Gag clause prohibiting bad reviews backfires on weight-loss product suppliers

Law professor Eric Goldman reports about a case from last week in which the suppliers of a weight-loss food product included a “thou shalt not post any neg­ative reviews” gag clause in their contracts with consumers. The Fed­eral Trade Commission sued the suppliers on grounds that the gag clause (plus other practices) were unfair, in violation of section 5 of the FTC Act. Last Fri­day a federal district court in Florida granted summary judgment against the sup­pliers, awarding the FTC a permanent injunction and disgorgement of the suppliers’ gross receipts minus refunds — with the suppliers’ owners to be per­sonally liable — in an amount to be determined.  FTC v. Roca Labs, Inc., No. 8:15-cv-2231-T-35TBM, slip op. (M.D. Fla. Sept. 14, 2018).

The gag clause does seem pretty obnoxious, judging by the court’s summary:

Since at least September 2012, Defendants have included a non-dis­par­age­ment clause, also known as a “gag clause,” in the Terms and Conditions that prohibited customers from publishing disparaging comments about Roca Labs products. The Terms and Conditions also indicated that the pur­ch­ase price [which was $480 with “valid insurance,” $640 otherwise] was “con­­di­tional,” “dis­count­ed,” or “subsidized” in exchange for the customer’s agree­ment to the gag clause and other provisions in the Terms and Con­di­tions. The Terms and Conditions stated that the purchaser agrees to pay the full price of the product, $1,580.00, if the purchaser breached the gag clause.

In the September 2012 version, the Terms and Conditions stated that cus­tom­ers would have to compensate Defendants $100,000 for talking “badly about the Formula.” In the August 2014 version of the Terms and Con­di­tions, customers were sub­ject to being sued for an injunction and being billed $3,500.00 for legal fees and court costs for publishing any negative com­ments about the De­fend­ants’ products, services, or employees.

That version also provided that Defendants could force purchasers to sign a notarized affidavit stating that the disparaging remarks were incorrect, con­­tained factually incorrect material, and breached the Terms and Conditions.

Slip op. at 7-8 (extra paragraphing added).

As Eric points out in a law-review article, Congress passed the Consumer Re­view Fairness Act of 2016; “[a]s the House Report explains, the law seeks ‘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.’ By doing so, the CRFA helps advance the effective functioning of marketplaces.”