U.S. Senate Committee on Commerce, Science, and Transportation will hold a full committee hearing entitled “Zero Stars: How Gagging Honest Reviews Harms Consumers and the Economy” on Wednesday, November 4 at 10:00 a.m. The hearing follows the introduction of S. 2044, the Consumer Review Freedom Act, by Senators John Thune (R-S.D.), Jerry Moran (R-Kan.) and Brian Schatz (D-Hawaii) on September 16, 2015. The bipartisan bill would prohibit the use of non-disparagement clauses referred to as “gag clauses” in form contracts between consumers and businesses. S. 2044 was referred to the Senate Commerce Committee where it is currently pending.
Gag clauses are appearing in a large number of non-negotiable form contracts. This practice can occur when one party imposes a standardized contract without a meaningful opportunity for the other party to modify the contract. Some businesses have sought to use these clauses unfairly to penalize or pursue fines from customers for negative but honest reviews of their services on websites such as Yelp or TripAdvisor.
One of the witnesses, Ms. Jen Palmer, is a plaintiff in Palmer v. KlearGear.com, where a website demanded that she remove a negative online review or pay $3,500 in damages because the website’s terms of service included a non-disparagement clause. When she refused to pay the penalty, the website reported the $3,500 to credit reporting agencies as an unpaid debt.
- Mr. Adam Medros, Senior Vice President for Global Product, TripAdvisor LLC
- Ms. Jen Palmer, Plaintiff, Palmer v. KlearGear
- Mr. Robert Atkinson, Founder and President, Information Technology and Innovation Foundation*
- Mr. Eric Goldman, Professor, Santa Clara University School of Law
- Mr. Ira Rheingold, Executive Director of National Association of Consumer Advocates
* Change made on November 4 due to scheduling change
Wednesday, November 4, 2015
Full Committee hearing
This hearing will take place in Senate Russell Office Building, Room 253. Witness testimony, opening statements, and a live video of the hearing will be available at www.commerce.senate.gov.
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Chairman John Thune
"Today we convene to examine a growing and disturbing trend affecting consumers in the United States.
"Imagine you’re 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’re 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’s true.
"This scenario sounds far-fetched, but the sad reality is that it’s 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’re 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’re 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’s 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 “takedown” 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. 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’d 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’ve worked with stakeholders and plan to make a few changes prior to marking up the bill.
"I’m 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.
"Thank you for agreeing to testify."
Mr. Chairman, thank you for holding this hearing.
Today we shine light on an anti-consumer practice that is growing by leaps and bounds every year and is being used by a growing list of companies.
These companies are using their size and unequal bargaining power to force consumers to sign lengthy “take it or leave it” agreements or contracts.
In some cases, these agreements are just online “pop-up” terms that a consumer clicks on – usually without reading – to purchase a good or service on the Internet.
Almost no one reads them – but they can have major consequences.
Now I am just a country lawyer, but, when I was in law school, they called these “contracts of adhesion.”
They are called adhesion, because you’re stuck with them.
You can’t modify the contract in any way, and 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 online – and saying it’s OK, because of these so-called non-disparagement clauses snuck into contracts in fine print – is appalling.
We need to do something about it.
In a state like Florida, that is so dependent on tourism, we want visitors to share their experiences.
We want to let the sunshine in.
Businesses that do a good job are rewarded; those who do not are punished.
So I’m glad your bill, Mr. Chairman, would stop this practice by voiding contracts of adhesion that punish consumers for sharing their experiences and opinions with other consumers.
I also think this hearing is timely, Mr. Chairman, because this issue and your bill bring 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 “friends and 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, GM’s faulty ignition switches, and Takata’s exploding airbags – he or she is potentially barred from seeking judicial relief.
This type of provision is an outrageous “get out of jail free” card for carmakers.
And, beyond the automakers themselves, many dealers are also trying to use these arbitration provisions to shield themselves.
How is this right? How is this acceptable?
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 – whether by preventing them from posting an online complaint or telling their story to a jury.
So, yes, consumers should be able to write negative reviews about a business. But consumers also should have the ability to seek justice in a court of law when businesses fail to hold up their end of the bargain.
Especially when that failure involves injury or death.
We can’t keep giving businesses more and more “get out of jail free” cards. Not after GM. And not after Takata and Volkswagen.
Thank you, Chairman Thune, and I look forward to hearing from today’s witnesses.
Mr. Adam MedrosSenior Vice President for Global ProductTripAdvisor LLC
Ms. Jen PalmerPlaintiffPalmer v. KlearGear
Mr. Daniel CastroVice PresidentInformation Technology and Innovation Foundation
Mr. Eric GoldmanProfessorSanta Clara University School of Law
Mr. Ira RheingoldExecutive DirectorNational Association of Consumer Advocates