On Dec. 14, 2016, President Barack Obama signed into effect the Consumer Review Fairness Act of 2016 ("the act"), making it more difficult for businesses to bring lawsuits over negative reviews. The act, which passed with bipartisan support, was crafted in response to the increased use of so-called "non-disparagement clauses" or "gag clauses" that prohibit consumers from sharing their honest opinions about a seller's goods, services, or conduct. These non-disparagement clauses interfere with the benefits of crowd-sourced reviews, restricting the public's access to useful, accurate information about businesses and products. The act was passed to preserve the credibility and value of online consumer reviews.

Specifically, the act voids any provision in a form contract (like a website's terms of use) that (1) restricts a party's ability to leave reviews, (2) imposes a penalty or fee for leaving negative reviews, or (3) requires consumers to give up their intellectual property rights in the content of their reviews. This last provision closes a loophole that allowed businesses to remove any unwanted reviews without a court order by sending a takedown notice under the Digital Millennium Copyright Act.

Beyond protecting written product reviews online, the act also protects social media posts and uploaded photos or videos, as well as consumer evaluations of a company's customer service, and applies to reviews not available online. Further, the act empowers state attorneys general and the Federal Trade Commission (FTC)—which has challenged a number of "gag" clauses in past enforcement actions—to enforce the new law when necessary, but it does not preempt state law. So, for instance, California's existing law, which prohibits contracts from including provisions that waive a consumer's right to review a seller's goods or services, will remain in effect.

Under some jurisdictions' existing law, non-disparagement clauses are arguably unenforceable and constitute an unfair business practice. See, e.g., Prestigious Pets v. Duchouquette, Case No. DC. 16-03561 (Dallas County, Tex., Aug. 30, 2016) (dismissing both a libel claim and a non-disparagement clause claim arising from a negative review); FTC v. Roca Labs, Inc., Case No. 8:15-cv-02231-MSS-TBM (M.D. Fla. filed Sept. 28, 2015) (FTC enforcement action arising, in part, from the use of non-disparagement clauses).

The act only applies to "form contracts," as opposed to those that have been meaningfully negotiated, and it does not cover contracts between employers and their employees and independent contractors. Nor does it protect consumers from civil actions for breach of confidentiality, defamation, slander, or libel. Moreover, the act does not prohibit a party from removing reviews from their own site that contain confidential or private information; are defamatory, obscene, explicit, harassing, or discriminatory; are clearly false or misleading; or are unrelated to the goods or services offered by the business.

Despite these limitations, the act is a major step in protecting consumers' right to leave critical reviews and has already led to FTC enforcement actions. It makes clear that non-disparagement clauses are void and unenforceable without the need for protracted litigation and provides users of online review websites with more complete information so that they make informed choices about products and services.

James Rosenfeld is partner and co-chair of DWT's media practice group, based in New York. Diana Palacios is an associate based in Los Angeles.