Intellectual Property Alert

February 2017

Consumer Review Fairness Act: Preserving the Right to Post

On December 14, 2016, President Obama signed the Consumer Review Fairness Act of 2016 [H.R. 5111], which forbids businesses from retaliating against consumers for posting negative reviews, and claiming ownership of reviews uploaded by consumers. The Act empowers the Federal Trade Commission (FTC) and state attorneys general to enforce the law. However, it does not preempt existing state law, such as California’s 2014 law voiding consumer contract provisions that impede consumer reviews.

The cornerstone provisions of the Act, detailed below, are effective beginning March 14, 2017 (90 days from the Act’s enactment). The FTC must issue best practices for compliance within 60 days of enactment, by February 12, 2017. 

What the Act Does
The Act’s impact is twofold. It voids ab initio any contractual provisions that:

  1. Restrict consumers from sharing their reviews; or
  2. Transfer the intellectual property rights of a consumer’s review to the reviewed business.

At first blush, the import of protecting a consumer’s ability to post reviews is more obvious than that of protecting a consumer’s intellectual property rights in his or her review. The former prohibits what are more commonly known as “non-disparagement” or “gag” clauses that serve to stifle consumer opinions, thereby ensuring public access to honest, crowd-sourced information about products and services. Likewise, the Act makes it unlawful for anyone to offer a form contract containing such a provision.

Equally significant, the latter prevents businesses from sidestepping the consumer and going straight to the consumer’s chosen platform (e.g., Yelp), claiming copyright ownership over the review and demanding that the site take down the post. Prior to the Act, this could be accomplished by sending the host site a Digital Millennium Copyright Act takedown notice.

Notably, the Act not only benefits consumers, but also helps level the playing field for businesses that do not use unfair tactics to prevent negative reviews. The Act also grants the FTC the authority to levy civil penalties for violations, pursuant to the Federal Trade Commission Act, which provides for civil penalties of up to $10,000 per violation.

What the Act Doesn’t Do
The Act only applies to “form contracts,” which are defined as those “imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms.” In essence, the Act protects consumers from what are often termed “contracts of adhesion,” in which one party – typically the larger, more-sophisticated party – drafts the terms to which the other party simply agrees. Contracts of adhesion are generally enforceable if the consumer affirmatively consents to terms that are not otherwise unconscionable.

  • However, excluded from the “form contract” definition are employment contracts and those between employers and independent contractors. The Act also does not limit the rights of businesses with respect to postings that are false, misleading, defamatory, libelous, slanderous, harassing, sexually explicit, and those that promote intrinsic bias or constitute a breach of confidentiality.
  • Likewise, the Act does not prevent a host site from removing content that is considered privileged or confidential or that is unrelated to the product or service offered by the business in question.

Practical Steps to Take
Form agreements directed to consumers should be reviewed to ensure they do not contain provisions restricting consumers from sharing their reviews, or transferring the intellectual property rights of a consumer’s review to the reviewed business. In particular, websites and blogs that allow consumers to submit product reviews should review their website terms and conditions and submission guidelines, and remove any clauses that may be deemed void.

Diversion of Company Domain Names and Social Media Accounts Subject to New York State Conversion Claims

A groundbreaking decision recently issued by a New York federal district court permits state law claims for conversion and replevin to proceed against a terminated marketing agent who hijacked a company’s domain names and social media accounts. The decision in Salonclick LLC v. Supergo Management LLC, No. 16 Civ. 2555 (S.D.N.Y. Jan. 18, 2017), expanded the scope of a conversion claim to include a broader range of intangible assets – in this case the company’s domains, social media accounts and websites.

Salonclick extends a seminal, 2007 decision by the New York State Court of Appeals, which was later adopted by the federal Second Circuit Court of Appeals. That decision held that conversion claims in the Internet era could no longer be limited to traditional tangible assets, and should cover, in that case, intangible electronic records on a computer.  

The new decision by Southern District Judge Kimba Wood gives owners of domains, websites and social media accounts additional ammunition to seek damages and equitable relief through conversion and replevin claims in federal courts, and likely in New York state courts as well. Companies should also ensure that any consulting or independent contractor agreements involving these valuable intangible assets clearly state that all domains, websites, digital assets and content are the exclusive property of the company, and that any misuse, hijacking or other diversion or conversion of such assets will cause irreparable harm and entitle the company to both temporary and permanent injunctive relief, in addition to damages, without the necessity of posting a bond.

For more information on the issues in this alert, or intellectual property matters generally, please contact:
Barry Werbin at + 212 592 1418 or [email protected]

© 2017 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.