[House Report 114-731]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-731
======================================================================
CONSUMER REVIEW FAIRNESS ACT OF 2016
_______
September 9, 2016.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Upton, from the Committee on Energy and Commerce, submitted the
following
R E P O R T
[To accompany H.R. 5111]
[Including cost estimate of the Congressional Budget Office]
The Committee on Energy and Commerce, to whom was referred
the bill (H.R. 5111) 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, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 4
Background and Need for Legislation.............................. 5
Hearings......................................................... 6
Committee Consideration.......................................... 6
Committee Votes.................................................. 6
Committee Oversight Findings..................................... 6
Statement of General Performance Goals and Objectives............ 7
New Budget Authority, Entitlement Authority, and Tax Expenditures 7
Earmark, Limited Tax Benefits, and Limited Tariff Benefits....... 7
Committee Cost Estimate.......................................... 7
Congressional Budget Office Estimate............................. 7
Federal Mandates Statement....................................... 8
Duplication of Federal Programs.................................. 8
Disclosure of Directed Rule Makings.............................. 8
Advisory Committee Statement..................................... 8
Applicability to Legislative Branch.............................. 9
Section-by-Section Analysis of the Legislation................... 9
Changes in Existing Law Made by the Bill, as Reported............ 9
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Consumer Review Fairness Act of
2016''.
SEC. 2. CONSUMER REVIEW PROTECTION.
(a) Definitions.--In this section:
(1) Commission.--The term ``Commission'' means the Federal
Trade Commission.
(2) Covered communication.--The term ``covered
communication'' means a written, oral, or pictorial review,
performance assessment of, or other similar analysis of,
including by electronic means, the goods, services, or conduct
of a person by an individual who is party to a form contract
with respect to which such person is also a party.
(3) Form contract.--
(A) In general.--Except as provided in subparagraph
(B), the term ``form contract'' means a contract with
standardized terms--
(i) used by a person in the course of selling
or leasing the person's goods or services; and
(ii) imposed on an individual without a
meaningful opportunity for such individual to
negotiate the standardized terms.
(B) Exception.--The term ``form contract'' does not
include an employer-employee or independent contractor
contract.
(4) Pictorial.--The term ``pictorial'' includes pictures,
photographs, video, illustrations, and symbols.
(b) Invalidity of Contracts That Impede Consumer Reviews.--
(1) In general.--Except as provided in paragraphs (2) and
(3), a provision of a form contract is void from the inception
of such contract if such provision--
(A) prohibits or restricts the ability of an
individual who is a party to the form contract to
engage in a covered communication;
(B) imposes a penalty or fee against an individual
who is a party to the form contract for engaging in a
covered communication; or
(C) transfers or requires an individual who is a
party to the form contract to transfer to any person
any intellectual property rights in review or feedback
content, with the exception of a non-exclusive license
to use the content, that the individual may have in any
otherwise lawful covered communication about such
person or the goods or services provided by such
person.
(2) Rule of construction.--Nothing in paragraph (1) shall be
construed to affect--
(A) any duty of confidentiality imposed by law
(including agency guidance);
(B) any civil cause of action for defamation, libel,
or slander, or any similar cause of action;
(C) any party's right to remove or refuse to display
publicly on an Internet website or webpage owned,
operated, or otherwise controlled by such party any
content of a covered communication that--
(i) contains the personal information or
likeness of another person, or is libelous,
harassing, abusive, obscene, vulgar, sexually
explicit, or is inappropriate with respect to
race, gender, sexuality, ethnicity, or other
intrinsic characteristic;
(ii) is unrelated to the goods or services
offered by or available at such party's
Internet website or webpage; or
(iii) is clearly false or misleading; or
(D) a party's right to establish terms and conditions
with respect to the creation of photographs or video of
such party's property when those photographs or video
are created by an employee or independent contractor of
a commercial entity and solely intended for commercial
purposes by that entity.
(3) Exceptions.--Paragraph (1) shall not apply to the extent
that a provision of a form contract prohibits disclosure or
submission of, or reserves the right of a person or business
that hosts online consumer reviews or comments to remove--
(A) trade secrets or commercial or financial
information obtained from a person and considered
privileged or confidential;
(B) personnel and medical files and similar
information the disclosure of which would constitute a
clearly unwarranted invasion of personal privacy;
(C) records or information compiled for law
enforcement purposes, the disclosure of which would
constitute a clearly unwarranted invasion of personal
privacy;
(D) content that is unlawful or otherwise meets the
requirements of paragraph (2)(C); or
(E) content that contains any computer viruses,
worms, or other potentially damaging computer code,
processes, programs, applications, or files.
