Don't look now, but did you contract away your right to publish online criticism?

Perhaps the ultimate cat-(or is that Kat?)-and-mouse game in the IP world is the attempt by one party to impose on another by contract that to which he may not be entitled by virtue of the right itself. A classic example is the right to reverse-engineer a trade secret. Provided that the party does so lawfully, the right to reverse-engineer a trade secret is part and parcel of the trade secrets scheme. Yet prevalent is the clause that forbids reverse engineering, such as in a software licence agreement, where the contract seeks to prevent the licensee from seeking to unlock the functionality of the software, even where there is no unlawful use of the software in doing so. The legal question that arises in the interface between the right of parties to contract whatever they wish, on the one hand, and the proprietary right embodied in intellectual property, on the other, continues to be debated by academics and to challenge practitioners.

A variation of this cat-and-mouse game was recently described in the Wall Street Journal site, MarketWatch.com, entitled “You ruined my wedding—and you’re suing me?, here. The focus of the piece is on attempts by service providers to contractually forbid the counter-parties to the services agreement to publish critical online reviews. Let’s be honest-—most of us pay little or no attention to the terms of service agreements, despite that it seems that more and more service providers in numerous fields are attempting to impose on their customers. This, against the fact that reviews of all kinds have become a staple of the on-line and social media environments. Such reviews have a vast potential reach. It is reported that the review site Yelp, here, had more than 53 million reviews at the end of Q4 2013. The exponential increase in such online reviews carries with it the threat that a negative review might have on the name and reputation of a service provider.

The gambit taken by such service providers is to bury in the services agreement a so-called non-disparagement clause, effectively forbidding the customer from publishing a critical online review. Even when the term “disparagement” is not further defined in the agreement, the contractual foundation for the service provider to take action against a hostile online reviewer has been established. Increasingly, as described in the article, service providers are seeking to enforce the clause. One example is a suit for $350,000 filed by a photographer when a bride published a critical review of the photographer’s work at her wedding. In another, a dentist filed an action for $110,000 when the patient published critical comments regarding the dentist’s billing and administrative practices. In both instances, reliance was made on the “non-disparagement” clause in the services agreement. The general view is that legal actions of this kind will continue to proliferate.

Against this background, there are several legal aspects of such a non-disparagement clause that merit particular attention. In particular, a non-disparagement clause is both similar and distinguishable from a restrictive clause, such as that which forbids reverse engineering. It is similar to the extent that it contractually forbids a person from expressing a view that he would otherwise have the right to express. In this respect, it can be likened to libel, slander and, to an extent, even copyright, all of which might be seen as abutting against the right of free speech. On the other hand, it is distinguishable in the sense that it confers upon the service provider a contractual right that the service provider anyway enjoys. After all, even in the absence of the restrictive clause, the service provider can in principle seek to enforce its rights per the tort of disparagement. Indeed, versions of the tort of disparagement in the common law system appear to reach back to the 15th century.

"Disparagement" was defined in the United States in the First Restatement of Torts, as follows:

“One who, without a privilege to do so, publishes matter which is untrue and disparaging to another's property in land, chattels or intangible things under such circumstances as would lead a reasonable man to foresee that the conduct of a third person as purchaser or lessee thereof might be determined thereby is liable for pecuniary loss resulting to the other from the impairment of vendibility thus caused.” (For Kat readers who want to know more, consider the attached law review note that appeared in the Duke Law Review, “The Tort Of Disparagement and the Developing First Amendment”, here.)

In this sense, a non-disparagement clause can be likened to a provision in an IP licence agreement whereby the licensee is contractually bound not to infringe the IP rights of the licensor. Does such a provision enable the licensor in effect to seek double recovery for the same basic wrong committed, or do the IP and contractual claims constitute separate legal rights? The same can be asked regarding the contractual restriction and the tort claim for disparagement.

In any event, Kat readers who are looking for clarity in this area will be sorely disappointed. As reported in the MarketWatch.com article:

“The question many consumers have is whether a business can get away with this in court. The answer: It depends. UCLA constitutional law professor Eugene Volokh says that, as a general legal rule, items agreed to in a contract are enforceable, but with respect to issues like these, the gotcha factor is critical. Volokh says that if a reasonable consumer would be very surprised by a clause, like a non-disparagement clause, in a vendor contract or a terms-of-service agreement, that provision of the contract might be deemed unenforceable. “You could see some of these invalidated,” he says. “This will be decided on a state-by-state level.” How each state will decide cases like these remains to be seen, but for now, consumers should be wary.”

This legal uncertainty should be a reason for concern, given the centrality of the posting of commentary and criticism in the online world. Stay tuned.