Watch Out Consumers, Free Speech May Cost You

A new trend in corporate contracts could silence negative reviews and harm review based websites.

Mar 20, 2014 at 11:22PM

The ability to write reviews of products and tell others about our experiences with companies is something most of us take for granted. In response, a new industry of companies that allow consumers to publish reviews has grown up as mass consumer opinion finds its way online. But a new trend in corporate contracts could be coming to a company near you.

Like or be quiet
The First Amendment is the most clearly defined way that Americans are guaranteed the right to free speech, and similar protections exist in pretty much every other democracy in the world. However, free speech, as defined by the government, usually serves to protect citizens from government-led suppression of free speech.

A new trend is emerging where private companies are seeking to control what their customers say through non-disparagement clauses. Now, buried within the contracts of certain companies, is a clause that bars the consumer from saying negative things about the company or product, even if such a review is 100% true.

One example that grabbed public attention was the dispute between a Utah couple and an online retailer called KlearGear. In 2008, the couple wrote a negative review of KlearGear on RipoffReport saying their order never arrived and was subsequently cancelled. Three years later, KlearGear, citing a non-disparagement clause, told the couple they would be fined $3,500 unless the review was removed. When the couple didn't comply, KlearGear reported the $3,500 as an unpaid debt to credit agencies, damaging the couple's credit score.

More recently, Businessweek reports that KlearGear finds itself on the opposite side of the situation, as consumer group Public Citizen is suing the online retailer over its practices in relation to the Fair Credit Reporting Act. But that doesn't mean non-disparagement clauses are gone; not by a long shot.

One-stop review shops
Websites like Yelp (NYSE:YELP), TripAdvisor (NASDAQ:TRIP), and Angie's List (NASDAQ:ANGI) thrive on the basis that consumers, satisfied and unsatisfied, will go online to make their voices heard. Despite instances of fake reviews and the occasional person who just wants to cause problems, these websites have become treasure troves of information for consumers looking for first-hand reviews of products, services, and companies.

But despite the backlash over the KlearGear situation, non-disparagement clauses have yet to be deemed unenforceable. For consumers and review-based websites alike, non-disparagement clauses in the context of company-to-customer sales are a major threat to getting a clear picture of the actual record of a business. If the assumption that online reviews can provide a legitimate composite review of a business disappears, websites like Yelp, TripAdvisor, and Angie's List could find themselves in big trouble.

Contagion?
In many cases, there's nothing companies would like to do more than silence their least-satisfied, or even just less-than-satisfied customers. Right now, the use of non-disparagement clauses in this context only finds itself applied at a select few companies.

But looking at another corporate contract situation that has changed company-to-consumer relationships, the possibility of non-disparagement clauses spreading cannot be ruled out. Back in the 1990s, few people would have said that they would willingly sign away their right to sue in court. However, during the course of the next two decades, mandatory arbitration clauses found their way into everything from cell phone contracts to credit card agreements.

Today, mandatory arbitration is a common piece of company to consumer contracts; yet it found its way in there without many consumers realizing it. To this day, the first time many consumers hear that their right to sue has been signed away is when the company informs them of a mandatory arbitration clause.

Silencing the reviews
Non-disparagement clauses being used to silence negative reviews from dissatisfied consumers may sound like the Orwellian version of corporate contracts, but these clauses exist now, and some companies are trying to enforce them.

The court battles that will decide to what extent these clauses can be enforced will probably continue for some time. In the meantime, consumers should pay attention to what rights they are signing away, and consider alternative businesses if the contract they're looking at contains a non-disparagement clause.

Lastly, if you're against the use of these clauses in company-to-consumer contracts, let your elected officials know you want them to take action on this issue. By reading our contracts, taking our business elsewhere, and telling those who represent us in government that we want restrictions placed on the usage of non-disparagement clauses, consumers and investors can protect their ability to give honest reviews about products and companies.

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Alexander MacLennan has no position in any stocks mentioned. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool recommends TripAdvisor and Yelp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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