Consumers often research a product or service before they make a purchase. Now more than ever, consumers rely on the reviews and testimonials they see online. This creates a breeding ground for deception. Enter the Federal Trade Commission (FTC).

The Proposed Rule

On June 30, 2023, the FTC proposed the Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, which seeks to prohibit marketers from engaging in deceptive practices with respect to their product/service reviews and testimonials. The FTC is concerned about the prevalence of these practices and believes that its proposed rule shows that the Commission is using "all available means to attack deceptive advertising in the digital age."

As background, the proposed rule came shortly after the FTC issued its revised Endorsement Guides. Although beyond the scope of this alert, the Endorsement Guides – in a nutshell – directed that 1) advertising must be true and not misleading, 2) endorsers must disclose material connections with the business, 3) testimonials must be true and represent typical results, and 4) required disclosures must be clear and conspicuous. The proposed rule also followed a series of FTC enforcement actions against companies that suppressed negative reviews and paid for fake reviews, including Fashion Nova and Hubble Contacts.  

The FTC believes there is a need for a rule specifying certain practices as illegal. The proposed rule would specifically prohibit the following practices:

1. Creating, Purchasing, Disseminating or Selling Fake Reviews and Testimonials. Good examples of practices that run afoul of this provision include advertising reviews or testimonials by someone who does not exist, did not use the product or service, or mispresented their experience. Note that this provision does not apply to third-party review platforms (e.g., Google, Amazon, Yelp, Facebook), unless the platform knew or should have known that a review that was disseminated was false (more on this below).
2. Hijacking Reviews. Businesses cannot use or repurpose a review written for one product so that it appears to have been written for a substantially different product.
3. Buying Positive or Negative Reviews. Businesses cannot pay or incentivize consumers contingent upon the writing of a consumer review expressing a particular sentiment, whether positive or negative.
4. Not Disclosing Insider Consumer Reviews and Testimonials. All endorsements by company employees, officers and their relatives must include clear and conspicuous disclosures.
5. Misleading Consumers Regarding Review Websites. Businesses cannot represent that a website they control or operate provides independent reviews about their own products or services.
6. Suppressing Reviews. Businesses cannot intimidate or threaten consumers to remove negative reviews. Granted, reviews that contain hate speech or breach confidentiality may be suppressed.
7. Selling, Distributing or Purchasing False Indicators of Social Media Influence. This provision applies to selling or purchasing false indicators such as friends, views, plays, reposts and comments.

Industry Reactions

Although the proposed rule is very comprehensive, several consumer organizations are not satisfied. They contend that the proposed rule does not apply to third-party review platforms unless the platform purchased the reviews, the reviews concern the platform’s own products, or the businesses knew or should have known that the disseminated review was false.

In its comment, Consumer Reports criticized the exemption of third-party review platforms and argued that the proposed rule "should obligate review platforms to take reasonable measures to root out fraud and deceptive reviews of their services" and found that "such an obligation would be consistent with companies' security obligations under Section 5 of the FTC Act to protect systems against abuse by any third party." Similarly, during an informal hearing on Feb. 14, 2024, Fake Review Watch argued that if the FTC lacks authority to hold third-party review platforms liable for disseminating fake reviews and testimonials, the Commission should at least require the platforms to be more transparent, such as giving users access to all reviews for a given business – even if those reviews have been removed by the platform.

Why would the FTC lack authority to control third-party review platforms? In its comment, Google stated that while it supported the effort to curtail fake reviews and testimonials, the proposed rule should not apply to third-party review platforms. Several comments point to Section 230 of the Communications Decency Act, which says that providers and users of interactive computer services have limited federal immunity and "shall [not] be treated as the publisher or speaker of any information provided by another information content provider." Consequently, those who oppose the proposed rule argue that its vague terms would impose liability on websites for merely hosting reviews and testimonials, which likely runs afoul of Section 230.

The FTC is aware of its limitations. Sam Levine, director of the FTC's Bureau of Consumer Protection, told The Washington Post that "[m]any of them [third-party review platforms] assert immunity under Section 230 of the Communications Decency Act, … a reference to the law that makes online forums not responsible for the content others publish on them. That would make it hard for the FTC to hold them accountable, even if it wanted to." In addition to the safe haven provided by Section 230, others argue that the proposed rule will chill truthful speech in violation of the First Amendment.

Takeaways

The proposed rule sends a clear directive to businesses to take steps to ensure compliance. Specifically, businesses should mitigate risk by developing policies and procedures for the collection and handling of consumer reviews. Businesses that hire advertising agencies should also take steps to monitor their systems. This may require training these third parties concerning the FTC's requirements. In addition, any businesses that use generative artificial intelligence (AI) should ensure that the software does not suppress, delete or misrepresent reviews.

Businesses are encouraged to not wait until the proposed rule is finalized. Though the U.S. Supreme Court's decision in AMG Capital Management, LLC v. FTC severely restricted the FTC's ability to seek equitable monetary relief under Section 13(b) of the FTC Act, the Commission may still seek civil penalties for violations of FTC rules under Section 19(a)(1) of the FTC Act. Remember that many of the prohibited practices codified in the proposed rule come from the Endorsement Guides. For example, the FTC may impose civil penalties for purchasing fake reviews, which is in violation of the Endorsement Guides (i.e., an FTC rule). The FTC may impose civil penalties of up to $51,744 per violation.