As we’ve previously reported, FTC practitioners and businesses alike have been anxiously awaiting details about the rule that will prohibit purportedly deceptive practices in connection with reviews and testimonials. Our readers likely recall the FTC’s advance notice of proposed rulemaking from November 2022, the notice of proposed rulemaking from June 2023, and the informal hearing on the proposed rule which occurred in February 2024. The wait is finally over: just yesterday, August 14, 2024, the agency announced the “Rule on the Use of Consumer Reviews and Testimonials” (the “Rule”). The final Rule, which the Commissioners unanimously approved, is a formal step to address alleged ongoing non-compliance with Section 5 of the FTC Act and the agency’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Endorsement Guides”), particularly in the consumer review space.
The Rule aligns with the FTC’s 2023 revised Endorsement Guides, and will explicitly prohibit six categories of conduct the FTC considers deceptive, including 1) fake consumer reviews and testimonials, whether consumer or celebrity; 2) purchasing reviews, whether positive or negative; 3) insider reviews without disclosure, including solicitation of reviews from relatives, employees, or agents; 4) company-controlled review websites that appear independent; 5) review suppression and misrepresentation; and 6) misuse of indicators of social media influence, such as fake follower or view counts. The text of the Federal Register Notice, 16 C.F.R. Part 465, is available online.
Link to The FTC Identifies Six Categories of “Deceptive” Reviews and Allows Stiff Economic Penalties The FTC Identifies Six Categories of “Deceptive” Reviews and Allows Stiff Economic Penalties
The Rule authorizes the FTC to seek civil penalties of up to $51,744 per violation, significantly enhancing the agency’s ability to obtain monetary relief and deter future deception through the use of reviews and testimonials.
Link to Highjacked Reviews are Not Technically Forbidden By the Rule — for Now Highjacked Reviews are Not Technically Forbidden By the Rule — for Now
Throughout the process of finalizing the Rule, the FTC collected public comments from a variety of stakeholders, including consumers, businesses, trade associations, and even a group of State Attorneys General. The FTC made various edits to the final Rule based on certain comments. Most notably, the FTC eliminated one element previously included in the proposed rule—review hijacking. Review hijacking or repurposing (e.g., taking reviews for one product and re-displaying them for a “substantially different product”) was intended to be included at 16 C.F.R. § 465.3. Commenters raised concerns about the definition of “substantially different product.” The FTC stated that it was “not able to resolve those concerns on the current rulemaking record,” so it did not include the prohibition on review hijacking in the final Rule. Instead, it noted that “[i]f the Commission chooses later to engage in further rulemaking regarding the provision, it will address” those comments at that time. Although review hijacking is not prohibited by the current version of the Rule, companies would be prudent to curb this practice as well because the FTC will undoubtedly take the position that such practices continue to violate Section 5 of the FTC Act.
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The Rule could go into effect as soon as October, so companies have a short amount of time to ensure their testimonial and review policies and practices are compliant. Many not uncommon review practices will be banned outright in just a few months:
- Review Suppression: Companies must ensure to not suppress (remove, block or withhold) consumer reviews on the grounds that they contain negative or unfavorable sentiments. This would obviously include removing unfavorable reviews, but also could include featuring or highlighting favorable reviews or displaying them in a way that distorts the full universe of consumer feedback. If equally applied, the FTC does acknowledge companies’ rights to suppress certain reviews, such as those including “defamatory, harassing, abusive, obscene, vulgar, or sexually explicit content.” Companies can also suppress content that is “clearly false,” or feedback that the “seller reasonably believes” is fake. However, companies should be cautious in suppressing consumer opinions, especially negative reviews, without objective reasons to do so.
- Insider Reviews: The Rule prohibits officers and managers from writing or creating reviews about their company’s product or services without a clear and conspicuous disclosure of the officer or manager’s relationship to the business, unless the relationship is otherwise clear to the audience. The Rule also makes it unlawful for officers or managers to solicit or demand consumer reviews from their immediate relatives, employees or agents without disclosure of the relationship to the business and where the officer or manager encouraged the reviewers not to make the disclosure, did not instruct the insiders to make such a disclosure, or knew or should have known that the review appeared without such disclosure and failed to take remedial steps. In addition, businesses are prohibited from disseminating consumer testimonials from officers, managers, employees or agents without clear and conspicuous disclosure of those individuals’ relationships to the company. However, to clarify that these prohibitions do not apply to “generalized solicitations” to groups of customers that may include employees or relatives, the FTC included a carve-out consistent with certain commenters’ requests. See 16 C.F.R. § 465.5(b)(2) & (c)(2). Of course, soliciting feedback from only those consumers whom the business believes to be happy customers would not be considered generalized solicitations. Companies should review any existing practices of encouraging employee reviews for compliance with these new provisions.
- Incentivizing Reviews: The FTC does not prohibit paid or incentivized reviews altogether, but the Rule does specifically prohibit all conditional incentivized reviews, meaning where a company offers an incentive and mandates that the review be positive or otherwise express a specific sentiment. The prohibition covers both express and implied conditions, so an explicit instruction that the review be positive is not required to violate the Rule. Moreover, the Commission won’t allow conditional incentivized reviews, even if the reviewer discloses both the fact that the review was incentivized and the fact that the incentive was conditioned on offering a specific sentiment. According to the FTC, conditional incentivized reviews might actually lead to false reviews (e.g., statements that an experience was positive, when in fact, it was negative). In the FTC’s view, no disclosure can cure a false review.
- AI in Reviews: The FTC stated that false reviews were prevalent in part due to “the use of generative artificial intelligence (‘AI’) tools that make it easier for bad actors to write fake reviews.” AI allows a bad actor to quickly and cheaply create large numbers of seemingly realistic, but fake, reviews. The FTC noted that AI-generated reviews are covered by the final Rule to explicitly deter such a practice.
Link to How Will the FTC Review You? How Will the FTC Review You?
Although the FTC has, to-date, already pursued companies for purportedly false and deceptive consumer reviews and testimonials under Section 5 of the FTC Act, we can surely expect to see even more enforcement once the Rule comes into effect. In fact, in a FTC Business Blog post following the announcement of the Rule, an agency representative explicitly stated: “Is this new rule going to sit on the proverbial bookshelf and collect dust? You better believe it won’t. The FTC will look to use it, when applicable, to go after those who employ these prohibited practices to hoodwink consumers and get an unfair leg up on their competitors. . . . We guarantee you won’t be getting a good review from us either.”
In this regard, the Rule is an additional tool in the Commission’s arsenal. Even before the Rule, the FTC pursued enforcement against unfair or deceptive acts or practices by invoking Section 5 of the FTC Act and the advice provided in the broader Endorsement Guides. Crowell previously wrote about the FTC’s 2023 update to the Endorsement Guides in Law 360. However, absent other actions such as notice of penalty offense letters, the FTC’s ability to obtain monetary relief from federal courts for Section 5 violations remains limited due to the Supreme Court’s 2021 decision in AMG Capital Management, LLC v. FTC. The agency first has to obtain a final cease and desist order by pursuing an administrative complaint. Only after all appeals of such an order have been exhausted can the FTC file a complaint in federal court seeking monetary relief under Section 19 of the FTC Act. And even then, monetary relief is only available in a Section 19 action where the Commission can prove that “the act or practice to which the cease and desist order relates is one which a reasonable man would have known under the circumstances was dishonest or fraudulent.” 15 U.S.C. § 57b (a)(2).
Bottom-line? The new Rule has just made it much easier for the FTC to pursue monetary damages for deceptive trade practices concerning reviews and testimonials.