FTC Bans Fake Reviews & Testimonials

The fine line between marketing and manipulation has been more clearly defined by a rule announced on August 14, 2024 by the Federal Trade Commission (FTC). Setting minimum enforceable standards for what constitutes unfair or deceptive consumer marketing practices will allow the FTC “to strengthen enforcement, seek civil penalties against violators, and deter AI-generated fake reviews”, in its own words. This rule (16 CFR Part 465) forbids the sale or purchase of reviews and also aims to deter use of artificial intelligence (AI) or other tools to generate reviews. It’s effective October 21, 2024, so businesses and consumers should be aware and know how to avoid violations or how to report them.

The final rule prohibits the following:

Fake or False Consumer Reviews, Consumer Testimonials, and Celebrity Testimonials: The final rule addresses reviews and testimonials that misrepresent that they are by someone who does not exist, such as AI-generated fake reviews, or who did not have actual experience with the business or its products or services, or that misrepresent the experience of the person giving it. It prohibits businesses from creating or selling such reviews or testimonials. It also prohibits companies from buying reviews (positive or negative), procuring them from company insiders, or disseminating such testimonials, when the business knew or should have known that the reviews or testimonials were fake or false. (16 CFR § 465.2) Reviews must be real and honest.

Buying Positive or Negative Reviews: The final rule prohibits businesses from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative. It clarifies that the conditional nature of the offer of compensation or incentive may be expressly or implicitly conveyed. (16 CFR § 465.4) No payola.

Insider Reviews and Consumer Testimonials: The final rule prohibits certain reviews and testimonials written by company insiders that fail to clearly and conspicuously disclose the giver’s material connection to the business. It prohibits such reviews and testimonials given by officers or managers. It also prohibits a business from disseminating such a testimonial that the business should have known was by an officer, manager, employee, or agent. Finally, it imposes requirements when officers or managers solicit consumer reviews from their own immediate relatives or from employees or agents – or when they tell employees or agents to solicit reviews from relatives and such solicitations result in reviews by immediate relatives of the employees or agents. (16 CFR § 465.5) Reviewers must disclose connections to the business, if any.

Company-Controlled Review Websites: The final rule prohibits a business from misrepresenting that a website or entity it controls provides independent reviews or opinions about a category of products or services that includes its own products or services. (16 CFR § 465.6) Can’t fake independence.

Review Suppression: The final rule prohibits a business from using unfounded or groundless legal threats, physical threats, intimidation, or certain false public accusations to prevent or remove a negative consumer review. The final rule also bars a business from misrepresenting that the reviews on a review portion of its website represent all or most of the reviews submitted when reviews have been suppressed based upon their ratings or negative sentiment. (16 CFR § 465.7) We’re glad our age-old guidance still stands for what to do with negative reviews: ONE STAR!?!? What to do if your Business gets a Bad Online Review

Misuse of Fake Social Media Indicators: The final rule prohibits anyone from selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account. This prohibition is limited to situations in which the buyer knew or should have known that the indicators were fake and misrepresent the buyer’s influence or importance for a commercial purpose. (16 CFR § 465.8) Nobots.

The overarching aim is to stop deceptive practices that can mislead inquiring minds about the quality of goods and services. Anyone who cares enough to look for reviews wants to know about genuine experiences so they can gauge the value or usefulness for themselves, and it’s not helpful to see anything contrived. This gives the FTC teeth.

Applying the Rule: Advertisers including companies and agencies should update policies and practices to comply with these new minimum standards for fair advertising. You may need additional social media monitoring or third-party vendor oversight to steer clear of violations. Educate your employees, including senior officers (whether they use social media or not), about disclosure obligations around insider posts and limits on direct and indirect solicitations of reviews by relatives, employees, and agents. Ensure any contracted third-party marketing entities or influencers are aware of their compliance responsibilities. Consult with experienced legal counsel to ensure development, training, and oversight covers the bases.

Reporting Violations: Consumers can visit https://reportfraud.ftc.gov/ to report fraud to the FTC, including violations of these new rules. There is no private right of action, so it will only be enforced by the FTC. An interesting example of a legal battle involving fake reviews was the Purple Innovation, LLC v. Honest Reviews, LLC saga based on a competitor-affiliated reviewer posting negative reviews about Purple mattresses without disclosing the relationship, which led to an injunction, sanctions, and eventual settlement: https://lawfulmasses.com. This rule could save parties lots of time and legal fees to handle these sorts of sordid issues.

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