This week, the Federal Trade Commission ("FTC") announced that it had reached a settlement of charges that it had brought against a company and its owner for practices that the FTC alleged violated negative option and online review laws.
What was the nature of the alleged online review law violations?
According to the FTC, UrthBox, Inc. ("UrthBox") violated the Federal Trade Commission Act through its practice of conducting an incentive program to induce customers to post positive reviews about its various snack products on myriad websites and social media platforms, including on the Better Business Bureau's ("BBB") website. This practice was enhanced by UrthBox's customer service representatives' policy of offering free snack boxes to customers that contacted the company if the customers agreed to post positive reviews on the BBB's website. The customer service representatives were incentivized with cash bonuses for each positive review that they induced customers to post. The FTC also took issue with the fact that reviewers did not disclose that they were provided free snack boxes for their reviews, causing potential confusion to prospective customers concerning whether the reviews were independent in nature. In addition, UrthBox had no internal policy to monitor reviewers' posts.
The FTC also alleged that UrthBox violated the Restore Online Shoppers' Confidence Act ("ROSCA") through its negative option billing practices. Specifically, UrthBox promoted a free snack box trial offer through which it represented to consumers that their only expense was to pay for shipping. However, upon consummating the transaction, consumers were automatically enrolled in a six-month subscription and were charged for the entire six months' worth of product on the first of the month immediately following the conclusion of the trial month, typically in the amount of $120. Prior to provider their billing information, customers were not provided with any clear notification of the automatic enrollment or the balloon payment billing practice associated with the subscription.
The FTC charged the owner of UrthBox personally, claiming that he controlled the practices that allegedly violated ROSCA and the FTC Act. However, the agency ultimately agreed to settle its charges against UrthBox. The settlement: (1) requires that UrthBox pay a $100,000 penalty, with such funds to be used to refund affected consumers; and (2) imposes injunctive prohibitions, preventing both UrthBox and its owner from making misrepresentations in connection with online reviews or billing practices in the future.
Staying Compliant with Online Review Laws
The FTC's guidelines for the use of endorsements and testimonials require that online marketers fully inform consumers of any and all financial interests that reviewers have in connection with the reviews and/or endorsements that they provide. While the benefit of online consumer reviews for businesses is significant, it is important to understand the risks associated with failure to follow online review laws. Non-compliant use of such online reviews can put a business at significant legal risk. Accordingly, businesses should speak with experienced advertising counsel before featuring online product/service reviews in order to minimize the risk of legal action.
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