
which, at the sole opinion of [business owner], tends directly
to injure him in respect to his trade or business . . . then
those remarks will entitle [business owner] . . . damages from
me in the amount of $5,000,000 (five million dollars) plus a
$50,000 (fifty-thousand dollar) daily penalty for each day for
each posting of the derogatory publication appears or is
available in any format.''
Dealing with companies and individuals that try to include these
types of clauses in their customer agreements can be tricky for a
platform like TripAdvisor. While the easiest solution would be to
simply remove the business's listing from our website, that is often
exactly what that company wants--to eliminate the ability for consumers
to comment on them. Doing so would chill speech and be a disservice to
all travelers, so TripAdvisor has instead taken the approach of posting
a red text box on the business's listing warning travelers of this
unscrupulous practice. This is an imperfect solution--and one which
would be improved upon by passage of Chairman Thune's Consumer Review
Freedom Act.
IV. The Effects Chilled Speech Has on Industry and Consumers
Placing a muzzle on one's customers with contractual boilerplate
goes against everything we stand for at TripAdvisor. Just as a consumer
can tell her friends and family about her experience with a business in
the ``offline world,'' she also has a right to share that experience
and opinion online, allowing businesses and other customers to learn
and benefit therefrom.
When a business includes a ``gag order'' in its agreements with its
customers, everyone is harmed. The consumer is improperly censored. The
consuming public at-large is less informed than it otherwise would be
about the quality of service--or lack thereof--at a given business.
Even the business doing the silencing is harmed, as it loses the
opportunity to learn from the experiences of its customers. These types
of clauses serve no positive role in the American marketplace and stand
in the way of consumer transparency.
V. Conclusion
In conclusion, Mr. Chairman, TripAdvisor looks forward to working
with you and the entire Committee to ensure that American consumers are
not prevented from openly sharing their opinions and experiences with
other potential customers, whether it is done in-person or via the
Internet.
I welcome your questions on this important topic.
The Chairman. Thank you, Mr. Medros.
Mr. Atkinson?
STATEMENT OF ROBERT ATKINSON, PRESIDENT, INFORMATION TECHNOLOGY
AND INNOVATION FOUNDATION
Mr. Atkinson. Thank you, Chairman Thune, Ranking Member
Nelson, and members of the Committee. I appreciate the
opportunity to come before you today to talk about the impact
of non-disparagement clauses on consumers and the economy.
The Information Technology and Innovation Foundation has
long focused on policies to enable the Internet economy to
thrive, and this particular area that you are addressing with
the Consumer Review Freedom Act is a critical one if that is
going to be our goal.
I want to raise three issues today, the first one really
being about economy theory and economics behind this.
There has long been a view in economics that the effective
functioning of markets depends upon information. In fact,
George Akerlof, Michael Spence, and Joe Stiglitz received the
Nobel Prize in economics in 2001 for their research related to
what they called ``asymmetric information,'' and this is
exactly what is going on here. When you go to a hotel, you
don't know anything about the hotel other than maybe what you
see; the hotel knows everything. This is a market with
asymmetric information.
And they won that prize because they showed that markets
with asymmetric information underperform what would be
otherwise economic welfare for everyone--consumers and the
overall economy.
And, in particular, this and other economics research has
found that markets don't perform effectively if, number one,
buyers can't accurately assess the value of the product or
service before they buy it. If you go to a hotel and you have
no idea what is going on there, you can't make an informed
decision.
Second, if an incentive exists for the seller to pass off a
low-quality product or service as a high-quality one, well,
clearly, as the examples have shown, that incentive exists
certainly for some sellers.
Third, where the sellers of good products and services have
a hard time proving their quality.
And, fourth, where there is a deficiency of public quality
assurances--in others words, where it is hard for a consumer to
find some independent assessments of quality.
That is why the emergence of online rating tools are so
important. They essentially are the tool to solve this long,
age-old problem that has bedeviled economic markets. And online
rating systems help solve the problem because they provide a
public quality assurance of that, and they let people know why
and when there is poor quality.
The second point is the issue about preemption. I know that
some argue that the Federal Government shouldn't be involved in
some of these questions and we should just let the states deal
with these questions and they are better positioned for that.
And, certainly, on many, many issues, in many cases, states
are best-positioned. But, in general, when it comes to the
Internet economy, we can't rely on states to set policies for
two big reasons.
One is that you end up with a cacophony of different and
conflicting policies between states. And the second reason is
that, in many of these cases--TripAdvisor hotel reviews in
Florida, many of those are non-Florida residents. So a state
might say, well, we want to protect our businesses by not
allowing this, but they are hurting consumers all around the
country because consumers everywhere use these and contribute
to these.
So I think it really is a very clear justification for
Federal action.
The third would be, well, what about the possible harms to
businesses where there is a bad review? And I think it has been
pointed out already that this bill would not prohibit companies
from already using existing legal tools for defamation.
But, more importantly, there has been a lot of evidence now
that we cite in our testimony that, even when a company
receives a bad review, if the company manager, whoever that
might be, affirmatively responds to that review and says, ``We
are sorry,'' or, ``Thanks for the review; we are going to try
to fix that problem,'' it actually turns out that that gets
them better results with consumers because consumers believe
that the manager or the company is taking consumer complaints
seriously and so they are more likely to trust them.
This was a study, for example, recently about hotels, and
found that, regardless of whether reviews are good, neutral, or
negative, they began to receive higher ratings from guests
after hotel managers started to respond to feedback. And I have
heard that from hotel managers when we have done some study on
hotels. They actively go out now and tell the managers that
they should respond online because it brings back trust.
So I don't think we should worry too much about the impact
on companies. If companies are smart, what they will do will be
they will affirmatively monitor these ratings platforms and
then respond appropriately. Where there are clear cases of
defamation and outright lies, again, they have other legal
means.
So, in summary, that is why ITF supports this legislation
and believes it is very important for the online marketplace.
Thank you.
[The prepared statement of Mr. Daniel Castro, submitted by
Mr. Atkinson, follows:]
Prepared Statement of Daniel Castro, Vice President, Information
Technology and Innovation Foundation
Chairman Thune, Ranking Member Nelson, and members of the
Committee, I appreciate the opportunity to appear before you to discuss
the impact of non-disparagement clauses on consumers and businesses. My
name is Daniel Castro. I am the Vice President of the Information
Technology and Innovation Foundation (ITIF) and Director of ITIF's
Center for Data Innovation. ITIF is a nonpartisan, non-profit think
tank whose mission is to formulate and promote policy solutions that
accelerate innovation and boost productivity to spur growth,
opportunity, and progress.
In my testimony today, I would like to discuss how the non-
disparagement clauses that many businesses include in consumer
contracts discourage consumers from providing honest feedback about
products and services; why that harms consumers and businesses alike;
and what Congress can do to address the problem.
Some Businesses Use Non-Disparagement Clauses to Unfairly Silence
Critics
Imagine that a patient has endured a terrible visit to the dentist.
Disturbed by the ordeal, she goes online and posts a review, providing
a factual account of her experience as a warning to future patients.
Soon after, the patient receives a letter from the dentist's lawyer
stating that she is in violation of a contract she signed during her
visit and threatening legal action if she does not immediately take
down the post. Shockingly, she discovers that buried in the paperwork
she filled out was a clause prohibiting her from making any negative
statements about the dentist. Scared that she may have done something
wrong, and worried about the cost of going to court, the patient
quickly deletes her review. Not only has this patient had her voice
unfairly silenced, but many other potential patients will not be able
to benefit from her experience by choosing a better dentist.
This scenario is one that an untold number of consumers have faced.
A company will insert a clause into a standard contract that prohibits
consumers from making any negative statements about the company and its
products or services. Most consumers sign these agreements without
noticing the non-disparagement clauses. Only later, if at all, do they
ever realize what they have agreed to. For example, health care
providers may ask patients to sign ``mutual privacy agreements'' that
are less about protecting patient privacy (since Federal laws already
provide these protections), but instead are designed to prohibit
patients from making negative comments about the health care
provider.\1\ Alternatively, a company may demand that an unhappy
customer sign a non-disparagement agreement before the company will
provide a refund or exchange.\2\ In both cases, companies may sue
consumers for monetary damages if they subsequently make negative
public comments about their products or services.
While there are no good estimates of how many consumers have been
silenced by these non-disparagement clauses or how many companies
regularly insert these clauses into their contracts, there are many
well-documented cases of this problem arising in a variety of
industries, including health care, retail, and hospitality. For
example, one party rental company included the following terms in its
standard contract: ``By signing this contract, you are agreeing that
you will not make or encourage any disparaging comments about [the
vendor] ever in any form verbal or written.'' \3\
These non-disparagement clauses are particularly problematic
because they are appearing in non-negotiated consumer contracts and
even website terms of service without giving consumers a reasonable
opportunity to negotiate or refuse to accept the conditions.\4\ For
example, if a consumer orders a coffee cup from a website, receives a
broken cup, and is not satisfied with the company's response to his
inquiries, he may decide to post a negative review of the website
online. If the company has written a non-disparagement clause into the
terms and conditions of either the sales contract or the website
itself, mandating that customers do nothing to damage the reputation or
services of the company, it may elect to sue its customer for breach of
contract due to his negative review, even if the review is accurate.
Indeed, the consumer may not even be allowed to post a photo of the
broken cup.
The owners of the website KlearGear.com were brought to Utah's
Federal district court over a non-disparagement clause the website
placed in its terms of sale ``in an effort to ensure fair and honest
public feedback.'' \5\ A couple who never received their order and left
a negative review on the website Ripoff Report was contacted several
years later by KlearGear with a demand for $3,500 for violating the
non-disparagement clause.\6\ The Utah court found in favor of the
reviewers, awarding over $300,000 in compensatory and punitive damages,
but other consumers elsewhere may not be so fortunate. As a result of
this highly publicized case, some states have begun enacting
legislation to protect their citizens from non-negotiated non-
disparagement clauses. For example, California recently passed a law
prohibiting non-disparagement clauses in consumer goods or services
contracts--unless they are knowingly and voluntarily negotiated.\7\
Non-Disparagement Clauses Undermine the Functioning of Digital
Markets, Hurting Consumers and Businesses
One of the defining features of the digital economy is that
customers can provide ratings of companies, products, and services--a
phenomenon frequently referred to as the ``wisdom of the crowd.''
Pioneering online services like Amazon, TripAdvisor, and Yelp, as well
as many other websites, empower consumers to make more-informed
decisions by presenting this crowd-sourced information alongside
merchants' own descriptions of their products and services. This
feedback is especially important when consumers are making purchases
online, since they will not always have had the opportunity to evaluate
products or sellers in person. Indeed, multiple empirical studies have
found that customers rely on consumer reviews to make purchasing
decisions and that better reviews lead to greater sales.\8\ For
example, one study found that a one-star increase in a restaurant's
rating on Yelp led to a 5 percent to 9 percent increase in revenue.\9\
Not surprisingly, many of the newest, rapidly growing Internet-based
businesses, such as Uber, Airbnb, and Etsy, have integrated user-
feedback as a key feature of their digital platforms.
A major purpose of reviews is to create an effective feedback loop:
Consumers buy a product or service, and then review it online or
elsewhere, so that other consumers can take those reviews into
consideration before making purchases. Companies can change their
products or services in response to compliments and complaints--and
then, when they improve poorly reviewed features or add new ones,
consumers can provide new reviews. Or other consumers, now empowered
with more accurate information in the marketplace, can choose to buy
from another company. Limiting these reviews to only positive feedback
(i.e., comments that would not damage the company's reputation),
significantly reduces the benefit of these processes for consumers,
because they lose access to accurate information and may make
suboptimal purchasing decisions.
Companies gain important insights about how best to meet the needs
of their customers by data mining customer reviews. These tools depend
on accurate and complete information. For example, L.L. Bean
purportedly investigates products that continually receive ratings of
less than three stars. After a certain variety of fitted sheets
received a large volume of negative online reviews, the company found a
manufacturing defect, took the sheets off the market, and offered 6,300
new sets to customers who had purchased the faulty variety.\10\
If companies are not receiving negative feedback, then they are not
using this feedback to improve their offerings, and consumers are
receiving lower-quality goods and services.\11\ Indeed, one recent
study found that after hotels begin responding to online user reviews,
regardless of whether the reviews are good, neutral, or negative, they
begin to receive higher ratings from guests--presumably because hotel
managers are incorporating customer feedback.\12\ Another e-commerce
solutions provider found that customers who saw a company response to a
negative review were almost twice as likely to make a purchase as those
who saw negative reviews without a company response; and overall
opinion of the product became twice as positive.\13\ Thus, the
opportunity to share honest reviews can benefit companies and service
providers by offering a quality-control platform, and it can benefit
consumers by offering an opportunity to air grievances and have them
addressed.
Accurate reviews improve the functioning of markets. Indeed, it has
long been an axiom in economics that markets work best when both
parties--the buyer and the seller--have more information. In
particular, better information enables consumers to make better
choices. Some of those choices may result in some companies or service
providers going out of business or losing business as potential
customers learn of the poor quality of their products and services and
opt to buy elsewhere. But by definition, this means that the market
share of more efficient or higher-quality sellers increases, thereby
maximizing overall economic welfare.
Some companies may be concerned about how false reviews can
unfairly hurt their businesses, and this is a legitimate concern as
their employees' jobs and welfare also are at stake. Competing
businesses may try to manipulate consumer opinion by posting fake
reviews--either positive ones for their own products and services or
negative ones for a rival's.\14\ The answer to this problem is not to
limit all negative reviews, but rather to minimize those that are false
or misleading.
Online platforms recognize the importance of accurate reviews for
their users, and so they have invested in technology to detect
fraudulent reviews.\15\ For example, Yelp automatically filters out
reviews that it suspects are fraudulent, and the site even issues pop-
up alerts to consumers who visit the profile page of a business that it
has caught buying fake reviews.\16\ Some state attorneys general have
also fined businesses for posting fake reviews as this violated their
truth-in-advertising laws.\17\ While digital platforms have taken many
steps to limit bias in online reviews, if some businesses are using
anti-disparagement clauses to silence their critics, then online
reviews for these industries will be misleading and consumers will be
worse off.
Congress Should Protect Consumers' Right to Review
Using non-disparagement clauses to silence negative public feedback
undermines a key part of the digital economy and makes many consumers
and business worse off. Given the clear negative impact of biased
reviews for both consumers and businesses, Congress should intervene to
prohibit these clauses in consumer contracts. Specifically, Congress
should pass the bipartisan Consumer Review Freedom Act of 2015,
introduced by Sens. John Thune (R-SD), Brian Schatz (D-HI), and Jerry
Moran (R-KS), which would take two important steps to address this
problem. First, the legislation would void anti-disparagement clauses
in consumer contracts if they restrict consumers from publicly
reviewing products or businesses in good faith. Second, the legislation
would authorize the Federal Trade Commission to take action against
businesses that insert these provisions into their contracts for
engaging in unfair and deceptive practices.
Moreover, this legislation would still allow companies to take
action against individuals who post false and defamatory reviews. In
addition to bringing defamation cases against individuals who post
patently false statements about their products and services, companies
also can work with platforms to remove false statements. Virtually
every online platform includes terms of service prohibiting unlawful
statements and provides a mechanism to help business owners have
untruthful statements removed. For example, business owners can flag
potentially fake reviews on Yelp with a single click.\18\
Notably, this legislation takes a narrow approach to address a very
specific consumer harm. The legislation would not apply to non-
disparagement clauses found in voluntarily negotiated agreements, such
as employment agreements or divorce settlements, where parties may have
a legitimate interest in agreeing to certain terms.
Conclusion
Protecting people's speech is important first and foremost as a
First Amendment issue. Protections, such as those offered in the
Consumer Review Freedom Act, would help ensure that individuals have
the right to engage in lawful forms of speech and that others can
benefit from the information conveyed in this protected speech. In
addition, protecting online speech, especially complaints or
criticisms, is necessary to ensure that online markets function
efficiently by giving consumers access to unbiased feedback about the
products and services they research. While states have made some
progress in laying the foundation for legislation prohibiting non-
disparagement clauses, the U.S. Congress should step in to create a
baseline of protection for all citizens' basic rights to freedom of
expression in the digital marketplace.
References
\1\ Lucille M. Ponte, ``Protecting Band Image or Gaming the System?
Consumer `Gag' Contracts in an Age of Crowdsourced Ratings and
Review,'' William & Mary Business Law Review (forthcoming), March 16,
2015, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2579172.
\2\ Ibid.
\3\ Chris Morran, ``Wedding Company Contract Tries To Ban Bride &
Groom From `Encouraging' Negative Feedback,'' Consumerist, April 20,
2015, http://consumerist.com/2015/04/20/wedding-company-contract-tries-
to-ban-bride-groom-from-encouraging-negative-feedback/.
\4\ Noah Davis, ``The Yelper and the Negative Review: the
Developing Battle Over Nondisparagement Clauses,'' American Bar
Association, Vol. 3, No. 10, May 2014, http://www.american
bar.org/publications/gpsolo_ereport/2014/may_2014/
yelper_negative_review_developing_
battle_nondisparagement_clauses.html.
\5\ Chris Morran, ``KlearGear.com Ordered To Pay $306K To Couple
Who Wrote Negative Review,'' Consumerist, June 26, 2014, http://
consumerist.com/2014/06/26/kleargear-com-ordered-to-pay-306k-to-couple-
who-wrote-negative-review/.
\6\ Ibid.
\7\ California Assembly Bill No. 2365, Unlawful contracts,
Sec. 1670.8 (2014), http://leginfo
.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2365.
\8\ Judith Chevalier and Dina Mayzil, ``The Effect of Word of Mouth
on Sales: Online Book Reviews,'' Journal of Marketing Research (August
2006), 345-354, https://msbfile03.usc.edu/digitalmeasures/mayzlin/
intellcont/chevalier_mayzlin06-1.pdf.
\9\ Michael Luca, ``Reviews, Reputation, and Revenue: The Case of
Yelp.com,'' Harvard Business School (2011), http://www.hbs.edu/faculty/
Publication%20Files/12-016_0464f20e-35b2-492e-a328-fb14a325f718.pdf.
\10\ Shelly Banjo, ``Firms Take Online Reviews to Heart,'' Wall
Street Journal, July 29, 2012, http://www.wsj.com/articles/
SB10001424052702303292204577517394043189230.
\11\ Erin Mulligan Nelson, ``Why Terrible Online Reviews Are
Actually Good For You,'' Advertising Age, September 15, 2011, http://
adage.com/article/digitalnext/terrible-online-reviews-good/229790/;
Shelly Banjo, ``Firms Take Online Reviews to Heart.''
\12\ Davide Proserpio and Georgios Zervas, ``Online Reputational
Management: Estimating the Impact of Management Responses on Consumer
Reviews,'' Boston University School of Management Research Paper
(2014), September 27, 2015, http://papers.ssrn.com/sol3/Papers.cfm?
abstract_id=2521190.
\13\ ``The Conversation Index,'' Bazaar Voice, Vol. 6, accessed
April 2, 2015, 11, http://media2
.bazaarvoice.com/documents/Bazaarvoice_Conversation_Index_Volume6.pdf.
\14\ Dina Mayzlin, Yaniv Dover, and Judy Chevalier, ``Promotional
Reviews: An Empirical Investigation of Online Review Manipulation,''
American Economic Review 104 (2014), 2421-55.
\15\ Michael Luca and Georgios Zervas, ``Fake it Till You Make It:
Reputation, Competition, and Yelp Review Fraud,'' Harvard Business
School, May 1, 2015, http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=2293164.
\16\ Eric Singley, ``Consumer alerts: because you might like to
know . . .'' Yelp Official Blog, October 18, 2012, http://
officialblog.yelp.com/2012/10/consumer-alerts-because-you-might-like-
to-know.html.
\17\ Julie Bort, ``New York Attorney General Busts 19 Companies For
Writing Fake Yelp Reviews'', Business Insider, September 23, 2013,
http://www.businessinsider.com/new-york-cracks-down-on-fake-yelp-
reviews-2013-9.
\18\ See Yelp, ``Terms of Service,'' October 13, 2015, http://
www.yelp.com/static?country
=US&p=tos.
The Chairman. Thank you, Mr. Atkinson.
Next up is Ms. Palmer. Please share your story.
STATEMENT OF JENNIFER KULAS PALMER, PLAINTIFF, PALMER V.
KLEARGEAR
Ms. Palmer. Chairman Thune, Ranking Member Nelson, and
members of the Committee, thank you for inviting me to testify
today. My name is Jen Palmer, and my family's ordeal with a
bullying company that tried to fine us for a negative review
demonstrates why non-disparagement clauses should be
prohibited.
In December 2008, my husband, John Palmer, placed an order
from the online merchant KlearGear for a couple of small desk
trinkets that came to less than $20. When the items failed to
arrive, we both attempted to contact the company through phone
and e-mail. Though we never got a human being on the phone, the
e-mail responses claimed that the order was never paid for and
was thus canceled.
Frustrated at the shoddy customer service, I posted a
review of KlearGear on RipoffReport.com, and we moved on with
our lives.
Then, in May 2012, John got an e-mail from KlearGear
demanding that my review be removed within 72 hours or we would
be fined $3,500 for violating the non-disparagement clause in
their terms of sale and use.
This clause, which barred customers from, ``taking any
action that negatively impacts KlearGear.com, its reputation,
products, services, management, or employees,'' didn't exist
when John ordered the items, and the fact that John didn't
write the review didn't matter to them. Researching via the
Internet archives confirmed that the clause didn't appear until
February 2012, 3 years after my review had been posted.
We were shocked and scared. I spent hours researching how
to remove the review, only to find that RipoffReport.com has a
policy of not removing reviews. John tried explaining to
KlearGear that the review could not be removed, that the non-
disparagement clause didn't exist at the time he tried to place
the order, and that he didn't write the review, I did.
KlearGear responded by threatening to report the $3,500
fine as a debt to the credit bureaus. This frightened us so
much that we purchased a credit-monitoring service for John.
Three months later, the negative report for $3,500, with
KlearGear as the creditor, appeared on his credit report.
We immediately disputed the debt with the credit bureaus,
with no success. KlearGear again e-mailed us and repeated their
position, admitting they had confirmed the debt as valid. But
we couldn't afford to hire an attorney and didn't know how to
fix our credit report without legal help. It would be more than
18 months before John's credit would be clean again.
We have been very careful to live within our means, using
financing only for large purchases like our cars in 2008 and
2011, our house in 2009, and medical bills that weren't covered
by insurance. We had no problems getting financing for any of
those. But for a year and a half, KlearGear's black mark on
John's credit caused us constant anxiety, fear, and humiliation
when people would ask us, ``Who is KlearGear, and why do you
owe them $3,500?''
Because of the credit problems, we were denied a credit
card, delayed on a car loan, and deterred from trying to buy a
new home that would move us closer to our workplaces. The worst
came when we were denied emergency financing to replace a
broken furnace in October 2013.
We were desperate, wrapping our then-3-year-old son Damien
in blankets every night as temperatures dropped near freezing.
I was terrified, too scared to tell anyone for fear that social
services would take Damien away from us because we had no heat.
We had to cut every expense that month, and, between both our
paychecks that month, we were able to buy a basic furnace with
cash.
By that point, we were tired of living in constant anxiety
and fear. I contacted a reporter at KUTV in Salt Lake City, who
did a segment on our plight and got us in contact with the
nonprofit organization Public Citizen, which represented us in
suing KlearGear.
