It’s often easier to learn from bad examples than from good ones. Sometimes we learn best when seeing what not to do, instead of what to do. This applies across all aspects of life, from relationships to parenting, and especially to business.
This post is about one way not to manage your business’ reputation. That is, unless you want the Federal Trade Commission knocking on your door. Which probably isn’t in the best interests of your company. I take it as a given that you are already actively managing your business’ reputation online. If not, I humbly suggest you start.
The Gag Clause
One of the worst ways to actively manage your reputation is through the use of gag clauses, also known as non-disparagement clauses. These are contract stipulations that threaten legal or other punitive action against a customer if they make negative comments about a business’ services or products after they have tried them.
That’s right, some businesses actually threaten to sue their own customers. According to the Better Business Bureau, the increase in review websites has caused an increased use of these clauses. But seeking to protect your reputation by stifling truthful reviews from your customers can backfire in a big way.
The Obligatory Side-Bar
In the spirit of full disclosure, I work for the FTC and am a co-founder of the company on who’s blog this is posted. I sought and received ethical clearance before joining this venture and I am obligated to recuse myself from any matters where there could be any conflict of interest. This blog post is written in my business capacity and does not in any way represent the FTC. I was not involved in the matter discussed nor do I have any inside information. With that lawyerly side-bar out of the way, on to the matter at hand.
The Set Up
Roca Labs is a supplement company that sells a “non-surgical gastric bypass” weight-loss product. According to the company, its product curbs food cravings in a similar manner as if someone had received gastric bypass.
Roca Labs was sued by the FTC for unfair and deceptive trade practices for making deceptive weight-loss claims. The interesting thing though, is that they were also sued for enforcing gag clauses that appeared in their terms and conditions.
Roca Labs’ Terms and Conditions prohibited customers from making any negative comments about Roca Labs or their products or services on “all forms of media, including and especially the internet.” Clearly, Roca Labs knew how harmful negative online reviews can be.
The Clause in Practice
Roca Labs sought to limit all negative reviews, even truthful ones. This is evidenced by part of their clause which stated they could sue “regardless of [the customer’s] personal experience.” Posting a truthful, yet negative, online review would mean a customer would face a number of different repercussions.
If customers disclosed their negative personal experiences they faced threats of legal action, actual litigation, and/or charges for “the full retail price” of purchased products. According to the FTC’s lawsuit, the “full retail price” of Roca Labs’ weight-loss products would trigger a price increase from $480 to $1580. This has the effect of charging a customer $1,100 for posting about his or her negative experience.
Roca Labs’ stated reason for the gag clause was “to prevent one person ruining it for everyone.” The FTC saw it a bit differently.
The FTC’s Side of the Story
According to the FTC, by restricting truthful reviews and testimonials, Roca Labs was restricting the amount of reliable information available to consumers. Which means prospective customers would not be able to see the whole picture of real customers’ experiences with Roca Labs’ products.
By depriving the marketplace of honest reviews, the FTC argued that some customers may have purchased the weight loss system that, had they known about others’ negative experiences, would not have purchased the products. This resulted in substantial consumer injury which also violated the FTC Act.
The FTC wasn’t the only party concerned about Roca Lab’s practice of gagging its customers.
Yelp, along with two other companies, filed an amicus brief. Amicus curiae, translated means “friend of the court.” An amicus brief is a brief filed by an interested party that is not an actual party to the case. This rarely ever happens in district court, but it is excellent evidence that demonstrates how important legitimacy, honesty, and accuracy of reviews are to review sites.
Yelp made a number of different arguments, including the go-to free speech argument, but also pointed out applicable state laws that outlaw gag clauses (California and New York according to the brief), and from a public interest perspective. Yelp also drew attention to Congressional bills that would outlaw gag clauses. One of which specifically listed gag clauses as a violation of the FTC Act.
In the end, Roca Labs and the FTC settled. This means that Roca Labs did not have to admit liability and there is not a legal ruling finding that gag clauses violate the FTC Act. It does, however, show that the FTC takes the suppression of honest reviews seriously and is willing to throw its weight against companies that try to manage their reviews through the use of gag clauses.
Not only are gag clauses potentially illegal, but they can also produce a much larger PR problem, as the Union Street Guest House found out. Stay tuned to this blog to find out what happened to them.
There are right ways and wrong ways to help your business’ online reputation. Gagging your customers certainly isn’t one of them. To find out how RenegadeWorks can help you manage your online reputation, visit us here or schedule a demo here.
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