“Gag” Clauses in Consumer Contracts Silence Speech and Undermine Digital Marketplaces; ITIF Urges Congress to Prohibit Them

November 4, 2015

WASHINGTON—Businesses that slip non-disparagement clauses into their consumer contracts are silencing critical public feedback and undermining a key aspect of the digital economy, argued Information Technology and Innovation Foundation (ITIF) President Robert Atkinson in testimony today before the Senate Commerce Committee. Given the negative impact of these so-called “gag” clauses for both customers and businesses, Atkinson urged Congress to pass the bipartisan Consumer Review Freedom Act of 2015, which would prohibit them.

“Some businesses are using non-disparagement clauses to unfairly silence critics,” said Atkinson. “Most consumers sign these agreements without noticing they effectively prohibit posting any negative comments on sites like Yelp or Angie’s List. Gag clauses are typically buried deep in non-negotiable contracts or even in websites’ terms of service, so consumers don’t have a reasonable opportunity to negotiate or refuse to accept the conditions. Only later—when they are slapped with a demand that they take down a negative review or face legal action and potentially hefty monetary damages—do people realize what they have unwittingly agreed to.”

Atkinson argued that these clauses impinge free speech and undermine digital marketplaces in ways that hurt both consumers and businesses themselves. “One of the defining benefits of the digital economy is the ‘wisdom of the crowd.’ Reviews create a virtuous feedback loop: When consumers review something they’ve bought, other consumers benefit from their experience and can take their feedback into consideration when they shop. Companies can use that market data to improve their products or services—and then, when they improve poorly reviewed features or add new ones, consumers can provide new reviews. Limiting these reviews to only positive feedback significantly reduces the benefits of this process.”

To safeguard free speech and prevent damage to the digital marketplace, Atkinson urged Congress to pass the bipartisan Consumer Review Freedom Act of 2015, which would:

-Void anti-disparagement clauses in consumer contracts if they restrict consumers from publicly reviewing products or businesses in good faith; and

-Authorize the Federal Trade Commission to take action against businesses that insert these provisions into their contracts for engaging in unfair and deceptive practices.

“Protecting people’s speech is important first and foremost as a First Amendment issue,” Atkinson said. “Protecting legitimate complaints or criticisms is especially necessary to ensure that online markets function efficiently. Consumers need access to unbiased feedback about products and services when they research a purchase. Congress should step in to create a baseline of protection for all citizens’ basic rights to freedom of expression in the digital marketplace. Notably this legislation strikes the right balance because it would in no way limit companies from taking legal action against individuals who post false and defamatory reviews.”

Read Atkinson’s full testimony.