They helped us to clear up John's credit, and we won a
default judgment against KlearGear. After bullying us for so
long, KlearGear never even bothered to show up to defend
themselves in court.
Throughout our entire ordeal, we only wanted two things:
that all traces of KlearGear's actions against us be cleared
from John's credit and to do everything we could to ensure
nobody else ever had to experience the nightmare we endured.
We want Congress to ban non-disparagement clauses, and we
applaud the Committee for proposing to address the problem by
giving the Federal Trade Commission and State authorities the
power to go after unscrupulous companies that use them.
We aren't the only victims of this type of conduct, as
Public Citizen has reported several times on their website and
blog. Companies should not have the power to restrict consumer
speech or punish people who criticize them. It needs to stop.
Companies should earn their reputations honestly with good
products and services and fair dealing.
We think states should be free to enforce this law in every
way they can. I was glad to hear that a restriction barring
States' Attorneys General's offices from hiring outside
attorneys is being removed.
I am grateful for the opportunity to share my experience
with you. On behalf of my husband, John, my son, Damien, and
all the consumers out there who are being bullied and silenced
by companies wielding non-disparagement clauses, I urge you to
pass a bill that prohibits these clauses and provides for
robust enforcement of the law.
Thank you.
[The prepared statement of Ms. Palmer follows:]
Prepared Statement of Jennifer Kulas Palmer, Plaintiff, Palmer v. Klear
Thank you for inviting me to testify today. My name is Jen Palmer,
and I live with my husband and son in Hillsboro, Oregon. I'm here to
tell you about my experiences with a non-disparagement clause and the
company that tried to make my family pay $3,500 because I wrote a
critical review online, and how they ruined my husband's credit when we
refused to pay. My story shows what can happen when companies are
allowed to use non-disparagement clauses in their contracts to bully
consumers. And it shows why Congress should take action to prohibit the
use of these clauses in consumer contracts.
Just before Christmas 2008, when we lived in Utah, my husband John
Palmer placed an order from an online merchant called KlearGear. He
ordered a desk toy and a keychain as Christmas gifts, and he paid for
them when he ordered. The whole order cost less than $20 including
shipping.
The items never arrived. John and I both tried to call the company,
but calling the numbers on the company's website only got us automated
responses, never a human being. We tried e-mailing, and the customer
service person claimed that the order was never paid for and they had
ultimately cancelled the order.
We were incredibly frustrated by the shoddy service and the
impossibility of reaching anyone. In Feburary 2009, I posted a review
expressing my opinions on the site RipoffReport.com. We went on with
our lives and considered it a lesson learned never to deal with them
again.
More than three years later, in May 2012, out of the blue, John
received an e-mail from KlearGear demanding that John have the review
on RipoffReport.com removed within 72 hours, or pay KlearGear $3,500
for violations of their Terms of Sale and Use. We were shocked and
scared by the demand. It seemed this could not be legal. KlearGear
claimed that my review violated a ``non-disparagement clause'' in
KlearGear's Terms of Sale and Use, the text of which barred the
customer--who was John, not me, but that didn't matter to them--from
``taking any action that negatively impacts KlearGear.com, its
reputation, products, services, management or employees.'' John did
some research via the Internet Archive and was able to discover that
the clause wasn't even present in the Terms of Sale when he placed his
order back in December 2008. He found that the clause did not appear
until February 2012.
I spent hours researching how to remove the report from
RipoffReport.com, because we were scared and didn't know what else to
do. But RipoffReport has a policy of not removing reviews, so we were
stuck. John tried explaining to KlearGear that the ``non-disparagement
clause'' was not in the Terms of Sale and Use at the time of John's
order from KlearGear; that it was I, not John, who wrote the review;
and RipoffReport.com's policy of not removing reviews meant we had no
control over whether the review remained online. The person claiming to
be KlearGear's legal representative just reiterated to us that ``this
matter will remain open until the published content is removed,'' and
threatened to report the $3500 as a debt to the credit reporting
agencies. We didn't think they could do something so outrageous, but
those e-mails had disturbed us enough that we purchased a credit
monitoring service for John's credit.
About three months later, our fears were realized. In August 2012,
a negative report appeared on John's credit reports from two of the
three major credit reporting agencies, reflecting a $3,500 debt with
KlearGear as creditor. We immediately called Experian and Equifax to
dispute the debt. Then KlearGear e-mailed John again and said we owed
yet another $50 under its ``Chargeback/Dispute Policy,'' which said
that we had to give KlearGear 30 days to resolve any billing dispute
before going to a third party. We tried to tell KlearGear they couldn't
charge us any of this money, but they just repeated their position and
even admitted that they confirmed to Experian that the debt was valid.
I spent hours on the phone with the credit bureaus, contacting local
law firms to help us, and even doing some legal research myself.
Despite all the information I found, we couldn't afford to hire an
attorney and we didn't know how to fix the credit report without legal
help.
It took more than 18 months to remove the blemish from John's
credit, and not until after the non-profit organization Public Citizen
filed a lawsuit on our behalf. In the meantime, that bad credit report
caused us all kinds of problems. We have been very careful to live
within our means, using financing only for large purchases like the
house, cars, and medical bills that weren't covered by insurance. We'd
had no trouble getting loans to buy a car in 2008, our house in 2009,
or another car in 2011.
But now for the times we needed credit, we couldn't get it. For
instance, we were held up for a month on a car loan in late 2012. Even
worse than the delay was the humiliation of having to explain
everything and the anxiety of whether or not this was going to go
through, especially because at that point, we really needed a second
car. I specifically remember the Finance Manager at the dealership
saying to us ``Who is KlearGear and why do you owe them $3,500?'' John
was also denied a credit card around the same time, and we began to
fear we'd never get a loan for anything again.
We were also hoping to sell our house and buy another one in the
winter of 2013, because both of us were commuting more than 30 miles
each, which was a particular hardship since our son, Damien, was just
3. We were scared to even try to get the credit we'd need to make
necessary repairs on our home and to buy a new one. We didn't want to
go through that humiliation again. Having the initial denials on the
car froze us in our financial tracks and gave us a serious case of
``once bitten, 17 times shy.''
The worst consequence of KlearGear's retaliation against us
occurred in October 2013, more than a year after KlearGear reported the
supposed ``debt.'' In July and September we had needed two major
plumbing repairs on our home which had depleted our savings, and then
our furnace broke at the beginning of October. We couldn't afford to
buy a new one with cash and the weather was turning cold. I contacted
several companies for financing, but no one could approve us. At that
point we were desperate, wrapping Damien in blankets every night, when
the weather was regularly dropping to around freezing. I was
terrified--I had no idea how long this would go on. I was scared social
services would come and take Damien, saying we were bad parents because
we couldn't even keep the heat on. We cut as many expenses as we could
that month. I dreaded each weather forecast. Between both our
paychecks, after a few weeks we had saved enough money to buy the most
basic furnace with cash.
By that point, we were tired of living in fear and not being able
to get emergency credit for basic needs. We spoke to a reporter at KUTV
in Salt Lake City who did a segment on our plight, and eventually got
us in contact with Public Citizen, which represented us in suing
KlearGear. Public Citizen helped us clear up John's credit, finally,
and we won a default judgment against KlearGear, who after bullying us
for years never even bothered to show up to defend itself in court.
Now that part of our lives is behind us. We were able to sell the
house and move to Oregon for a work opportunity. Damien is a healthy
and happy 5 year old.
Throughout our entire ordeal, we only wanted two things: that all
traces of KlearGear's actions against us be cleared from John's credit,
and to do everything we could to ensure nobody else ever had to
experience the nightmare we endured.
We want Congress to ban non-disparagement clauses, which lead to
the silencing of ordinary people and to bullying tactics like those
KlearGear used to make us feel anxious, terrified, humiliated and
helpless for more than a year. And we aren't the only victims of this
type of conduct. If you read Public Citizen's website and its blog,
you'll see that a Wisconsin woman was threatened with round-the-clock
harassment by debt collectors for just telling an online retailer that
she wanted to call her credit card company, a New Jersey woman was told
she'd have to pay thousands of dollars in legal fees just to be able to
post a critical online review of a website, and a New York hotel
threatened couples holding weddings there that they'd be fined for
negative reviews by their guests. The bullying and silencing of
consumers needs to stop.
We applaud the Committee for proposing to address the problem of
non-disparagement clauses. We like the idea of giving the Federal Trade
Commission and state authorities the power to go after unscrupulous
companies that use non-disparagement clauses. Companies should not have
the power to restrict consumer speech or punish people who criticize
them. Companies should have to earn their reputations honestly with
good products and services, and fair dealing.
But we also believe that the bill as currently proposed must be
strengthened. Specifically, one section prohibits state attorney
general's offices from hiring outside attorneys to help enforce the
prohibition on non-disparagement clauses. We don't think there ought to
be restrictions on state enforcement powers, particularly because some
smaller states might not have the resources to enforce every law with
their own attorneys. We think states should be free to enforce this law
however they can. There's no reason to limit the ways states can
enforce it, particularly when states can hire outside lawyers for other
purposes. Therefore I have been pleased to learn that the Committee
intends to amend the bill to eliminate this restriction.
I'm grateful for the opportunity to share my experience with you.
On behalf of my husband John, my son Damien, and all the consumers out
there who are being bullied and silenced by companies wielding non-
disparagement clauses, I urge you to pass a bill that both prohibits
these clauses and provides for robust enforcement of the law.
Thank you.
The Chairman. Thank you, Ms. Palmer, for your willingness
to share that story and be with us today.
Professor Goldman?
STATEMENT OF ERIC GOLDMAN, PROFESSOR, SANTA CLARA UNIVERSITY
SCHOOL OF LAW
Mr. Goldman. Mr. Chairman Thune, Ranking Member Nelson, and
members of the Committee, I appreciate the opportunity to
discuss the Consumer Review Freedom Act of 2015 and how
Congress can help protect consumer reviews. I commend the
Committee and the bill's sponsors for their leadership on this
topic.
Consumer reviews are vitally important to our modern
economy. Markets become stronger and more efficient when
consumers share their marketplace experiences and guide other
consumers toward the best vendors and away from poor ones.
Despite the social benefits generated by consumer reviews,
some businesses try to distort their public reputation by
contractually suppressing reviews from their customers. These
efforts are categorically illegitimate. The Consumer Review
Freedom Act will ensure every consumer has the opportunity to
add their voice to the discourse so that other consumers can
benefit from their experiences.
Because contractual restrictions on consumer reviews are
such a terrible idea, it seems like existing law should already
prohibit such practices. Although there are some precedents to
support that position, I will explore two reasons why I think
we still need the Consumer Review Freedom Act.
First, it is not clear if courts will enforce anti-review
clauses. And I use the term ``anti-review clauses'' to describe
what other people are calling gag contracts or clauses or non-
disparagement clauses. We do have a nomenclature problem, and I
am sorry for compounding that.
Many judges will refuse to enforce anti-review clauses for
unconscionability, public policy, or other reasons, but judges
also don't like to override contractual provisions, and so
anti-review clauses are not guaranteed to fail in court.
I would like to call your attention, in particular, to a
case, Galland v. Johnston, which involved a vacation rental
contract that required tenants to agree that they would not,
quote, ``use blogs or websites for complaints, anonymously or
not.''
We don't have any idea how many consumers were deterred by
this clause from sharing their experiences, but we do know that
two tenants did post public reviews of the vacation rental
online in defiance of the ban. The landlord then sued these
tenants in Federal court.
The court held that the reviews weren't defamatory but the
tenants, nevertheless, may have breached the rental contract.
In other words, this ruling means that anti-review clauses
expose the tenants to potential liability for sharing what was
a non-defamatory review.
The Consumer Review Freedom Act will eliminate any
ambiguity over the enforceability of anti-review clauses. It
will mean that vacation tenants and all other customers will
enjoy legal certainty about their rights to speak up.
The second reason why we need the Consumer Review Freedom
Act is that businesses are always seeking ways to shape and
manage their online reputations. As they offer the illusion of
control, anti-review clauses will keep proliferating unless
they are banned.
The experience of the healthcare industry illustrates how
that might happen. In the late 2000s, a company called Medical
Justice sold form contracts to doctors and other health-care
professionals that contained anti-review clauses. Medical
Justice's sales pitch to the doctors and healthcare
professionals was elegant and tempting. It implied that, by
using its form contracts, doctors and healthcare professionals
would seemingly obtain a magic wand to scrub unwanted patient
reviews from the Internet.
Over the years, I estimate that over a thousand doctors and
other healthcare professionals deployed such anti-review
clauses and that over a million Americans signed such
provisions.
The long-term marketplace damages attributable to Medical
Justice's misguided campaign is incalculable. Although Medical
Justice changed its position in 2011 and told consumers to stop
using its form, even today in 2015 it can be hard to find
robust numbers of patient reviews for many healthcare
providers.
Although the healthcare industry's adoption of anti-review
contracts may seem to be an extreme case, we are likely to see
similar effects in other industries dominated by small
businesses and professional service providers. Why these
categories of businesses? In many cases, these proprietors'
self-identities are closely linked to their professional
reputations. Negative feedback about their business feels like
it reflects upon them as an individual.
If a vacation tenant says she didn't like the rental's
decor, the landlord might take that as a criticism of her
aesthetic tastes. Or if a patient says she didn't like her
doctor's bedside manner, the doctor may feel like her
personality is being criticized. Small-business owners and
professional service providers will be attracted to anti-review
clauses to prevent these public ego blows.
Therefore, without the Consumer Review Freedom Act, I
expect other industries will embrace anti-review clauses like
the healthcare industry did, and we as consumers will all be
poorer for it.
Consumer reviews are worth fighting for, and I am thrilled
to see Congress taking on that fight. I want to thank you for
your work on the bill and for the opportunity to share my
views.
[The prepared statement of Mr. Goldman follows:]
Prepared Statement of Eric Goldman, Professor, Santa Clara University
School of Law
Members of the Committee:
I appreciate this opportunity to discuss the Consumer Review
Freedom Act of 2015 and how Congress can help protect consumer reviews.
I commend the Committee, and the bill sponsors, for their leadership on
this topic.
Consumer reviews are vitally important to our modern economy.
Markets become stronger and more efficient when consumers share their
marketplace experiences and guide other consumers toward the best
vendors and away from poor ones.
Despite the social benefits generated by consumer reviews, some
businesses try to distort their public reputation by contractually
suppressing reviews from their customers. These efforts are
categorically illegitimate. The Consumer Review Freedom Act will ensure
every consumer has the opportunity to add their voice to the discourse
so that other consumers can benefit from their experiences.
Because contractual restrictions on consumer reviews are such a
terrible idea, it seems like existing law should already prohibit such
practices. Although there is some precedent to support that conclusion,
I'll explore two reasons why we still need the Consumer Review Freedom
Act.
First, it's not clear if courts will enforce anti-review
clauses.\1\ Many judges will refuse to do so for unconscionability,
public policy or other reasons. However, judges don't like to override
contracts, so anti-review contracts aren't guaranteed to fail in court.
---------------------------------------------------------------------------
\1\ Unfortunately, there is no widely accepted term to describe the
types of contract clauses at issue here. I use the term ``anti-review
clauses,'' but the terms ``gag clauses'' and ``non-disparagement
clauses'' are also used. I don't prefer the latter because businesses
sometimes attempt to restrict all reviews, positive and negative.
---------------------------------------------------------------------------
For example, in Galland v. Johnston,\2\ a vacation rental contract
required tenants to agree that they would not ``use blogs or websites
for complaints, anonymously or not.'' We have no idea how many tenants
self-censored due to this contract clause, but we know two tenants
defied the ban and criticized the vacation rental online. The landlord
sued the tenants in Federal court. The court held that the reviews
weren't defamatory but the tenants nevertheless may have breached the
rental contract. This ruling means the anti-review clause exposed the
tenants to liability for sharing non-defamatory reviews.
---------------------------------------------------------------------------
\2\ Galland v. Johnston, 2015 WL 1290775 (S.D.N.Y. Mar. 19, 2015),
http://law.justia.com/cases/federal/district-courts/new-york/nysdce/
1:2014cv04411/428591/32/.
---------------------------------------------------------------------------
The Consumer Review Freedom Act will eliminate any ambiguity over
the enforceability of anti-review clauses. It will mean that vacation
tenants--and all other customers--will enjoy legal certainty about
their rights to speak up.
The second reason we need the Consumer Review Freedom Act is that
businesses are always seeking ways to shape and manage their online
reputations. As they offer the illusion of such control, anti-review
clauses will keep proliferating unless they are banned.
The experiences of the healthcare industry illustrate how this
might happen. In the late 2000s, a company called Medical Justice sold
form contracts to doctors and other healthcare professionals that
contained anti-review clauses.\3\ Medical Justice's sale pitch was
elegant and tempting: by using its form contract, doctors and
healthcare professionals would seemingly get a magic wand to scrub
unwanted patient reviews from the Internet. Over the years, I estimate
that over 1,000 healthcare professionals adopted Medical Justice's form
contract and over 1 million Americans signed an anti-review contract.
---------------------------------------------------------------------------
\3\ The exact terms of the anti-review clause varied over the
years. At some points, the contract banned reviews; other times, the
contract assigned the IP rights to the patients' reviews.
---------------------------------------------------------------------------
The long-term marketplace damage attributable to Medical Justice's
misguided campaign is incalculable. Although Medical Justice changed
its position in 2011 and told its customers to stop using its forms,
even today in 2015 it can be hard to find robust numbers of patient
reviews for many healthcare providers.
Although the healthcare industry's adoption of anti-review
contracts may be an extreme case, we're likely to see similar effects
in other industries dominated by small businesses and professional
service providers.
Why small businesses and professional service providers? In many
cases, these proprietors' self-identities are closely linked to their
professional reputations. Negative feedback about their business feels
like it reflects on them as an individual. If a vacation tenant says
she didn't like the rental's decor, the landlord might take that as
criticism of her aesthetic tastes. Or if a patient says that she didn't
like her doctor's bedside manner, the doctor may feel like her
personality is being criticized. Small business owners and professional
service providers will be attracted to anti-review clauses to prevent
these public ego blows. Therefore, without the Consumer Review Freedom
Act, I expect other industries will embrace anti-review clauses like
the healthcare industry did--and we as consumers will be poorer for
those efforts.
Consumer reviews are worth fighting for, and I'm thrilled to see
Congress taking on that fight. I thank you for your work on the bill
and for the opportunity to share my views.
Attachments
Eric Goldman, How Congress Can Protect Online Consumer
Reviews, Forbes Tertium Quid, Nov. 2, 2015, http://
www.forbes.com/sites/ericgoldman/2015/11/02/how-congress-can-
protect-online-consumer-reviews/.
Eric Goldman, Court Might Enforce A Contract Ban On Consumer
Reviews, Forbes Tertium Quid, Mar. 27, 2015, http://
www.forbes.com/sites/ericgoldman
/2015/03/27/court-might-enforce-a-contract-ban-on-consumer-
reviews/.
Eric Goldman, California Tells Businesses: Stop Trying To
Ban Consumer Reviews, Forbes Tertium Quid, Sept. 10, 2014,
http://www.forbes.com/sites/eric
goldman/2014/09/10/california-tells-businesses-stop-trying-to-
ban-consumer-reviews/.
Eric Goldman, Fining Customers For Negative Online Reviews
Isn't New . . . Or Smart, Forbes Tertium Quid, Aug. 7, 2014,
http://www.forbes.com/sites/ericgoldman/2014/08/07/fining-
customers-for-negative-online-reviews-isnt-new-or-smart/.
Eric Goldman, The Regulation of Reputational Information in
The Next Digital Decade: Essays on the Future of the Internet
193 (Berin Szoka & Adam Marcus eds.) (2010), http://ssrn.com/
abstract=1754628.
Eric Goldman, Patients' Online Reviews of Physicians,
Medical Ethics (a journal published by Lahey Health), Fall
2013, at 6, http://ssrn.com/abstract
=2367092.
______
How Congress Can Protect Online Consumer Reviews
Nov 2, 2015 @ 11:52 AM
For many Americans, the First Amendment is the alpha and omega of
free speech protection. However, the First Amendment just sets a
minimum level of free speech in our society. Legislatures, including
Congress, may freely enact laws that go beyond the First Amendment to
protect free speech. If done properly, those laws can help free speech
more than the First Amendment.
The Consumer Review Freedom Act of 2015 (S. 2044 and H.R. 2110) is
an example of a law that would helpfully supplement the First
Amendment's protection of free speech. The Act would prevent businesses
from contractually restricting their customers from reviewing them
online (what I call ``anti-review clauses''). Although it may be hard
to believe any business would ever ask its customers to do something so
anti-consumer, it's likely that millions of Americans have agreed to
such clauses. The Consumer Review Freedom Act would benefit them-and
all of us.
About The Act
(Note: I'll critique and quote the Senate bill's language, but the
House and Senate versions are pretty similar).
The Act defines ``covered communications'' to include written,
verbal or photographic consumer reviews. The Act says that any form
contracts that ban, impose fines for, or attempt to obtain the
intellectual property rights to, covered communications are void. The
Act also declares such contracts unlawful and authorizes the Federal
government and state attorneys' general to bring enforcement actions
for imposing such contracts (the House bill designates the U.S.
Department of Justice as the principal Federal enforcement entity; the
Senate bill, the Federal Trade Commission).
What's Good
Some of the best aspects of the Act:
Broad Definition. Consumers can critique businesses in lots
of ways. The Act's multi-media definition of ``covered
communications'' should be broad enough to cover all of those
possibilities.
Broad Prohibitions. Businesses seeking to gag their
consumers have tried many different contract tricks. The Act
prohibits all of the known tricks (bans, fines and IP
assignments), so it will not be easy for a business to skirt
around this law.
Recommended by Forbes
Remedies. The Act makes anti-review clauses both void and
unlawful. Void means that no court will enforce them, and
unlawful means that it's illegal for businesses to include an
anti-review clause in its form, even if the business never
plans to enforce it.
Possible Tweaks
While I support the Act in its current form, a few tweaks are worth
considering:
Restriction to Form Contracts. The Act applies only when the
anti-review clause is in a ``form contract,'' defined as ``a
standardized contract used by a person and imposed on an
individual without a meaningful opportunity for such individual
to negotiate the standardized terms.'' This definition excludes
individually negotiated non-disparagement clauses, which are
sometimes found in settlement agreements. (A non-disparagement
clause says that a person won't publicly say negative things-
even if true-about someone else). Still, the statutory language
leaves room for debate over whether a contract qualifies as a
``form contract.'' Because I am skeptical that non-
disparagement clauses are legitimate in any situation, I would
favor extending the restrictions to all contracts, form or
negotiated.
Trade Secret Exception. The Act does not apply to ``trade
secret'' protections, which makes sense because businesses
should have the ability to protect their trade secrets.
Unfortunately, businesses sometimes have ridiculously
overexpansive views about what constitutes their trade secrets-
including asserting that information disclosures to customers
in ordinary buying-and-selling interactions constitute the
business' trade secrets. To preserve trade secret protection
but curb abusive overreaching, the Act could specify that
ordinary business-consumer interactions can't qualify as trade
secret disclosures.
No Consumer Redress. The Act doesn't give consumers any
affirmative recourse if a business attempts to impose or
enforce an anti-review clause. This could be fixed in two ways.