(c) Prohibition.--It shall be unlawful for a person to offer a form
contract containing a provision described as void in subsection (b).
(d) Enforcement by Commission.--
(1) Unfair or deceptive acts or practices.--A violation of
subsection (c) by a person with respect to which the Commission
is empowered under section 5(a)(2) of the Federal Trade
Commission Act (15 U.S.C. 45(a)(2)) shall be treated as a
violation of a rule defining an unfair or deceptive act or
practice prescribed under section 18(a)(1)(B) of the Federal
Trade Commission Act (15 U.S.C. 57a(a)(1)(B)).
(2) Powers of commission.--
(A) In general.--The Commission shall enforce this
section in the same manner, by the same means, and with
the same jurisdiction, powers, and duties as though all
applicable terms and provisions of the Federal Trade
Commission Act (15 U.S.C. 41 et seq.) were incorporated
into and made a part of this Act.
(B) Privileges and immunities.--Any person who
violates this section shall be subject to the penalties
and entitled to the privileges and immunities provided
in the Federal Trade Commission Act (15 U.S.C. 41 et
seq.).
(e) Enforcement by States.--
(1) Authorization.--Subject to paragraph (2), in any case in
which the attorney general of a State has reason to believe
that an interest of the residents of the State has been or is
threatened or adversely affected by the engagement of any
person subject to subsection (c) in a practice that violates
such subsection, the attorney general of the State may, as
parens patriae, bring a civil action on behalf of the residents
of the State in an appropriate district court of the United
States to obtain appropriate relief.
(2) Rights of federal trade commission.--
(A) Notice to federal trade commission.--
(i) In general.--Except as provided in clause
(iii), the attorney general of a State shall
notify the Commission in writing that the
attorney general intends to bring a civil
action under paragraph (1) before initiating
the civil action against a person described in
subsection (d)(1).
(ii) Contents.--The notification required by
clause (i) with respect to a civil action shall
include a copy of the complaint to be filed to
initiate the civil action.
(iii) Exception.--If it is not feasible for
the attorney general of a State to provide the
notification required by clause (i) before
initiating a civil action under paragraph (1),
the attorney general shall notify the
Commission immediately upon instituting the
civil action.
(B) Intervention by federal trade commission.--The
Commission may--
(i) intervene in any civil action brought by
the attorney general of a State under paragraph
(1) against a person described in subsection
(d)(1); and
(ii) upon intervening--
(I) be heard on all matters arising
in the civil action; and
(II) file petitions for appeal of a
decision in the civil action.
(3) Investigatory powers.--Nothing in this subsection may be
construed to prevent the attorney general of a State from
exercising the powers conferred on the attorney general by the
laws of the State to conduct investigations, to administer
oaths or affirmations, or to compel the attendance of witnesses
or the production of documentary or other evidence.
(4) Preemptive action by federal trade commission.--If the
Federal Trade Commission institutes a civil action or an
administrative action with respect to a violation of subsection
(c), the attorney general of a State may not, during the
pendency of such action, bring a civil action under paragraph
(1) against any defendant named in the complaint of the
Commission for the violation with respect to which the
Commission instituted such action.
(5) Venue; service of process.--
(A) Venue.--Any action brought under paragraph (1)
may be brought in--
(i) the district court of the United States
that meets applicable requirements relating to
venue under section 1391 of title 28, United
States Code; or
(ii) another court of competent jurisdiction.
(B) Service of process.--In an action brought under
paragraph (1), process may be served in any district in
which the defendant--
(i) is an inhabitant; or
(ii) may be found.
(6) Actions by other state officials.--
(A) In general.--In addition to civil actions brought
by attorneys general under paragraph (1), any other
consumer protection officer of a State who is
authorized by the State to do so may bring a civil
action under paragraph (1), subject to the same
requirements and limitations that apply under this
subsection to civil actions brought by attorneys
general.
(B) Savings provision.--Nothing in this subsection
may be construed to prohibit an authorized official of
a State from initiating or continuing any proceeding in
a court of the State for a violation of any civil or
criminal law of the State.
(f) Education and Outreach for Businesses.--Not later than 60 days
after the date of the enactment of this Act, the Commission shall
commence conducting education and outreach that provides businesses
with non-binding best practices for compliance with this Act.
(g) Relation to State Causes of Action.--Nothing in this section
shall be construed to affect any cause of action brought by a person
that exists or may exist under State law.
(h) Savings Provision.--Nothing in this section shall be construed to
limit, impair, or supersede the operation of the Federal Trade
Commission Act or any other provision of Federal law.
