On Aug. 14, 2024, the Federal Trade Commission (FTC) finalized new rulemaking to combat deceptive acts and practices in online reviews and testimonials. The new final rule, Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, clarifies and finalizes the FTC’s previous guidance and will become effective 60 days after publication in the Federal Register, perhaps as early as October 2024.
The FTC’s recent final rulemaking follows a notice of proposed rulemaking issued in June 2023, which in turn followed a spate of enforcement activity against companies that the FTC claimed were engaged in deceptive acts and practices with respect to customer reviews and testimonials.
For example, in March 2022, Brownstein previously reported on the FTC’s proposed settlement with fast-fashion retailer Fashion Nova. In that case, Fashion Nova allegedly engaged in practices that resulted in the suppression of negative reviews on its website. The Proposed Settlement ordered Fashion Nova to pay $4.2 million for harm incurred by consumers and post all consumer reviews, regardless of whether they are positive or not. (See our prior alert on that matter here.) In 2020, the FTC entered into a consent agreement with Sunday Riley Modern Skincare, LLC following allegations that Sunday Riley deceived consumers by posting fake reviews and reviews from Sunday Riley managers and employees without disclosing those individuals’ material connection to the company. Sunday Riley was ordered to disclose any reviewer’s material connection to the company and refrain from representing or suggesting reviews are independent if they are not.
The FTC’s new rule clarifies and formalizes its previous guidance and prohibits the following categories of deceptive or misleading conduct:
1. Writing, Selling or Buying Fake or False Consumer Reviews
Following the Sunday Riley consent agreement, it has been clear that the FTC views the publication or procurement of false reviews as materially deceptive. Therefore, it is not surprising that the new rule formally prohibits fake or false consumer reviews and testimonials, including those that: (a) misrepresent the reviewer’s identity—including AI-generated reviews; or (b) falsely claim to reflect the experiences of real consumers. This includes reviews purchased from third parties. Importantly, it also includes reviews obtained from employees or individuals with a material connection to a company if such material connection is not disclosed.
2. Writing, Selling or Disseminating Fake or False Testimonials
Businesses are also prohibited from writing or selling consumer or celebrity testimonials that make the same kinds of misrepresentations as may be present in reviews. Online testimonials should reflect the honest opinion of the endorser. Any material connections to the company must be disclosed. Best practices include continuing to follow the FTC’s Updated Endorsement Guides.
3. Buying Positive or Negative Reviews; Incentivizing Reviews
The new rule makes clear that businesses cannot offer compensation or incentives in exchange for reviews expressing a sentiment that is dictated or suggested by the business, whether that sentiment is positive (usually with regard to one’s own business) or negative (typically of a competitor’s business). Incentives offered in exchange for expressly requested reviews or feedback (e.g., a company offers a gift card in exchange for a 5 star review) are prohibited. Importantly, the new rule also prohibits incentives offered for suggested sentiments (e.g., a company offers a gift card to a reviewer to “tell everyone how much you love us!” or, “if you liked our product, post a review”). Notably, the new rule does not prohibit incentivizing reviews generally, so long as there is not an incentive or quid pro quo for a specific sentiment. For example, a company could offer a discount code, gift card or credit to a reviewer “in exchange for honest feedback.” But, the fact that the review was incentivized in any way must still be disclosed.
4. Failing to Make Disclosures About Insider Reviews and Testimonials
The new rule prohibits a company’s officers or managers from writing reviews or testimonials about the business or its products and services without clearly disclosing their relationship. Nor can officers or managers solicit reviews from immediate relatives or employees or agents of the business. Notably, companies will not be deemed to have violated the rule unless they: (a) fail to give instructions regarding making clear disclosures; (b) the resulting reviews appear without clear disclosures; and (c) the officers or managers should have known that such reviews appeared and failed to take steps to have those reviews either removed or amended to include clear disclosures. In other words, employees or relatives can post an honest review about a product if they disclose their material connection to the company.
5. Deceptively Claiming Company Controlled Review Websites Are Independent
Companies are prohibited from misrepresenting that websites or entities that they control or operate provide independent reviews or opinions about products or services that include their own products or services. This includes “editorial” or “listicle” websites that favorably rank the company’s own products and services against those of competitors in an apparently independent manner when such sites are not in fact independent.
6. Illegally Suppressing Negative Reviews
Following the Fashion Nova settlement discussed above, it is no surprise that the new rule prohibits processes, procedures or conduct that prevent posting or cause the removal of unfavorable consumer reviews. This includes processes designed to suppress or queue for further review (and thus delay or withhold entirely) unfavorable reviews. It also includes making unfounded or groundless legal threats, physical threats, intimidation or public false accusations designed to cause removal of a negative review.
7. Selling and Buying Fake Social Media Indicators
Finally, the new rule prohibits the sale or distribution of fake indicators of social media influence, like fake followers or views. A “fake” indicator is one generated by a bot, a hijacked account, or that otherwise does not reflect a real individual or entity’s activities or opinions. The rule also prohibits anyone from buying or procuring such false indicators.
Takeaways
Adhering to the new rules may help businesses stay out of hot water with the FTC, and may also help mitigate or avoid potential unfair and deceptive trade practices (UDAP) and false advertising class action risk, as well as state attorneys general investigation scrutiny. On the flip side, companies can expect the plaintiffs’ bar to analyze the FTC’s new rules, looking for any noncompliance that could serve as fodder for litigation.
Companies that engage in marketing practices including incentivized reviews and testimonials and product ratings may wish to seek legal advice regarding advertising best practices and whether to refine their advertising practices.
The FTC’s new rulemaking clarifies and makes formal the guidance that the FTC has provided for many years: advertisers are responsible for transparent and nondeceptive consumer reviews and endorsements.