First, if a business makes the unwise decision to bring a
lawsuit based on an anti-review clause, the court should award
attorneys' fees and other defense costs to the consumer.
Second, the statute should impose statutory damages on any
businesses that includes anti-review clauses in their
contracts.
State Law Preemption. The Act doesn't preempt state laws
(the Act says ``Nothing in this section shall be construed to
affect any cause of action brought by a person that exists or
may exist under State law''). This might be a good thing
because it increases the range of legal tools to combat anti-
review clauses. On the other hand, one of the principal
benefits of Federal law is that it can establish uniform rules
across the country. Although I favor a multi-fronted effort to
extinguish anti-review clauses, I probably favor legal
uniformity a little more.
Aren't Anti-Review Clauses Already Illegal?
Because anti-review clauses are such an obviously terrible idea,
such clauses are already running into legal trouble. For example, a
2003 New York case struck down an anti-review clause; the Department of
Health and Human Service's Office for Civil Rights has told doctors
they can't use anti-review clauses; in 2014, California enacted a law
against businesses banning consumer reviews; and last month, the
Federal Trade Commission obtained a preliminary injunction prohibiting
Roca Labs from using anti-review clauses. With all of this precedent
indicating that anti-review clauses aren't permissible, do we need a
Federal law too?
Yes, we do. Anti-review clauses keep proliferating through
different industries, so not every business has gotten the message.
California's law is a helpful start, but that still leaves 49 states
without comparable statutes. Plus, at least one case suggested that
anti-review clauses may be enforceable. We need to put a decisive and
unambiguous end t these anti-consumer, anti-competitive practices, and
the Consumer Review Freedom Act would do just that.
A Final Thought
In addition to the Consumer Review Freedom Act, Congress should
enact a Federal anti-SLAPP law-another example of how Congress can
extend the First Amendment's free speech protections. Anti-SLAPP laws
help protect consumers from businesses making spurious legal claims
that negative consumer reviews are defamatory. Businesses often
intimidate consumers into removing reviews by threatening costly legal
action (even if the review is completely legitimate), so the procedural
and financial protections in a Federal anti-SLAPP law would curb such
abusive threats. The combination of the Consumer Review Freedom Act and
Federal anti-SLAPP protection would provide a solid legal foundation
for the continued growth and success of online consumer reviews.
forbes.com--http://www.forbes.com/sites/ericgoldman/2015/11/02/how-
congress-can-protect-online-consumer-reviews/
______
Court Might Enforce A Contract Ban On Consumer Reviews
Mar 27, 2015 @ 11:04 AM
Claude and Violaine Galland own an apartment in Paris, France. They
offer it for rental through VRBO, an online service for vacation
rentals. The Gallands' rental agreement include the following language:
``The tenants agree not to use blogs or websites for complaints,
anonymously or not.'' Though clumsily worded, this clause is similar to
prior attempts to restrict consumer reviews, such as the provisions
used by doctors and dentists, hotels, apartment owners and other
vacation rental services. As far as I know, no court has ever enforced
any of these clauses purporting to suppress consumer reviews.
Two different renters, the Johnstons and Bowdens, rented the
Gallands' apartment and subsequently posted critical reviews on VRBO.
Mr. Galland allegedly offered $300-unsuccessfully-to the Bowdens to
remove their post. Instead, the Gallands sued the Johnstons and Bowdens
for defamation, breach of contract and other claims.
The judge dismissed the defamation claims-but refused to dismiss
the breach of contract claim because:
It is plausible that Defendants made the posts in violation of
the contract. Moreover, it is plausible that such negative
reviews could cause injuries to the Gallands' business.
Nevertheless, these are questions for a trier of fact to
decide. . .
Thus, the breach of contract claim will go to a trial to decide if
the reviews violated the contract.
Surprisingly, the judge didn't discuss the illegality of the
contract clause. In 2003, a New York court instructed a software vendor
to stop banning consumer reviews in its contract (the exact
restriction: ``The customer will not publish reviews of this product
without prior consent from Network Associates, Inc.''). The court held
that using such a clause may be a deceptive practice under New York's
consumer protection law. I can't see any reason why the Gallands'
clause wouldn't violate the same law. (The Gallands' case is being
litigated in a New York Federal court applying New York law).
Irrespective of the New York law, the contract restriction should be
void as a matter of public policy. I'm hoping the court will come to
its senses and realize that no trial is needed because the clause
should be condemned, not enforced.
It's remarkable that anyone had the confidence to litigate such a
clause at all. We have seen relatively few courtroom battles over
contractual bans on consumer reviews, and we aren't likely to see many
such disputes in the future. The Gallands' contract provision clearly
violates California's new law against consumer review bans, and I
believe a new Federal bill will be introduced to make such bans
nationwide. Eventually vendors will get the message and stop trying.
Until they do, we need more tools to discourage such clauses in the
future-and to discourage wasteful litigation intended to suppress
renters' rights to express themselves.
For more on this topic, see my article, The Regulation of
Reputational Information.
Case citation: Galland v. Johnston, 2015 WL 1290775 (SDNY March 19,
2015)
forbes.com--http://www.forbes.com/sites/ericgoldman/2015/03/27/court-
might-enforce-a-contract-ban-on-consumer-reviews/
______
California Tells Businesses: Stop Trying To Ban Consumer Reviews
Sep 10, 2014 @ 12:46 PM
Increasingly, businesses are looking for ways to suppress or erase
consumers' negative online reviews of them. In particular, we've
recently seen a proliferation of contract clauses purporting to stop
consumers from reviewing businesses online. Those overreaching contract
clauses have never been a good idea, but yesterday, the idea got worse.
Gov. Jerry Brown signed AB 2365 into law, to be codified as California
Civil Code Sec. 1670.8. The law is a first-in-the-nation statute to
stop businesses from contractually gagging their consumers.
The new law says that a consumer contract ``may not include a
provision waiving the consumer's right to make any statement regarding
the seller or lessor or its employees or agents, or concerning the
goods or services.'' Any contract terms violating this provision are
void. Simply including a prohibited clause in a contract, even if the
business never enforces it, or threatening to enforce such a clause can
lead to a penalty of up to $2,500 (up to $10,000 if the violation is
willful). The penalties may be financially modest, but any California
business foolish enough to take an anti-review contract to court will
end up writing a check to their customers.
Instead of telling consumers they can't review the businesses, some
businesses are imposing financial penalties on consumers for writing
negative reviews. I recently wrote about a New York hotel's contract
that fined customers $500 if they, or their wedding guests, posted
negative online reviews. Disputes over fines will rarely end up in
court because the hotel simply deducted the fine from the customer's
security deposit. Or other businesses, such as KlearGear, have filed
negative credit reports against consumers who didn't pay the fine. A
consumer could challenge the security deposit deduction or negative
credit report in court, but few will.
The statute tries to address the fining tactic by saying it's
unlawful to ``penalize a consumer for making any statement protected
under this section.'' The statute doesn't define what statements are
``protected under this section,'' so I'm not sure how courts will
interpret the provision. The legislative history expressly references
the KlearGear situation, so I anticipate the statute will cover fines
against customers for writing negative online reviews.
We've also seen businesses use intellectual property claims to
inhibit or discourage consumer reviews. The most notorious was the
scheme by Medical Justice that helped doctors get their patients to
assign the copyright in unwritten reviews. Unfortunately, the statute
doesn't directly address this situation, and arguably these IP-based
tactics don't constitute ``waivers'' prohibited by the statute. Perhaps
courts will nevertheless interpret the statute to ban these abusive
practices; otherwise, I fear we'll see more IP-based anti-review
shenanigans following this law.
If you're responsible for your business' contract with consumers,
today's a good day to review the contract and confirm that you don't
have any language that might be interpreted as a restriction on your
customers' ability to review your business. There are so many better
ways to handle consumer reviews.
forbes.com--http://www.forbes.com/sites/ericgoldman/2014/09/10/
california-tells-businesses-stop-trying-to-ban-consumer-reviews/
______
Fining Customers For Negative Online Reviews Isn't New. . .Or Smart
Aug 7, 2014 @ 10:47 AM
This week, we learned that a New York hotel, the Union Street Guest
House, was fining guests $500 for posting negative online reviews. The
story received considerable media attention because the restriction
violates our social norms and is almost certainly unlawful.
Unfortunately, this is not the first time businesses have tried to
control negative reviews online, a goal that some businesses apparently
find irresistible. We shouldn't be surprised the next time we see
businesses try to gag their customers, but it should make us mad. .
.mad enough to demand new statutor punishments for businesses who
disrespect their customers and the marketplace.
The Union Street Guest House Contract
Until recently, the Union Street Guest House included the following
provision in its policies:
If you stay here to attend a wedding and leave us a negative
review on any Internet site you agree to a $500. fine for each
negative review.
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 (this is due to the fact that
your guests may not understand what we offer and we expect you
to explain that to them).
Allegedly, the guest house would refund the full deposit if the
author removed the negative review.
We don't know how often the guest house actually fined its
customers. Slate reported on one e-mail exchange where the policy was
invoked. I imagine other guests simply removed negative reviews in
response to threats by the guest house.
The guest house's provision stands out for two reasons. First, it
purports to hold the bride or groom accountable for posts made by their
wedding guests. However, newlyweds can't really control what their
guests feel or say. Second, the guest house could self-implement the
remedy by deducting money from the customer's deposit, rather than
bringing a lawsuit in court-which would almost certainly fail.
Past Attempts To Suppress Negative Consumer Reviews
The Business Insider article said the guest house's provision was
``a novel way to keep negative reviews off Yelp and other sites,'' but
that's wrong. Although we've seen a range of ways businesses have tried
to suppress online reviews, we've also seen this story before. Here's a
short survey of some prior efforts to gag customers:
Late 1990s. Software vendor Network Associates obligated its end
users to ``not publish reviews of this product without prior consent
from Network Associates, Inc.'' In 2003, a New York court enjoined
Network Associates from using that clause.
2007-2011. A small company, Medical Justice, provided doctors and
dentists with form contracts designed to veto any negative online
reviews. The contracts initially banned online reviews outright. A
division of the Federal Department of Health & Human Services held that
it was unethical for doctors to suppress patients' reviews. Medical
Justice eventually changed its form so that patients assigned the
copyright in their unwritten online reviews of the doctor or dentist.
Armed with the purported copyright, doctors and dentists could threaten
review websites with copyright infringement for continuing to publish
any reviews the doctor/dentist wanted gone (presumably, only negative
reviews). I believe that over 1 million Americans signed some variation
of Medical Justice's form contract. In 2011, Medical Justice
``retired'' its form and advised doctors and dentists to stop using it.
Meanwhile, there remains a pending lawsuit by a patient against a
dentist who tried to invoke the form to demand the removal of a
negative review. That lawsuit is going poorly for the dentist. For more
information on Medical Justice's anti-review efforts, see
DoctoredReviews.com.
2012. We learned that some vacation rental companies were pulling
the same basic stunt as the Union Street Guest House. Some contracts
contained a clause restricting online reviews, styled as a non-
disclosure agreement. For example, one provision said the customer may
not ``discuss or disclose the occupancy of the subject property with
any entity not bound by the terms of this agreement without the
expressed written authorization of the homeowner and the property agent
representing the homeowner.'' Furthermore, the rental company retained
the customer's security deposit and could deduct fines from there. I'm
not aware of any legal tests of these contracts.
2013. Online retailer KlearGear attempted to restrict negative
consumer reviews by imposing a fine, but the customer says that
KlearGear's contract didn't actually contain the restriction at the
time of purchase. When the customer failed to pay the fine, KlearGear
reported the non-payment to the credit agencies, damaging the
customer's credit. The customer is suing KlearGear for its behavior,
and that lawsuit isn't going well for KlearGear.
In response to the KlearGear incident, a bill was introduced in
California (AB2365) to ban surreptitious attempts to restrict
customers' reviews. The bill has some obvious deficiencies, including
the fact that the bill's language might no restrict the guest house's
provision. Still, I think the bill is a sign of things to come. It
hurts the marketplace when businesses keep customers from sharing their
experiences with other prospective customers, so we simply cannot
tolerate such efforts. If businesses can't resist their impulses to
hide their failings, the legislatures will have to step in.
forbes.com--http://www.forbes.com/sites/ericgoldman/2014/08/07/fining-
customers-for-negative-online-reviews-isnt-new-or-smart/
______
The Next Digital Decade: Essays on the Future of the Internet
The Regulation of Reputational Information
By Eric Goldman*
---------------------------------------------------------------------------
\*\ Associate Professor and Director, High Tech Law Institute,
Santa Clara University School of Law. E-mail: [email protected].
Website: http://www.ericgoldman.org. In addition to a stint as General
Counsel of Epinions.com, a consumer review website now part of the eBay
enterprise, I have provided legal or consulting advice to some of the
other companies mentioned in this essay. I prepared this essay in
connection with a talk at the Third Annual Conference on the Law and
Economics of Innovation at George Mason University, May 2009.
---------------------------------------------------------------------------
Introduction
This essay considers the role of reputational information in our
marketplace. It explains how well-functioning marketplaces depend on
the vibrant flow of accurate reputational information, and how
misdirected regulation of reputational information could harm
marketplace mechanisms. It then explores some challenges created by the
existing regulation of reputational information and identifies some
regulatory options for the future.
Reputational Information Defined
Typical definitions of ``reputation'' focus on third-party
cognitive perceptions of a person.\1\ For example, Black's Law
Dictionary defines reputation as the ``esteem in which a person is held
by others.'' \2\ Bryan Garner's A Dictionary of Modern Legal Usage
defines reputation as ``what one is thought by others to be.'' \3\ The
Federal Rules of Evidence also reflect this perception-centric view of
``reputation.'' \4\
---------------------------------------------------------------------------
\1\ As one commentator explained:
Through one's actions, one relates to others and makes impressions
on them. These impressions, taken as a whole, constitute an
individual's reputation--that is, what other people think of you, to
the extent that their thoughts arise from what they know about you, or
think they know about you.
Elizabeth D. De Armond, Frothy Chaos: Modern Data Warehousing and
Old-Fashioned Defamation, 41 Val. U.L. Rev. 1061, 1065 (2007).
\2\ Black's Law Dictionary (8th ed. 2004).
\3\ Bryan A. Garner, A Dictionary of Modern Legal Usage (1990).
\4\ See, e.g., Fed. R. Evid. 803(19), 803(21).
---------------------------------------------------------------------------
Although this definition is useful so far as it goes, I am more
interested in how information affects prospective decision-making.\5\
Accordingly, I define ``reputational information'' as follows:
---------------------------------------------------------------------------
\5\ Luis M.B. Cabral, The Economics of Trust and Reputation: A
Primer (June 2005 draft), http://pages.stern.nyu.edu/ lcabral/
reputation/Reputation_June05.pdf (treating information about reputation
as inputs into Bayesian calculations).
information about an actor's past performance that helps
predict the actor's future ability to perform or to satisfy the
---------------------------------------------------------------------------
decision-maker's preferences.
This definition contemplates that actors create a pool of data
(both subjective and objective) through their conduct. This pool of
data--the reputational information--can provide insights into the
actor's likely future behavior.
Reputation Systems
``Reputation systems'' aggregate and disseminate reputational
information to consumers of that information. Reputation systems can be
mediated or unmediated.
In unmediated reputation systems, the producers and consumers of
reputational information communicate directly. Examples of unmediated
reputation systems include word of mouth, letters of recommendation and
job references.
In mediated reputation systems, a third-party publisher gathers,
organizes and publishes reputational information. Examples of mediated
reputation systems include the Better Business Bureau's ratings, credit
reports/scores, investment ratings (such as Morningstar mutual fund
ratings and Moody bond ratings), and consumer review sites.
The Internet has led to a proliferation of mediated reputation
systems, and in particular consumer review sites.\6\ Consumers can
review just about anything online; examples include:
---------------------------------------------------------------------------
\6\ Indeed, this has spurred the formation of an industry
association, the Rating and Review Professional Association. http://
www.rarpa.org.
eBay's feedback forum,\7\ which allows eBay's buyers and
sellers to rate each other.
---------------------------------------------------------------------------
\7\ http://pages.ebay.com/services/forum/feedback.html.
Amazon's product reviews, which allows consumers to rate and
---------------------------------------------------------------------------
review millions of marketplace products.
Yelp.com, which allows consumers to review local businesses.
TripAdvisor.com, which allows consumers to review hotels and
other travel attractions.
RealSelf.com, which allows consumers to review cosmetic
surgery procedures.
Avvo.com, which allows consumers to rate and review
attorneys.
Glassdoor.com, which allows employees to share salary
information and critique the working conditions at their
employers.
Honestly.com,\8\ which allows co-workers to review each
other.
---------------------------------------------------------------------------
\8\ Honestly.com was previously called Unvarnished. See Evelyn
Rusli, Unvarnished: A Clean, Well-Lighted Place For Defamation,
TechCrunch, Mar. 30, 2010, http://techcrunch.com/2010/03/30/
unvarnished-a-clean-well-lighted-place-for-defamation/.
RateMyProfessors.com, which allows students to publicly rate
---------------------------------------------------------------------------
and review their professors.
DontDateHimGirl.com, which allows people to create and
``find profiles of men who are alleged cheaters.'' \9\
---------------------------------------------------------------------------
\9\ PlayerBlock is a similar service, tracking undesirable dating
prospects by their cellphone number. See Leslie Katz, Is Your Date a
Player? Send a Text and Find Out, CNET News.com, Oct. 22, 2007, http://
news.cnet.com/8301-10784_3-9802025-7.html.
TheEroticReview.com, which allows johns to rank
prostitutes.\10\
---------------------------------------------------------------------------
\10\ See Matt Richtel, Sex Trade Monitors a Key Figure's Woes, N.Y.
Times, June 17, 2008. PunterNet is another website in this category,
providing reviews of British sex workers. John Omizek, PunterNet Thanks
Harriet for Massive Upswing, The Register, Oct. 5, 2009, http://
www.theregister.co.uk/2009/10/05/punternet_harman/.
---------------------------------------------------------------------------
Why Reputational Information Matters
In theory, the marketplace works through an ``invisible hand'':
consumers and producers make individual and autonomous decisions that,
without any centralized coordination, collectively determine the price
and quantity of goods and services. When it works properly, the
invisible hand maximizes social welfare by allocating goods and
services to those consumers who value them the most.
A properly functioning invisible hand also should reward good
producers and punish poor ones. Consumers allocating their scarce
dollars in a competitive market will transact with producers who
provide the best cost or quality options. Over time, uncompetitive
producers should be drummed out of the industry by the aggregate but
uncoordinated choices of rational and informed consumers.
However, given the transaction costs inherent in the real world,
the invisible hand can be subject to distortions. In particular, to the
extent information about producers is costly to obtain or use,
consumers may lack crucial information to make accurate decisions. To
that extent, consumers may not be able to easily compare producers or
their price/quality offerings, in which case good producers may not be
rewarded and bad producers may not be punished.
When information is costly, reputational information can improve
the operation of the invisible hand by helping consumers make better
decisions about vendors. In this sense, reputational information acts
like an invisible hand guiding the invisible hand (an effect I call the
``secondary invisible hand''), because reputational information can
guide consumers to make marketplace choices that, in aggregate,
effectuate the invisible hand. Thus, in an information economy with
transaction costs, reputational information can play an essential role
in rewarding good producers and punishing poor ones.
Given this crucial role in marketplace mechanisms, any distortions
in reputational information may effectively distort the marketplace
itself. In effect, it may cause the secondary invisible hand to push
the invisible hand in the wrong direction, allowing bad producers to
escape punishment and failing to reward good producers. To avoid this
unwanted consequence, any regulation of reputational information needs
to be carefully considered to ensure it is improving, not harming,
marketplace mechanisms.
Note that the secondary invisible hand is, itself, subject to
transaction costs. It is costly for consumers to find and assess the
credibility of reputational information. Therefore, reputation systems
themselves typically seek to establish their own reputation. I describe
the reputation of reputation systems as a ``tertiary'' invisible hand--
it is the invisible hand that guides reputational information (the
secondary invisible hand) to guide the invisible hand of individual
uncoordinated decisions by marketplace actors (the primary invisible
hand). Thus, the tertiary invisible hand allows the reputation system
to earn consumer trust as a credible source (such as the Wall Street
Journal, the New York Times or Consumer Reports) or to be drummed out
of the market for lack of credibility (such as the now-defunct
anonymous gossip website JuicyCampus).\11\
---------------------------------------------------------------------------
\11\ Matt Ivester, A Juicy Shutdown, JuicyCampus Blog, Feb. 4,
2009, http://juicycam
pus.blogspot.com/2009/02/juicy-shutdown.html.
---------------------------------------------------------------------------
Thinking About Reputation Regulation
This part explores some ways that the regulatory system interacts
with reputation systems and some issues caused by those interactions.
Regulatory Heterogeneity
Regulators have taken divergent approaches to reputation systems.
For example, consider the three different regulatory schemes governing
job references, credit reporting databases and consumer review
websites:
Job references are subject to a mix of statutory (primarily
state law) and common law tort regulation.
Credit reporting databases are statutorily micromanaged
through the voluminous and detailed Fair Credit Reporting
Act.\12\
---------------------------------------------------------------------------
\12\ 15 U.S.C. Sec. Sec. 1681-81x.
Consumer review websites are virtually unregulated, and many
potential regulations of consumer review websites (such as
---------------------------------------------------------------------------
defamation) are statutorily preempted.
These different regulatory structures raise some related questions.
Are there meaningful distinctions between reputation systems that
support heterogeneous regulation? Are there ``best practices'' we can
observe from these heterogeneous regulatory approaches that can be used
to improve other regulatory systems? These questions are important
because regulatory schemes can significantly affect the efficacy of
reputation systems. As an example, consider the differences between the
job reference and online consumer review markets.
A former employer giving a job reference can face significant
liability whether the reference is positive or negative.\13\ Giving
unfavorable references of former employees can lead to defamation or
related claims;\14\ and there may be liability for a former employee
giving an incomplete positive reference.\15\
---------------------------------------------------------------------------
\13\ See Tresa Baldas, A Rash of Problems over Job References,
Nat'l L.J., Mar. 10, 2008 (``Employers are finding that they are being
sued no matter what course they take; whether they give a bad
reference, a good reference or stay entirely silent.'').
\14\ 1-2 Employment Screening Sec. 2.05 (Matthew Bender & Co. 2008)
(hereinafter ``Employment Screening'').
\15\ Randi W. v. Muroc Joint Unified Sch. Dist., 14 Cal. 4th 1066
(1997).
---------------------------------------------------------------------------
Employers may be statutorily required to provide certain objective
information about former employees.\16\ Otherwise, given the
potentially no-win liability regime for communicating job references,
most knowledgeable employers refuse to provide any subjective
recommendations of former employees, positive or negative.\17\
---------------------------------------------------------------------------
\16\ These laws are called ``service letter statutes.'' See
Employment Screening, supra note 14. Germany has a mandatory reference
law requiring employers to furnish job references, but in response
German employers have developed an elaborate system for coding the
references. Matthew W. Finkin & Kenneth G. Dau-Schmidt, Solving the
Employee Reference Problem, 57 AM. J. Comp. L. 387 (2009).
\17\ See Baldas, supra note 13.
---------------------------------------------------------------------------
To curb employers' tendency towards silence, many states enacted
statutory immunities to protect employers from lawsuits over job
references.\18\ However, the immunities have not changed employer
reticence, which has led to a virtual collapse of the job reference
market.\19\ As a result, due to mis-calibrated regulation, the job
reference market fails to provide reliable reputational information.
