The FTC, in its finest Valspeak, said “Gag Me With a Spoon” to a marketer’s practice of trying to silence negative reviews through contractual provisions with customers.
As user reviews become more and more powerful in driving market share, regulators continue to pay attention. In this recent action, the FTC filed suit against Florida-based marketers to stop allegedly misleading weight loss claims. What makes this FTC complaint stand out from other deceptive advertising actions, is a count that challenges, as an unfair practice, the use of consumer gag clauses to prohibit customers from writing negative online reviews about the company.
In its federal court complaint, the FTC alleged that Roca Labs and its principals sued and threatened to take legal action against consumers who wrote negative reviews about their experiences online or who complained to the Better Business Bureau. Roca Labs pursued such actions against consumers who purportedly violated certain non-disparagement provisions included in the “Terms and Conditions,” which consumers allegedly agreed to at the time of purchase. According to the FTC’s complaint, under the Terms purchasers agreed not to “speak, publish, cause to be published, print, review, blog, or otherwise write negatively about [Roca Labs], or its products or employees in any way. This encompasses all forms of media, and especially including the internet.” Purchasers who violated the Terms had 72 hours to retract the content in question, were required to pay the “full price” of the product (around $1580), and were subject to potential legal action for breach of contract by Roca Labs.
The FTC alleged that in numerous instances, Roca Labs threatened to sue purchasers, for breach of the gag clauses, when consumers stated that they had or would complain to third parties or posted negative comments about Roca Labs, its products, or its employees online. The FTC stated that these practices have caused or are likely to cause purchasers to refrain from commenting negatively about Roca Labs or its products. By depriving prospective consumers of this truthful, negative information, the FTC argued that Roca Labs’ practices resulted in, or are likely to result in, consumers buying Roca Labs products that they would not have otherwise bought, and constitute an unfair act or practice in violation of the FTC Act.
In addition to the FTC’s unfairness charges based on Roca Labs’ gag clauses, the FTC also alleged that Roca Labs’ weight-loss claims were false or unsubstantiated. The FTC also charged that Roca Labs failed to disclose that they compensated users who posted positive reviews. In addition, the FTC alleged that Roca Labs also violated consumers’ privacy by disclosing purchasers’ personal health information in some cases to payment processors, banks, and in public court filings.
Gag clauses like those at issue in the FTC’s action against Roca Labs have also been receiving attention from those outside of the FTC. This month, several lawmakers introduced the Consumer Review Freedom Act, in a bipartisan effort to ban businesses from prohibiting or bullying customers out of posting negative reviews online. The Act would prohibit the use of “certain clauses in form contracts that restrict the ability of a consumer to communicate regarding the goods or services offered in interstate commerce” and void provisions that impose a penalty or fee against individuals seeking to review such products or services. A similar bill was introduced in the House in April.
Thus, while marketers understand that negative online reviews can be “grody to the max,” trying to silence such reviews through gag clauses is “fer shur” a “totally” bad idea.