(i) Effective Dates.--This section shall take effect on the date of
the enactment of this Act, except that--
(1) subsections (b) and (c) shall apply with respect to
contracts in effect on or after the date that is 90 days after
the date of the enactment of this Act; and
(2) subsections (d) and (e) shall apply with respect to
contracts in effect on or after the date that is 1 year after
the date of the enactment of this Act.
PURPOSE AND SUMMARY
The purpose of H.R. 5111, the Consumer Review Fairness Act
of 2016, is to prohibit the use of certain non-disparagement
clauses in form contracts that restrict the ability of a
consumer to publicly review the goods or services offered in
interstate commerce that were the subject of the contract. H.R.
5111 would invalidate such clauses subject to this legislation
in form contracts and prohibit a person from offering a
contract containing a non-disparagement clause, where a
consumer has no meaningful opportunity to negotiate the terms.
A violation of the legislation would be treated as a violation
of a rule defining an unfair or deceptive act or practice
prescribed under the Federal Trade Commission Act (FTC Act, 15
U.S.C. 41 et seq.). Such violations are punishable by civil
penalties.
The Federal Trade Commission (FTC) is the primary enforcer
of H.R. 5111. Subject to certain restraints outlined in the
legislation, a State's attorney general may also enforce the
provisions of H.R. 5111 if the State attorney general has
reason to believe that an interest of the residents of the
State has been threatened or adversely affected by the
engagement of any person in a practice that violates H.R. 5111.
State attorneys general would be required to notify the FTC in
writing when they bring civil actions under the statute and are
precluded from State enforcement actions during the pendency of
an FTC enforcement action involving the same violation.
The legislation would provide a rule of construction and
several exceptions. For example, H.R. 5111 would not limit the
ability of a person or business that hosts online reviews to
remove comments, including comments that contain personal
information, comments that contain the likeness of a person,
libelous, harassing, or abusive comments, trade secrets,
personnel and medical files, or content that contains computer
viruses.
The Committee's view is that H.R. 5111 should prevent
businesses and individuals from imposing non-disparagement
clauses restricting truthful reviews in cases where consumers
have no meaningful opportunity to bargain over the terms of a
form contract.
BACKGROUND AND NEED FOR LEGISLATION
The Internet has enabled consumers to publish reviews of
products and services widely at low cost, improving information
flows to consumers and providers of goods and services. The
wide availability of these reviews has caused consumers to rely
on them more heavily as credible indicators of product or
service quality.\1\ In turn, businesses have sought to avoid
negative reviews. Some businesses have attempted to suppress
negative reviews, even if they are truthful, through provisions
of form contracts with consumers restricting such reviews.
These provisions typically impose monetary or other penalties
for publishing negative comments regarding the provider's
services or products.\2\ The provisions have come to be known
as gag clauses or non-disparagement clauses.
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\1\See, e.g., BrightLocal, Local Consumer Review Survey 2014
(2014), available at https://www.brightlocal.com/learn/local-consumer-
review-survey-2014/ (finding that 88% of consumers rely on online
consumer reviews).
\2\See, e.g., Peter Wilkinson, Guests Fined for Leaving Review of
`Filthy, Dirty Rotten' Hotel on TripAdvisor, CNN (Nov. 19, 2014),
available at https://perma.cc/9PXX-5H67; FTC v. Roca Labs, Inc., No.
8:15-cv-02231-MSS-TBM (M.D. Fla. filed Sept. 28, 2015), available at
https://www.ftc.gov/enforcement/cases-proceedings/142-3255/roca-labs-
inc.
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Gag clauses have been imposed by many different types of
businesses and come in different forms. Some examples include a
$3,500 penalty imposed by online retailer KlearGear, a gag
clause by a weight loss supplement seller,\3\ and a wedding
vendor's prohibition on encouraging disparaging comments.\4\ In
at least a few cases, when a consumer has refused to pay a
fine, the offeror of a contract containing a non-disparagement
clause has referred the monetary penalty to debt collectors,
creating further headaches for the consumer. When KlearGear
referred the $3,500 penalty allegedly owed under the non-
disparagement clause to a collection agency, the consumer sued
KlearGear seeking damages and a declaratory judgment that the
debt was not owed.\5\ The consumer ultimately won a judgment,
and California passed a law banning non-disparagement
clauses.\6\ However, their wider effect on state contract laws
is unclear and common law doctrines may even evolve to accept
them.\7\
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\3\FTC v. Roca Labs, Inc., No. 8:15-cv-02231-MSS-TBM (M.D. Fla.
filed Sept. 28, 2015), available at https://www.ftc.gov/enforcement/
cases-proceedings/142-3255/roca-labs-inc.