---------------------------------------------------------------------------
\18\ The immunizations protect employer statements made in good
faith. Employment Screening, supra note 14.
\19\ See Finkin & Dau-Schmidt, supra note 16.
---------------------------------------------------------------------------
In contrast, the online consumer review system is one of the most
robust reputation systems ever. Millions of consumers freely share
their subjective opinions about marketplace goods and services, and
consumer review websites keep proliferating.
There are several possible reasons why consumer review websites
might succeed where offline reputation systems might fail. My
hypothesis, discussed in a companion essay in this collection, is that
the difference is partially explained by 47 U.S.C. Sec. 230, passed in
1996--at the height of Internet exceptionalism--to protect online
publishers from liability for third party content. Section 230 lets
websites collect and organize individual consumer reviews without
worrying about crippling legal liability for those reviews. As a
result, consumer review websites can motivate consumers to share their
opinions and then publish those opinions widely--as determined by
marketplace mechanisms (i.e., the tertiary invisible hand), not
concerns about legal liability.
The success of consumer review websites is especially noteworthy
given that individual reviewers face the same legal risks that former
employers face when providing job references, such as the risk of
personal liability for publishing negative reputational information.
Indeed, numerous individuals have been sued for posting negative online
reviews.\20\ As a result, rational actors should find it imprudent to
submit negative reviews; yet, millions of such reviews are published
online. A number of theories might explain this discrepancy, but one
theory is especially intriguing: Mediating websites, privileged by
their own liability immunity, find innovative ways to get consumers
over their fears of legal liability.
---------------------------------------------------------------------------
\20\ See, e.g., Wendy Davis, Yelp Reviews Spawn At Least Five
Lawsuits, MediaPost Online Media Daily, Jan. 21, 2009, http://
www.mediapost.com/publications/?fa=Articles.printFriendly
&art_aid=9877 8; Agard v. Hill, 2010 U.S. Dist. LEXIS 35014 (E.D. Cal.
2010).
---------------------------------------------------------------------------
What lessons can we draw from this comparison? One possible lesson
is that reputation systems are too important to be left to the market.
In other words, the tertiary invisible hand may not ensure accurate and
useful information, or the costs of inaccurate information (such as
denying a job to a qualified candidate) may be too excessive. If so,
extensive regulatory intervention of reputation systems may improve the
marketplace.
An alternative conclusion--and a more convincing one to me--is that
the tertiary invisible hand, aided by a powerful statutory immunity
like Section 230, works better than regulatory intervention. If so, we
may get better results by deregulating reputation systems.
System Configurations
Given the regulatory heterogeneity, I wonder if there is an
``ideal'' regulatory configuration for reputation systems, especially
given the tertiary invisible hand and its salutary effect on publisher
behavior. Two brief examples illustrate the choices available to
regulators, including the option of letting the marketplace operate
unimpeded:
Anti-Gaming. A vendor may have financial incentives to distort the
flow of reputational information about it. This reputational gaming can
take many forms, including disseminating false positive reports about
the vendor,\21\ disseminating false negative reports about the vendor's
competitors, or manipulating an intermediary's sorting or weighting
algorithm to get more credit for positive reports or reduce credit for
negative reports. Another sort of gaming can occur when users
intentionally flood a reputation system with inaccurate negative
reports as a form of protest.\22\
---------------------------------------------------------------------------
\21\ Lifestyle Lift Holding, Inc. v. RealSelf Inc., 2:08-cv-10089-
PJD-RSW (answer/counterclaims filed March 3, 2008), http://
www.realself.com/files/Answer.pdf (alleging that Lifestyle Lift posted
fake positive reviews about its own business to an online review
website).
\22\ For example, consumers protesting the digital rights
management (DRM) in EA's Spore game flooded Amazon's review site with
one-star reviews, even though many of them actually enjoyed the game.
See Austin Modine, Amazon Flash Mob Mauls Spore DRM, The Register,
Sept. 10, 2008, http://www.theregister.co.uk/2008/09/10/
spore_drm_amazon_effect/. A similar protest hit Intuit's TurboTax 2008
over its increased prices. See Steven Musil, Amazon Reviewers Slam
TurboTax Fee Changes, CNET News.Com, Dec. 7, 2008, http://
news.cnet.com/8301-1001_3-10117323-92.html.
---------------------------------------------------------------------------
Do regulators need to curb this gaming behavior, or will other
forces be adequate? There are several marketplace pressures that curb
gaming, including competitors policing each other,\23\ just as they do
in false advertising cases.\24\ In addition, the tertiary invisible
hand may encourage reputation systems to provide adequate ``policing''
against gaming. However, when the tertiary invisible hand is weak, such
as with fake blog posts where search engines are the only
mediators,\25\ government intervention might be worth considering.
---------------------------------------------------------------------------
\23\ See Cornelius v. DeLuca, 2010 WL 1709928 (D. Idaho Apr. 26,
2010) (a marketplace vendor sued over alleged shill online reviews
posted by competitors).
\24\ See, e.g., Lillian R. BeVier, A Puzzle in the Law of
Deception, 78 VA. L. REV. 1 (1992).
\25\ See Press Release, New York Office of the Attorney General,
Attorney General Cuomo Secures Settlement With Plastic Surgery
Franchise That Flooded Internet With False Positive Reviews, July 14,
2009, http://www.ag.ny.gov/media_center/2009/july/july14b_09.html.
---------------------------------------------------------------------------
Right of Reply. A vendor may wish to publicly respond to
reputational information published about it in an immediately adjacent
fashion. Many consumer review websites allow vendors to comment or
otherwise reply to user-supplied reviews, but not all do. For example,
Yelp initially drew significant criticism from business owners who
could not effectively reply to negative Yelp reviews because of Yelp's
architecture,\26\ but Yelp eventually relented and voluntarily changed
its policy.\27\ As another example, Google permitted quoted sources to
reply to news articles appearing in Google News as a way to ``correct
the record.'' \28\
---------------------------------------------------------------------------
\26\ See Claire Cain Miller, The Review Site Yelp Draws Some
Outcries of Its Own, N.Y. Times, Mar. 3, 2009.
\27\ See Claire Cain Miller, Yelp Will Let Businesses Respond to
Web Reviews, N.Y. Times, Apr. 10, 2009.
\28\ See Dan Meredith & Andy Golding, Perspectives About the News
from People in the News, Google News Blog, Aug. 7, 2007, http://
googlenewsblog.blogspot.com/2007/08/perspectives-about-news-from-
people-in.html.
---------------------------------------------------------------------------
Regulators could require consumer review websites and other
reputation systems to permit an adjacent response from the vendor.\29\
But such intervention may not be necessary; the tertiary invisible hand
can prompt reputation systems to voluntarily provide a reply option (as
Yelp and Google did) when they think the additional information helps
consumers.
---------------------------------------------------------------------------
\29\ See Frank A. Pasquale, Rankings, Reductionism, and
Responsibility, 54 Clev. St. L. Rev. 115 (2006); Frank A. Pasquale,
Asterisk Revisited: Debating a Right of Reply on Search Results, 3 J.
Bus. & Tech. L. 61 (2008).
---------------------------------------------------------------------------
Undersupply of Reputational Information
There are three primary categories of reasons why reputational
information may be undersupplied.
Inadequate Production Incentives
Much reputational information starts out as non-public (i.e.,
``private'') information in the form of a customer's subjective mental
impressions about his/her interactions with the vendor. To the extent
this information remains non-public, it does not help other consumers
make marketplace decisions. These collective mental impressions
represent a vital but potentially underutilized social resource.
The fact that non-public information remains locked in consumers'
heads could represent a marketplace failure. If the social benefit from
public reputational information exceeds the private benefit from making
it public, then presumptively there will be an undersupply of public
reputational information. If so, the government may need to correct
this failure by encouraging the disclosure of reputational
information--such as by creating a tort immunity for sites that host
that disclosure, as Section 230 does, or perhaps by going further. But
there already may be market solutions to this problem, as evidenced by
the proliferation of online review websites eliciting lots of formerly
non-public reputational information.
Further, relatively small amounts of publicly disclosed
reputational information might be enough to properly steer the
invisible hand. For example, the first consumer review of a product in
a reputation system creates a lot of value for subsequent consumers,
but the 1,000th consumer review of the same product may add very little
incrementally. So even if most consumer impressions remain non-public,
perhaps mass-market products and vendors still have enough information
produced to keep them honest. At the same time, vendors and products in
the ``long tail'' \30\ may have inadequate non-public impressions put
into the public discourse, creating a valuable opportunity for
comprehensive reputation systems to fix the omission. However,
reputation systems will tackle these obscure marketplace options only
when they can keep their costs low (given that consumer interest and
traffic will, by definition, be low), and reputation system
deregulation helps reduce both the costs of litigation as well as
responding to takedown demands.
---------------------------------------------------------------------------
\30\ Chris Anderson, The Long Tail, Wired, Oct. 2004, http://
www.wired.com/wired/archive/12.10/tail.html.
---------------------------------------------------------------------------
Vendor Suppression of Reputational Information
Vendors are not shy about trying to suppress unwanted consumer
reviews ex post,\31\ but vendors might try to suppress such reviews ex
ante. For example, one cafe owner grew so tired of negative Yelp
reviews that he put a ``No Yelpers'' sign in his cafe's windows.\32\
---------------------------------------------------------------------------
\31\ See Eric Goldman, Online Word of Mouth and Its Implications
for Trademark Law, in Trademark Law and Theory: A Handbook of
Contemporary Research 404 (Graeme B. Dinwoodie and Mark D. Janis eds.)
(2008) (discussing lopsided databases where all negative reviews are
removed, leaving only positive reviews).
\32\ Stefanie Olsen, No Dogs, Yelpers Allowed, CNET News.com, Aug.
14, 2007, http://news.cnet.com/8301-10784_3-9759933-7.html.
---------------------------------------------------------------------------
That sign probably had no legal effect, but Medical Justice offers
an ex ante system to help doctors use preemptive contracts to suppress
reviews by their patients. Medical Justice provides doctors with a form
agreement that has patients waive their rights to post online reviews
of the doctor.\33\ Further, to bypass 47 U.S.C. Sec. 230s protective
immunity for online reputation systems that might republish such
patient reviews, the Medical Justice form prospectively takes copyright
ownership of any patient-authored reviews.\34\ (Section 230 does not
immunize against copyright infringement). This approach effectively
allows doctors--or Medical Justice as their designee--to get reputation
systems to remove any unwanted patient reviews simply by sending a DMCA
takedown notice.\35\
---------------------------------------------------------------------------
\33\ Lindsey Tanner, Doctors Seek Gag Orders to Stop Patients'
Online Reviews, Associated Press, Mar. 3, 2009, http://
www.usatoday.com/news/health/2009-03-05-doctor-reviews_N
.htm.
\34\ Michael E. Carbine, Physicians Use Copyright Infringement
Threat to Block Patient Ratings on the Web, AIS'S Health Business
Daily, Mar. 30, 2009, http://www.aishealth.com/Bnow/hbd033009.html.
\35\ 17 U.S.C. Sec. 512(c)(3).
---------------------------------------------------------------------------
Ex ante customer gag orders may be illegal. In the early 2000s, the
New York Attorney General challenged software manufacturer Network
Associates' end user license agreement, which said the ``customer will
not publish reviews of this product without prior consent from Network
Associates, Inc.'' In response, the New York Supreme Court enjoined
Network Associates from restricting user reviews in its end user
license agreement.\36\ Medical Justice's scheme may be equally legally
problematic.
---------------------------------------------------------------------------
\36\ People v. Network Associates, Inc., 758 N.Y.S.2d 466 (N.Y.
Sup. Ct. 2003).
---------------------------------------------------------------------------
From a policy standpoint, ex ante customer gag orders pose serious
threats to the invisible hand. If they work as intended, they starve
reputation systems of the public information necessary to facilitate
the marketplace. Therefore, regulatory efforts might be required to
prevent ex ante customer gag orders from wreaking havoc on marketplace
mechanisms.
Distorted Decision-Making from Reputational Information
Reputational information generally improves decision-making, but
not always. Most obviously, reputational information relies on the
accuracy of past information in predicting future behavior, but this
predictive power is not perfect.
First, marketplace actors are constantly changing and evolving, so
past behavior may not predict future performance. For example, a person
with historically bad credit may obtain a well-paying job that puts him
or her on good financial footing. Or, in the corporate world, a
business may be sold to a new owner with different management
practices. In these situations, the predictive accuracy of past
information is reduced.\37\
---------------------------------------------------------------------------
\37\ Cf. Note, Badwill, 116 Harv. L. Rev. 1845 (2003) (describing
how companies can mask a track record of bad performance through
corporate renaming).
---------------------------------------------------------------------------
Second, some past behavior may be so distracting that information
consumers might overlook other information that has more accurate
predictive power. For example, a past crime or bankruptcy can overwhelm
the predictive information in an otherwise-unblemished track record of
good performance.
Ultimately, a consumer of information must make smart choices about
what information to consult and how much predictive weight to assign to
that information. Perhaps regulation can improve the marketplace's
operation by shaping the information that consumers consider. For
example, if some information is so highly prejudicial that it is likely
to distort consumer decision-making, the marketplace might work better
if we suppress that information from the decision-maker.\38\
---------------------------------------------------------------------------
\38\ Cf. Fed. R. Evid. 403 (``Although relevant, evidence may be
excluded if its probative value is substantially outweighed by the
danger of unfair prejudice, confusion of the issues, or misleading the
jury . . .''). This fear underlies a French proposal to enact a ``right
to forget'' statute. See David Reid, France Ponders Right-to-Forget
Law, BBC Click, Jan. 8, 2010, http://news.bbc.co.uk/2/hi/programmes/
click_online/8447742.stm.
---------------------------------------------------------------------------
At the same time, taking useful information out of the marketplace
could create its own adverse distortions of the invisible hand.
Therefore, we should tread cautiously in suppressing certain categories
of information.
Conclusion
Although ``reputation'' has been extensively studied in a variety
of social science disciplines, there has been comparatively little
attention paid to how regulation affects the flow of reputational
information in our economy. Understanding these dynamics would be
especially valuable in light of the proliferation of Internet-mediated
reputation systems and the irresistible temptation to regulate novel
and innovative reputation systems based on emotion, not necessarily
sound policy considerations.
______
Patients' Online Reviews of Physicians
By Eric Goldman*
---------------------------------------------------------------------------
\*\ Professor and Director of High Tech Law Institute, Santa Clara
University School of Law. [email protected]. http://
www.ericgoldman.org.
---------------------------------------------------------------------------
Medical Ethics, a journal published by Lahey Health Fall 2013, page 6
Online patient reviews are becoming a major force in the healthcare
industry, but some healthcare providers lament this development. In
fact, an opportunistic vendor, Medical Justice, preyed on healthcare
provider fears and sold healthcare providers a form contract that asked
patients to waive their rights to post reviews. Medical Justice
eventually recognized the errors of that approach and did a complete
reversal; it is now selling healthcare providers a service, eMerit,
that monitors search engines and doctor rating sites.
Medical Justice's contracts prohibiting online reviews have not
been definitively tested in court, but attempts to restrict patient
reviews are problematic. Anti-review contracts prevent consumers from
expressing their views, and they deprive other consumers of information
that can help them make better marketplace choices. The provisions also
create serious legal risks for the businesses imposing them, as
illustrated by the following three incidents:
In the late 1990s, software company Network Associates
restricted buyers from publishing reviews of its software. In
2003, a New York court enjoined Network Associates from
continuing to use that restriction.\1\
---------------------------------------------------------------------------
\1\ New York v. Network Associates, Inc., 758 N.Y.S.2d 466 (N.Y.
Sup. Ct. 2003).
The U.S. Department of Health and Human Service's Office of
Civil Rights required a doctor to stop using Medical Justice's
anti-review form.\2\ The agreement prohibited the patient from
``directly or indirectly publishing or airing commentary about
the physician, his expertise, and/or treatment in exchange for
the physician's compliance with the Privacy Rule.''
---------------------------------------------------------------------------
\2\ Health Information Privacy: Private Practice Ceases
Conditioning of Compliance with the Privacy Rule, US Dept of Health &
Human Services, Office of Civil Rights, Health Information Privacy:
Private Practice Ceases Conditioning of Compliance with the Privacy
Rule, http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/
allcases.html#case29.
New York dentist Stacey Makhnevich and her practice Aster
Dental required that patients sign a Medical Justice-based
confidentiality agreement as a precondition to treatment. This
version of the agreement tried to silence patients by assigning
to the dentists a copyright over any comments related to their
treatment. The patient, Robert Lee, had a dental emergency and
signed the agreement to get treatment. He later sued to
invalidate the agreement. The court's initial opinion signaled
serious skepticism about the legitimacy of the dentist's
conduct.\3\
---------------------------------------------------------------------------
\3\ Lee v. Makhnevich, 2013 WL 1234829 (S.D.N.Y. March 27, 2013).
Even more important than the legal risks, asking patients to
restrict their rights to review a healthcare provider sends a terrible
message to patients and sets the stage for distrust.
While contractually restricting patients' reviews is not the right
answer, some healthcare providers are frustrated by their perceived
inability to publicly defend themselves from negative patient reviews.
Providers have ethical and legal obligations to maintain patient
confidentiality, with severe penalties for noncompliance. These
restrictions seemingly impose a gag order on doctors to rebut patient
misstatements.
If a patient's review misstates facts, healthcare providers
actually have several options:
A patient may consent to discussing the matter publicly.
Angie's List prospectively requires this consent from patients
who review doctors.\4\
---------------------------------------------------------------------------
\4\ Angie's List Membership Agreement, April 25, 2012, Sec. 13,
http://my.angieslist.com/angieslist/aluseragreement.aspx (``You also
acknowledge that the healthcare or wellness provider about whom you
submit Content may submit Service Provider Content that contain your
private or confidential health information in response to Content you
submit'').
Most patients' criticisms of their healthcare provider don't
relate to individualized medical advice. As one recent study
found, ``Unhappy patients who post negative online reviews of
their doctors complain about poor customer service and bedside
manner four times more often than misdiagnoses and inadequate
medical skills.'' \5\ If a healthcare provider feels the need
to publicly respond, he or she can rebut most of these issues
without discussing confidential patient information.
---------------------------------------------------------------------------
\5\ Press Release: Online Doctor Reviews: Four Times More Patients
Peeved About Service & Bedside Manner Than Medical Skills, April 30,
2013, http://www.reuters.com/article/2013/04/30/
idUSnGNX736vBG+1c3+GNW20130430.
If patients discuss their specific medical situations, the
healthcare provider may discuss its general philosophies and
standard protocols without disclosing confidential patient
---------------------------------------------------------------------------
information.
Doctors also can bring lawsuits to redress negative patient
reviews, but litigation isn't a great option. There is no point in
suing online review websites for patient reviews. Review websites are
categorically protected from liability for third-party content except
in cases involving intellectual property (see 47 U.S.C. Sec. 230). No
doctor has ever successfully won in court against an online review
website for publishing patient reviews.
Suing patients is only marginally more attractive than suing review
websites, even if a patient has lied. Inevitably the patient will
respond with a malpractice claim or a complaint against a provider's
license; a lawsuit calls more attention to the patient's assertions;
doctors suing patients often look like they have something to hide;
and, perhaps most importantly, doctors are not likely to win in court.
Over the past decade, I've identified about two dozen doctor vs.
patient lawsuits over online reviews. Doctors have rarely won against
their patients in court and, even worse, some doctors have been ordered
to pay their patients' attorneys' fees.\6\
---------------------------------------------------------------------------
\6\ See the complete chart at http://digitalcommons.law.scu.edu/
cgi/viewcontent.cgi?article
=1289&context=historical.
---------------------------------------------------------------------------
The legal analysis is more complicated if it can be proven that a
competitor or vindictive party is posting fake reviews. Those lawsuits
are more winnable than lawsuits against patients, but often the time
and costs required to win simply aren't worth it.
Online patient reviews remain a work-in-progress; more work needs
to be done, especially on the part of review websites, to improve the
credibility of patient reviews. Still, online patient reviews are good
news to the healthcare industry, not bad news. Patient reviews will
improve the industry's service levels, providing valuable customer
feedback to healthcare providers and help them improve their service.
Good healthcare providers will be recognized for the quality services
they provide.
The Chairman. Thank you very much, Professor Goldman.
Mr. Rheingold?
STATEMENT OF IRA RHEINGOLD, EXECUTIVE DIRECTOR, NATIONAL
ASSOCIATION OF CONSUMER ADVOCATES
Mr. Rheingold. Thank you, Mr. Chairman Thune, Ranking
Member Nelson, and members of the Committee.
This morning, I would like to make three points:
One, no one who has been paying attention over the past
decades, as consumer rights have been slowly stripped away
through often unseen form contracts, should be surprised by the
presence and growth of non-disparagement or ``gag'' clauses.
Two, the idea behind the legislation crafted to solve this
problem is a good one and fits into the long history of
legislative action designed to not only protect consumers but
also our market economy.
And, three, as of now, we are unable to support this bill
because it seeks to limit the enforcement rights of State and
Federal officials.
When I see non-disparagement clauses, I unfortunately see
the logical conclusion of a decades-long corporate effort to
strip consumers of yet another fundamental right. Buried in
fine print, consumers today are typically required to waive all
sorts of rights, including the right to seek relief in our
public justice system and now, with these ``gag clauses,'' the
right to even speak.
What is happening is obvious. Through the use of
indecipherable language and non-negotiable form contracts,
corporations have first successfully stripped consumers of
their Seventh Amendment right to a jury trial. Why should we be
surprised when corporations want to do the same to the
consumers' First Amendment right of free speech?
In my early years as an attorney, I would have believed
that these clauses that waive fundamental constitutional rights
would have been deemed unconscionable and unenforceable.
Surely, there was no consent by the consumer. Surely, it was
unconscionable for powerful businesses to deny consumers the
right to tell their story in our public courts. Surely, if we
proved that these clauses prevent consumers from getting legal
help, from getting proper redress, they would be unenforceable.
Surely, I would be wrong.
While I was wrong in expecting courts, particularly the
Supreme Court, from stopping businesses from stripping a
fundamental right from consumers, I--we--should not repeat that
mistake. Therefore, Congress should pass a bill that prohibits
``gag clauses,'' as well as pass the Arbitration Fairness Act.
Simply, these ``gag clauses'' attack the very heart of a
fair and functioning American marketplace by prohibiting
consumers from exercising the freedom of sharing their thoughts
and opinions with other consumers.
Consumer protection laws in a free economy protect the
market itself and all of its participants. Congress and State
legislatures have recognized this fact on countless occasions
and have passed a wide variety of laws on these very grounds.
The FTC Act and its progeny, State UDAP laws, were created
with the understanding that our market economy would not
function properly if unscrupulous businesses were allowed to
profit from unfair and deceptive trade practices and inevitably
gain competitive advantages over honest businesses.
Federal and State disclosure regimes, like the Truth in
Lending Act, exist in large part because of our understanding
that a fair and functioning marketplace is dependent on
consumers making informed and knowledgeable decisions.
The Fair Credit Reporting Act, a law that this committee is
intimately familiar with, was passed with the full recognition
that credit decisions made on the basis of faulty information,
whether by credit grantors or consumers, undermine the vitality
of the consumer economy.
