Earlier this month, the Federal Trade Commission (FTC) announced a final rule to combat fake reviews and testimonials.[1]
For years, false testimonials have infiltrated social media sites and other websites. Consider the 2017 NCAA men’s basketball tournament, during which University of Kentucky fans left false reviews for “Rooferees,” a Nebraska roofing company.[2] Why did basketball fans in Kentucky submit fake reviews for a roofing company in Nebraska? Because a college basketball referee owned “Rooferees,” and Kentucky fans were unhappy with the way he refereed their game against the University of North Carolina.
But Kentucky fans moonlighting as amateur critics are not quite the conduct the FTC is targeting with its new rule. Rather, the focus is on businesses that create (or even buy) false testimonials for themselves, solicit negative reviews of competitors, suppress bad reviews, or intimidate consumers to remove negative reviews.
Fake reviews can poison fair and honest marketplaces. Even one false review can make it difficult for consumers to distinguish legitimate reviews from illegitimate ones, and good businesses from bad. As FTC Chair Lina M. Khan recently said, “[f]ake reviews waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors.”[3] So the FTC voted 5 to 0 to implement its new rule.
The FTC’s final rule generally prohibits the following:
- Fake or false consumer reviews, consumer testimonials, and celebrity testimonials;
- Buying positive or negative reviews;
- Insider reviews and consumer testimonials;
- Misrepresenting the nature of company-controlled review websites;
- Review suppression; and
The rule has sharp teeth: it permits the FTC to seek civil penalties against knowing violators.[5] Currently, the FTC can recover more than $50,000 per violation. The rule becomes effective 60 days after publication in the Federal Register.
Why It Matters
The FTC passed the rule to crack down on false reviews that can frustrate fair and honest competition. In the months to come, companies will need to reassess the way they advertise and market themselves—and the way they police their reviews. They should put policies and procedures in place to govern both employees and affiliated third parties like social media influencers and individuals operating under endorsement deals. We will be monitoring these industry changes as they develop.
[1] See https://www.ftc.gov/news-events/news/press-releases/2024/08/federal-trade-commission-announces-final-rule-banning-fake-reviews-testimonials.
[2] https://www.usatoday.com/story/sports/ftw/2017/03/28/kentucky-fans-cross-the-line-by-trashing-referee-john-higgins-business-on-facebook/99747670/.
[3] https://www.ftc.gov/news-events/news/press-releases/2024/08/federal-trade-commission-announces-final-rule-banning-fake-reviews-testimonials.
[4] Id.
[5] Id.