Setting aside for a moment whether you should ask your customers to agree not to provide negative reviews of your business as a business practice (that is a discussion all its own), the question before us is whether such an agreement is likely to be enforceable as a legal matter.
Our last post discussed the issue of online defamation by non-customers and what can be done about it. Now we are going to address your ability, as a business owner, to prevent customers from providing negative reviews of your business by getting them to agree not to do so.
This type of clause is called a “non-disparagement clause” and it is fairly common in settlement agreements in connection with litigation and in agreements relating to the purchase of a business (asset purchase/stock purchase agreements). It goes something like this:
Party A agrees not to make any disparaging statement, either orally or in writing, regarding Party B, the business, products, or services of Party B, or any of Party B’s shareholders, directors, officers, employees or agents, especially its lawyers, who all Parties agree are most excellent.
Okay, so I made that last clause up, but the rest of it is fairly typical of such agreements. Again, these clauses are typically used in settlement agreements or stock or asset sale/purchase agreements (agreements to purchase a business). They are generally enforceable in connection with such agreements.
Some enterprising business owners (and, possibly, their lawyers) have decided to test the waters as to whether such a clause might be enforceable outside the context of litigation or a business purchase, adding clauses like this to service agreements or other contracts with customers.
With the ubiquitousness of online review systems such as Yelp, amazon.com reviews, Annie’s List, rip-off.com, tripadvisor.com, and various other specialty review services, together with the tendency of people to be more nasty online than they are in person and the inability or unwillingness of the online review sites to adequately police the reviews for accuracy, it is understandable why a business owner might want to prevent such reviews by having their customers agree not to provide them. But, is such an agreement enforceable against a customer who violates it?
A couple of issues I see regarding the enforceability of such clauses in a web site disclosure or as part of a contract with a consumer are:
1. Is there sufficient “consideration” to support a finding that there was a valid and enforceable agreement not to disparage? Consideration is basically the “this” one side gives for the other side’s “that.” The three basic elements of a contract – the things that make a contract a contract – are offer, acceptance, and consideration.
2. Can a customer be held to contract language regarding something arguably unexpected in connection with the transaction at issue, especially if that language is buried in fine print and is not a material part of the transaction? By the same token, if this type of language becomes more common (thus, more expected), will that make it more likely to be enforceable?
3. Will such a clause be considered “one-sided” when the other side is a consumer (who the business may have far less likelihood of disparaging)? If it is one-sided, that could contribute to a claim that the clause is unconscionable and, therefore, unenforceable against the consumer.
Surely, there are other issues that arise in connection with non-disparagement clauses in consumer agreements, but these are a few that immediately come to mind and deserve attention.
Let’s look at some examples
Let’s say you’re a service provider – perhaps a dentist, media specialist, travel agent, or accountant – and you have a service agreement with your clients that contains provisions regarding the type of service you will provide, at what cost, and on what terms. Let’s say that agreement contains a clause that prohibits your clients from providing negative reviews of your business. Can they be held to that agreement?
What if the customer is purchasing something from you online and the agreement to enter into the transaction has a bunch of legalish language no one ever reads that includes a non-disparagement clause among the information regarding returns, exchanges, and the like? Can your customer be held to the agreement not to provide a negative review?
The Case of Aster Dental
The first example above – a service provider with a service contract containing a nondisparagement clause – is roughly the fact scenario at issue in the case of Robert Allen Lee v. Stacy Makhnevich and Aster Dental, out of New York. Dr. Makhnevich – a dentist – included in her contracts with patients a provision that prevented disparagement of her practice under the Federal Copyright Act. This was actually pretty clever because the Copyright Act affords her more remedies and protection than state defamation laws, which are generally protected by the safe harbor provisions of the Digital Millennium Copyright Act.
Enter patient Robert Allen Lee, who provided Dr. Makhnevich with a one-star review on various sites. The dentist contacted the sites to have them remove the review at the same time threatening Mr. Lee with daily fines under the Copyright Act.
Mr. Lee did not take this lying down, but initiated litigation against the dentist to seek a declaration from the court invalidating the nondisparagement clause. The dentist sought to dismiss the action with some fancy arguments I won’t bore you with – what’s important is that the court did not agree and allowed the suit against her to move forward. What happened next?
Not a darned thing. It appears this dentist just disappeared. Perhaps it is because none of her patients – or at least those who provided online reviews – seemed to like her. Her lawyer even withdrew from the case, citing an inability to locate his client. While the case appears to remain open, it is unclear what will happen at this point.
Kleargear and how NOT to Enforce a Nondisparagement Clause
The second example above – a clause hidden in online legalese – was raised in the case of Palmer v. Kleargear, which was filed in Utah federal court and is still pending. While the case has not yet been fully decided, the writing is on the wall and this is a good example of bad facts making bad law.
Here’s what happened in a nutshell: John Palmer ordered some stuff through Kleargear, had some problem with the order (apparently never receiving what he ordered). His wife, Jen, posted a review on ripoffreport.com after getting no satisfaction with the company (one moral of this story for businesses is to improve customer service to avoid such problems in the first place, but I digress).
The Palmer’s transaction and negative review happened in 2009. More than 3 years later, Kleargear sent a letter to the Palmers requiring that
they take down the offending review and stating that the Palmers had violated the online nondisparagement clause contained in the Kleargear.com website’s terms and conditions. The letter also informed them that the penalty for the breach was $3,500.
Kleargear’s position in this case has so many problems, it’s not yet
clear klear whether the has any implications for others, except as a cautionary tale about how not to try to enforce such clauses. In addition to the fact that good customer service might have prevented the whole issue, Kleargear’s most bone-headed mistake here was to try to enforce a nondisparagement clause against people who could not have been subject to it even if it were otherwise enforceable. See, the nondisparagement clause at issue was added to Kleargear’s website after the Palmers’ ill-fated transaction and negative review. So, Kleargear is wasting this litigation testing their online nondisparagement clause on a transaction that was not even subject to it. Oops.
Next, Kleargear completely failed to show up in the case the Palmers filed against them in Utah federal court, leading to a default judgment against it. The only thing left is for the judge to determine what damages to award the Palmers.
Litigation is costly. This likely contributes to the fact that there have been very few cases either seeking to enforce or challenge the enforcement of non-disparagement clauses in agreements between businesses and consumers (the easiest thing for consumers to do is remove the offending post, rather than challenge the clause’s validity). And those cases that have been filed have gone nowhere.
But, it is worth keeping this on our radar screen because more businesses are including nondisparagement agreements in an effort to protect their reputation and more consumers are writing and relying on these online reviews. I don’t think it’s a stretch to prognosticate continuing development of the law relating to these clauses. As the law develops, some of the issues I raised above may be addressed by courts considering such clauses.
In the mean time, if you wish to try to adopt such a clause, you will want to run it by a lawyer who is experienced in the business side of consumer law (which happens to be my sweet spot).
– Amy Salberg, Esq., B2C Lawyer