The idea of S. 2044 to ban non-disparagement clauses stands
in the long line of these fundamental consumer market
protection statutes. Our market economy only functions properly
when unfair practices are exposed and consumers do not make
decisions based on faulty information but, instead, when all
information, whether disclosed by law or shared by others, is
made available for consumers to use and/or ignore in their
decisionmaking process.
While protections as proposed in S. 2044 are essential for
our consumer marketplace to function fairly and efficiently,
its mere passage is not nearly enough to ensure that the rule
of law is complied with. Strong enforcement of these statutes
by public regulators or by private consumers is essential for
laws to have their full effect.
Attorneys General across this country have done yeoman's
work in enforcing State and Federal consumer protections. With
limited and ever-shrinking budgets and small and ever-shrinking
staffs, these important public servants have sought ways to
maximize their ability to protect their state's citizens and
their state's economy.
Their efforts, including collectively working across state
lines in a bipartisan manner, have been essential in obtaining
justice for consumers far beyond what might be possible if
their work was limited to what was achievable by their own
limited staff and advocacy tools.
Similarly, the partnership that some Attorneys General have
formed with experienced and capable private attorneys,
particularly in instances when they are attempting to enforce
the law against big and deep-pocketed corporations, has led to
a measure of justice and consumer relief otherwise completely
unattainable.
Simply, if we want Attorneys General to enforce the law,
Congress should not limit these state officials from choosing
how they best can protect consumers in their own state.
We fully support the idea behind S. 2044. There is no place
in the American economy for denying consumers like Jen Palmer
the right to speak freely about their experiences in the
consumer marketplace. However, for a consumer market protection
statute to be fully effective, it must be fully enforceable.
Because this bill limits the ability of public regulators
from using all of their necessary enforcement tools, we cannot
currently support it. If this provision is removed from the
bill, we would be pleased in offering our full support for this
important legislative effort.
Thank you.
[The prepared statement of Mr. Rheingold follows:]
Prepared Statement of Ira Rheingold, Executive Director,
National Association of Consumer Advocates
Mr. Chairman Thune, Ranking Member Nelson, and Members of the
Committee, thank you for inviting me to testify today about ``non-
disparagement clauses,'' and why these contract terms do great harm,
not only to consumers, but to honest and ethical businesses attempting
to compete in the consumer marketplace.
I offer my testimony today as the Executive Director of the
National Association of Consumer Advocates (NACA). NACA is a non-profit
organization whose members are private and public sector attorneys,
legal services attorneys, law professors, and law students, whose
primary focus involves the protection and representation of consumers.
In my testimony, I will first talk about the importance of consumer
protection laws, not just as a means to shield consumers from bad
business behavior, but as market protection statutes that allow honest
businesses to compete on a level playing field. Next, I'll look at the
consumer ``gag'' clauses that are a focus of this hearing, in the
context of a decades-long effort by corporations to hide their conduct
from public scrutiny through the fine print of form contracts. Finally,
I'll explain that while we are very pleased that the Senate is taking
up this very issue, we are unable to support S. 2044 in its present
form because it seeks to limit the enforcement rights of state and
Federal officials.
1. Consumer Protection is Marketplace Protection
As someone who has been a consumer advocate for almost thirty
years, I am often dismayed at the misperception, as well as the battles
fought over the need for both creation and enforcement of strong
consumer protection laws. Simply, consumer protection laws are market
protection laws. They do not merely protect consumers, they also
protect honest businesses.
Consumer protection laws in a free market economy by definition
protect the market itself and all of its participants. The Supreme
Court stated the guiding principle of this philosophy nearly 40 years
ago: ``[B]lind economic activity is inconsistent with the efficient
functioning of a free economic system such as ours.'' Mourning v.
Family Publication Serv., Inc., 411 U.S. 356, 364 (1973). Congress and
state legislatures have recognized this fact on countless occasions and
have passed a wide variety of laws on these very grounds. The FTC Act
and its progeny, state Unfair and Deceptive Acts and Practices laws
were created with the understanding that our market economy would not
function properly if unscrupulous businesses were allowed to profit
from unfair and deceptive trade practices and inevitably gain
competitive advantages over honest businesses. Federal and state
disclosure regimes, like the Truth in Lending Act, exist in large part
because of our understanding that a fair and functioning marketplace is
dependent on consumers making informed and knowledgeable decisions. The
Fair Credit Reporting Act, a statute that this committee is intimately
familiar, was passed with the full recognition that credit decisions
made on the basis of faulty information, whether by credit grantors or
consumers, undermine the vitality of the consumer economy.
S. 2044--looking past its serious flaw of limiting enforcement of
the very protections it hopes to create (which I will address below)--
stands in the long line of these fundamental consumer/market place
protection statutes. Simply, our market economy only functions
properly, when unfair practices are exposed and consumers do not make
decisions based on faulty information, but instead all information--
whether disclosed by law or shared by others--is made available for
consumers to use and/or ignore in their decision making process.
2. Non-Disparagement Clauses--just another attempt to strip consumers
of a fundamental right
When I look at non-disparagement clauses--a contract term designed
to prevent consumers from freely expressing a negative opinion about a
business--being imposed on consumers by a ``form'' contract, by the
click of a button, or by the mere notice on a web page, I simply see
the logical conclusion of a decades long corporate effort to strip
consumers of yet another fundamental right.
Buried in the fine print of everything from consumer ``contracts,''
including credit cards, cell phones, car purchase, student loans, and
new homes, to employee handbooks and nursing home admissions contracts,
consumers are typically required to waive all sorts of rights,
including the right to hold businesses liable for their bad acts, to
enforce consumer protection statutes, to gain access to our public
justice system, and now even the right to speak. The trend is obvious.
Through the use of indecipherable language in non-negotiable form
contracts and in unnoticed disclaimers, corporations have successfully
stripped consumers of their 7th Amendment right to a jury trial. Why
should we be surprised when corporations want to do the same to
consumers' 1st Amendment right of free speech?
The parallel between denying consumers a public day in court to
denying their right to speak out is undeniable. Like non-disparagement
clauses, pre-dispute binding mandatory arbitration clauses force
consumers to surrender a fundamental right. Forced arbitration terms,
like non-disparagement clauses, are designed to keep complaints
private, out of view of the public and the press. In the same way both
types of clauses limit the ability of consumers to hold corporate
wrongdoers accountable and does damage to both honest businesses and
our market economy by limiting the information available to consumers
attempting to make informed choices.
During the first half of my professional life, I represented
clients in some of the poorest communities in our country and for the
last 14 years, I have been the executive director of NACA, spending
each of my days working with and talking to private and public
attorneys deeply committed to seeking justice for the least powerful
consumers. In my early years as an attorney, I would have believed that
these ``contract'' clauses--that waive fundamental constitutional
rights--would have been deemed unconscionable and unenforceable.
Unfortunately, my early naivete has been worn away by having borne
witness to the relentless--and all too often successful effort--of
powerful corporations to strip away fundamental consumer rights from
those far less powerful. Whether it's been through deregulation,
preemption, defunding or ultimately through unconscionable contract
terms, the goal and the result has been the same. Avoid corporate
accountability by taking power away from anyone who might have the
ability to actually hold them accountable for misconduct.
Years ago, when I saw my first arbitration clause in a consumer
contract, I gave it little thought.
Surely there was no consent by my client;
Surely it was unconscionable for powerful businesses to deny my
clients the right to tell their story in our public courts;
Surely my clients right to join with others in a class action--
a right established by state law and Federal rule--could not be
taken away by an indecipherable form contract, a mere click of
a button, or an unread bill stuffer;
Surely, if we proved--as we have--that forced arbitration
prevents consumers from getting legal help, from getting proper
redress, the clause would be unenforceable;
Surely I would be wrong . . .
While I was wrong in expecting the courts--particularly the Supreme
Court--from stopping corporations from stripping a fundamental right
from consumers, I/we should not repeat that mistake. Therefore,
Congress should pass a bill that prohibits ``non-disparagement''
clauses, as well as pass the Arbitration Fairness Act \1\. These
proposals would restore critical rights and help level the playing
field for both consumers and businesses.
---------------------------------------------------------------------------
\1\ For a full exploration of the damage done by Forced Arbitration
clauses, see the New York Times series, ``Beware the Fine Print,''
published November 1-3.
---------------------------------------------------------------------------
3. Why Non Disparagement Clauses should be banned
As I discussed earlier, a fair and functioning marketplace is
dependent on consumers making informed and knowledgeable decisions, and
using their right to speak publicly to share their views and assist
other consumers. Their ability to speak out publicly and to seek
accountability facilitates an open and thriving marketplace. Non-
disparagement clauses go to the heart of this fundamental principle by
prohibiting consumers from exercising the freedom of sharing their
thoughts and opinions with other consumers in the American marketplace.
Today, in our modern and interconnected economy, this information
sharing is even more essential than ever before.
I know for myself, I can no longer decide to go to a restaurant
with my family without one of my sons searching Yelp for the latest
consumer reviews and ratings. Other family decisions, whether it's
buying a car (Consumer Reports), a bathroom vanity (Costco), taking a
vacation (TripAdvisor) or booking a hotel (too many to name) are all
informed by reading reviews provided by previous customers. Simply, the
presence and growth of non-disparagement clauses would prevent the
marketplace from working as it should for most American consumers.
This limitation on the fundamental right of free speech as well as
the impact it would have on the American market as we know it should be
grounds enough from banning the imposition of non-disparagement
clauses. Yet, these clauses should also be banned because companies
should not have the power to threaten and punish consumers who want to
express their criticism of a product; and companies should not have the
power to retaliate against consumers who don't act as a company
demands. Further, a law barring non-disparagement clauses would
publicly declare that non-negotiated form contracts cannot and should
not be used to take away fundamental American rights.
4. Attorneys General should have full enforcement authority
As I discussed above, and as Congress has repeatedly recognized,
consumer/market protection statutes as proposed in S. 2044 are
essential for our consumer marketplace to function fairly and
efficiently. But the mere existence of these statutes is not nearly
enough to ensure that the rule of law is complied with. Strong
enforcement of those statutes--by public regulators or by private
consumers--is essential for laws to have their full effect.
Attorneys General across this country have, over the past decades,
done yeoman's work in enforcing state and Federal consumer protections.
With limited--and ever shrinking budgets--and small--and ever shrinking
staffs, these important public servants have sought ways to maximize
their ability to protect their state's citizens and their state's
economy. Their efforts--including collectively working across state
lines in a bi-partisan manner-have been essential in obtaining justice
for consumers far beyond what might be possible if their work was
limited to what was achievable by their own limited staff and advocacy
tools.
Similarly, the partnership that some attorneys general have formed
with experienced and capable private attorneys--particularly in
instances when they are attempting to enforce the law against big and
deep pocketed corporations (like mortgage servicers who break the
law)--has led to a measure of justice and consumer relief for harm
caused by wrongdoing otherwise completely unattainable. Simply, if we
want attorneys general to enforce the law--Congress should not limit
these state officials from choosing how they best can protect consumers
in their own state.
5. Conclusion
We fully support the idea behind S. 2044, the Consumer Review
Freedom Act of 2015. There is no place in the American economy for
denying consumers, like Jen Palmer, the right to speak freely about
their experiences in the consumer marketplace. However, for a consumer/
market protection statute to be fully effective, it must be fully
enforceable. Because this bill limits the ability of public regulators
from using all of their necessary enforcement tools we cannot currently
support it. If this provision is removed from the bill, we would be
pleased in offering our full support for this important legislative
effort.
The Chairman. Thank you, Mr. Rheingold. We appreciate very
much your comments on the legislation, and, obviously, we will
take into consideration your thoughts as we continue to shape
it while it moves through the process.
I wanted to start with 5-minute rounds of questions, and I
will start.
Ms. Palmer, you have been through a harrowing ordeal before
finally winning in court. Most people would have given up, but
you persisted and kept fighting. And, even now, to come across
the country to share your story with us today, the experience
that you had, speaks volumes about your commitment to this
issue.
So why have you continued to stay engaged, as you have, on
this issue?
Ms. Palmer. As I said, the only two things we ever wanted
to have happen was for my husband's credit to be cleaned so
that we could move on with our lives as we had originally
planned, and we really did want to make sure that this never
happened to anybody else ever again.
When I first contacted the media, I hoped that if our story
got out there, other people would be inspired to come forward
and say, hey, these people are doing this to me too; what can I
do to stop it?
We never dreamed it would come this far. We really didn't.
I am so pleased that you are looking at pushing through
legislation on a Federal level. I am happy to do anything I can
to assist that.
The Chairman. Well, we appreciate you. Your story has
gotten out there.
You testified today that one of the purposes of these gag
clauses is to bully and to intimidate consumers into removing
negative reviews. And, in your testimony, you described how
KlearGear's demand for $3,500 shocked and scared you.
I guess I am wondering if your experience with KlearGear
has given you pause about posting reviews for other products.
Ms. Palmer. Absolutely not. Absolutely not. I continue to
post reviews for both companies that have given wonderful
service and great products to let other consumers know, yes,
you should definitely buy from this company, they are
wonderful, and also for companies that maybe fell short of the
mark and didn't provide such a great product. That information
is just as important as the good review.
The Chairman. OK. Good. Well, I guess after what you
experienced with KlearGear, it couldn't get any worse, right?
Ms. Palmer. I would hope not.
The Chairman. Mr. Medros, TripAdvisor has taken steps to
inform its users when a company employs gag clauses. And, on
the other side of the equation, I might add, Amazon recently
sued a number of companies that allegedly facilitate fake
reviews online.
Do you see other large Internet companies taking measures
to clean up online reviews to make sure that consumers are
getting accurate and authentic information?
Mr. Medros. Absolutely.
Before I answer that, let me first, again, thank you for
inviting us and for pushing this legislation forward. We think
it is incredibly important legislation.
Without a doubt, we see businesses in the hospitality
industry attempt to silence critics of their services, and this
plays out across a number of other industries. You mentioned
the Amazon case. We have seen it with Yelp, in trying to bully
Yelp reviewers or other reviewers to remove their comments, to
reduce the severity of their comments, or to outright bury
those comments with other content, more positive comments.
The Chairman. OK.
Professor Goldman, I thought you made a great point in your
testimony when discussing how consumer reviews make markets
stronger and more efficient because they help guide consumers
to the best products or services.
To what degree do you think that gag clauses may be
distorting the market? And do you think that most consumers are
aware of that, that it is going on?
Mr. Goldman. I think that the contract clauses are only a
small part of a much larger problem. There are so many
disincentives for consumers to share their opinions and
perspectives about the businesses that they deal with, and each
of those becomes a friction point or a wedge in their
willingness to share.
Ms. Palmer here said here proudly that she hasn't been
bullied off of the Internet with her reviews, but most
consumers don't have the fortitude and confidence that she has.
Gag clauses are just one way that businesses can threaten
consumers to get them to not only stifle themselves but to
remove their legitimate views once they have been posted.
There are some other tools that companies use, as well--for
example, threatening defamation and simply saying, ``We are
going to sue you and take you to court if you don't remove
it.'' And that is why I would also call your attention to
things like the Federal anti-SLAPP law that has been
considered. That would be another tool to protect consumers
from having their legitimate reviews driven off the Internet.
The Chairman. OK.
My time has expired, so I will turn to Senator Nelson.
Senator Nelson. Ms. Palmer, I am so sorry that you had to
go through this experience.
When you went to the TV station and it started getting some
publicity, is that when you then decided to go into court?
Because you are listed as the plaintiff in Palmer v. KlearGear.
Ms. Palmer. We had been seeking legal help before we went
to the media. I had contacted several lawyers, done a lot of
legal research online to find out what my options were. For all
the lawyers I spoke to and said, ``Do we have a case?'' they
said, ``Yes, you do. Yes, you do.'' I said, ``Great. Can you
represent us?'' They said, ``Oh, no. We are not touching that
with a 10-foot pole.'' It was so shady and so big, most didn't
want to touch it.
It wasn't until after we spoke to the media--I was hoping
to find a lawyer that was willing to step forward. And that was
when Public Citizen came forward and said, ``We can help you.
We want to help you. We have the means and resources to do
so.''
Senator Nelson. Well, that is a good-news story.
Mr. Medros, I want to look at the other side. Tell us about
evidence of bad actors trying to take advantage of businesses
by threatening to post a false negative complaint.
Mr. Medros. There are certainly some instances where
consumers threaten a business with a negative review, threaten
to share their experience online, and that business, rightfully
so, has concern that that is going to impede their future
marketing efforts, impede their future business.
But the reality is, first of all, we encourage businesses
to proactively communicate those threats to us, and we then
monitor those properties for the instance of those negative
reviews. In the vast majority of cases, those negative reviews
never appear; they are empty threats.
Second, one of the tenets of TripAdvisor is to allow the
businesses to respond to any consumer review. So we believe
that transparency will solve this problem. Consumers write
their reviews, businesses get to respond, and future consumers
get to read those responses, the back-and-forth between those
two parties, and make their own decision, weigh their own
beliefs about whether or not this is the right business for
them to visit.
Senator Nelson. OK.
Mr. Medros. Overall, this is not a large problem.
Senator Nelson. So you encourage those businesses, if there
is a false review, to contact you.
Would this legislation prevent a business owner who is
threatened with a false or malicious review from bringing a
case in court against the consumer for defamation?
Mr. Medros. I am not probably the best person to answer
from a legal standpoint.
What I can tell you is that I don't believe it will prevent
businesses from interacting with TripAdvisor and asking reviews
to be reviewed. We do employ an entire staff, and we look at
every review where an owner or another member of our community
flags it as inappropriate, against our guidelines, or perhaps
irrelevant.
Senator Nelson. At the end of the day, I think what we want
is the access to the courts for whoever is the aggrieved party,
the consumer or the business. And, in the case of Ms. Palmer,
apparently, it was her access to the court that finally brought
about the redress of her terrible situation.
Mr. Rheingold, let me ask you, on the arbitration clauses,
when Fiat Chrysler recently used this friends-and-family
program to basically trade away the right to go into court in
exchange for a $200 discount, should we be doing something to
protect consumers from more than just the non-disparagement
clauses?
Mr. Rheingold. Oh, absolutely. I think you have made a very
good point, Senator. The fact is that the consumers can seek
redress is through our public courts system.
A lot of these stories and a lot of the bad damages that
are done to consumers if they don't have access to the courts--
Ms. Palmer was lucky her story was a very compelling story and
the press picked it up right away. Sometimes you need to go to
court and publicize those stories in ways.
So what Fiat did in that instance is happening across this
country in every consumer place that you can imagine--
employers, consumers. And it has gotten sanctioned. What is
interesting about the Fiat case is there is actually a reward
for signing it away. In most instances, people are signing away
their right to go to court without ever knowing about it. It
has been in clauses, it is in shrink wrap, click-on things.
Arbitration clauses are everywhere in our economy today,
and there really is a dual justice system happening right now
where consumers don't have access to our courts whenever they
reach an agreement or enter into any sort of agreement with any
type of business.
Senator Nelson. This committee has seen a proliferation of
these things just recently. Fiat Chrysler is just one example,
the GM ignition switches and so forth. And now the Takata
airbags, that is still in the news, as a matter of fact, today.
And so thank you for your comments, because these things
that are subject to mandatory arbitration or adhesion, you
would really lose a lot of your ability if we cut off the
access for either the aggrieved or the aggrievor into the
courts.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Nelson.
And the bill does, by the way, to your point, specifically
say that defamation cases, if something said is untrue, those
cases can proceed. We don't do anything to impinge on that
right.
Senator McCaskill, Senator Blunt, and Senator Moran are
still basking in the glory of the Kansas City Royals World
Series victory.
Senator McCaskill. Yes, we had hardly anybody show up for
the party yesterday.
The Chairman. I noticed that everybody in Kansas and
Missouri was there, which begs the question about what you guys
were doing here.
Senator McCaskill. Well, there aren't that many people in
Kansas, so it was basically Missouri, right, Senator Moran?
Senator Moran. Mr. Chairman, first of all, I would point
out that I tried to have a bet with the Senator from New York,
and the offer was I would offer Kansas City barbecue if he
would agree not to talk for 45 minutes.
[Laughter.]
Senator Moran. He accepted your bet, not mine.
Senator McCaskill. Yes.
Senator Moran. And, second, every----
Senator McCaskill. That was a bad move on your part,
considering who it was.
Senator Moran.--every Kansan is a Royals fan, and many
Missourians have another loyalty elsewhere in their state. And,
finally, Senator Blunt and I are wearing blue, and you are
wearing red.
Senator McCaskill. Oh, look at that.
[Laughter.]
Senator McCaskill. Oh, my goodness. I won't even go into
the history of the team in Kansas City, Missouri. But I will be
glad to acknowledge that we are welcoming all the fans from
Kansas.
The Chairman. She is a loyal Cardinal fan, I might add,
too, which explains----
Senator McCaskill. I am. Both.
The Chairman.--the color she is wearing.
You are up, Senator McCaskill.
STATEMENT OF HON. CLAIRE McCASKILL,
U.S. SENATOR FROM MISSOURI
Senator McCaskill. Thank you very much.
I am pleased that Senator Thune has, in an effort to get a
bill that we can all agree on, has agreed to take out the
provision that limits the tools available to Attorney Generals
as it relates to contingency fees.
And let me ask you, Ms. Palmer, I am assuming that there
was a contingency agreement with the lawyers that ultimately
represented you in this case?
Ms. Palmer. Fortunately, Public Citizen, as a nonprofit,
was kind enough to work with us pro bono since we really could
not afford legal representation on the scale which we needed.
That was the other thing. Aside from people just saying,
``We are not touching this,'' when I said, ``Well, what if you
just wrote a cease-and-desist letter or just helped us with a
little bit?'' they were offering thousands of dollars in----
Senator McCaskill. Of course. I mean, it is very hard for
an individual to get to court----
Ms. Palmer. Absolutely.
Senator McCaskill.--unless there is a contingency fee
agreement.
Ms. Palmer. Right. And even with the contingencies, they
said, ``No, we want a retainer.'' And we said, ``If we don't
have $3,500 to pay KlearGear, we don't have $5,000 to give to
you.''
Senator McCaskill. Mr. Rheingold?
Mr. Rheingold. Sure. Thank you.
I will admit publicly I am a Chicago Cubs fan, so I am a
little disappointed today, but that is OK. Congratulations to
Kansas City.
One important thing about consumer statutes is that
consumer statutes that Congress has passed, particularly
something like the Fair Credit Reporting Act, has fee-shifting
provisions. So attorneys who take a case like a fair credit
reporting case, like the damage that was done to Ms. Palmer,
would not have to charge Ms. Palmer.
So it is not actually a contingency. In fact, what they do
is they only get paid if they win that case. And the court will
award them damages after they successfully win the case. So it
is a little different from contingency.
And the way that Congress has drafted consumer protection
statutes in the past, particularly when it comes to private
enforcement, is to have those fee-shifting statutes. And that
provides the access to consumers when they have been damaged
like Ms. Palmer.
Senator McCaskill. So did Public Citizen recover the costs,
even, of their litigation?
Ms. Palmer. We are still working on tracking KlearGear down
to recover any costs.
Senator McCaskill. Oh, so you haven't collected yet?
Ms. Palmer. No, ma'am.
Senator McCaskill. Are they still in business?
Ms. Palmer. As far as I know, yes.
Senator McCaskill. That just drives me crazy.