\4\Chris Morran, Wedding Company Contract Tries to Ban Bride &
Groom From ``Encouraging'' Negative Feedback, Consumerist (Apr. 20,
2015), available at https://consumerist.com/2015/04/20/wedding-company-
contract-tries-to-ban-bride-groom-from-encouraging-negative-feedback/.
\5\Palmer v. KlearGear.com, No. 1:13-cv-00175 (N.D. Utah, filed
Dec. 18, 2013), available at http://www.documentcloud.org/documents/
929250-palmer-v-kleargear-complaint.html.
\6\Cal. Civ. Code 1670.8.
\7\See, e.g., Daniel D. Barnhizer, Nancy Kim's Wrap Contracts
Symposium: Escaping Toxic Contracts: How we have Lost the War on Assent
in Wrap Contracts, 44 Sw. L. Rev. 215 (2014) (``If such [non-
disparagement] terms do become widespread, both common law doctrines,
such as unconscionability and reasonable expectations, and statutory
consumer protection regulations that are informed by commercial norms
will be affected in favor of the drafters of such terms'').
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Non-disparagement clauses interfere with the benefits
consumers derive from ready access to ``crowd-sourced'' reviews
of products and services. If such clauses become widely
adopted, negative yet truthful reviews may be chilled,
undermining the overall credibility of consumer reviews. The
newfound utility of consumer reviews would then be reduced as
trust in their veracity diminishes. H.R. 5111 seeks to curtail
non-disparagement clauses in order to preserve the credibility
and value of online consumer reviews.
HEARINGS
The Subcommittee on Commerce, Manufacturing, and Trade held
a hearing on H.R. 5111, along with several other bills, on May
24, 2016. The Subcommittee received testimony from:
Edith Ramirez, Chairwoman, Federal Trade
Commission;
Joshua D. Wright, University Professor,
Antonin Scalia Law School at George Mason University;
Geoffrey Manne, Founder and Executive
Director, International Center for Law and Economics;
Daniel Castro, Vice President, Information
Technology and Innovation Foundation;
Abigail Slater, General Counsel, Internet
Association;
Michael Best, Senior Policy Advocate,
Consumer Federation of America;
David Vladeck, Professor of Law, Georgetown
Law;
Richard Hendrickson, President and CEO of
Lifetime Products;
Greg O'Shanick, President and Medical
Director, Center for Neurorehabilitation Services;
Stephen Shur, President, Travel Technology
Association;
Robert Arrington, President, National
Funeral Directors Association;
John Breyault, Vice President of Public
Policy, Telecommunications and Fraud, National
Consumers League;
Gil Genn, Maryland Sports and Entertainment
Industry Coalition; and
Jamie Pena, Vice President, Revenue Strategy
and Global Distribution, Omni Hotels and Resorts.
COMMITTEE CONSIDERATION
On June 8, 2016, the Subcommittee on Commerce,
Manufacturing, and Trade met in open markup session and
forwarded H.R. 5111 to the full Committee by a voice vote. On
July 12, 2016, the full Committee on Energy and Commerce met in
open markup session and ordered H.R. 5111 reported to the
House, as amended, by a voice vote on July 13, 2016.
COMMITTEE VOTES
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto.
There were no record votes taken in connection with ordering
H.R. 5111 reported.
COMMITTEE OVERSIGHT FINDINGS
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a hearing and made
findings that are reflected in this report.
STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES
The goal of H.R. 5111 is to preserve the credibility and
value of online consumer reviews by prohibiting non-
disparagement clauses restricting negative, yet truthful,
reviews of products and services by consumers.
NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that H.R.
5111 would result in no new or increased budget authority,
entitlement authority, or tax expenditures or revenues.
EARMARK, LIMITED TAX BENEFITS, AND LIMITED TARIFF BENEFITS
In compliance with clause 9(e), 9(f), and 9(g) of rule XXI
of the Rules of the House of Representatives, the Committee
finds that H.R. 5111 contains no earmarks, limited tax
benefits, or limited tariff benefits.
COMMITTEE COST ESTIMATE
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
CONGRESSIONAL BUDGET OFFICE ESTIMATE
H.R. 5111--Consumer Review Fairness Act of 2016
H.R. 5111 would void certain provisions in standard form
contracts (those used in the course of selling or leasing goods
and services) that impose restrictions or penalties for one
party's review of the performance of another party under the
contract. It also would void and prohibit certain contract
provisions that would assign the intellectual property rights
for one party's review of the performance of the contract to
any other party. The bill would grant the Federal Trade
Commission (FTC) the authority to enforce the new prohibitions
and authorize the agency to levy civil penalties for
violations. H.R. 5111 also would direct the FTC to develop an
education and outreach program to provide businesses with best
practices for complying with new restrictions.
