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                                                      Calendar No. 316
114th Congress      }                                   {       Report
                                 SENATE
 1st Session        }                                   {      114-175 
_______________________________________________________________________

                                     

                       


                  CONSUMER REVIEW FREEDOM ACT OF 2015

                               __________

                              R E P O R T

                                 of the

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                                   on

                                S. 2044

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                December 8, 2015.--Ordered to be printed
                
                                   ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

59-010                         WASHINGTON : 2015                 
                
                
                
                
                
                
                
                
                
                
                
                
       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
                    one hundred fourteenth congress
                             first session

                   JOHN THUNE, South Dakota, Chairman
 ROGER F. WICKER, Mississippi         BILL NELSON, Florida
 ROY BLUNT, Missouri                  MARIA CANTWELL, Washington
 MARCO RUBIO, Florida                 CLAIRE McCASKILL, Missouri
 KELLY AYOTTE, New Hampshire          AMY KLOBUCHAR, Minnesota
 TED CRUZ, Texas                      RICHARD BLUMENTHAL, Connecticut
 DEB FISCHER, Nebraska                BRIAN SCHATZ, Hawaii
 JERRY MORAN, Kansas                  ED MARKEY, Massachusetts
 DAN SULLIVAN, Alaska                 CORY BOOKER, New Jersey
 RON JOHNSON, Wisconsin               TOM UDALL, New Mexico
 DEAN HELLER, Nevada                  JOE MANCHIN, West Virginia
 CORY GARDNER, Colorado               GARY PETERS, Michigan
 STEVE DAINES, Montana
                    David Schwietert, Staff Director
                   Nick Rossi, Deputy Staff Director
                    Rebecca Seidel, General Counsel
                 Kim Lipsky, Democratic Staff Director
           Christopher Day, Democratic Deputy Staff Director
                 Clint Odom, Democratic General Counsel
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                                                      Calendar No. 316
114th Congress      }                                   {       Report
                                 SENATE
 1st Session        }                                   {      114-175

======================================================================



 
                  CONSUMER REVIEW FREEDOM ACT OF 2015

                                _______
                                

                December 8, 2015.--Ordered to be printed

                                _______
                                

Mr. Thune, from the Committee on Commerce, Science, and Transportation, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2044]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 2044) to prohibit the use of 
certain clauses in form contracts that restrict the ability of 
a consumer to communicate regarding the goods or services 
offered in interstate commerce that were the subject of the 
contract, and for other purposes, having considered the same, 
reports favorably thereon with an amendment (in the nature of a 
substitute) and recommends that the bill (as amended) do pass.

                          Purpose of the Bill

    The purpose of S. 2044, the Consumer Review Freedom Act of 
2015, is to prohibit the use of certain clauses in form 
contracts that restrict the ability of a consumer to 
communicate regarding the goods or services offered in 
interstate commerce that were the subject of the contract, and 
for other purposes.

                          Background and Needs

    Consumers increasingly rely on websites and other platforms 
that allow consumers to share information about goods and 
services and, as a result, to benefit from the experiences of 
others. In particular, consumer reviews have become a powerful 
informational tool because consumers place a high value on the 
truthful reviews of other consumers. As a result, businesses 
are at times frustrated by what they perceive as unfair 
criticism and some have turned to questionable legal remedies 
in an effort to protect their reputations, including non-
negotiable terms in form contracts that prohibit consumers from 
publicly ``disparaging'' a business. Such clauses go beyond 
protecting businesses from defamation because they also 
restrict or bar truthful statements, often by imposing 
financial penalties if the provision is violated. For example, 
one online retailer assessed a penalty of $3,500 against a 
consumer for a truthful, yet negative, review. When the 
consumer refused to pay the penalty, the online retailer 
reported the penalty as a ``debt'' to credit agencies. Another 
online retailer prohibited consumers from even proposing to 
make negative public statements about the retailer. When one 
consumer did not receive her order from the online retailer, 
she informed the retailer she would contact her credit card 
company. In response, the retailer demanded the consumer pay 
$250 for violation of the company's terms of sale.
    The consequences of these non-disparagement clauses are far 
ranging. Penalties and lawsuits that emanate from non-
disparagement clauses stifle the speech of consumers, and thus 
interstate commerce, by not permitting fair criticism of a 
business even when that feedback is an honest reflection of 
consumers' experiences. Non-disparagement clauses also distort 
public reviews of a business because that business may receive 
more positive feedback than warranted, thus harming consumers 
who rely on such reviews.

