Are contractual “defamation clauses” – a.k.a. “gag clauses”—acceptable? Legally enforceable? Can you sneak them into customer agreements in an attempt to mitigate bad online reviews?
Using Gag Clauses To Prevent Negative Online Reviews Can Backfire – Badly.
If you asked ten U.S. citizens, “What’s the cornerstone of American law,” nine of them might say, “Free speech!” And it’s a solid answer — which is why contractual consumer gag clauses are short sided. Not only is it an affront to the Constitution, but doing so will probably land you a boatload of viral, negative press.
Not All Gag Clauses Are An Assault On Free Speech…
To be clear: not all gag clauses are a spit in the face of freedom. Many contractual articles, which demand confidentiality, are perfectly fine – if not commonplace.
You may be thinking, “WTF!? How is that possible!? What happened to free speech?”
Fair question. But here’s the crux: confidentiality is the focal point of many agreements. To wit, celebrities regularly make employees sign privacy contracts – a type of “gag clause.” Commonly, startups and businesses require employees to sign non-disclosure agreements to protect corporate secrets.
…But Some Are
So, we’ve established that not all gag clauses are the work of a freedom-hating baddie. But, some contracts do cross a Constitutional line.
When online reviews became de rigueur, businesses and professionals started stuffing gag clauses into service contracts. But the practice quickly backfired. Netizens took to the Internet and shout-typed outrage over agreements that prohibited negative online reviews. In short order, lawyers who previously advocated for restrained gag clauses began advising against their use.
When Free Speech Crosses The Legal Line
It’s never OK to ban legitimate free speech, but there are legal limits – like defamation. In laymen’s terms, defamation (libel if written; slander if spoken) is purposefully negligent, harmful public lie telling.
As previously discussed, some people try to use gag clauses to prevent negative online reviews, but it typically backfires – especially if the language is hyper-aggressive.
Moreover, time and again, courts have established that the Constitution (and case law) rarely allows for “prior restraint.” In other words, it’s fine to punish a person, post-facto, for committing an act of slander or libel; however, trying to hush someone – before anything untoward actually happens – is contrary to established legal standards (except in certain circumstances, which usually involve commerce and employment). Or, in other words, it’s not kosher to use gag clauses to prevent negative online reviews — if said reviews are honest.
Some people try to use clauses to prevent negative online reviews, but it typically backfires – especially if the language is hyper-aggressive.
So, Then What Can Business Owners Do About Difficult Clients Who Litter The Web With Negative Reviews?
So, what’s an honest business owner to do when faced with a testy, ranting client? A client that embellishes the truth, but doesn’t, exactly, tell a bold-faced lie?
It stinks, but businesses must contend with client-induced reputational challenges all the time. In reality, the best thing to do is talk to a lawyer. (“Yeah, right – you’re just saying that because your law firm that handles this type of issue,” you protest. Yes, we’re a law firm that helps clients with reputation issues. But think of it this way: would you want a dentist to operate on your spleen? The same logic applies here.)
Gag Clause Case Study
FTC Sues Weight Loss Product Company Over Gag Clause
Recently, the Federal Trade Commission targeted a weight loss supplement company (for this article, we’ll call the company “WLC”) for “unfair and deceptive” marketing. As the nation’s consumer watchdog, the FTC punishes parties that use underhanded methods to market and promote. In fancy FTC language:
“[The FTC goes after businesses that] cause substantial injury to consumers that is not reasonably avoidable by consumers and that is not outweighed by countervailing benefits to consumers or competition.”
Specifically, the case against “WLC” involves accusations of:
- False and unsubstantiated claims;
- Unconstitutional prior restraint;
- Failure to disclose that some positive reviews were penned by people who were in some way compensated; and
- Possibly violating HIPPA restrictions by inadvertently disclosing health information to banks and payment processors.
The “Gag Clause” That Had People Seeing Red
The terms of purchase agreement for WL’s weight loss powder included the following phrase:
“Regardless of your personal experience with [WL], you will not disparage [WL] and or any of its employees, products or services.”
In other words: Even if you don’t like the product, you’re barred from saying anything bad about “WLC” – anywhere.
The Defamation Clause Deemed Unacceptable by the FTC
Typically, businesses fall under the FTC’s scope for:
- Making false claims about a product’s effectiveness.
- Fabricating “studies” that unfairly sway public perception.
- Engaging in negative option marketing.
- Not disclosing “discount for feedback” initiatives (i.e., giving away free samples, money or discounts for writing reviews).
- Deceptive billing.
FTC Rejects Gag Clause Explanation
Ostensibly, “WLC” opted to include a defamation gag clause in its user contract. But the FTC said, “Nah-ah,” which isn’t surprising since the agency has traditionally kept a close eye on supplement manufacturers and marketers. Moreover, the clause included a damning phrase: “regardless of your personal experience with [WLC],” which probably tipped the legal scale. For it’s one thing to warn against defamation, but another to threaten against free speech.
Free Contracts, Which Can Be Found Online, May Invite An FTC Investigation
In the resultant case, the nation’s consumer watchdog deemed the company’s defamation clause “unfair and deceptive.”
So, how can businesses can guard against “unfair and deceptive” clients? By working with a lawyer who creates practical and protective arrangements that won’t attract the FTC’s watchful eye.
If you use a free online contract, the consequences could be dreadful. Why? Because freebie agreements usually aren’t as comprehensive as they can — and should — be. Sometimes, they include sneaky clauses that work against businesses.
A Lawyer Can Fix It
The Federal Trade Commission estimates that “WLC” made about $20 million over the past five years. But if the company loses this case, that figure could evaporate because the FTC has the authority to fine…heavily. In some instances, the commission can even go after family members’ assets; the agency can even confiscate fur coats, boats, watches and homes.
