[Senate Report 114-175]
[From the U.S. Government Publishing Office]
Calendar No. 316
114th Congress } { Report
SENATE
1st Session } { 114-175
_______________________________________________________________________
CONSUMER REVIEW FREEDOM ACT OF 2015
__________
R E P O R T
of the
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
on
S. 2044
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
December 8, 2015.--Ordered to be printed
______
U.S. GOVERNMENT PUBLISHING OFFICE
59-010 WASHINGTON : 2015
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred fourteenth congress
first session
JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi BILL NELSON, Florida
ROY BLUNT, Missouri MARIA CANTWELL, Washington
MARCO RUBIO, Florida CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire AMY KLOBUCHAR, Minnesota
TED CRUZ, Texas RICHARD BLUMENTHAL, Connecticut
DEB FISCHER, Nebraska BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas ED MARKEY, Massachusetts
DAN SULLIVAN, Alaska CORY BOOKER, New Jersey
RON JOHNSON, Wisconsin TOM UDALL, New Mexico
DEAN HELLER, Nevada JOE MANCHIN, West Virginia
CORY GARDNER, Colorado GARY PETERS, Michigan
STEVE DAINES, Montana
David Schwietert, Staff Director
Nick Rossi, Deputy Staff Director
Rebecca Seidel, General Counsel
Kim Lipsky, Democratic Staff Director
Christopher Day, Democratic Deputy Staff Director
Clint Odom, Democratic General Counsel
Calendar No. 316
114th Congress } { Report
SENATE
1st Session } { 114-175
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CONSUMER REVIEW FREEDOM ACT OF 2015
_______
December 8, 2015.--Ordered to be printed
_______
Mr. Thune, from the Committee on Commerce, Science, and Transportation,
submitted the following
R E P O R T
[To accompany S. 2044]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 2044) to prohibit the use of
certain clauses in form contracts that restrict the ability of
a consumer to communicate regarding the goods or services
offered in interstate commerce that were the subject of the
contract, and for other purposes, having considered the same,
reports favorably thereon with an amendment (in the nature of a
substitute) and recommends that the bill (as amended) do pass.
Purpose of the Bill
The purpose of S. 2044, the Consumer Review Freedom Act of
2015, is to prohibit the use of certain clauses in form
contracts that restrict the ability of a consumer to
communicate regarding the goods or services offered in
interstate commerce that were the subject of the contract, and
for other purposes.
Background and Needs
Consumers increasingly rely on websites and other platforms
that allow consumers to share information about goods and
services and, as a result, to benefit from the experiences of
others. In particular, consumer reviews have become a powerful
informational tool because consumers place a high value on the
truthful reviews of other consumers. As a result, businesses
are at times frustrated by what they perceive as unfair
criticism and some have turned to questionable legal remedies
in an effort to protect their reputations, including non-
negotiable terms in form contracts that prohibit consumers from
publicly ``disparaging'' a business. Such clauses go beyond
protecting businesses from defamation because they also
restrict or bar truthful statements, often by imposing
financial penalties if the provision is violated. For example,
one online retailer assessed a penalty of $3,500 against a
consumer for a truthful, yet negative, review. When the
consumer refused to pay the penalty, the online retailer
reported the penalty as a ``debt'' to credit agencies. Another
online retailer prohibited consumers from even proposing to
make negative public statements about the retailer. When one
consumer did not receive her order from the online retailer,
she informed the retailer she would contact her credit card
company. In response, the retailer demanded the consumer pay
$250 for violation of the company's terms of sale.
The consequences of these non-disparagement clauses are far
ranging. Penalties and lawsuits that emanate from non-
disparagement clauses stifle the speech of consumers, and thus
interstate commerce, by not permitting fair criticism of a
business even when that feedback is an honest reflection of
consumers' experiences. Non-disparagement clauses also distort
public reviews of a business because that business may receive
more positive feedback than warranted, thus harming consumers
who rely on such reviews.
Summary of Provisions
S. 2044 would invalidate non-disparagement clauses in form
contracts and make it unlawful for a person to offer or enter
into a contract containing a non-negotiable non-disparagement
clause as defined in the legislation. Violation of the
legislation would be treated as an unfair or deceptive act or
practice under the Federal Trade Commission Act (FTC Act, 15
U.S.C. 41 et seq.). The legislation would provide a rule of
construction and three exceptions that limit the reach of the
statute. For example, S. 2044 would not limit the ability of a
person or business to file a civil action for defamation,
libel, slander, or any similar cause of action under State law.
Under the legislation, the Federal Trade Commission (FTC)
and State attorneys general would have enforcement authority.
State attorneys general are precluded from State enforcement
actions under the legislation during the pendency of FTC
enforcement. State attorneys general would also be required to
notify the FTC in writing when they bring civil actions under
the statute.
It is the intention of the Committee that enforcement of
the statute be focused on businesses or individuals imposing
the non-disparagement clause on consumers.
Legislative History
On September 16, 2015, Chairman Thune, along with Senators
Schatz and Moran, introduced the Consumer Review Freedom Act of
2015 (S. 2044). The legislation is co-sponsored by Ranking
Member Nelson and Senators Blumenthal, McCaskill, Daines, and
Booker. Similar legislation was introduced in the House of
Representatives by Congressman Issa on April 29, 2015 (H.R.
2110).
