Non-disparagement clauses are one of the stupidest things any company can enact. In most cases, it’s almost impossible to enforce them, no matter how artfully crafted. Most aren’t. Most non-disparagement clauses found lying around the internet have been lazily copied and pasted from pre-existing bad ideas instituted by other companies.
On top of the legally-dubious aspects, there’s the potential for severe backlash — something that completely underscores the futility of these half-assed gag orders. Instead of heading off criticism, these clauses tend to invite negative reviews, often from internet denizens who’ve never patronized the company they’re bashing at multiple review sites.
But still, these clauses persist. Up until recently, the court of public opinion has had to do most of the heavy lifting when it came to the enforcement of these clauses. Last September, California became the first state in the nation to ban non-disparagement clauses, threatening violators with fines up to $10,000 (for repeated violations).
Today, Representatives Darrell Issa, Eric Swalwell, Blake Farenthold, and Brad Sherman (two Democrats and two Republicans) jointly proposed in Congress the Consumer Review Freedom Act of 2015, which would ban non-disparagement clauses nationally. We at Public Citizen have litigated cases against the use of such clauses (for instance in the KlearGear case, as well as the Cox case). The proposed bill, which is similar to one introduced last session (by Democrats only), also prohibits a business from imposing a clause requiring consumers to sign away their intellectual property rights in communications about the business. We’ve challenged that type of clause, too. Today’s bill authorizes enforcement by the Justice Department and by state attorneys general.
The proposed law includes fines that could add up to real money fairly quickly.
The Attorney General shall bring an action against any business who violates subsection (d) for a civil penalty of not more than $16,000 for each day that the business so requires the use of such a contract by a distinct person.
No company will be penalized for existing clauses but will be expected to remove them as soon as possible. One year after the bill’s enactment, any clauses still in existence (or new clauses enacted past this point) will subject companies to daily fines.
As noted above, the bill would also prevent IP landgrabs by companies that allow them to issue DMCA takedown notices targeting critical review they now “own” thanks to the fine print on Terms and Conditions pages.
How effective a law like this will be in keeping the KlearGears of the nation in line is open to debate. Some shady companies may maintain their US “presence” for only as long as it remains beneficial to them. In the wake of the default judgment against KlearGear for its bogus non-disparagement clause, the company — which had claimed to be located at multiple locations throughout the US over the past several years — suddenly revealed itself to be a very French corporation and thus out of reach of the $350,000 fee.
Hopefully, the law — if implemented — will deter future companies from ambushing unhappy customers with egregious fees and damaged credit records. The fines mooted here should act as a deterrent, especially when pursuing these fines doesn’t appear to hinge on the enforcement of these questionable clauses, but rather their mere existence.