To avoid a run in with the Federal Trade Commission over unfair and deceptive marketing practices, work with an Internet marketing lawyer. The attorneys at Kelly Warner have been practicing online marketing law for a long time. Partner Daniel Warner is an astonishingly effective litigator, and Aaron Kelly – the other named partner, enjoys a 10-out-of-10 rating on lawyer review website AVVO.com. Kelly also maintains a preeminent rating with venerated attorney assessment group Martindale-Hubbell.
To learn more about Kelly Warner, click here. To read more about other FTC cases and legal issues that affect today’s marketplace, head here. If you are currently dealing with an FTC investigation or inquiry, get an attorney. Going it alone could result in an avoidable — and unfavorable — business-crushing fine. Besides, hiring a lawyer to help with marketing initiatives may be a lot less costly than you think – and could ultimately save you a small fortune. Don’t wait. Get in touch today.
The Takeaway: In the United States, home to the world’s most free-speech-friendly constitution, using gag clauses to prevent negative online reviews is tantamount to a criminal act in the minds of many people. And adding egregious clauses to consumer contracts isn’t a wise move, as they’re becoming more and more ineffectual in the eyes of judges.
Trujillo, M. (2015, September 28). FTC sues weight-loss company for online ‘gag clause’ Retrieved January 12, 2016, from http://thehill.com/policy/technology/255130-ftc-sues-weight-loss-company-over-online-gag-clause
Dietary Supplement Law: Summary of The FTC’s Marketing Crackdown
The Federal Trade Commission (FTC), in conjunction with several government offices and agencies, executed a year-long dietary supplement law crackdown. The targets? Manufacturers and marketers suspected of flouting guidelines. Regulators investigated about 120 parties, resulting in 89 lawsuits, in 18 states.
Or, to put it bluntly: The FTC sanctioned marketers caught peddling sketchy weight loss and “miracle” drugs.
A spokesperson explained:
The crackdown serves as a warning to dietary supplement manufacturers and marketers.
Do you want to be on the FTC’s radar? Didn’t think so. So, if you’re involved in the promotion of weight loss or health supplements, now is the time to invest in a marketing compliance review. Either read up on the latest rules and regulations or you own, or, enlist a marketing attorney to conduct a thorough analysis.
Dietary Supplement Law: Details About The FTC’s Marketing Crackdown
What federal, state, and quasi-governmental agencies participated in the dietary supplement law crackdown?
- The Federal Trade Commission
- The Food and Drug Administration
- The Internal Revenue Service
- Various criminal investigation units
- The Department of Defense
- The United States Postal Inspection Service
- United States Anti-Doping Agency
What charges were brought against the dietary supplement manufacturers and marketers?
- Improper Labeling: Some of the products supposedly contained ingredients that weren’t listed on the packaging.
- Improper Benefit Claims: Several of the marketing materials allegedly included unsubstantiated and scientifically unsupported claims. Some of the cases involved the use of promotional language that promised to help cure cancer, arthritis, herpes, opiate addiction, and Alzheimer’s. Government officials also targeted marketers for publishing outrageous weight loss claims like *shed five pounds in four days with one pill, or up to 20 pounds in 16 days with four pills.*
- Improper Financial Practices: Some of the targeted parties were brought up on “obstruction of an FDA proceeding” and “conspiracy to commit money laundering” charges.
- Improper Disclosures: Several of the indicted parties allegedly knew about studies that linked their products to liver toxicity, but failed to include disclaimers.
- Improper Manufacturing: A few of the businesses and marketers caught in the sting supposedly used false certificates of analysis and questionable labeling; plus, a few parties allegedly lied about ingredients, claiming the products used natural plant extracts…but “natural” turned out to be a synthetic invention, courtesy of a Chinese factory.
- Improper Testing: Several of the pursued businesses allegedly sold and marketed dietary supplements without first determining the safety of their products.
- Recidivism: At least one of the targeted parties was allegedly given fair warning to stop sales on one of their products. But according to reports, instead of complying, the company executives purportedly engaged in a “surreptitious, all-hands-on-deck effort to sell as much” of the product “as quickly as possible.”
What Consequences Did the “Busted” Parties Face?
- Asset Seizures: Not only did some of the affected parties lose dozens of investment accounts, but they also lost real estate, luxury goods, and sports cars.
- Bans and Promises: Presumably, the guilty parties will – if they haven’t already –be made to sign promissory agreements pledging to rebuke “unfair and deceptive marketing” in the future.
If you’re in the business of manufacturing or marketing dietary supplements, check out the resources below.
- An FTC-approved infographic: http://www.consumer.ftc.gov/articles/0538-dietary-supplement-ads-infographic
- Chart of over 100 products that have been found to contain hidden ingredients – http://www.accessdata.fda.gov/scripts/sda/sdNavigation.cfm?sd=tainted_supplements_cder&displayAll=false&page=6 (Previously Published)
- The Uniformed Services University of the Health Sciences’ Consortium for Health and Military Performance partnered with USADA to create an interactive educational module called “Get the Scoop on Supplements: Realize, Recognize, and Reduce Your Risk.” They also developed two mobile applications: the HPRC’s Operation Supplement Safety (OPSS) High-Risk Supplement List mobile application and USADA’s Supplement 411 mobile application.
Speak To A Dietary Supplement Marketing Attorney
Kelly Warner is an Internet law firm that regularly works with entrepreneurs in the supplement marketing space. We’ve helped businesses and FBA sellers escape tight jams. Our attorneys frequently conduct compliance reviews for marketers and e-commerce retailers.
When you’re ready, get in touch. We look forward to working with you soon.