Ms. Palmer. It should be noted that, in the judgment award,
the judge did award us our settlement and tacked on the
lawyers' fees for Public Citizen, as well. So if and when
anything ever is collected, Public Citizen----
Senator McCaskill. Which is the fee shifting that Mr.
Rheingold was referring to?
Ms. Palmer. Right.
Senator McCaskill. That they have the right to recover
their costs.
Ms. Palmer. Right. However, when we were looking----
Senator McCaskill. But if you had lost, they wouldn't have
gotten anything.
Ms. Palmer. True. And that was always an issue----
Senator McCaskill. Right.
Ms. Palmer.--a fear. However, with any of the other lawyers
we contacted, they were not interested in working on a
contingency basis. They wanted a retainer upfront.
Senator McCaskill. And that is one of the challenges, is--
--
Ms. Palmer. Absolutely.
Senator McCaskill.--trying to figure out how we fund
lawsuits where there is a legitimate complaint where the
damages don't appear to be enough to warrant the risk that a
lawyer takes on when they get into the costly litigation.
And that is one of the advantages that these big companies
have, is they know that it is small enough--I mean, there are
two things a lawyer has to have to bring a lawsuit. One is
liability, and the second is damages. And how large the damages
are is relevant to whether or not that lawyer wants to take on
the costly risk of going forward with a lawsuit, which does
kind of even the playing field, I think, in some ways, too much
in favor of the big guys.
Let me talk to Mr. Medros about use of service.
Now, I know who drafts this stuff, and they are lawyers.
But this is just the terms of service, OK? ``Website terms,
conditions, and notices.'' Then this, another five pages of
fine print, is privacy.
How many people do you believe are reading that that go on
TripAdvisor?
Mr. Medros. I would imagine very few people read through
the entire terms of use and privacy statement.
Senator McCaskill. So what is the point? If we know nobody
is reading it, why aren't we working at making this--have you
thought about making a stab at making the terms of service as
forthcoming and as clear as the rest of your website?
Mr. Medros. I think we would welcome the opportunity to
make privacy and terms of service clear. We take privacy
extremely serious; we take terms of use extremely serious. And
giving us the ability to moderate our content according to our
guidelines--I believe that, in the case of a bill like this,
what you often see is a precedent and a set of standards set
for how terms of use and privacy are conveyed to consumers.
Senator McCaskill. Yes. You know, one of the reasons
adhesion contracts are so successful is because they are buried
in a way that the average person is never going to understand
what is being done to them.
Mr. Medros. Correct.
Senator McCaskill. I think many of them would run in
horror. I think Ms. Palmer would have run in horror if she
would have realized before they ordered those items what that
company was purporting to do.
It seems to me that this is something that we really have
to work on. Because this is a lot of waste, because nobody is
reading this stuff. So why are we doing it if it is not
providing the service that it needs to provide to the consumers
that it is ostensibly designed for? So we have to work on that.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator McCaskill.
And, in your case, Ms. Palmer, too, they added this long
after the transaction occurred, correct?
Ms. Palmer. Yes, they did.
I had actually read through the terms of service three
times to make sure there was nothing in there that would have
prevented me--especially since I didn't purchase the items, my
husband did, I wanted to make sure that there wasn't anything
preventing me from posting the review versus my husband posting
it.
So I did read through it several times. And when they came
back at us 3 years later and said, ``You violated this non-
disparagement clause,'' I looked at my husband and said, ``That
didn't exist. There was no non-disparagement clause.''
Senator McCaskill. Have you thought about going to law
school?
[Laughter.]
The Chairman. Yes. Since you actually read those
agreements. That is most impressive, to start with, so yes.
[Laughter.]
The Chairman. My neighbor to the south, Senator Fischer.
STATEMENT OF HON. DEB FISCHER,
U.S. SENATOR FROM NEBRASKA
Senator Fischer. Thank you, Mr. Chairman.
Professor Goldman, you have mentioned that small
businesses, in particular, may make use of these non-
disparagement clauses, as many of them view it as personal when
they get negative feedback.
I am on the Small Business Committee here in the Senate,
and I fully understand how important small businesses are to
the state of Nebraska and also to the economy here in our
country. So while I agree that the use of these non-
disparagement clauses are a practice that should be
discouraged, I would like your views on whether this bill
contains sufficient, really, protections for small businesses
that are out there. Do you think it does?
Mr. Goldman. In the end, the goal is to create a level
playing field for small businesses. And so any of their
competitors who are distorting their public persona using these
anti-review/gag/non-disparagement clauses are actually hurting
the overall marketplace and the opportunity for small
businesses to go and win over customers to their side of the
equation.
So, in fact, if anything, I think this bill is essential
for preserving the vitality of the small business community and
for making sure that the markets are open for them to come and
enter.
Senator Fischer. And do you think those protections are in
this bill?
Mr. Goldman. I would support this bill as it is currently
drafted. I did write some thoughts about ways that it could be
tweaked, but each of those I think deserves some further
discussions. Even if we don't do that, I think this bill would
be super-helpful in advancing the interests of small
businesses.
Senator Fischer. Thank you.
And, Mr. Atkinson, do you have any comments about if small
businesses--do you believe they are protected under this bill
the way it is drafted, where we are still making sure that we
allow consumers to be able to express their views without being
punished?
Mr. Atkinson. Yes, I would echo Mr. Goldman's comment that
a lot of the damage from these clauses actually are harming
some of their small-business competitors who are doing a really
good job. Consumers don't have a way to weigh who is better.
And so it might hurt a particular small business, but it helps
others.
Second, there are still provisions, there are still legal
remedies that a company can use if they feel like someone has
outright lied. The bill doesn't prohibit a company from taking
action in that way.
And, as I said before, you know, there really is a lot of
evidence that if small businesses are active, a small-business
owner, you know, posts something and says, ``We are concerned
about that; we don't agree with the review,'' that it really
can minimize the damage if a company is sincere in what they
are actually trying to do.
Senator Fischer. Do you think small businesses, though,
have the resources where they would be able to respond to those
negative comments, where they really can take action?
It is hard for consumers to take action; we have heard
that. It is difficult. Lawsuits are expensive. But what about
small businesses on this, as well? How do we reach a balance
here?
Mr. Atkinson. Well, I think the way a lot of the online
rating platforms work is you can monitor what people, your
customers, are saying about you. And, frankly, in the Internet
age, that is something that every business needs to do.
You are not going to search the web every day for
everything, but there are platforms that you can and should
monitor, as a small-business owner. And, you know, doing that
is not, I don't think, overly burdensome, and a quick reply,
just, you know, a one-minute kind of reply every once in a
while. You know, you don't get negative reviews every day.
So I don't think it is a burden for companies to do that. I
think it is actually just good practice now in the Internet
age.
Senator Fischer. OK. Thank you.
Also, Mr. Atkinson, in the Senate version of this bill, we
are looking at enforcement of the prohibition on non-
disparagement clauses by the Federal Trade Commission, and in
the House version, we have the enforcement by the Department of
Justice.
Do you have an opinion, one way or the other, on who would
be the best-positioned to assume that role?
Mr. Atkinson. I don't have an opinion on that, but the
person who leads this work for us is Daniel Castro, who was not
able to be here for flight reasons, and I will talk with him
and would be happy to get back with you on that.
Senator Fischer. OK. That would be great.
Thank you all very much for being here.
The Chairman. Thank you, Senator Fischer.
Senator Moran?
STATEMENT OF HON. JERRY MORAN,
U.S. SENATOR FROM KANSAS
Senator Moran. Mr. Chairman, thank you very much. Thank you
for hosting this hearing and pursuing the concepts contained in
this legislation.
On the topic of small business, I would assume that small
business actually uses reviews, as well. They are a consumer.
Small businesses need information about what business, larger
or smaller, that they might want to deal with, and online
reviews might be helpful to a small business in making a
business decision.
So, while several of you outlined some ideas of how this
isn't harmful or perhaps beneficial to small business, one of
the other ways is a small business cannot make a mistake. It is
more difficult if they enter into an agreement for purchase
with another corporation that turns out to be a bad deal. The
consequences are greater, harder to recover from.
So I assume that small businesses also utilize the review
as they make purchases of goods and services?
I don't know if there is a--everybody is shaking their
head. Does anyone want to disagree with that?
OK.
Then, let me ask about state laws. Perhaps this is to the
professor. California, I think, in particular, has state laws
dealing with--a state law or state laws dealing with this
issue?
Mr. Goldman. Yes, California is the only state that has
adopted----
Senator Moran. Others are pursuing or considering that; is
that true?
Mr. Goldman. I haven't done a survey----
Senator Moran. OK.
Mr. Goldman.--of who else is looking at it.
Senator Moran. Is there anything we could learn from what
has transpired--I hate asking this question--anything we could
learn from California in the way that----
[Laughter.]
Senator Moran.--this law has been written or interpreted or
enforced?
Mr. Goldman. I don't believe there have been any
enforcement actions under the law, so we don't have any data
points about how it is actually applying in the field. It is
relatively new, so it is early in the process.
The only thing I will call attention to is that there is a
statutory damages provision in the California statute that
awards consumers who are subjected to these clauses to obtain
statutory damages. And I think that is a topic that is worth
discussion at this committee, whether that would be a helpful
addition to the law.
Senator Moran. OK.
In addition to that suggestion, let me ask a broader
question. While we are focused on non-disparagement clauses, in
this world of online reviews, are there other or similar issues
that the Commerce Committee, that Congress ought to be paying
attention to?
A couple that I think have been mentioned previously, I
know have been mentioned previously: fake reviews, false
reviews.
Are there issues that surround this new development--
certainly, in my life, particularly as a rural small town
resident, these reviews occurred. They occurred after church,
they occurred at the grocery store, they occurred at the cafe.
And people within our community would talk about what service
they got or didn't get, how quality the product was or wasn't.
Today, I suppose the consequences are just magnified because of
the volume of information that is now available.
Is there something we are missing as we only look in this
legislation as to this issue of non-disparagement clauses?
Professor Goldman?
Mr. Goldman. If I may, I will reiterate my interest in the
Federal anti-SLAPP solution. The idea would be that it would
enable lawsuits that are brought alleging defamation or other
types of harms like that that are on content that would be of
social interest to be tossed early and to fee-shift if they are
illegitimate.
And so the real way that reviews get scrubbed off the
Internet isn't through these clauses, though these clauses are
problematic, but they are because people post them, they are
threatened to take them offline, like Ms. Palmer explained. In
Ms. Palmer's case, she couldn't remove them, but that was
unusual. But in all other cases, when consumers get those
threats, the content comes down instantly.
And a Federal anti-SLAPP law would help some consumers
decide, ``I am not going to be bullied off the Internet, and I
won't be betting my house on legal fees that I can defend my
interests in court.''
Senator Moran. OK.
Mr. Atkinson?
Mr. Atkinson. I would just second Mr. Goldman's point on
that. ITIF released a report last year on the whole issue of
anti-SLAPP and the impact that it has on the Internet economy
and commerce. And so we would agree with that. I think that is
another component. Obviously, both pieces of the legislation,
in our view, are important.
Senator Moran. Thank you very much.
Mr. Chairman, thank you for this hearing. And I apologize
to you for intruding in your commentary on the Royals. It is
just nearly impossible not to have the continued Kansas-
Missouri battles in the presence of the Senator from Missouri.
[Laughter.]
The Chairman. I wouldn't have it any other way.
[Laughter.]
The Chairman. Senator Schatz?
STATEMENT OF HON. BRIAN SCHATZ,
U.S. SENATOR FROM HAWAII
Senator Schatz. Thank you, Mr. Chairman.
Ms. Palmer, thank you for your courage and your clarity. I
know you have been through a lot, and I imagine it has been a
difficult several years. We really appreciate everything that
you are doing.
Your case perfectly illustrates why we need a law, because
individual consumers are in no position to fight this
injustice. And your case also shows why we need a Federal law,
that a patchwork of individual statutes are not going to work
in the age of the Internet.
My first question is for Mr. Atkinson.
We have been talking a little bit about, well, two things,
right? One is that consumers don't know what rights they may be
waiving as they click ``I agree'' or as they sign a contract at
the hotel desk. And then there is this other question related
to intimidation and admonishing or warning customers against a
negative online review.
But those are difficult tactical approaches. So which is it
that these companies are really employing? Are they tricking
customers into signing away their rights, or are they warning
customers against a negative online review? Because they can't
be doing both at the same time, it seems to me.
Mr. Atkinson. I think, first of all, there really haven't
been enough surveys of this. There are a lot of anecdotes,
which I think are quite compelling. We have just heard one
here, but then other folks have talked about that. So I think
there is a lot there, and we don't know exactly which strategy
companies are using more of.
But I think one of the reasons this bill is so important is
it is not just the fact that--even if there were no law, if
people think that they may be gone after--and I think we are at
a point, if we don't solve the problem soon, there could be
something in most consumers' minds where it gives them a little
bit of doubt, a little bit of fear, ``Well, I heard about
somebody getting sued; I am just not going to take the risk.''
Because if you think about somebody contributing a review,
they are actually being a public citizen. They are contributing
to the public good. They are taking their valuable time. It is
not going to help them. They are trying to help everybody else.
And so if we have a sort of collective climate of fear, then
people are going to not be able to do it.
Senator Schatz. Fair enough. But it does point out that we
are operating at the beginning of this problem and, therefore,
we are lacking good decision support on exactly the size and
scope of the problem.
Speaking of that, does anybody on the panel know primarily
whether these clauses are being employed by small or large
enterprises? Because it seems to me that that is a pretty
important question too.
I would imagine that the reputational risk of a big
national or international brand would probably cause bigger
companies not to utilize these. But I would like to know
whether some of the bigger companies are using them. Does
anybody know?
Mr. Medros. I don't think TripAdvisor sees any evidence one
way or the other. Small businesses up to potentially large
businesses what to, in effect, distort consumer opinions online
by getting negative reviews withheld in favor of positive
reviews.
Senator Schatz. Mr. Medros, let me move on to the way
TripAdvisor works, in terms of you have essentially a pop-up
screen that warns consumers if there is a particular hotel or
travel company that has a non-disparagement clause. Is that
correct?
Mr. Medros. That is correct. We put a badge, a red badge,
on the property warning consumers so that they can make an
informed decision about whether to stay there knowing that
there is a non-disparagement clause.
Senator Schatz. How do you figure out whether the company
has a non-disparagement clause? Is that based on consumer
complaints, or do you have a process internally? Because I
would imagine that it is a resource question for you to have a
team of lawyers scrubbing all of their individual contracts. So
is it just based on, if something pops up, then you notify the
public?
Mr. Medros. It is based on consumers reporting it to us and
then us investigating. And I think that speaks to why, more so
than any other reason, we need this legislation. We only see a
small percentage of these contracts that may exist. Some
consumers may not notice a clause, may be too fearful to report
it. And so widespread banishment of these types of clauses are
critical for all consumers.
Senator Schatz. Well, I think that is the most important
point here with respect to whether or not there is a private
sector and sort of Internet-based solution. And it seems to me
that there is not without a statute, because you just can't
make Yelp or TripAdvisor or anybody else responsible for
reviewing legal language in any company that may or may not be
mentioned on your platform.
Mr. Medros. I would wholeheartedly agree. It would be a
game of Whac-A-Mole.
Senator Schatz. Thank you.
The Chairman. Thank you, Senator Schatz.
Senator Daines?
STATEMENT OF HON. STEVE DAINES,
U.S. SENATOR FROM MONTANA
Senator Daines. Thank you, Mr. Chairman. This is a really
intriguing subject today.
I spent a number of years with a cloud-computing customer
experience solution that we sold. And we were a B2C business,
selling to organizations that touched hundreds of thousands,
sometimes millions, of consumers.
And it is an overused cliche to suggest that, you know, the
customer is in charge. We all know that now, and now it is a
cliche in boardrooms because people started to wake up.
But, also, I think, second, is feedback is a gift. And I
think it is insecure companies, like bullies on a playground
who are insecure, that would have these anti-disparagement
clauses. And, you know, welcome to the free markets and the
Internet. Let's compete and let the consumer have its voice.
And I think, frankly, it tends to be a bit condescending to
consumers to suggest that the consumer--I think consumers can
wade through it. They kind of see the folks who are a bit
unhinged, perhaps things that are true and aren't false. Let
the consumer sort that out is, I guess, my view on it,
recognizing there still is a problem with some companies
posting false claims to prop it up and competitors posting
claims to disparage.
Having said that, I can tell you from Montana's economy
viewpoint, tourism is one of our largest businesses. It is $4
billion; 11 million people visit our state. And they are going
online, they are booking trips, they are relying on online
reviews.
I spoke to a small business owner just a couple weeks ago
in kind of an obscure place in Montana. I said, ``How was your
summer?'' He says, ``Best summer ever.'' I said, ``Why?'' And I
was expecting him to say, ``We had a big marketing campaign.''
He said, ``Online reviews. People went and they found us.''
By the way, Yellowstone National Park has a 4.5 out of 5
rating on Yelp.
[Laughter.]
Senator Daines. Just a little hometown advertisement there.
Anyway, I guess, though, I am curious about how we ought to
approach fake online reviews, if there is a thought on best
practices. Whether it is businesses that are paying for
positive reviews or competitors who are writing false negative
reviews, I am curious if you could share, maybe, some best
practices, policies, procedures that you would recommend that
should be used to combat fake online reviews.
Please.
Mr. Atkinson. So I think a couple things.
Your first point about consumers becoming more
sophisticated and this in some ways infantilizes them,
consumers are becoming more sophisticated, and people know
there are bad reviews and good reviews. And so I think as
people get more comfortable with the Internet economy, they
will be able to sift through that.
In terms of what companies are doing, there are certainly
companies, like Yelp and I am sure others, who have very, very
sophisticated algorithms. They employ software engineers and
data scientists to really be able to use technology to flag
these reviews that are at a high risk of being false and then
taking them off automatically. So there are companies and there
is technology now that companies are employing that, just
simply, those reviews don't get posted.
Senator Daines. Yes, please. Mr. Goldman.
Mr. Goldman. I would like to first point out that no matter
how big the problem is with fake reviews, anti-review clauses
are never the solution. So this particular bill, I think, is
orthogonal to the concern about fake reviews, although I think
it is a legitimate concern. But I want to stress how important
this bill is, irrespective of whatever concerns anyone has
about fake reviews.
But I think with fake reviews we should recognize that
consumer reviews are still a relatively new phenomenon. We can
take them back maybe as far as 20 years ago, but, really, the
modern consumer review economy is maybe a dozen years old.
And if you think about it in those terms, we are seeing the
evolution of review sites in developing better and more
aggressive techniques for managing consumer reviews. And, in
the end, they are the solution. We need to have trustworthy
platforms for consumer reviews, and I think that we are seeing
improvement on that front every day.
Senator Daines. You know, I worked for Procter & Gamble
before that for 12 years. I mean, this is incredible, valuable
data. This is what you used to pay a lot of money to focus
groups for. And now we get it virtually real-time, unedited,
right at the coalface of the consumer experience.
And that is why I think, yes, these disparagement clauses,
I think we are in agreement that we need to deal with that and
remove the anti-disparagement clauses based on a lot of stories
and Ms. Palmer's story here as well. But this is part of the
new economy. This is a gift, I think. If you want to become a
world-class company, embrace it.
Mr. Medros?
Mr. Medros. Senator Daines, we see over and over again
stories like you told. Businesses in remote places and places
that consumers wouldn't have thought of traveling to or
wouldn't have had the courage to travel to pre-Internet.
And, in fact, the best businesses leverage a platform like
TripAdvisor to embrace consumer reviews, to use it as a free
marketing tool, to encourage people to share their opinions and
set their expectations of what that trip is going to be like so
that you feel safe to venture to some of these more remote
places that are amazing experiences all around the world. We
hear this story over and over again from business owners.
What makes that possible is the scale of our platforms, the
free ability for consumers to share those opinions without the
threat of being sued or bullied by owners who may not like
every piece of feedback.
And the best businesses take that feedback on an ongoing
basis and make their business better. They improve their
service, they change things about their property, they remodel.
They use that as a feedback tool that otherwise companies would
have paid millions of dollars for in the past.
Senator Daines. Thank you.
The Chairman. Thank you, Senator Daines.
And in our line of work, we get plenty of feedback.
[Laughter.]
Senator Daines. We do.
The Chairman. I am really going to embrace the idea that it
is a gift.
Senator Daines. I will stay off of your Facebook; you stay
off of mine, Mr. Chairman.
[Laughter.]
The Chairman. Thank you.
All right. The Senator from Minnesota and noted author,
Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Mr. Chairman.
I was thinking the exact same thing when he said it was a
gift. I was thinking of some of the hilarious tweets and
Facebook posts that I get. I won't go into them right now, but
I collect them because they are so amusing.
So this is a very important bill and subject. And I want to
thank the Chairman and Senator Schatz for the work that they
have done on this.
And I guess I would start with you, Ms. Palmer. Your
experience sounds like quite an ordeal. I read about it. The
scale of the harm caused by what was initially a $20 purchase
is astounding. And your persistence in finding a solution is
extraordinary.
In response to KlearGear's initial demand to take down the
review, before they made the negative reports to the credit-
rating agencies, how much time would you estimate that you and
your husband spent researching and responding to KlearGear's
demands?
Ms. Palmer. It was several hours between--I had chosen
RipoffReport.com seemingly at random. And to find out that they
don't allow reviews to come down, it took me several hours to
find out what options I had, I believe to the point of actually
e-mailing them and saying, ``Here is my problem. I am now being
bullied. What options do I have?''
And they had to respond to me and kind of spell out and
say, ``Well, this is in our policy. And the legal language is a
little convoluted, but, basically, we don't allow you to take
them down, but here is why. We want to make sure that people
are free to post a review without feeling bullied and without
feeling like they can take it down and without allowing
businesses to remove it.''
So it was several hours.
Senator Klobuchar. OK.
And, Mr. Rheingold, I think this is kind of one of these
softball questions, but do you think most consumers are likely
to be as persistent as the Palmers in response to threats from
companies seeking to enforce non-disparagement clauses? And
what will likely happen if they are not as persistent?
Mr. Rheingold. Ms. Palmer's story is remarkable. I wish all
consumers acted like she did. It is really quite amazing. I
wish I heard more stories like that. Most people give up.
Consumers are not going to pursue their relief. They are going
to do whatever they can to just move on with their lives, try
to get the review removed.
They, one, as she explained, tried to seek legal help; they
couldn't get it. They would just walk away from the problem and
probably, unlike Ms. Palmer, stop posting reviews. I think that
really would have a chilling effect on most consumers from ever
doing it again.
I think, again, Ms. Palmer is unique, and we should clone
her in terms of her behavior here.
Senator Klobuchar. Very good. Well, thank you.
I remember I once had a similar thing with a bill, only I
had found some people that had pursued things, like Ms. Palmer
did, to talk about it. It was about cramming on phone bills.
And it was, like, a Lutheran minister and a math teacher had
gone to the depth to see these tiny little charges that added
up over time.
So you are in good company, I guess.
I understand the concerns of small-business owners who
worry that unfair or false reviews can hurt their livelihoods.
Was it you, Mr. Atkinson, who cited a study showing--was it
you who had the study showing that a one-star increase in a
restaurant's rating on Yelp can lead to a 5- to 9-percent
increase in revenue? To put a less rosy spin on it, a one-star
decrease in a business's rating can have a serious consequence
on its bottom line.
