The Federal Trade Commission (FTC or Commission) has proposed a trade regulation rule to prohibit marketers from using deceptive practices in their product reviews and testimonials. The goal of this rule is to increase transparency and honesty in the world of consumer reviews, which has become increasingly infected by dishonest and fraudulent practices. Simultaneously, this rule would provide the FTC with a direct path toward monetary recovery against marketers that engage in deceptive practices involving consumer reviews and testimonials.
Background
The proposed rule, published on June 30, 2023, and titled Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, comes after the FTC issued an Advance Notice of Proposed Rulemaking in November 2022. The proposed rule was published only a day after the FTC issued its final revised Guides Concerning the Use of Endorsements and Testimonials in Advertising (the Endorsement Guides). The proposed rule also comes after a stream of FTC actions against prominent companies including Fashion Nova, Roomster Corp. and Hubble Contacts. These actions addressed review suppression of negative reviews, nondisclosure of incentivized reviews and fake reviews.
In this Notice of Proposed Rulemaking (NPR), the FTC addressed the 42 comments it received after issuing the Advanced Notice in November. While the majority, 29, of comments supported the Commission’s proposed rule, four comments disagreed and felt the rule was “unnecessary, premature, or should not apply to the commenter’s constituents.” Other comments did not support or oppose the proposed rule.
The large review platforms (Yelp, Google, Tripadvisor and Amazon) submitted comments emphasizing the importance of consumer reviews to online marketplaces and detailing the measures they take to prevent fake reviews. Google and Yelp, which expressly support the rule, stated that they take measures like listing fake or compensated reviews as “not recommended” or removing the reviews from their sites altogether. Google said that fake reviews undermine users’ confidence in the information available on its platform. Yelp stated that it supports civil penalties for “businesses and individuals who author, arrange for or pay for deceptive reviews.”
Many of the comments addressed the high frequency of orchestrated consumer review rings and “click farms” on social media platforms that arrange the purchase and exchange of fake reviews. This has led to online marketplaces like Amazon suing the administrators of over 10,000 Facebook groups for attempting to orchestrate fake reviews on Amazon in exchange for money or free products.
The Commission stated that comments from the platforms support a finding that fake consumer reviews are prevalent. In 2020 alone, Amazon asserted that it prevented more than 200 million suspected fake reviews from being posted on its website. According to Google, in 2021 it blocked or removed more than 95 million Google Maps reviews for policy violations, and in 2022 it removed millions of fake, inorganic or otherwise malicious Google Play reviews. Yelp commented that, in 2021, its recommendation software identified about 19 percent of reviews as “not recommended.” The Transparency Company, an entity dedicated to fighting fake reviews, commented that its research estimates that consumer injury from fake reviews is approximately $5 billion per year.
The Proposed Rule
The FTC’s proposed rule seeks to prevent unfair and deceptive practices in consumer reviews and testimonials. Specifically, the proposed rule would prohibit:
- The creation, purchase, dissemination or sale of fake or false consumer reviews or testimonials. This includes reviews or testimonials by someone who does not exist, who does not have actual experience with the product or service, or who misrepresented their experience. This provision would not apply to third-party review platforms that disseminate consumer reviews that are not for their own products or services, such as Amazon and Google, unless the businesses knew or should have known that a review they purchased, procured or disseminated was false.
- Repurposing reviews. Otherwise known as “review hijacking,” businesses would be prohibited from using or repurposing a consumer review written or created for one product so that it appears to have been written or created for a substantially different product.
- Buying positive or negative reviews. Businesses would be prohibited from paying or giving incentives to a person in exchange for expressing a particular view in a review.
- Not disclosing insider consumer reviews and testimonials. Reviews written by company insiders (officers, managers, employees and their relatives) would require clear and conspicuous disclosures.
- Misrepresenting company-controlled review websites. Businesses would be prohibited from representing that an entity that it controls or operates provides independent reviews about a product or service related to the business.
- Suppressing reviews. Businesses would be prohibited from intimidating or using unjustified legal threats to suppress reviews. Notably, the proposed rule provides that reviews containing remarks that are discriminatory, harassing, false or misleading, or that breach confidentiality, can be suppressed.
- False indicators of social media influence. This provision prohibits the sale, distribution or purchase of fake indicators of social media influence for commercial purposes. This applies to selling or purchasing followers, friends, connections, subscribers, views, plays, likes, reposts and comments.
Why It Matters
The proposed rule is significant for several reasons.
First, the rule provides a route for the FTC to impose civil penalties of up to $50,120 per violation on wrongdoers for violation of the rule.
After the Supreme Court curtailed the FTC’s ability to seek monetary relief in its unanimous decision in AMG Cap. Mgmt., LLC v. FTC, 141 S. Ct. 1341, 1352 (2021), the Commission was no longer able to seek equitable monetary relief under Section 13(b) of the FTC Act. However, under Section 19(a)(1) of the FTC Act, the Commission can seek monetary redress with a federal court if an FTC rule has been violated. Consequently, the FTC has increasingly resorted to rulemaking.
Second, the FTC argues that these civil penalties will deter future wrongdoers from engaging in practices prohibited by the rule.
Third, this rule reflects the Commission’s increased focus on outlawing deceptive practices in online marketplaces. In fact, many of the actions prohibited in this rule are also present in the FTC’s newly updated Endorsement Guides. Companies should take careful notice of this trend and exercise vigilance over how they manage and facilitate consumer reviews.
Companies, particularly those that hire third parties such as advertising agencies and promotion firms to conduct their marketing, should closely monitor their systems for collecting and managing consumer reviews to ensure compliance with the FTC’s proposed rule.
Finally, as a result of this proposed rule, consumers will be able to make better-informed purchase decisions since the consumer reviews they read will be more honest and representative of true experiences.
As technology advances, companies and marketers that use generative artificial intelligence (AI) in their review systems should also ensure that AI is not being used to deceive consumers or misrepresent reviews. The FTC is aware of the problems that AI presents and has stated that it will continue to pursue actions against companies that use AI for illicit purposes. For more on AI and advertising, refer to our previous article here.
The FTC has requested comments from the public on the proposed rule within 60 days of the publication of the Notice of Proposed Rulemaking in the Federal Register. The FTC requested comment on a number of questions, such as “Does the proposed Rule further the Commission’s goal of protecting consumers from clearly unfair or deceptive acts or practices involving consumer reviews and testimonials? Why or why not?” and “Should the Commission finalize the proposed Rule as a final rule? Why or why not? How, if at all, should the Commission change the proposed Rule in promulgating a final rule?”
Please let us know if you would like assistance with drafting comments.
We appreciate the contribution of Summer Associate Gabriella Allaf to this article.