The Federal Trade Commission (FTC) issued a new Final Rule (the “Rule”) on Wednesday, August 14, 2024, targeting unfair and deceptive acts or practices specifically related to consumer reviews and testimonials, allowing the agency to seek heavy civil penalties against knowing violators. The Rule purportedly sets out to elevate transparency and authenticity for consumer reviews, by, among other things, prohibiting: (1) the sale or purchase of fake reviews or testimonials, (2) the buying of positive or negative consumer reviews, (3) the use of undisclosed insider-generated content, and (4) the manipulation of review platforms by businesses.
While fake reviews have long been against the law because they mislead consumers, the new Rule now draws clear lines in the sand, which clarify who’s responsible while also empowering the FTC to take more action, granting the agency the ability to impose up to a $50,000 fine per violation. It’s the biggest step to date by the federal government to deter the market from buying and selling fake reviews and one of the first initiatives we have seen in combating artificial intelligence (AI)-generated content.
In an era where consumers increasingly rely on reviews and testimonials in decision-making, especially online, reviews have become more important than the products or services being sold themselves, and the need for greater regulation of these fake reviews has become increasingly important. Though the FTC’s Rule doesn’t do as much to directly hold accountable big review sites like Yelp, Google, TripAdvisor, and Amazon, the Rule will apply to those who write fake reviews, the intermediaries that procure fake reviews, and the companies who pay for fake reviews and know — or should know — they were fake.
Key Provisions
The comprehensive measures that are set forth in the new Rule aim to fortify the authenticity of online reviews, endorsements, and social media interactions, in an attempt to ensure transparency and honesty in consumer-generated feedback. Included in the Rule’s new prohibitions is a ban on the use, creation, sale, purchase, or distribution of fabricated reviews or testimonials, and specifically including those generated by AI or provided by individuals without actual experience with the product or service. Additionally, under the new Rule, businesses cannot incentivize reviews with compensation in an attempt to shape a certain sentiment in the review, whether positive or negative.
The Rule also clamps down on insider-generated content, making it illegal for company insiders, such as officers or managers, to provide reviews without clear disclosure of their relationship to the business. It further prevents companies from sharing reviews they should reasonably believe to come from insiders. Moreover, strict guidance is provided to prevent soliciting reviews under misleading pretenses such as from close familial circles or direct associates.
Beyond direct testimonials, the regulation forbids companies from presenting their platforms as unbiased if and when they control content to favor their own products or services. It also addresses the manipulation of public opinion through threats, intimidation, or false legal claims aimed at suppressing negative reviews. Furthermore, the rule prohibits the purchase or sale of counterfeit social media engagement metrics, such as bot-generated followers or views, which artificially inflate a person's or entity's online influence.
Effective Date and Compliance
The Rule becomes effective on October 13, 2024, sixty (60) days after its publication in the Federal Register, providing businesses a brief window of time to align their practices with the new standards. Companies are advised to audit their current review management strategies and implement compliance measures, such as updating procedures for collecting and displaying reviews to ensure authenticity and transparency, training marketing and compliance teams on the nuances of the Rule to avoid inadvertent violations, and establishing clear policies for disclosing material connections within any endorsements or testimonials.
Industry Implications
We are seeing a continuing regulatory trend among federal agencies to take a greater role in fostering consumer protection by more closely monitoring and regulating companies through the implementation of rules like this one. “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,” says FTC Chair Lina M. Khan.
However, while many agree this is a necessary move by the FTC, it begs the question of how this Rule will be enforced effectively when real consumers seem to be increasingly using AI to generate legitimate reviews. How exactly will the FTC discern between fake reviews and real reviews when the actual use of AI does not necessarily deem a review fact or fiction, legitimate or illegitimate? According to the FTC, while each case will depend on its set of specific facts, it is possible that a business may possess clear indications or proof that purchased reviews are likely fake or false, in which case the failure by the company to investigate further may trigger liability. For example, a business that hires a third party to provide free samples of its products to consumers to generate reviews, without more, may have no reason to investigate the resulting reviews. However, a business may be considered “on notice” that resulting reviews are likely fake or false if such reviews are submitted too quickly, or if a certain number of reviews are submitted in a very short period of time or refer to the wrong product. All businesses should be aware of the new Rule and these nuances in its interpretation and application, and prepare accordingly to avoid regulatory scrutiny and heavy civil penalties and better foster consumer trust.
