Our Consumer Protection/FTC Team breaks down the newly effective Federal Trade Commission final rule prohibiting misleading online reviews.
- The rule prohibits a range of misleading conduct, including the buying, selling, or disseminating of fake reviews
- Companies are prohibited from suppressing negative reviews
- The rule requires that reviews or testimonials made by company employees or insiders disclose those relationships
- Issuing the rule gives the FTC the power to impose significant monetary penalties on violators
The Federal Trade Commission’s (FTC) final rule banning fake reviews and testimonials went into effect on October 21, 2024 and brings with it a host of prohibitions that companies that use reviews and testimonials in their business or on their website should be aware of. In addition to prohibiting the use of fake reviews and testimonials, the rule also addresses the use of reviews and testimonials made by company insiders, the suppression of negative reviews, and the purchase or incentivizing of reviews expressing a particular sentiment. The issuance of the final rule gives the FTC authority to pursue significant monetary penalties against violators – currently $51,744 per violation – as well as consumer redress. Companies should make sure they are aware of the systems and processes in place for their use of reviews to ensure they are not subject to an FTC enforcement action.
On August 14, 2024, the FTC announced the final rule regulating consumer reviews and testimonials.
The final rule comes after an advance notice of proposed rulemaking (ANPR) in November 2022 and a notice of proposed rulemaking (NPR) on June 30, 2023. The rule was passed by the FTC on a 5–0 vote and went into effect on October 21, 2024.
Rule Summary and Background
The rule is part of a focused effort by the FTC to regulate deceptive advertising on the internet. For example, in June 2023, the FTC announced the overhaul of its Endorsement Guides, which provide guidance to businesses to ensure that their advertising using reviews or endorsements is truthful. There have been a number of enforcement actions over the last couple of years, such as the action against Fashion Nova for allegations the company was suppressing negative reviews and the action against Vision Path for, among other things, allegations the company was paying for positive reviews.
However, the FTC is not able to obtain monetary relief for violation of its Endorsement Guides, and by issuing this rule, the FTC is strengthening its enforcement authority and giving itself the ability to seek civil monetary penalties against individuals and entities that violate the rule. As we have previously discussed, the AMG Capital decision had hindered the FTC’s ability to seek monetary relief from violators when a final rule or violation of an existing order was not at issue.
Lastly, the rule is also part of the FTC’s focus on potential issues caused by generative artificial intelligence (AI). As we have covered, the FTC has been active in policing the deceptive uses of AI. Here, although AI is not specifically mentioned in the text of the rule itself, in the rule’s statement of basis and purposes, the FTC notes that “AI tools make it easier for bad actors to pollute the review ecosystem by generating, quickly and cheaply, large numbers of realistic but fake reviews that can then be distributed widely across multiple platforms.” The FTC added that “AI-generated reviews are covered by the final rule, which the Commission hopes will deter the use of AI for that illicit purpose.”
The rule itself addresses several types of deceptive conduct related to reviews, prohibiting:
- Businesses from creating, selling, buying, or disseminating fake or false consumer reviews, consumer testimonials, and celebrity testimonials. In particular, the rule prohibits these reviews and testimonials by individuals who have no actual experience with the subject of the review, misrepresent their experiences with the subject of the review, or misrepresent the nature of the author giving the review.
- The purchasing or incentivizing of reviews of a particular sentiment. For example, a business cannot provide compensation to its customers for making a positive review of its products – or for making negative reviews of its competitors’ products.
- Reviews or testimonials by company insiders that do not disclose the insider’s connection to the company. Company insiders are also prohibited from soliciting reviews from their families and cannot ask employees to solicit reviews from the employees’ families.
- Misrepresenting company-controlled review websites as providing independent reviews or opinions when the company’s own products or services are discussed.
- The suppression of negative consumer reviews through inappropriate tactics such as groundless legal threats, physical threats, intimidation, or false public accusations. Companies are also prohibited from misrepresenting the review portion of its website when reviews are suppressed based on negative sentiments or low ratings.
- The buying or selling of “fake indicators of social media influence” for a commercial purpose. For example, a social media account is prohibited from purchasing fake followers generated by bots or hijacked accounts to sell advertisements or misrepresent the popularity of a brand.
Of note, the rule does not require platforms that simply publish consumer reviews to verify the veracity of the reviews.
The final rule is nearly identical to the proposed rule set forth in the NPR, with one exception. The NPR included a provision that prohibited the use or repurposing of a review for one product so that it appears to have been addressing a substantially different product. The FTC noted that it received varied comments about this provision, and there were concerns raised with the definition of “substantially different product.” In light of this criticism, the FTC decided not to finalize that provision.
Responses to the Rule
The rule has broad support from both sides of the aisle, as well as major online companies that rely on reviews. For example, in its comments to the earlier NPR, Yelp wrote that it “appreciates the Commission’s thoughtfulness and care in considering all comments and crafting this proposed rule, which Yelp fully supports.” Amazon similarly wrote in its comments to the ANPR that it “is encouraged to see the [FTC] increasing its focus on fake reviews” and “encourages the FTC to increase the use of its existing authority to pursue fake review brokers.” Google likewise wrote in its comments to the ANPR that “Google encourages the FTC to continue using its existing enforcement tools to pursue bad actors writing or selling fake reviews, and to codify in a rule that it is a violation of Section 5 of the FTC Act to write or sell a fake review.”
Some opponents of the rule claim that the rule does not go far enough and argue that review platforms themselves should have an obligation to affirmatively determine if a review is false. The FTC addressed this sentiment by stating that adding restrictions or provisions that would apply to third-party review platforms was “beyond the scope of the rulemaking, which focuses instead on those responsible for inarguably unfair or deceptive acts or practices regarding reviews and testimonials.”
Caution for Businesses That Employ Reviews
Although most companies are not in the business of publishing fake reviews, it is important that every company that uses reviews understands its process for collecting, publishing, and verifying reviews. If a company uses a third party, it is important to understand the third party’s processes as well. Companies that use reviews should also be aware of the disclosure requirements that are created by the rule. Similar to the updated Endorsement Guides, the rule is strict on disclosing relationships that exist between a reviewer and the company. Companies need to put processes and procedures in place to ensure that any review or testimonial made by an officer or manager of the company properly discloses the nature of the relationship to the company.
Although the use of generative AI is not prohibited, companies that use it should take steps to ensure that their AI is not generating fake reviews, improperly suppressing negative reviews, using reviews meant for one product for a separate product, or otherwise misrepresenting the nature of reviews.
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