2017 Update: Federal politicians passed the Consumer Review Fairness Act, which outlaws online defamation gag clauses.

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?

Let’s review.

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, and public lie telling.

Some people 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).

In other words, don’t use gag clauses to prevent negative online reviews.

Some people try to use clauses to prevent negative online reviews, but it typically backfires – especially if the language is hyper-aggressive.

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?

Talk to a lawyer. (“Yeah, right – you’re just saying that because your law firm 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?)

Gag Clause Case Study

FTC Sues Weight Loss Product Company Over Gag Clause

Recently, the Federal Trade Commission targeted a weight loss supplement company (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 review compensations; 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 WLC’s weight loss powder included the following phrase:

“Regardless of your personal experience with [WLC], you will not disparage [WLC] 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.

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” included 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; 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 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.

Contacts & Further Reading

To avoid a run in with the Federal Trade Commission, work with an advertising and marketing lawyer. 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 affecting 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. Adding egregious clauses to consumer contracts isn’t a wise move.

Article Sources

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