                         Summary of Provisions

    S. 2044 would invalidate non-disparagement clauses in form 
contracts and make it unlawful for a person to offer or enter 
into a contract containing a non-negotiable non-disparagement 
clause as defined in the legislation. Violation of the 
legislation would be treated as an unfair or deceptive act or 
practice under the Federal Trade Commission Act (FTC Act, 15 
U.S.C. 41 et seq.). The legislation would provide a rule of 
construction and three exceptions that limit the reach of the 
statute. For example, S. 2044 would not limit the ability of a 
person or business to file a civil action for defamation, 
libel, slander, or any similar cause of action under State law.
    Under the legislation, the Federal Trade Commission (FTC) 
and State attorneys general would have enforcement authority. 
State attorneys general are precluded from State enforcement 
actions under the legislation during the pendency of FTC 
enforcement. State attorneys general would also be required to 
notify the FTC in writing when they bring civil actions under 
the statute.
    It is the intention of the Committee that enforcement of 
the statute be focused on businesses or individuals imposing 
the non-disparagement clause on consumers.

                          Legislative History

    On September 16, 2015, Chairman Thune, along with Senators 
Schatz and Moran, introduced the Consumer Review Freedom Act of 
2015 (S. 2044). The legislation is co-sponsored by Ranking 
Member Nelson and Senators Blumenthal, McCaskill, Daines, and 
Booker. Similar legislation was introduced in the House of 
Representatives by Congressman Issa on April 29, 2015 (H.R. 
2110).
    On November 4, 2015, the Committee held a hearing entitled 
``Zero Stars: How Gagging Honest Reviews Harms Consumers and 
the Economy.'' The Committee received compelling testimony 
about the impact of non-disparagement clauses in form contracts 
and the need for S. 2044. Witnesses testified that non-
disparagement clauses have been used in many industries, 
including health care, retail, and hospitality. One witness 
estimated that over 1 million Americans signed non-
disparagement clauses due to a form contract that was used in 
the health industry. The Committee received testimony that one 
State, California, has enacted a law to bar such clauses in 
non-negotiable form contracts. The Committee also learned that 
the FTC has brought an enforcement action against one company, 
alleging, inter alia, that the firm's threats to enforce a gag 
provision against consumers to stop them from posting negative 
reviews and testimonials online constitute an unfair trade 
practice in violation of section 5 of the FTC Act. In some 
cases, judges have refused to enforce non-disparagement clauses 
in form contracts usually on the grounds of unconscionability. 
Despite the persuasive rationale of such decisions, however, 
the legality of such clauses remains murky. Therefore, S. 2044 
is necessary to eliminate any ambiguity over the enforceability 
of non-disparagement clauses.
    On November 18, 2015, the Committee held an Executive 
Session, during which S. 2044 was considered. Chairman Thune 
offered a substitute amendment to S. 2044. During the Executive 
Session, the Committee ordered by voice vote that S. 2044, as 
amended, be favorably reported with an amendment in the nature 
of a substitute.

                            Estimated Costs

    In compliance with subsection (a)(3) of paragraph 11 of 
rule XXVI of the Standing Rules of the Senate, the Committee 
states that, in its opinion, it is necessary to dispense with 
the requirements of paragraphs (1) and (2) of that subsection 
in order to expedite the business of the Senate.

                           Regulatory Impact

    In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported:

                       number of persons covered

    The bill would affect parties to a form contract used in 
the course of selling or leasing a person's goods or services. 
Because the bill would invalidate non-disparagement clauses in 
form contracts and would make it unlawful for a person to enter 
into a contract containing a non-disparagement clause, as 
defined in the legislation, millions of consumers could be 
protected under the bill. S. 2044 would not authorize any new 
regulations and therefore would not subject any individuals or 
businesses to new regulations.

