On August 14, the Federal Trade Commission (FTC) announced a final rule aimed at protecting American consumers against fake reviews and testimonials. The rule, approved through a 5-0 vote, comes after nearly two years of rulemaking proceedings on the topic. The FTC has said customer reviews play an important role in consumer decision making, and the rule follows in the steps of related cases and notices of penalty offenses brought and issued by the FTC against the use of fake reviews, as well as guidance the FTC has published on the use of endorsements and testimonials. This final rule now provides the FTC with a potentially powerful tool to punish businesses that knowingly violate it, and to seek consumer redress for violations of the rule.
The rule, which is set to be effective 60 days after its publication in the Federal Register, addresses the following practices:
- Fake Reviews: The rule prohibits reviews which misrepresent the fact that they are provided by someone who does not exist, or who does not have actual experience with the product or service. Reviews that misrepresent the experience of the reviewer are also prohibited.
- Paid Reviews: Expressly or implicitly conveying an offer of compensation or benefits in exchange for a review that communicates a particular sentiment is prohibited.
- Disclosure Requirements: The rule requires that, in most instances, any reviews or testimonials provided by an officer or manager of a business must be accompanied by a clear and conspicuous disclosure of the individual's material relationship to the business; where a communication is made through both video and audio, that disclosure must be provided in the same manner as the claim that requires the accompanying disclosure. Similarly, the rule deems it unfair or deceptive to expressly or implicitly misrepresent a review website as independent, when in reality it is materially related to the business.
- Review Suppression: The rule prohibits review suppression through threats or intimidation tactics. Correspondingly, it is unfair and deceptive for a business to materially misrepresent that reviews displayed by the business represent a majority or all of the reviews related to a product or service, when in fact additional reviews are suppressed because of their negative or unfavorable comments.
- Influence Inflation: The buying and selling of social media indicators to misrepresent the online influence of certain accounts is prohibited, including when those indicators are known to be or should be known as fake.
Under this new rule, the FTC can seek penalties not only on individuals or companies who create fake reviews, but also on those who may be involved in the purchase, sale, or facilitation of fake reviews, particularly when the business knows or should know the reviews or testimonials are fake or false.
Multiple stakeholders throughout the rulemaking process submitted comments arguing that the rule is unnecessary or unwarranted. However, even though the practices addressed in the new rule are already unlawful under Section 5 of the FTC Act, the FTC ultimately disagreed with the commenters, writing that the rule will further deter such unfair and deceptive acts, and aid in the law's enforcement. As is commonly relied upon as the rationale behind these arguably redundant rules, the FTC believes the compliance costs will be outweighed by the consumer benefits, and that the rule will increase proper competition between businesses.
In the wake of the AMG Capital Management decision, which limited the agency's ability to seek equitable monetary relief for deceptive advertising, the FTC continues to push its rulemaking agenda in an attempt to fill the gap left by AMG. Whether industry participants will seek to challenge this rule remains to be seen, but the Supreme Court's recent decision in Loper Bright may serve as encouragement for such action.
In the interim, companies that use consumer reviews in their marketing and advertising practices should ensure their compliance with this new rule.
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