U.S. Senate Moves to Ban Gag Clauses Barring Negative Web Reviews

business_ethics_highlights_2The Consumer Review Freedom Act (S. 2044), recently cleared by the Senate Commerce Committee, may be a case study in the ‘market-failures’ approach to business ethics championed by University of Toronto philosopher Joseph Heath. Here, retailers and other merchants have been inserting non-disparagement clauses into standard form contracts. These clauses impose financial penalties on customers who post negative online reviews of the seller’s goods or services. Under the market-failures approach, the relevant question is whether upholding these clauses adds to, or detracts from, market efficiency. Recall that the idealized model of the perfectly competitive market includes buyers and sellers having perfect information. Although no real-world market instantiates the perfectly competitive market, an important intuition informed by the model is that real-world markets will more closely approximate the perfectly competitive market’s efficiency if participants in those markets have better information. Viewed through that lens, contractual arrangements that hamper the flow or quality of information market participants can access work to impair market efficiency. Thus, under the market-failures approach, refraining from inserting non-disparagement clauses in standard form contracts would be an element of ethical business practice. Regulatory initiatives designed to make harder inserting or enforcing those clauses would be an example of justified government intervention in the market (because it works to preserve market efficiency). >>>

LINK: Senate Committee OKs Bill Barring Companies From Using “Gag Clauses” To Block Negative Reviews (by Chris Morran for Consumerist)

Many courts have found that these [non-disparagement] clauses are legally unenforceable, and California recently banned their use in the state, but there is no overriding legal consensus on the issue and no federal law dealing with it.

After a few false starts, the latest version of the Act passed swimmingly through the Commerce Committee. It helped that it was introduced by committee chair Sen. John Thune of South Dakota and received bipartisan support among the other committee members.

“Reviews offering blunt and honest criticism play an increasingly important role in helping customers select the best products and services,” said Thune. “The Consumer Review Freedom Act is needed so consumers can benefit from the experiences of others through the open exchange of information.”

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