The Federal Trade Commission (FTC or Commission) has issued a final rule prohibiting fake consumer reviews and testimonials. The rule also permits the FTC to seek civil penalties against violators who knowingly violate the rule. The Commission voted 5-0 to approve the final rule and the accompanying statement of basis and purpose. The rule will become effective 60 days after the date it is published in the Federal Register.
The final rule prohibits selling or purchasing fake consumer reviews or testimonials and celebrity testimonials, buying positive or negative consumer reviews, creation of consumer reviews or testimonials by company insiders without clearly disclosing their relationships, creating a company-controlled review website that falsely purports to provide independent reviews, review suppression practices and selling or purchasing fake indicators of social media influence.
The key points of the final rule are:
- Fake or false consumer reviews, consumer testimonials, and celebrity testimonials. The final rule prohibits a business from writing, creating or selling a consumer review, consumer testimonial or celebrity testimonial that materially misrepresents, expressly or by implication, that the reviewer exists; that the reviewer used or otherwise had experience with the product, service or business that is the subject of the review or testimonial; or the reviewer’s experience with the product, service or business that is the subject of the review or testimonial. This includes AI-generated fake reviews.
- Buying positive or negative consumer reviews. The final rule prohibits a business from providing compensation or other incentives in exchange for, or conditioned on, the writing or creation of consumer reviews expressing a particular sentiment, whether positive or negative, regarding the product, service or business that is the subject of the review.
- Insider consumer reviews and testimonials. The final rule prohibits an officer or manager of a business from writing or creating a consumer review or testimonial about the business or one of its products or services that fails to have a clear and conspicuous disclosure of the officer’s or manager’s material relationship to the business, unless in the case of a consumer testimonial the relationship is otherwise clear to the audience. It also prohibits a business from disseminating a testimonial that the business knew or should have known was by an officer, manager, employee or agent. In addition, it imposes requirements when officers or managers solicit consumer reviews from their own immediate relatives or from employees or agents, or when they tell employees or agents to solicit reviews from relatives and the solicitation results in reviews by immediate relatives of the employees or agents. An “immediate relative” is defined as a spouse, parent, child or sibling.
- Company-controlled review websites. The final rule prohibits a business from materially misrepresenting, expressly or by implication, that a website, organization or entity that it controls, owns or operates provides independent reviews or opinions, other than consumer reviews, about a category of businesses, products or services including the business or one or make of the products or services it sells.
- Review suppression. The final rule prohibits a business from using unfounded or groundless legal threats, physical threats, intimidation or false public accusations to prevent or remove a negative consumer review. In addition, the final rule prohibits a business from misrepresenting that the reviews on a review portion of its website represent all or most of the reviews submitted to it when reviews have been suppressed based on their ratings or negative sentiment.
- Misuse of fake indicators of social media influence. The final rule prohibits anyone from selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account. This is limited to situations in which the buyer knew or should have known that the indicators were fake and misrepresent the buyer’s influence or importance for a commercial purpose.
The final rule permits the FTC to seek civil penalties for violators “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by [the] rule” for each violation, under Section 5(m)(1)(A) of the FTC Act. Violations of any trade regulation rule enable the FTC to seek civil penalties of $51,744. The FTC could take the position that each fake review or testimonial is a separate violation. In addition, any entity or person who violates the rule (regardless of the state of knowledge) is liable for any injury caused to consumers by the rule violation.
The FTC stated:
As the Commission noted previously, case-by-case enforcement without civil penalty authority might not be enough to deter clearly deceptive review and testimonial practices. The Supreme Court’s decision in AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act. This rule will enhance deterrence and strengthen FTC enforcement actions.
In 2021, the Supreme Court ruled in AMG Capital Management LLC that Section 13(b) of the FTC Act did not authorize the Commission to seek court orders requiring wrongdoers to return money unlawfully taken from consumers through unfair or deceptive acts or practices or give up the unjust gains they earned from engaging in such unlawful conduct. The AMG ruling has made it significantly more difficult for the Commission to return money to injured consumers, particularly in cases that do not involve rule violations.
Since that Supreme Court decision, the FTC has only been able to seek civil penalties for violations of FTC cease and desist orders and violations of FTC trade regulation rules. The FTC has sent Notices of Penalty Offenses to companies to inform them of the law and deter them from breaking it. The notices list conduct that the FTC has determined to be unfair or deceptive in violation of the FTC Act in order to provide them with actual knowledge. Companies that receive the notice and continue to engage in prohibited practices may face civil penalties.
The final rule contains some provisions that are covered by the FTC’s Guides Concerning Use of Endorsements and Testimonials in Advertising. However, FTC guides are not regulations, but administrative interpretations of the FTC Act. They provide guidance to marketers on what advertising claims might mislead consumers. They are intended to provide a basis for voluntary compliance—though, if advertisers don't follow the guides, the FTC may investigate and potentially bring a lawsuit. On the other hand, trade regulation rules, such as this final rule, provide the basis for the FTC to seek civil penalties for violations. That is why this rule is so serious.
Notably, the FTC incorporated public comments on the proposed rule which it had previously published into the provisions of the final rule. For example, the FTC limited the prohibition on anyone “selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account,” to buyers who “knew or should have known” that the indicators were fake.
FTC Chair Lina Khan stated : “Fake reviews not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors. By strengthening the FTC’s toolkit to fight deceptive advertising, the final rule will protect Americans from getting cheated, put businesses that unlawfully game the system on notice, and promote markets that are fair, honest, and competitive.”
It is extremely important for companies using consumer and celebrity reviews and testimonials to review their relevant policies and compliance practices to ensure that they adhere to the final rule and that they are strongly enforced. Failure to do so could cost companies substantial monetary and other penalties.