Nov. 3, 2015

Senate Holds Hearing on Non-Disparagement Clauses That Restrict Consumers Ability To Speak

Public Citizen Experts Available to Discuss the Unfair Corporate Tactic

The U.S. Senate Committee on Commerce, Science, and Transportation on Wednesday will hear testimony about the problem of non-disparagement clauses – provisions, tucked into the fine print of contracts, that seek to block consumers from expressing opinions about the company with whom they are doing business. Public Citizen can highlight some of the most egregious examples of such clauses, which the organization has been fighting for years, including in its representation of Jen Palmer, who will testify on Wednesday. Palmer sued online retailer KlearGear for relief from threats it made in reliance on its online non-disparagement clause.

The U.S. House and the Senate have introduced bipartisan bills this year to ban non-disparagement clauses, both titled the Consumer Review Freedom Act. Public Citizen supports the House version, H.R. 2110, sponsored by Reps. Darrell Issa (R-Calif.) and Eric Swalwell (D-Calif.). Public Citizen cannot support the Senate version, S. 2044, because it includes a provision limiting enforcement by state officials. Specifically, section 2(e)(7) of the bill needlessly hinders state enforcement by barring state attorneys general from working with outside counsel on a contingency fee basis. Because of the tenacity and person-hours needed to pursue some of the companies using these clauses, bringing in private counsel might be the best way for states to enforce the ban on non-disparagement clauses. We hope that this provision will be removed in markup.

Public Citizen represented Jen and John Palmer in suing KlearGear after the company demanded $3,500 from them because Jen posted a critical online review. Kleargear then reported a phony $3,500 “debt” to credit reporting agencies, thereby damaging John Palmer’s credit for more than a year. In 2014, a federal judge granted the Palmers a default judgment declaring the supposed “debt” void and awarding compensatory and punitive damages to the Palmers.

As Public Citizen will explain to the committee in written testimony, non-disparagement clauses harm both the consumers on whom they are imposed and the marketplace as a whole:

  • Consumers are disabled from expressing themselves.
  • Consumers may be subject to retaliation by the company if they don’t retract their reviews.
  • Consumers who are the intended audience of reviews suppressed by non-disparagement clauses receive a distorted view of businesses using the clauses.
  • Scrupulous businesses that don’t employ non-disparagement clauses are disadvantaged by the skewing of available reviews.

Public Citizen has litigated three cases concerning non-disparagement clauses and assisted several other individuals in a non-litigation capacity in successfully resisting threats based on non-disparagement clauses. 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. Penalties stated in these clauses can range from the hundreds to thousands of dollars, with one as high as $100,000.

Just as troubling are the instances we don’t know about – instances in which a consumer does not contact a lawyer but instead backs down and retracts a critical review in the face of a business’ threats. Given companies’ aggressive behavior, 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’ demands. Accordingly, the harm from non-disparagement clauses almost certainly extends beyond the instances we can document.

Legislative action is appropriate because current legal tools are insufficient to address the problem. 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.

Legislation and robust enforcement by federal and state authorities are the most powerful weapons against non-disparagement clauses used to scare consumers into silence.

To learn more, please contact the press office to schedule an interview with Public Citizen attorney Scott Michelman.

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