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October 8th, 2015
FTC Challenges Consumer Gag Clauses as Unfair Practices.
In two recent matters, the Federal Trade Commission ("FTC") challenged so-called gag clauses or non-disparagement provisions incorporated in contracts between marketers and consumers, alleging that prohibiting consumers from publishing negative reviews about the marketer is an unfair practice in violation of Section 5 of the FTC Act.
Details of the FTC Actions.
This summer, the FTC concluded its investigation of Greystar Real Estate Partners for a possible violation of Section 5 of the FTC Act based on a social media addendum included in residential leases with tenants at one of its Florida apartment complexes. The addendum prohibited tenants from making negative comments about the apartment complex on the internet. The addendum also provided that any breach of its terms would result in damages of $10,000 for the first violation and $5,000 for each additional violation. In a closing letter, the FTC said that it did not pursue an enforcement action against Greystar, since Greystar stopped including the addendum in its leases before being contacted by the FTC and notified all of the relevant tenants that the addendum had been voided.
More recently, the FTC sued a Florida-based marketer of weight-loss supplements, Roca Labs Nutraceutical USA, Inc. ("RL"), alleging that RL engaged in a variety of unfair practices, including the use of "gag clauses," monetary threats and lawsuits to stop consumers from posting negative reviews of its weight-loss products. The FTC highlighted the following RL practices as "unfair":
- The online terms consumers had to accept before purchasing the products included: "You agree that regardless of your personal experience with RL, you will not disparage RL and/or any of its employees, products or services. This means that you will not speak, publish, or cause to be published, print, review, blog, or otherwise write negatively about RL, or its products or employees in any way."
- A package insert included in product shipments said that the consumers agreed not to write any negative reviews about RL or their products and would owe hundreds of dollars to RL should they do so.
- RL threatened consumers that it would enforce these provisions and also sued some buyers who posted negative comments.
Jessica Rich, the Director of the FTC's Bureau of Consumer Protection, characterized these tactics as an attempt "to intimidate [RL]'s own customers from sharing truthful - and truly negative - reviews of their products."
These cases reflect the FTC's recognition that online reviews have become extremely important to consumers, and the complaint filed against RL confirms the FTC's position that attempts to suppress or manipulate truthful consumer commentary may be subject to FTC enforcement.
If you have any questions about this latest enforcement action, or about other advertising law issues, please contact Jeffrey A. Greenbaum at (212) 826 5525 or email@example.com, Terri Seligman at (212) 826 5580 or firstname.lastname@example.org, Rayna S. Lopyan at (212) 705 4842 or email@example.com, or any other member of the Frankfurt Kurnit Advertising Group.
Other Advertising Law Alerts
New Low-Budget Waiver is Now Available for Digital Commercial Productions
Advertisers and agencies that are signatories to the SAG-AFTRA Commercials Contract can now take advantage of a new waiver issued by SAG-AFTRA and the Joint Policy Committee on Broadcast Talent Union Relations when producing low-budget digital commercials.
November 10 2017
FTC Updates Endorsement Guide FAQs and Settles First-Ever Action Against Individual “Influencers”
Recent developments demonstrate the FTC's continued interest in social media endorsements.
September 11 2017
FTC Announces Reforms to Its Investigative Process
Recently, the FTC announced a set of internal reforms intended to improve the process by which the Commission investigates unfair, deceptive and fraudulent business practices. The reforms relate to the Civil Investigative Demands ("CID") that the FTC's Bureau of Consumer Protection issues to request information from investigation targets.
September 7 2017