                            economic impact

    This legislation would not have an adverse economic impact 
on the Nation. The bill would promote consumer protection by 
making certain non-disparagement clauses unlawful, thus 
allowing consumers to make better informed decisions when 
procuring goods and services, and rewarding companies that 
offer quality goods and services.

                                privacy

    The bill would not have any adverse impact on the personal 
privacy of individuals.

                               paperwork

    The Committee does not anticipate a major increase in 
paperwork burdens resulting from the passage of this 
legilsation.

                   Congressionally Directed Spending

    In compliance with paragraph 4(b) of rule XLIV of the 
Standing Rules of the Senate, the Committee provides that no 
provisions contained in the bill, as reported, meet the 
definition of congressionally directed spending items under the 
rule.

                      Section-by-Section Analysis


Section 1. Short title.

    Section 1 would designate the short title of this Act as 
the ``Consumer Review Freedom Act of 2015.''

Section 2. Consumer review protection.

    Section 2(a) of this bill would provide definitions for 
this section.
    Section 2(b) would invalidate non-disparagement clauses in 
standardized form contracts where the terms are imposed on an 
individual without a meaningful opportunity for the individual 
to negotiate such terms, including provisions that seek to 
impose a penalty or fee on a consumer for engaging in a covered 
communication section 2(b)(1)(B)) or that seek to transfer 
intellectual property rights an individual may have in a 
covered communication section 2(b)(1)(C). The latter 
prohibition prevents consumers from being accused of copyright 
infringement or similar violations simply for sharing their own 
communications.
    The substitute amendment, as modified, that was favorably 
reported by the Committee provided a narrow exception to 
section 2(b)(1)(C) that would permit a party to a form contract 
to use the content of a review pursuant to a non-exclusive 
license. For example, under this exception a website owner may 
lawfully include in its terms and conditions a non-exclusive 
license to a comment left on the owner's website and use the 
content for marketing purposes.
    Section 2(b)(2) would clarify that the bill should not be 
construed to affect: (1) any duty of confidentiality imposed by 
law; or (2) actions for defamation, libel, slander, or similar 
causes for action. The aforementioned substitute amendment 
would further clarify that the bill should not be construed to 
affect: (1) removal by a website owner of a review that is 
libelous, abusive, obscene, vulgar, or sexually explicit, among 
other factors; or (2) the ability of a property owner to 
restrict photography and videography on its premises used by 
commercial entities for solely commercial purposes.
    Section 2(b)(3) would provide that the ban on non-
disparagement clauses does not apply to the extent a provision 
in a form contract prohibits disclosure of: (1) trade secrets 
or financial information; (2) personnel and medical files that 
would constitute a clearly unwarranted invasion of personal 
privacy; and (3) law enforcement records that would constitute 
a clearly unwarranted invasion of personal privacy. It is the 
intention of the Committee that a website owner or operator may 
remove content from its website that is unlawful, whether by 
statute, regulation, requirement, standard, or other provision 
having the force or effect of law. For example, the Committee 
understands that website operators may be required to remove 
unlawful content from a website under laws governing export 
control, consumer protection, computer fraud and abuse, 
intellectual property rights, unfair competition, anti-
discrimination, or false advertising, among other matters.
    Section 2(c) would make it unlawful for a person to offer 
or enter into such a form contract containing a non-
disparagement clause.
    Sections 2(d) and (e) of section 2 would authorize the FTC 
and State attorneys general, respectively, to enforce the 
provisions of the bill. Under these subsections, State 
attorneys general would be stayed from action while a Federal 
action is pending and the FTC may intervene in any pending 
State action. Section 2(e)(6)(A) would permit State consumer 
protection authorities, when authorized, to bring a cause of 
action under this legislation. The Committee intends for 
enforcement to apply on those entities that impose contracts 
with non-disparagement clauses on consumers.
    Section 2(f) would require the FTC to conduct outreach and 
education that provides businesses with non-binding best 
practices for compliance with the Act.
    Section 2(h) would provide that the ban on non-
disparagement clauses in form contracts become effective 90 
days after the date of passage of the Act, whereas the 
enforcement mechanisms in the bill apply to form contracts 
would become effective 1 year after the date of enactment of 
the Act.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee states that the 
bill as reported would make no change to existing law.

                                  [all]