Despite non-disparagement clauses, what tools do you think
small-business owners have to address false reviews?
Mr. Atkinson. Well, first of all, in the lion's share of
those ratings, there are accurate reviews. And so the most
important thing a restaurant in that particular case could do
would be to improve their service or the quality of their food
or whatever else they might--why they are getting a bad review.
And, again--a couple of people said this--that is valuable
information for a company to be able to continuously improve
their service.
Second, as I said, a lot of these platforms, including
Yelp, TripAdvisor, have mechanisms in place where you can
challenge reviews that are bad, not in the sense of taking
someone to court, but just say this is a bad review.
Third, companies can and do post and say, ``We don't agree
with this review, and here is why we don't agree with it,'' or,
``We do agree with this review, and here is why we are sorry,
and here is how we are going to fix it.''
Senator Klobuchar. I look at a lot of these trips. I was
looking at some last night, actually--not in preparation for
this hearing, but I would like to say it was--and I have seen
those.
And, Mr. Medros, what incentives do you think companies
like TripAdvisor have to limit unfair and false reviews?
Mr. Medros. We give consumers this ability to share all of
their experiences, and the incentive, ultimately, when we hear
about limits to free speech, is to warn and then penalize
businesses that try to chill that speech.
Senator Klobuchar. Uh-huh.
And, Professor Goldman, does your research bear out what
Mr. Medros just talked about?
Mr. Goldman. I am sorry, which aspect?
Senator Klobuchar. Well, he talked about the fact that
there are incentives for companies to limit unfair and false
reviews.
Mr. Goldman. I am sorry, you are talking about review
sites?
Senator Klobuchar. Yes.
Mr. Goldman. Yes. In fact, review sites live and fall on
their own reputation. So they are the mechanism for providing
that feedback to the marketplace, but they, themselves, compete
in the marketplace to be considered to be reputable and
persuasive.
And so, in fact, we see fierce competition among review
sites to convince their consumers that they are trustworthy.
And that competition, actually, is a great incentive to fight
against fake reviews.
Senator Klobuchar. All right.
Thank you very much to all of you.
Thank you.
The Chairman. Thank you, Senator Klobuchar.
Senator Blumenthal?
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thanks, Mr. Chairman.
And I want to thank the Chairman for not only having this
hearing but lending his support to the idea of protecting
consumers against this new, ingenious wrinkle in the sort of
age-old practice of burying tricks and traps in the fine print
of contracts. It kind of gives new meaning to hidden tricks and
traps that discourage consumers from informing and warning
other potential consumers about the downsides of particular
experiences of products.
These sorts of sneaky sentences or paragraphs essentially
gag a consumer from giving services or goods a negative review
when they have paid for it, they are disappointed in it, and
they want to warn other consumers.
Usually, they are buried, as you know, in the fine print of
a sales contract or an invoice. And they are a one-way ratchet;
they prohibit negative reviews but not positive ones. So, from
an economic standpoint, they distort the free market and they
chill speech.
I am a supporter of the bipartisan bill that has been
announced. And I want to thank him for engaging with me on this
bill. My initial objection arose from the original language of
the bill, which included a provision related to State Attorney
General enforcement. That was concerning to me, as a former
Attorney General. I believe that the language will be removed
when we move to a markup, and so I am proud to add my support
as a cosponsor of this bill.
Attorneys General have a vital and vigorous role in
protecting consumers and adding to the resources and
intellectual weight of the Federal Government. And so I very
much appreciate the Chairman's understanding in that regard.
Some probably are going to raise the question, why do we
need a Federal law? And the answer is, quite simply, that these
standardized anti-defamation provisions may be considered void
under State common law, but there are a number of them
throughout the country, and they confuse consumers because
consumers have to go to different State laws to know whether or
not they are valid in one state or another state.
And I would like to simply say that making these provisions
a per se violation of the FTC Act is exactly the right thing to
do. Prohibiting their use and the chilling effect they create
in the first place promotes the free market nationally. And
these products, services are sold and marketed nationally, and
the information should be available nationally without the
impediment of a patchwork of different state laws.
So I would like to ask Mr. Goldman and Mr. Medros, can you
talk about the virtue of a Federal solution here? Let's say a
Connecticut consumer gets a hotel through a website located in
North Dakota for a hotel in Utah. Should a consumer have to
research the state laws in three different jurisdictions before
she can exercise her free-speech rights?
Mr. Medros. Certainly, we would think Ms. Palmer's case is
a great example of how difficult it is for a consumer to, one,
understand the limits of these clauses and, two, to get relief
from them.
They don't add any value to anybody in the ecosystem. They
certainly hurt consumers. They probably and certainly hurt
other businesses that play by the rules. And they depress the
overall market.
Senator Blumenthal. Thank you.
Mr. Goldman?
Mr. Goldman. Yes, I would simply add that, to the extent
that we believe that the clauses might already be illegal, that
might depend on things like states' interpretations of
unconscionability or public policy. And there are significant
state and regional variations on those legal doctrines, and, as
a result, providing a Federal standard would clean up any
ambiguities.
Senator Blumenthal. Thank you.
My time has expired. This subject is one that is extremely
important, and I thank you all for being here today.
Thanks, Mr. Chairman.
The Chairman. Thank you, Senator Blumenthal.
Senator Markey?
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. Thank you, Mr. Chairman, very much. And
thank you for convening today's hearing.
Online review sites provide customers with an important and
open forum to provide feedback, to share experiences, and hold
businesses accountable. Some of these websites even allow
customers to compare products and prices amongst many service
providers, helping consumers select the best product at the
most affordable price.
Last week, I visited TripAdvisor's headquarters in Needham,
Massachusetts, and saw firsthand TripAdvisor's wonderful staff
working on key innovations and interfaces needed to ensure
consumers have unfettered access to online reviews and travel
prices. And I am proud that one of the largest travel sites in
the world is based in Massachusetts, and I am happy to see
TripAdvisor testifying here today.
It has come to my attention that some airlines may be
restricting access to their schedules and prices, making it
difficult for online travel sites like TripAdvisor to post
different flight options online. If a consumer cannot view all
of the flight options and prices on one website, the consumer
may be unable to identify the best travel prices. As a result,
the consumer may pay too much for their flight.
Mr. Medros, how are consumers harmed when airlines do not
provide fare and schedule information to travel sites?
Mr. Medros. Consumers are harmed anytime you reduce
transparency. In this case, it would be pricing and
availability. And given the consolidation in the airline
industry, particularly in the United States, that limit of
information, that limit of visibility around real pricing, real
availability, real fees, doesn't help consumers plan trips,
doesn't help the economy grow through travel and tourism.
Senator Markey. Are airlines currently preventing travel
sites like TripAdvisor from accessing ticket fees and flight
schedules?
Mr. Medros. Yes. Increasingly, airlines are attempting to
withhold that information and not make it freely available for
consumers to price compare and shop.
Senator Markey. Should, Mr. Medros, airlines provide travel
sites with ancillary fee information, as well? The fee on
baggage or advance seat selection fees and all those things,
should that also be made available so that the consumer can see
what the total charge is going to be to fly?
Mr. Medros. Absolutely. I can't think of any consumer that
wouldn't want to know outright what to expect in terms of
pricing.
Senator Markey. So we have gag clauses, provisions buried
in contracts that discourage customers from posting negative
reviews online, which ultimately may wind up hurting consumers
and businesses alike. And I am concerned about these efforts to
stifle Americans' freedom to post reviews.
Mr. Medros, as we have learned today, some customers are
getting penalized for posting honest but critical reviews, and
the mere threat of penalizing customers from posting negative
reviews may discourage some customers from posting at all.
Without customers posting their honest assessments of
products and services, other customers may not have the
information needed to make informed purchasing decisions. How
can gag clauses also hurt businesses?
Mr. Medros. Gag clauses hurt businesses by reducing the
amount of feedback that they get and by distorting the
marketplace for other businesses in that market.
Senator Markey. OK.
Mr. Rheingold, what other attacks on consumer rights are
some businesses including in contracts and terms of service?
Mr. Rheingold. Sure. This is kind of the end of the line. I
mean, we have seen it going on for years and years, clauses
that restrict people's ability to get into court. Arbitration
clauses have been existing for a long time, have now grown to
be widespread across every single industry you can imagine,
where people who have complaints simply cannot get into our
public system of justice. It is a real concern.
And the right to speak is sort of just naturally following
the right to go to court. So I am not surprised at all by what
we are seeing today.
Senator Markey. Thank you.
Ms. Palmer has highlighted one of the more egregious
examples of gag clauses. Can you, Mr. Medros, provide other
examples of consumers being harassed for posting a negative
review?
Mr. Medros. Absolutely. We have seen in the past cases,
similar gag clauses, with fines upwards of $5 million and daily
fines of $50,000 to consumers until the reviews are removed. We
have heard of cases from consumers who have contacted us to
remove a review because of the threat of a lawsuit or the
threat of other action against that individual.
In all of these cases, the consumer stands by their content
but is choosing to remove their content and squelch their own
speech so as not to end up, in the case of Ms. Palmer, with a
lien against them.
Senator Markey. OK. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Markey.
I just had a couple quick questions here, and we will close
this out.
This would be directed to Mr. Atkinson or Professor
Goldman. But are there particular industries where consumer gag
clauses are especially pervasive?
Mr. Goldman. I mentioned in my initial testimony about the
medical and healthcare industry, where the entire industry was
encouraged to adopt these restrictions, and many participants--
I don't know exactly what percentage, but many participants did
so.
I think that that industry has moved on. I would like to
think that they have recognized the error of their ways. But I
think it is an illustration of how the clauses can sweep an
entire industry. Once a few people try it, other businesses
might say, ``That sounds like a pretty good idea. That gives me
the control over my reputation I want. And if I don't do it,
other of my competitors are going to be having the glossy
reviews while I will have the good and bad aired out in
public.''
So, in my opening remarks, I did mention that I think that
we will see many other industries where the clauses will sweep
that are driven by small businesses and professional service
providers, so lawyers, doctors, accountants, et cetera, as well
as small-business owners. Places like hotels or bed and
breakfasts are good, fertile grounds for the breeding of these
kinds of clauses.
The Chairman. OK.
Anything to add to that, Mr. Atkinson?
Mr. Atkinson. No, I would agree with that. Certainly,
health care, retail, hospitality, personal services, companies
where you are dealing individually with the actual service
provider.
The Chairman. OK.
And I would direct this to everybody on the panel, but some
of you are familiar with the bill that we have introduced, the
Consumer Review Freedom Act. And the question I have is, do you
believe it strikes an appropriate balance in terms of consumer
rights versus the ability of businesses to protect their
reputations?
Mr. Goldman. Businesses have already a wide range of tools
to protect their reputation. I can't come up with a single
circumstance where it is legitimate to tell consumers they
can't share their honest, truthful feedback.
So, in my mind, on the particular question that the bill
addresses, there is no balance that I can see that would be
appropriate to be worried about. It is really, in my mind, an
abuse of the business-consumer relationship to tell consumers,
``We want your money, but we don't want you talking about it.''
The Chairman. OK.
Anybody else?
Mr. Rheingold. I agree. I mean, I think the bill is a very
strong bill and a very important bill, and I think it protects
consumers. And I think, as Mr. Goldman said, there are rights
that businesses can pursue.
I think it is very strong bill, again. And now that that
one provision is being stripped, we are very happy to support
it.
OK. Thanks, Mr. Rheingold.
Ms. Palmer?
Ms. Palmer. I would also like to point out that, as
consumers, as it has been stated, we don't have a lot of power
when it comes to trying to defend ourselves against a business
that would seek to have us remove a review or seek to come
after us. They have a lot more money. They have a lot more
lawyers on staff than we could ever choose to get.
Knowing that there is a law in place that says, ``You guys
can't come after us just because we told the truth,'' is
extremely empowering to consumers. I believe it will go a long
way.
The Chairman. Thanks.
Mr. Atkinson?
Mr. Atkinson. I agree with Mr. Goldman; I don't think there
is really anything here to balance. What your legislation is
trying to prevent are things that are simply unfair and harmful
to consumers.
As we have all said, businesses have many other options
that this bill would not take away.
The Chairman. Go ahead.
Mr. Medros. I would just add that not only are consumers
harmed, but other businesses that play by the rules and want a
level playing field are also harmed by the existence of gag
clauses that distort the market.
The Chairman. OK.
Well, thank you all very much. And thank you for your
testimony today, for your responses to our questions.
And, Ms. Palmer, thank you for your inspirational story, an
example that one person really can make a difference. I think
you were sort of the reason why this issue has taken on a life
of its own and certainly why we are here today.
And thank you to all the panelists.
You know, we spend a lot of time on this committee, in the
Commerce Committee, studying these issues related to the
Internet, how do we keep the Internet ecosystem protected, how
do we look at the potential that it offers. You look at the
digital economy and how powerful that is and how many people
are using that to do business, to purchase products and
services.
And, obviously, what is happening out there in terms of
these various practices seems to completely contradict what we
are trying to accomplish, in terms of creating more freedom and
protecting consumers' rights out there but certainly empowering
people as they use this powerful tool in a way that can enhance
not only their lives but those around them as well.
And so we appreciate your insights, and thank you again for
making the time to be here today.
We are going to try our best, as we move forward--we have a
markup scheduled here in a couple of weeks, and we will
hopefully try and move this bill to the Senate floor and try
and get some action on it there. We have a companion bill in
the House, and it would be nice to see something that we could
actually put on the President's desk that would address an
issue that I think is becoming increasingly important in our
digital economy.
So the hearing record will remain open for two weeks.
During this time, Senators will be asked to submit any
additional questions for the record. Upon receipt, we would ask
the witnesses to submit their written answers to the Committee
as soon as possible.
Thank you all again for being here today.
This hearing is adjourned.
[Whereupon, at 11:42 a.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Scott Michelman, Staff Attorney, Public Citizen
Mr. Chairman Thune, Ranking Member Nelson, and Members of the
Committee--
My name is Scott Michelman, and I am a staff attorney at Public
Citizen Litigation Group. Public Citizen is a national public interest
organization with more than 400,000 members and supporters. For more
than 40 years, we have successfully advocated before Congress, the
courts, and Federal agencies for stronger measures to protect consumers
from unscrupulous business practices. Public Citizen also stands for
the free flow of information and ideas, including the rights of
consumers to share their opinions and experiences in the marketplace
and to learn from the opinions and experiences of others.
In my testimony today, I'll begin by explaining the problem that
the Committee has called this hearing to examine: the gagging of
consumers who try to write truthful reviews. I'll address the nature of
the problem, the harms it causes, and its prevalence. I will then
articulate Public Citizen's position: We support congressional action
on this issue. Although we cannot support S.B. 2044 in its current form
because of a clause that limits its enforcement by state officials, we
have been informed by members of the Committee that this clause will be
removed. When that change is made, we will strongly support the bill.
The Non-Disparagement Clause and Its Harms
Non-disparagement clauses are terms in consumer contracts--rarely,
if ever, negotiated or knowingly agreed to and usually buried in the
fine print--that purport to strip the consumer of his or her ability to
criticize the company with whom he or she is doing business. Non-
disparagement clauses usually specify monetary penalties for
violations, penalties that can range from hundreds to thousands of
dollars. Sometimes non-disparagement clauses apply specifically to
``criticism'' or ``negative reviews''; in other instances, they
prohibit public comment of any type. Sometimes non-disparagement
clauses extend beyond reviews to prohibit other actions consumers may
wish to take if they feel they are being dealt with unfairly: For
instance, some clauses we have seen ban or restrict ``disputes,''
whether brought to a third-party such as a credit-card company or even
the company imposing the non-disparagement clause itself. Sometimes
non-disparagement clauses include provisions assigning to the company
the intellectual property rights to any review the consumer may write,
so that the company has the ability to force the consumer to remove any
review it doesn't approve. One clause we encountered required the
consumer to submit her opinions for ``legal review'' to the company,
which claimed that it could force the consumer to submit to mediation
and arbitration at her own expense to obtain the right to complain.
Although the specifics can differ, non-disparagement clauses have three
essential elements in common: (1) they are imposed by companies in the
contract or terms of use as a condition of service or sale; (2) they
are rarely if ever up for negotiation and generally do not become known
to a consumer until he or she is accused of breaching one and
threatened with punitive action unless he or she retracts a review that
the companies dislikes; and (3) they prohibit consumers from expressing
their honest opinions or experiences with other people or entities.
We believe that these clauses are invalid under the contract law of
most if not all states, but there is no precedential case law on the
subject, and the possibility of invalidity does not deter companies
from enforcing these clauses.
Non-disparagement clauses cause several types of harms to the
consumers on whom they are imposed as well as harm to the marketplace
as a whole:
(1) Consumers are disabled from expressing themselves. Most
obviously, non-disparagement clauses prohibit expression and
thereby impinge upon a freedom that Americans take as a given
in most aspects of their lives: the right to speak freely.
(2) Consumers are subject to bullying. The non-disparagement clause
gives the business that imposes it huge leverage over the
consumer. The clauses are generally legalistic in phrasing and
specify a monetary penalty, and companies usually invoke them
when they believe consumers have already violated them. As a
result, when a company demands that a consumer retract a
truthful expression of his or her experience or opinion, the
consumer is likely to feel a great deal of pressure to comply
with the company's demands. Factors that compound the pressure
on consumers include the fact that most Americans are not
lawyers and may feel like they do not have the expertise or
knowledge to assert their rights, most Americans do not have
the ability to hire counsel in these circumstances, companies
invoking non-disparagement clauses frequently use intimidating
language or threaten that resistance on the part of the
consumer will lead to larger monetary penalties either under
the terms of the non-disparagement clause or because the
consumers will allegedly become liable for attorneys' fees
spent to enforce the clause.
(3) Consumers may be subject to retaliation if they don't retract
their reviews. Threats against consumers may generally be
sufficient to achieve a company's ends, but when they are not,
consumers may be subject to retaliation. In an extreme case,
Palmer v. KlearGear.com, after online retailer KlearGear
demanded $3,500 from Jen and John Palmer for a three-year-old
negative online review and they refused to pay, KlearGear
falsely reported the money as a ``debt'' they owed, an action
that ruined John Palmer's credit for more than a year and led
to numerous denials of credit, accompanied by humiliation,
anxiety, and fear. Worst of all, the Palmers could not obtain
credit to replace their furnace when it broke and as a result
spent weeks' worth of nights, with temperatures around
freezing, wrapping their three-year-old son in blankets until
they could save up enough money to buy a new furnace with cash.
(4) Consumers who are the intended audience of reviews suppressed by
non-disparagement clauses receive a distorted view of
businesses using the clauses. Today's consumers increasingly
rely on online review sites such as Yelp, TripAdvisor, and
Angie's List to research businesses before they decide to buy
goods or services. When a business succeeds in using a non-
disparagement clause to suppress honest negative reviews, the
result is that the business appears more attractive and
trustworthy than it would if the full range of reviews were
available. In this way, non-disparagement clauses harm even
consumers who are not subject to them, by limiting the reviews
available to all consumers and inhibiting the free exchange of
information and opinions among consumers.
(5) Scrupulous businesses that don't employ non-disparagement
clauses are disadvantaged by the skewing of available reviews.
When a company using a non-disparagement clause to suppress
critical reviews is successful in improving its overall image,
honest businesses that don't try to gag their consumers seem
worse by comparison. Thus, the use of non-disparagement clauses
warps the marketplace for businesses as well as consumers.
In sum, non-disparagement clauses impose significant harms on
consumers, businesses, and the marketplace as a whole, all by
inhibiting a core American value: free expression.
Non-Disparagement Clauses Serve No Legitimate Purpose
The obvious reason that a company would use a non-disparagement
clause is to artificially enhance its own reputation by silencing its
critics. No one argues that this purpose is a legitimate one that
deserves consideration or respect.
A defender of non-disparagement clauses might argue instead that
they are a reasonable tool for businesses to protect their reputation
in the Internet age, because a negative online review can be very
detrimental. This rationale is a canard.
First, most online review sites already provide an avenue for
businesses to defend their reputation--by responding to the criticism
and pointing out, for instance, how the business's practices have
changed from what a consumer is criticizing or why a consumer's concern
is unreasonable. Many businesses take advantage of these features on
sites like Yelp. As Justice Brandeis famously explained in interpreting
the First Amendment, ``If there be time to expose through discussion
the falsehood and fallacies . . . the remedy to be applied is more
speech, not enforced silence.'' \1\
---------------------------------------------------------------------------
\1\ Whitney v. California, 274 U.S. 357, 377 (1927) (Brandeis, J.,
concurring in the judgment).
---------------------------------------------------------------------------
Second and more fundamentally, most criticism is lawful and indeed
protected by the First Amendment. The only type of review about which
businesses have any legitimate ground for complaint is the false and
defamatory review--which is unprotected by the First Amendment and
which is already subject to a cause of action under ordinary tort law
for defamation. Accordingly, non-disparagement clauses are unnecessary
to defend against unlawful reviews (i.e., defamation) and thus serve
only to suppress lawful reviews.
The Extent of Non-Disparagement Clauses
Public Citizen has litigated three cases concerning non-
disparagement clauses and assisted (in a non-litigation capacity)
several other individuals in successfully resisting bullying tactics
arising out of non-disparagement clauses. In our work, we have become
aware that non-disparagement clauses are used by businesses in a number
of industries, including online retail, medical services, hospitality
(including hotels and vacation home rentals), wedding services, and
more.
The website TechDirt compiled a list of such clauses it found
online as of December 2014.\2\ That list includes a textbook rental
company; a seller of wine storage mechanisms; a tour company; a
marketing company; and a collection company. Several more companies
appear to have simply copied and pasted the non-disparagement clause
used by KlearGear.com (described in more detail below). The clauses
cited include stated penalties ranging from $2,500 to $100,000 for
violations.
---------------------------------------------------------------------------
\2\ See https://www.techdirt.com/articles/20141214/16102629441/
here-are-companies-that-want-to-charge-you-2500-100000-negative-
reviews.shtml.
---------------------------------------------------------------------------
Specific examples are useful to show how non-disparagement clauses
are used and the various contexts in which they arise:
In Palmer v. KlearGear.com, online retailer KlearGear
invoked a non-disparagement clause in 2012 to try to fine Utah
couple Jen and John Palmer $3,500 for a critical online review
posted in 2009. KlearGear's non-disparagement clause, which was
not inserted into the company's Terms of Sale and Use until
years after Jen Palmer posted the review at issue, forbade
KlearGear's customers from ``taking any action that negatively
impacts KlearGear.com, its reputation, products, services,
management or employees.'' When the couple wouldn't pay the
fine and couldn't remove the posting, KlearGear falsely
reported the $3,500 as a ``debt'' they owed, an action that
ruined John Palmer's credit for more than a year and led to
numerous denials of credit. On behalf of the Palmers, Public
Citizen sued KlearGear in 2013 under the Fair Credit Reporting
Act and state tort and contract law. KlearGear never appeared
in court to defend itself, and in 2014, we won a default
judgment declaring the debt invalid and awarding compensatory
and punitive damages to the Palmers.\3\
---------------------------------------------------------------------------
\3\ For key case documents, see http://www.citizen.org/litigation/
forms/cases/getlinkforcase
.cfm?cID=851. The case is No. 1:13-cv-00175 (D. Utah).
In Lee v. Makhnevich, a New York dentist's service contract
provided that each patient gave up the right to criticize the
dentist publicly and assigned to the dentist the copyright in
anything that the patient may later write about the dentist.