CBO estimates that the cost of implementing H.R. 5111 would
be insignificant because the FTC enforces similar prohibitions
and provides compliance assistance under its existing general
authorities.
CBO estimates that enacting H.R. 5111 would increase
federal revenues from the new authority to collect civil
penalties; therefore, pay-as-you-go procedures apply. However,
CBO estimates those collections would be insignificant because
of the small number of cases that the agency would probably
pursue. CBO estimates that enacting the bill would not affect
direct spending.
CBO estimates that enacting H.R. 5111 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2027.
H.R. 5111 contains no intergovernmental mandates as defined
in Unfunded Mandates Reform Act (UMRA) and would not affect the
budgets of state, local, or tribal governments.
Although the FTC has begun to enforce prohibitions on
contract provisions similar to those outlined in the bill under
its existing authorities, to the extent that such provisions
are not currently considered void in all jurisdictions, the
bill would impose a private-sector mandate as defined in UMRA
on entities that use such provisions in their contracts. The
cost of the mandate would be the value of forgone income from
out-of-court settlements and compensation for damages the
entities could be awarded under a breach of contract claim.
However, reliable and comprehensive information concerning the
number of businesses that continue to use contracts containing
such provisions, the number of those contracts that impose a
monetary payment as a penalty, and the level of any such
payments is not available. In addition, although the court
cases in which consumers have challenged these provisions have
resulted in judgments in favor of the consumer, the limited
sample of such cases cannot be used to generalize about the
results of such cases in other jurisdictions. Therefore, CBO
cannot determine whether the cost of the mandate would exceed
the annual threshold established in UMRA for private-sector
mandates ($154 million in 2016, adjusted annually for
inflation).
On December 9, 2015, CBO transmitted a cost estimate for S.
2044, the Consumer Review Freedom Act of 2015, as reported by
the Senate Committee on Commerce, Science, and Transportation
on November 18, 2015. The two pieces of legislation are similar
and CBO's estimates of their budgetary effects are the same.
The CBO staff contacts for this estimate are Stephen Rabent
(for federal costs) and Logan Smith (for the impact on the
private sector). The estimate was approved by Theresa Gullo,
Assistant Director for Budget Analysis.
FEDERAL MANDATES STATEMENT
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
DUPLICATION OF FEDERAL PROGRAMS
No provision of H.R. 5111 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
DISCLOSURE OF DIRECTED RULE MAKINGS
The Committee estimates that enacting H.R. 5111
specifically directs to be completed no rulemakings within the
meaning of 5 U.S.C. 551.
ADVISORY COMMITTEE STATEMENT
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
APPLICABILITY TO LEGISLATIVE BRANCH
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION
Section 1. Short title
Section 1 provides that the Act may be cited as the
``Consumer Review Fairness Act of 2016.''
Section 2. Consumer review protection
This section voids form contract provisions that prohibit
or restrict an individual who is a party to the form contract
from engaging in a covered communication, impose a penalty or
fee against such an individual for engaging in covered
communications, or require the transfer of intellectual
property rights--except for non-exclusive licenses--in review
or feedback content.
This section does not affect any duty of confidentiality
imposed by law; any civil cause of action for defamation,
libel, or slander, or similar cause of action; any party's
right to remove or refuse to display on an Internet website or
webpage controlled by such party content of a covered
communication, including content that contains personal
information or likeness of a person or is libelous, harassing,
abusive, obscene, vulgar, sexually explicit, or is
inappropriate with respect to race, gender, sexuality,
ethnicity, or other intrinsic characteristic; is unrelated to
the goods or services available on such Internet website or
webpage; or is clearly false or misleading. This section does
not affect a party's right to establish terms and conditions
for content creation by an employee or independent contractor
of a commercial entity in certain circumstances.
This section shall not apply to a provision of a form
contract that prohibits disclosure or submission of, or
reserves the right of a person or business that hosts online
consumer reviews or comments, to remove trade secrets or
commercial or financial information considered privileged or
confidential; personnel and medical files; records compiled for
law enforcement purposes; unlawful content; and computer
viruses, worms, or other potentially damaging code, processes,
programs, applications, or files.
This section outlines the enforcement responsibilities of
the FTC, State attorneys general, and consumer protection
officials. This section also outlines venue and service of
process requirements.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
This legislation does not amend any existing Federal
statute.
[all]