Are your website Terms of Service (TOS) compliant with the new federal Consumer Review Fairness Act (CRFA), colloquially the "Right To Yelp" act? Although parts of this act became effective in March, the hammer falls in less than six months. On December 14, 2017, the Federal Trade Commission (FTC) and the State Attorney Generals (State AG) will gain their authority to review your TOS and enforce noncompliance (including fines). Have you reviewed your website TOS? Will be you be ready if the FTC or State AG gets nosy?
Near the end of last year (December 14, 2016), the CRFA became law. The CRFA, with the goal of protecting the ubiquitous practice of posting online reviews of products and businesses, prohibits online contracts which impose limitations on the review of such products and businesses. The CRFA was implemented because some businesses used terms in so called “form contracts” to stop customers from posting bad reviews online; and the law limits the ability of a business selling or leasing goods or services to impose such limitations on critiquing those good or services or their business.
The law attempts to achieve this goal in three main ways. First, the law nullifies clauses of a “form contract” which limit the right of a customer to post genuine negative reviews. Second, the law nullifies clauses in a “form contract” which impose penalties or fines on consumers for posting such reviews. Third, the law prohibits clauses in a “form contract” which assign or exclusively license intellectual property rights in reviews. These clauses are already nullified in your TOS effective as of three months ago (March 14, 2017).
Enforcement is in two stages. The first stage has started (again, three months ago on March 14, 2017) when it became "unlawful" to even offer a “form contract” containing prohibited clauses. The second stage starts later this year (December 14, 2017) when the FTC and the State AGs are empowered to enforce the law as a deceptive or unfair trade practice for any prohibited “form contract” then in effect or offered thereafter. Given that enforcement by the FTC and State AG appears to attach only prospectively as of December 14, 2017, it might be argued that the intent of the law was to afford businesses a one year period (until December 14 of this year) to achieve compliance with revised “form contracts”. While it seems reasonable to rely on that "prospective only" provision of the CRFA, it is noted that the CRFA also says it is “unlawful” to offer a “form contract” with a prohibited clause as of March 14, 2017. Who might enforce such an "unlawful act" which occurs between March 14, 2017 and December 14, 2017 (especially given that there is no express private right of action under the CRFA) is anything but clear.
A “form contract” is generally defined as contracts with standardized terms imposed without a meaningful opportunity to negotiate (but please seek counsel on the more precise definition and whether it applies to your business or business model).
Although the CRFA only applies to a “form contract,” the law may have unintended consequences, especially for many website terms and conditions which are likely to be considered “form contracts.” Notably, while the CFRA contains a number of exceptions (e.g., as to confidential or trade secret materials, as to defamation and libel and as to computer viruses, among other exceptions), how these exceptions will be interpreted is unclear. The law could be interpreted more broadly than necessary to uphold the CFRA’s intent, voiding provisions of contracts which address confidentiality, non-disparagement, or intellectual property licensing – topics which many businesses have a legitimate interest in addressing in their contracts. That said, the FTC’s non-binding and preliminary guidance suggests that the FTC will not take such a broad view.
Approaching enforcement date in six months, it seems prudent for all businesses to promptly conduct a review with counsel of all applicable contracts to determine if any modifications are warranted or advisable. And, while doing so, other TOS issues (such as arbitration clauses and related class-action issues; as well as, perhaps, click-wrap vs browse-wrap issues) might be on the agenda.
By Ray Areaux
Registered Patent Attorney
Head and Founder, Intellectual Property Practice Group