When a patient later posted an online review complaining about
being overcharged, the dentist sent a ``takedown'' notice to
the review sites, claiming that the posting violated her
copyright. The dentist also sent the patient a series of
invoices demanding payment of $100 for each day the
``copyrighted'' complaints continued to appear online.
Representing the patient, Public Citizen sued the dentist in
2011. In response, the company that created the dentist's
contract recommended that its customers stop using it. After
the court denied a motion to dismiss the case, the dentist
moved abroad and stopped communicating with her lawyer.\4\
---------------------------------------------------------------------------
\4\ For key case documents, see http://www.citizen.org/litigation/
forms/cases/getlinkforcase
.cfm?cID=706. The case is No. 11-civ-8665 (S.D.N.Y.).
In Cox v. Accessory Outlet (later Cox v. Blue Professional)
a Wisconsin consumer who hadn't received her order from an
online retailer told the company she was going to contact her
credit card company. In response, the company demanded that Cox
pay $250 under its fine-print ``Terms of Sale,'' which
prohibited ``any complaint, chargeback, claim, dispute,'' the
making of ``any public statement,'' or threats to take any of
these actions, within 90 days of purchase. The company
threatened to report the $250 ``debt'' to credit reporting
agencies, to damage Cox's credit score, and to have a
collections agency call Cox's home, cell, and work phones
``continuously.'' The company ominously warned Cox that that it
had enforced the terms of sale against ``many individuals'' and
that Cox was ``playing games with the wrong people and [had]
made a very bad mistake.'' Public Citizen represented Cox in
filing suit in 2014. We discovered that the business that
threatened Cox was part of a larger company that did business
using four different names and websites, all of which had
reportedly engaged in similar practices or imposed similar
terms. The company never appeared in court but in response to
our lawsuit, all four websites went dark and remain so today.
We won a default judgment.\5\
---------------------------------------------------------------------------
\5\ For key case documents, see http://www.citizen.org/litigation/
forms/cases/getlinkforcase
.cfm?cID=893. The case is No. 652643/2014 (N.Y. Sup. Ct.).
The Union Street Guest House, a hotel in Hudson, N.Y.,
included terms in its wedding contracts providing that the
wedding couple could be fined if a guest leaves a negative
review. After this clause, which apparently had been used to
threaten at least one customer, was reported widely in the
press in August 2014, the business changed its terms.\6\
---------------------------------------------------------------------------
\6\ See http://pubcit.typepad.com/clpblog/2014/08/internet-shames-
new-york-hotel-into-removing-non-disparagement-clause-fining-wedding-
couple-for-thei.html.
The egg-donor matching site Fertility Bridges, based in
Illinois and California, tried to bully a dissatisfied consumer
into silence using a non-disparagement clause earlier this
year. The company backed down after Public Citizen confronted
the company with the ambiguous language of its clause and its
illegality under applicable California law.\7\
---------------------------------------------------------------------------
\7\ See http://pubcit.typepad.com/clpblog/2015/10/fertility-
bridges-use-of-a-nondisparagement-clause-to-bully-dissatisfied-
customers.html.
Public Citizen has received several other complaints concerning
non-disparagement clauses, the details of which cannot be disclosed on
account of attorney-client privilege.
To date, only one jurisdiction, California, has banned non-
disparagement clauses.\8\
---------------------------------------------------------------------------
\8\ See Cal. Civil Code 1670.8.
---------------------------------------------------------------------------
Just as troubling as the cases we know about are the instances we
don't know about--instance in which a consumer does not contact a
lawyer but instead backs down and retracts a critical review in the
face of a business's threats. Given the aggressive behavior in the
instances documented above, along with the high fines companies seek to
enforce and the fact that companies are asserting consumers are already
in the wrong when the companies demand retractions, most people likely
feel strong pressure to cooperate and therefore understandably
acquiesce to a business's demands. Accordingly, the harm from non-
disparagement clauses almost certainly extends beyond the instances we
know about.
Current legal tools are insufficient to address the problem of non-
disparagement clauses because many consumers do not have the resources
to hire a lawyer and do not feel empowered to assert their rights in
the face of bullying tactics and legalistic language. Additionally, as
illustrated by the websites that have copied KlearGear's non-
disparagement clause, KlearGear's loss in court has not prevented other
businesses from following its model. And KlearGear itself continues to
evade efforts to collect on the judgment against it. Legislation and
robust enforcement by Federal and state authorities are likely to be
the most powerful weapons against non-disparagement clauses.
Public Citizen's Position on S.B. 2044
Public Citizen strongly supports a legislative response to the
problem of non-disparagement clauses. As explained below, we cannot
support S.B. 2044 in its current form, but we understand that there is
an agreement to amend it to a version we would support, and we look
forward to supporting it after amendment.
S.B. 2044 rightly bans non-disparagement clauses and provides for
both Federal and state enforcement of this new prohibition. However,
Section 2(e)(7) of the proposed bill needlessly hinders state
enforcement by barring state attorneys general from working with
outside counsel on a contingency fee basis.
Government enforcement is vital to the enforcement of consumer
protection laws. Many state enforcement offices are under-resourced and
are unlikely to enforce these laws if they cannot do it in partnership
with outside counsel. Public Citizen therefore categorically opposes
any provisions barring states from hiring outside counsel for
enforcement purposes because such provisions serve no purpose but to
weaken enforcement. Additionally, states hire outside counsel all the
time for all kinds of legal work. Carving out consumer protection
measures for special restrictions on outside enforcement consigns these
important laws to a second-class status in terms of states' ability to
enforce them.
Specific to the context of non-disparagement clauses, effective
enforcement against the types of companies using these provisions can
be difficult; in all three cases Public Citizen has brought to court,
we have encountered problems with defendants fleeing abroad or hiding
their assets. Bringing in private counsel might be the best way to
enforce the ban on non-disparagement clauses without unduly detracting
from states' other important law enforcement work.
For these reasons, we cannot support the bill in its current form,
but we are pleased to have learned that the Committee has agreed to
remove Section 2(e)(7), and we look forward to supporting the bill once
that has occurred.
Conclusion
Non-disparagement clauses harm consumers, honest businesses, and
the marketplace in general. They lead to the bullying of consumers and
the chilling or suppression of speech on which consumers rely to make
informed decisions in the marketplace. In recent years, non-
disparagement clauses have appeared in a variety of contexts.
Litigation under current laws is insufficient to address the problem.
Public Citizen therefore believes that congressional action is
needed to address the significant problem of non-disparagement clauses.
We cannot support S.B. 2044 in its current form because of the
restriction on state enforcement contained in Section 2(e)(7), but once
that provision is removed, we will strongly support the bill.
I thank you for the opportunity to address the Committee.
______
Prepared Statement of Angie Hicks, Founder and Chief Marketing Officer,
Angie's List
Senator Thune,
Thank you for the opportunity to speak out strongly in favor of
this legislation. Thank you and Sens. Moran and Schatz for bringing
this important matter to the Nation's attention. I am sorry that other
obligations kept me from addressing you in person about this important
legislation but I welcome continued discussion about this matter in the
weeks and months ahead.
On behalf of our member and all consumers, I have been speaking in
opposition to efforts to stifle honest expression since we discovered
in 2009 that some within the medical community were inserting ``Mutual
Agreement to Maintain Privacy'' forms within their patient paperwork.
I am proud that Angie's List was one of the first to speak out
against this practice and helped end the trend in the health care
arena. When we learned about the agreements, the company pushing them
had already signed up 2,000 physicians.
I started speaking out about it to the national news media--TV news
shows, newspapers, online publications--any outlet that would help us
raise awareness. I wrote repeatedly about it on my blog, and warned our
members through our magazine, e-mails and alerts on company profiles.
Not long after we started speaking out, the company selling the
agreements to physicians reached out to me personally to try to
convince me the agreements were a good step forward. Suffice it to say
I was not convinced. Not long after that, the company stopped selling
the agreements.
Unfortunately, since then, other similar efforts have erupted in
other types of business. The latest efforts are ``non-disparagement
clauses'' within service contracts, which businesses use to threaten
legal action against their own customers simply for speaking their
mind.
The bipartisan Consumer Review Freedom Act would prohibit the use
of these clauses, agreements and waivers, which are blatant--though
often cleverly disguised--efforts to strip Americans of their right to
honestly discuss their service experience.
Angie's List has collected and shared consumer reviews for 20 years
in an effort to help consumers find reliable, high quality service
companies and just recently accepted our 10 millionth verified review.
We have never accepted anonymous reviews and we require members to
affirm they are giving us their honest feedback on their own
experience.
I could spend hours telling you of the companies that have been
able to grow from literally ``a guy in a truck'' to thriving
businesses, including franchises across the country because they have
earned high grades from Angie's List members.
I could give you dozens of examples of companies that earned
negative reviews from Angie's List members, took that criticism to
heart, made the members whole and turned their businesses around thanks
to the customer insight.
A common argument for using gag orders is that they protect
companies from untrue and/or anonymous criticism. At Angie's List, our
members reaffirm they are giving honest feedback about their own
experience each time they submit a review. If reviews--on our site or
any other--are untrue or malicious, there are already legal remedies at
hand under existing libel and defamation laws.
I don't think you need me to tell you that stifling consumer
expression is simply wrong. There is no benefit or need for these gag
orders whatsoever.
As a consumer advocate, Angie's List can only go so far to stop
this kind of unwarranted, right-stifling tactics. But you, the
Congress, can outlaw these practices.
I urge you to use your power, pass this legislation and stand up
for consumers.
______
Consumers Union
November 3, 2015
Hon. John Thune,
Chairman,
Hon. Bill Nelson,
Ranking Member,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Chairman Thune and Ranking Member Nelson:
Consumers Union, the policy and advocacy arm of Consumer Reports,
is pleased that your Committee is holding hearings on the troubling use
of non-disparagement clauses, or ``consumer gag clauses,'' in standard-
form consumer contracts. S. 2044, the Consumer Review Freedom Act,
would help protect consumers' freedom of speech in the marketplace, by
making it illegal for businesses to stop their customers from writing
negative online reviews, or to punish their customers for doing so.
Today, consumers regularly offer their personal reviews about
hotels, restaurants, and other products and services online.
Unfortunately, some businesses have sought to block consumers from
communicating such information to each other--by taking them to court,
or by threatening to. Some businesses have inserted ``non-disparagement
clauses'' into the lengthy boilerplate in their standard-form consumer
purchase agreements. These paragraphs purport to indicate that the
consumer has supposedly agreed to waive the right to say anything
negative about the product or service or business. Or that the consumer
has supposedly turned over to the business a copyright ownership for
any review the consumer might write, so that the business can stop the
review from being published or can threaten suit for copyright
infringement. At least one business reportedly tried to use a
consumer's supposed liability under a non-disparagement clause to ruin
the consumer's personal credit rating.
These same tactics could also potentially be used against
professional product and service testers and raters. At Consumer
Reports, for example, we buy the products and services we test and rate
in the marketplace, anonymously. Indeed, it is a hallmark of the
integrity and credibility of our ratings that sellers do not know they
are selling their product or service to Consumer Reports--that by
outward appearances, we are an individual buying for personal use.
Consumer Reports is also a forum for the views of individual
consumers. We survey consumers regarding their experiences in various
product and service sectors, and publish the results. Sometimes we
report an individual consumer's experience. A consumer's participation
in these activities could also be attacked as an alleged violation of a
non-disparagement clause.
It is no exaggeration to say that non-disparagement clauses in
consumer purchase agreements could be exploited to interfere with our
ability at Consumer Reports to bring objective, unbiased, reliable
information to the consuming public about the safety and performance of
products and services--and more broadly, could be exploited in an
attempt to silence the consumer voice.
S. 2044 would help stop these outrageous anti-consumer tactics, by
making such non-disparagement clauses in consumer contracts null and
void. And it would give the Federal Trade Commission and state
attorneys general authority to turn the tables and take enforcement
action against businesses that attempt to use these clauses against
consumers.
Consumers Union looks forward to working with you to enact
effective legislation to protect the rights of consumers to speak their
honest opinion about the products and services they purchase, and about
how they are treated by the businesses they deal with.
Thank you for your leadership on this important consumer rights
issue.
Sincerely,
George P. Slover,
Senior Policy Counsel,
Consumers Union.
cc: Members, Senate Committee on Commerce, Science, and Transportation
______
R Street Institute, Institute for Liberty
American Consumer Institute
November 4, 2015
Hon. John Thune,
Hon. Bill Nelson,
United States Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
Free-Market, Taxpayer, and Consumer Groups Support the Consumer Review
Freedom Act
Dear Committee Members,
As free-market organizations, we write to express our strong
support for your committee's ongoing efforts to defend commerce and
freedom of expression. In particular, as advocates for a free and open
Internet that facilitates robust online markets, we urge you to support
the critical free-speech protections in the Consumer Review Freedom Act
of 2015 (S. 2044).
We take this position for one simple reason: when conducting
business on the Internet, firms must maintain good reputations to stay
competitive. Without this channel for accountability and transparency,
public confidence in online commerce itself would be undermined.
The Internet is a critical nexus for commerce, providing a quarter-
billion Americans with access to new markets and enhanced economic
opportunities. Of central importance to these online markets is their
ability to conduct reliable transactions with a full range of
commercial firms and entrepreneurial individuals.
Thanks to online reviews and feedback, consumers can feel secure
doing business with those whom they've never met to make a purchase,
get a ride, arrange a place to stay or conduct myriad other
transactions. Potential customers also have access to far better,
richer information about restaurants, hotels and local service
providers than ever before. Online reviews are an essential channel for
reputational feedback; they provide online firms and entrepreneurs with
the greatest incentives to maximize benefits to customers.
Unfortunately, bad actors sometimes use abusive lawsuits to silence
their critics and weaken their competitors. This undermines everyone's
ability to engage in an open, transparent and free market.
The Consumer Review Freedom Act addresses this issue by targeting
non-disparagement clauses, which sometimes are buried within firms'
terms of service or other non-negotiable agreements and which restrict
consumers' ability to review their experiences fairly and honestly.
These agreements represent unfair contracts of adhesion and threaten to
strangle the vast economic benefits of online reviews. Furthermore,
they restrict freedom of speech and undermine the promise and spirit of
the First Amendment.
We urge you to support this package of reforms to help create a
strong national standard for the protection of both free expression and
free markets.
Sincerely,
Mike Godwin,
R Street Institute.
Mytheos Holt,
Institute for Liberty.
Steve Pociask,
American Consumer Institute.
______
Internet Association
Washington, DC, November 4, 2015
Hon. John Thune,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Hon. Bill Nelson,
Ranking Member,
Senate Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Chairman Thune and Ranking Member Nelson:
The Internet Association is the unified voice of the Internet
economy, representing the interests of leading Internet companies and
their global community of users.\1\ It is dedicated to advancing public
policy solutions to strengthen and protect Internet freedom, foster
innovation and economic growth, and empower users. Important to our
mission is the advancement of public policies that preserve free speech
online. We applaud today's hearing on The Consumer Review Freedom Act
(S. 2044), a bipartisan bill introduced by Chairman Thune, Senator
Schatz, and Senator Jerry Moran.\2\
---------------------------------------------------------------------------
\1\ The Internet Association's members include Airbnb, Amazon.com,
auction.com, Coinbase, Dropbox, eBay, Etsy, Expedia, Facebook, Gilt,
Google, Handy, LinkedIn, Lyft, Monster Worldwide, Netflix, Pandora,
PayPal, Practice Fusion, Rackspace, reddit, Salesforce.com, Sidecar,
Snapchat, SurveyMonkey, TripAdvisor, Twitter, Yahoo, Yelp, Uber,
Zenefits, and Zynga.
\2\ We respectfully request that this letter be submitted to the
record for this hearing.
---------------------------------------------------------------------------
In today's digital economy, nearly 70 percent of consumers now rely
on online consumer reviews for information on where to eat, shop,
travel, and more.\3\ The Internet enables millions of consumers to
access timely, honest feedback that empowers them to make informed
choices when purchasing goods or services. The result of the efficiency
gains for these and other web enabled information sharing is a
significant consumer surplus that benefits our economy in myriad ways.
Experts calculate this consumer surplus was the equivalent of billions
of dollars annually.\4\
---------------------------------------------------------------------------
\3\ American Lifestyles 2015: The Connected Consumer--Seeking
Validation from the Online Collective--US 2015, Mintel (June 3, 2015)
http://www.mintel.com/press-centre/social-and-lifestyle/seven-in-10-
americans-seek-out-opinions-before-making-purchases.
\4\ Hal Varian, The value of the Internet now and in the future,
The Economist (Mar. 10, 2013, 3:49PM),http://www.economist.com/blogs/
freeexchange/2013/03/technology-1; Shane Greenstein, Measuring consumer
surplus online, The Economist (Mar. 11, 2013, 3:20PM), http://
www.economist.com/blogs/freeexchange/2013/03/technology-2.
---------------------------------------------------------------------------
Unfortunately, an increasing number of companies who are unhappy
with consumer reviews are utilizing non-disparagement clauses, often
buried in non-negotiable form contracts, to stifle online consumer free
speech. These clauses often impose penalties as high as hundreds of
thousands of dollars for negative reviews by unknowing consumers of
goods and services nationwide. In particularly egregious cases,
individuals have been threatened with reporting to credit agencies and
other tactics meant to intimidate and silence consumers.\5\
---------------------------------------------------------------------------
\5\ Palmer v. KlearGear, No. 13-cv-00175 (D. Utah, filed Dec. 18,
2013).
---------------------------------------------------------------------------
The range of form contracts engaging in this attempt to stifle
speech is varied across the Nation and includes hotels and restaurants,
apartment buildings, repair services, and more.\6\ As Internet
platforms utilized by millions of businesses provide consumers
unprecedented opportunities to engage in the feedback economy, the
threat against consumer-generated speech is growing rapidly and
increasingly difficult to quantify.
---------------------------------------------------------------------------
\6\ Tim Cushing, Here are the Companies that Want to Charge You
$2,500-$100,000 for Negative Reviews, TechDirt (Dec. 17, 2014, 8:27AM),
https://www.techdirt.com/articles/20141214/16102
629441/here-are-companies-that-want-to-charge-you-2500-100000-negative-
reviews.shtml.
---------------------------------------------------------------------------
A patchwork of state laws, court decisions, and Federal agency
actions have attempted to protect consumers subject to non-
disparagement clauses. However, we must address the issue on a national
level to ensure the protection of all consumers online. The right to
free speech--including online reviews and comments from customers--is
critical to our rights as Americans and should not be curtailed.
The Consumer Review Freedom Act, which would prohibit the use of
these non-defamation clauses, will protect consumers nationwide from
these meritless attempts to silence free speech. The Internet
Association strongly supports this legislation's effort to protect
online reviewers of goods and services from clauses that inhibit honest
reviews and commends the Committee for examining this issue in detail
during today's hearing.
The Consumer Review Freedom Act is narrowly tailored to non-
disparagement clauses in form contracts that do not allow individuals a
meaningful chance to negotiate a contract, and provides the necessary
protections for businesses, including for medical and personal
information, trade secrets, and confidential information.\7\ The bill
strikes a fair balance between speech rights and legitimate business
needs. The Internet Association additionally supports the intent of the
bill to combat these clauses in the cases of form contracts for goods
and services, and would support clarifying language to provide
businesses and agencies certainty in enforcement of this legislation.
---------------------------------------------------------------------------
\7\ S. 2044, 114th Cong. Sec. 2(a)(3) (2015).
---------------------------------------------------------------------------
We look forward to hearing the discussion at the Committee's
hearing today, and to working with you and your staff to pass The
Consumer Review Freedom Act.
Respectfully submitted,
Michael Beckerman,
President and CEO,
The Internet Association.
______
November 3, 2015
Dear Chairman Thune and Ranking Member Nelson:
Every day, countless Americans use consumer review sites to share
their experiences and opinions on the businesses and services they rely
upon. These reviews have become instrumental in educating customers and
informing their choices on everything from what doctor or mechanic to
visit to where to shop, eat, and stay. In fact, today, nearly 70
percent of customers rely on online reviews before making a
purchase.\1\
---------------------------------------------------------------------------
\1\ The Consumerist (Jun. 3, 2015), http://consumerist.com/2015/06/
03/nearly-70-of-consumers-rely-on-online-reviews-before-making-a-
purchase/; Ashlee Kieler, Nearly 70% Of Consumers Rely On Online
Reviews Before Making A Purchase.
---------------------------------------------------------------------------
However, companies are now increasingly using unfair non-defamation
clauses to silence consumers and limit their right to free speech.
Businesses are employing these clauses, which are often hidden in non-
negotiable form contracts for goods and services, in order to penalize
or monetarily fine customers who decide to share their negative
experiences with others in the form of online reviews.
Non-defamation clauses stifle free speech and harm citizens'
ability to make informed purchasing decisions, while rewarding bad
businesses that are willing to bully their clientele into silence. In
response, we are joining together to express our support for the
Consumer Review Freedom Act (S. 2044), which we believe will go a long
way to protect consumers' right to share legitimate speech on and
offline.
This bipartisan legislation, introduced by Sen. John Thune (R-SD),
Sen. Brian Schatz (D-HI) and Sen. Jerry Moran (R-KS), strengthens First
Amendment protections by prohibiting businesses from using non-
defamation clauses to intimidate and muzzle honest reviewers. The
Consumer Review Freedom Act will outlaw non-disparagement clauses in
consumer contracts nationwide, while protecting the rights of consumers
to freely share their experiences and opinions on the Internet without
fear of intimidation.
Currently, Americans rely on a patchwork of state laws that do not
equally protect the free speech rights of all Americans. Having Federal
legislation in place to help preserve the free speech rights of
American consumers will go a long way to ensuring deep-pocketed bullies
are unable to quiet their critics.
By sharing honest reviews about the places we eat, shop, visit and
stay, consumers are using their personal experiences to help their
friends and neighbors make informed purchasing decisions while ensuring
American businesses are held accountable to their customers. We look
forward to working with the Commerce Committee to quickly address any
necessary technical amendments that might be needed as the bill moves
forward, but wholeheartedly support the Senate's efforts to pass this
important legislation that protects the Internet as an open speech
platform.
Respectfully,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
November 3, 2015
Dear Senator:
On behalf of its low-income clients, the National Consumer Law
Center writes in support of the Consumer Review Freedom Act of 2015, S.
2044. This bill would prohibit companies from using non-disparagement
clauses in boilerplate, consumer form contracts. While we have
objections to the provision limiting the ability of state attorneys
general to use contingency fee arrangements when engaging outside
counsel, we understand that this provision will be removed during the
Committee markup.
We support S.2044 because it protects the rights of consumers to
express their opinions in reviewing products and services, especially
in online forums. Such reviews help inform other consumers and enable
them to comparison shop. Unfortunately, some companies have attempted
to suppress or muzzle negative reviews by including contract provisions
that restrict consumers' ability to write such reviews. The most
notable example was the case of KlearGear, which tried to impose a
$3,500 penalty on two consumers for a negative review, even going so
far as to report this penalty on their credit reports. S.2044 would
prevent such attempts to suppress consumers' ability to freely review
products and services.
Please contact me at [email protected] or 617-542-8010 with any
questions about this letter.
Sincerely,
Chi Chi Wu,
National Consumer Law Center
(on behalf of its low-income clients).
[all]
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