A federal regulator this week launched a new kind of lawsuit against a company for trying to stifle online criticism from unhappy customers.
On Monday, the Federal Trade Commission asked a judge to fine a weight loss product firm for allegedly deceiving consumers and ensnaring them in contracts designed to silence bad publicity.
The regulator told The Sentinel it had never before invoked the “unfairness doctrine” to quash companies’ attempts to get customers to agree to non-disparagement. A spokesperson for the commission said it had concerns the agreements hinder people’s ability to freely critique, and that it deprives consumers of guidance needed to make informed decisions.
“Defendants…unfairly use non-disparagement, or ‘gag,’ clauses in their sales contracts, and sue, or threaten to sue, purchasers for breach of contract if they complain or threaten to complain to third parties,” the FTC wrote in its complaint.
The practice at the heart of the suit is allegedly part of the tail end of a scheme that starts with deceptive advertising, the FTC charged. A weight loss firm accused of wronging consumers–a Florida-based ingestible weight loss product-maker called Roca Labs—only offered an advertised price to customers who agreed to terms of service that include the so-called “Gag Clauses,” the FTC claimed.
The practice even led Roca to sue publications merely for aggregating bad reviews. The firm has filed suit against “a company that runs an online site that allows consumers to post complaints about businesses, including the Defendants’ business, online,” the FTC noted, “for allegedly inducing purchasers to breach the Gag Clauses.”
The Unfairness Doctrine—not to be confused with the Federal Communications Commission long-defunct Fairness Doctrine—holds that the FTC can seek to stop anti-competitive practices that aren’t explicitly prohibited by antitrust laws; violations of antitrust law in spirit.
It was first recognized in 1972, when the Supreme Court found that the commission, “like a court of equity [bankruptcy court], considers public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.”
Unfairness has recently been invoked by the FTC, controversially, in cases involving computer data breaches. Wyndham Hotels & Resorts, a global hospitality company, was sued by the commission under the Unfairness Doctrine, after it was hacked, for failing to safeguard its customers data. The company, in turn, challenged the commission’s authority in court. In August, a federal Appeals Court upheld a lower court’s decision and found that the commission has a mandate to litigate based on cyber security concerns.
The FTC was established in 1914 after the legislation it was named after was passed to combat “unfair methods of competition…and unfair or deceptive acts or practices in or affecting commerce.”
