On August 14, 2024, the Federal Trade Commission (“FTC”) announced a new final rule aimed at regulating fake consumer reviews, testimonials, insider reviews, company-controlled websites, and fake indicators of social media influence (e.g., “likes”) (the “Final Rule”).
The Final Rule was promulgated pursuant to Section 18 of the FTC Act, which authorizes the FTC to issue rules that define acts or practices that are unfair or deceptive within the meaning of Section 5(a)(1) of the FTC Act, and it enables the FTC to seek civil monetary penalties for violations.
While it covers ground similar to the FTC’s recently updated endorsement guides (the “Guides”), which we wrote about last year, the Guides regulate the conduct of individuals who are paid or incentivized to endorse products, whereas the Final Rule applies directly to companies advertising through consumer reviews, testimonials, and social media.
The Final Rule has six primary subsections: (1) Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials (§ 465.2); (2) Buying Positive or Negative Consumer Reviews (§465.4); (3) Insider Consumer Reviews and Consumer Testimonials (§465.5); (4) Company-Controlled Review Websites or Entities (§465.6); (5) Review Suppression (§465.7); and (6) Misuse of Fake Indicators of Social Media Influence (§465.8).
Fake or False Consumer Reviews, Consumer Testimonials, and Celebrity Testimonials (§ 465.2): Section 465.2 prohibits businesses from: (a) writing, creating, or selling consumer reviews or testimonials that “materially misrepresent, expressly or by implication” information about the reviewer or the reviewer’s experience with the product or service; (b) purchasing consumer reviews or disseminating consumer reviews or testimonials which the business should have known contained misrepresentations; and (c) procuring consumer reviews from its own officers or employees or their immediate relatives containing misrepresentations.
The Final Rule defines a “consumer review” as a consumer’s evaluation of a product, service or business “published to a website or platform dedicated in whole or in part to receiving and displaying such evaluations.” “Consumer testimonials” are defined as advertising or promotional messages that consumers are likely to believe reflect the opinions, beliefs and experiences of a consumer who purchased or used the product, service, or business.
The prohibitions concerning purchasing, disseminating or procuring consumer reviews (as described in paragraphs (b) and (c)), however, do not apply to “generalized solicitations” to post reviews about consumer experiences or to reviews that appear on a website or platform as a result of the business “merely engaging in consumer review hosting.” The FTC notes that for “broad, incentivized solicitations to the general public or past customers to post about a product on social media…, it would not be reasonable to expect a business to know whether such resulting reviews or testimonials were fake or false.” (Final Rule p. 62).
Buying Positive or Negative Reviews (§ 465.4): Section 465.4 prohibits a business from providing compensation or other incentives to write or create consumer reviews expressing a particular sentiment, whether positive or negative. The FTC’s commentary on this section helps explain how it might interpret the rule. It notes that this section does not prohibit all paid or incentivized consumer reviews, only those where the “business soliciting the review provides compensation or an incentive in exchange for a review expressing a particular sentiment.” (Final Rule p. 78). Additionally, the FTC notes that this section “does not apply to testimonials, only to consumer reviews, and then only to reviews that appear on a website or portion of a website dedicated to receiving and displaying such reviews.”
Insider Reviews and Consumer Testimonials (§ 465.5): Section 465.5 regulates consumer reviews and testimonials provided by or solicited by a company’s own officers and managers. First, officers or managers must make a clear and conspicuous disclosure of their “material relationship to the business” if they are writing a consumer review or providing a testimonials, unless, in the case of a testimonial, it is otherwise clear to the audience.
Second, an officer or manager of a business cannot solicit consumer reviews from their immediate relatives, from their employees, or from their employees’ relatives, if the consumer reviews do not disclose the “material relationship to the business,” and the officer or manager either encouraged the reviewer not to make the disclosure, did not instruct reviewers to disclose the relationship, or knew or should have known that the review appeared without a disclosure and failed to take remedial steps. This prohibition, however, does not apply to generalized solicitations.
Notably, the requirements in this section § 465.5 apply to insider consumer reviews and testimonials even if the reviews do not contain a misrepresentation.
Company-Controlled Review Websites or Entities (§ 465.6): Section § 465.6 prohibits a business from “materially misrepresenting, expressly or by implication, that a website, organization, or entity that it controls, owns, or operates provides independent reviews or opinions, other than consumer reviews, about a category of businesses, products, or services including the business or one or more of the products or services it sells.” As one commentor noted, this section is “aimed at addressing the practice of marketers setting up purportedly independent websites, organizations, or entities to review or endorse their own product.” (Final Rule pp. 100-101). Notably, the section excludes consumer reviews, and it only applies to “material” misrepresentations that reviews are independent.
Review Suppression (§ 465.6): Section § 465.7 prohibits businesses from using groundless legal threats, physical threats, intimidation, or false public accusations in order to prevent a review from being written or created, or cause a review to be removed. This section also prohibits a business from suppressing negative consumer reviews about its own products or services on its own website, subject to certain exceptions, including that the review itself is reasonably believed to be fake.
Misuse of Fake Indicators of Social Media Influence (§ 465.8): Finally, Section § 465.8 restricts the sale, distribution, purchase or procurement of “fake indicators of social media influence,” which include indications of social media influence generated by bots, fake accounts, or hijacked accounts.
The Final Rule goes into effect 60 days after its publication in the federal register.
What This Means for Businesses That Use Reviews & Testimonials
The Final Rule requires companies that engage in this type of advertising ensure their practices are transparent and authentic, while also making sure that emerging technologies such as AI are not misused. Companies should also review their contracts with their third-party advertising and marketing partners and make sure that they require compliance with all governing FTC regulations. Noncompliance could result in severe financial penalties and lead to burdensome investigations. Given the FTC’s history of pursuing deceptive reviews under Section 5 of the FTC Act, we expect to see increased enforcement in the future.
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