On November 4, 2015, the Committee held a hearing entitled
``Zero Stars: How Gagging Honest Reviews Harms Consumers and
the Economy.'' The Committee received compelling testimony
about the impact of non-disparagement clauses in form contracts
and the need for S. 2044. Witnesses testified that non-
disparagement clauses have been used in many industries,
including health care, retail, and hospitality. One witness
estimated that over 1 million Americans signed non-
disparagement clauses due to a form contract that was used in
the health industry. The Committee received testimony that one
State, California, has enacted a law to bar such clauses in
non-negotiable form contracts. The Committee also learned that
the FTC has brought an enforcement action against one company,
alleging, inter alia, that the firm's threats to enforce a gag
provision against consumers to stop them from posting negative
reviews and testimonials online constitute an unfair trade
practice in violation of section 5 of the FTC Act. In some
cases, judges have refused to enforce non-disparagement clauses
in form contracts usually on the grounds of unconscionability.
Despite the persuasive rationale of such decisions, however,
the legality of such clauses remains murky. Therefore, S. 2044
is necessary to eliminate any ambiguity over the enforceability
of non-disparagement clauses.
On November 18, 2015, the Committee held an Executive
Session, during which S. 2044 was considered. Chairman Thune
offered a substitute amendment to S. 2044. During the Executive
Session, the Committee ordered by voice vote that S. 2044, as
amended, be favorably reported with an amendment in the nature
of a substitute.
Estimated Costs
In compliance with subsection (a)(3) of paragraph 11 of
rule XXVI of the Standing Rules of the Senate, the Committee
states that, in its opinion, it is necessary to dispense with
the requirements of paragraphs (1) and (2) of that subsection
in order to expedite the business of the Senate.
Regulatory Impact
In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following evaluation of the regulatory impact of the
legislation, as reported:
number of persons covered
The bill would affect parties to a form contract used in
the course of selling or leasing a person's goods or services.
Because the bill would invalidate non-disparagement clauses in
form contracts and would make it unlawful for a person to enter
into a contract containing a non-disparagement clause, as
defined in the legislation, millions of consumers could be
protected under the bill. S. 2044 would not authorize any new
regulations and therefore would not subject any individuals or
businesses to new regulations.
economic impact
This legislation would not have an adverse economic impact
on the Nation. The bill would promote consumer protection by
making certain non-disparagement clauses unlawful, thus
allowing consumers to make better informed decisions when
procuring goods and services, and rewarding companies that
offer quality goods and services.
privacy
The bill would not have any adverse impact on the personal
privacy of individuals.
paperwork
The Committee does not anticipate a major increase in
paperwork burdens resulting from the passage of this
legilsation.
Congressionally Directed Spending
In compliance with paragraph 4(b) of rule XLIV of the
Standing Rules of the Senate, the Committee provides that no
provisions contained in the bill, as reported, meet the
definition of congressionally directed spending items under the
rule.
Section-by-Section Analysis
Section 1. Short title.
Section 1 would designate the short title of this Act as
the ``Consumer Review Freedom Act of 2015.''
Section 2. Consumer review protection.
Section 2(a) of this bill would provide definitions for
this section.
Section 2(b) would invalidate non-disparagement clauses in
standardized form contracts where the terms are imposed on an
individual without a meaningful opportunity for the individual
to negotiate such terms, including provisions that seek to
impose a penalty or fee on a consumer for engaging in a covered
communication section 2(b)(1)(B)) or that seek to transfer
intellectual property rights an individual may have in a
covered communication section 2(b)(1)(C). The latter
prohibition prevents consumers from being accused of copyright
infringement or similar violations simply for sharing their own
communications.
The substitute amendment, as modified, that was favorably
reported by the Committee provided a narrow exception to
section 2(b)(1)(C) that would permit a party to a form contract
to use the content of a review pursuant to a non-exclusive
license. For example, under this exception a website owner may
lawfully include in its terms and conditions a non-exclusive
license to a comment left on the owner's website and use the
content for marketing purposes.
Section 2(b)(2) would clarify that the bill should not be
construed to affect: (1) any duty of confidentiality imposed by
law; or (2) actions for defamation, libel, slander, or similar
causes for action. The aforementioned substitute amendment
would further clarify that the bill should not be construed to
affect: (1) removal by a website owner of a review that is
libelous, abusive, obscene, vulgar, or sexually explicit, among
other factors; or (2) the ability of a property owner to
restrict photography and videography on its premises used by
commercial entities for solely commercial purposes.
Section 2(b)(3) would provide that the ban on non-
disparagement clauses does not apply to the extent a provision
in a form contract prohibits disclosure of: (1) trade secrets
or financial information; (2) personnel and medical files that
would constitute a clearly unwarranted invasion of personal
privacy; and (3) law enforcement records that would constitute
a clearly unwarranted invasion of personal privacy. It is the
intention of the Committee that a website owner or operator may
remove content from its website that is unlawful, whether by
statute, regulation, requirement, standard, or other provision
having the force or effect of law. For example, the Committee
understands that website operators may be required to remove
unlawful content from a website under laws governing export
control, consumer protection, computer fraud and abuse,
intellectual property rights, unfair competition, anti-
discrimination, or false advertising, among other matters.
Section 2(c) would make it unlawful for a person to offer
or enter into such a form contract containing a non-
disparagement clause.
Sections 2(d) and (e) of section 2 would authorize the FTC
and State attorneys general, respectively, to enforce the
provisions of the bill. Under these subsections, State
attorneys general would be stayed from action while a Federal
action is pending and the FTC may intervene in any pending
State action. Section 2(e)(6)(A) would permit State consumer
protection authorities, when authorized, to bring a cause of
action under this legislation. The Committee intends for
enforcement to apply on those entities that impose contracts
with non-disparagement clauses on consumers.
Section 2(f) would require the FTC to conduct outreach and
education that provides businesses with non-binding best
practices for compliance with the Act.
Section 2(h) would provide that the ban on non-
disparagement clauses in form contracts become effective 90
days after the date of passage of the Act, whereas the
enforcement mechanisms in the bill apply to form contracts
would become effective 1 year after the date of enactment of
the Act.
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, the Committee states that the
bill as reported would make no change to existing law.
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