Federal Trade Commission Proposes Stiff Penalties for Fake Reviews, Sets Sights on Social Media Influencers

SUMMARY: ENDORSEMENT GUIDES UPDATES

Incorporating feedback from public comments, the final revised Endorsement Guides reflect revisions targeting deceptive reviews and endorsements. The changes include:

• Outlining how a business may not deceptively manage reviews to distort what consumers think of a product. Although editing, curating and organizing reviews is permitted under certain circumstances, those actions must apply to both positive and negative reviews. For example, the FTC states that it is deceptive to list all positive reviews before negative reviews because consumers may not read through all reviews to reach the negative ones.

• Addressing incentivized reviews, reviews by employees and fake negative reviews of a competitor. Disclosures are required when reviews and endorsements are made in exchange for compensation. As a rule, the FTC requires those making public endorsements to disclose if they are being compensated in any way to advertise those products (including receiving the endorsed product for free, monetary compensation, publicity or an incentive such as entry into a sweepstakes). Additionally, review sites with material connections to brands they are reviewing must disclose these relationships and cannot state that they are “independent.” Sites that pay or accept payment for reviews also cannot state that their rankings are “objective.”

• Defining “clear and conspicuous” and clarifying that a platform’s built-in disclosure tools may be inadequate. Adequate disclosure is the responsibility of the influencer, not the platform. Just because a platform offers a feature that allows users to disclose paid endorsements does not mean that those endorsements meet the “clear and conspicuous” requirement of the Endorsement Guides. According to the FTC, an adequate disclosure must be placed where users are likely to see it, it must stand out and be easily readable, and it must be clear. The FTC notes that the phrase “contains paid content” may not be adequate on its own. For example, if an influencer advertises multiple products in one video—without identifying which product they were paid to include—the disclosure lacks clarity in the FTC’s opinion.

• Altering the definition of “endorsement” to clarify the extent to which it includes fake reviews, virtual influencers and social media tags. The FTC clarifies that tags in social media posts can constitute endorsements but are not always considered as such. Additionally, the updated Endorsement Guides expand the definition of “endorser” to include fake review writers and non-existent entities that purport to give endorsements.

• Clarifying the potential liability of advertisers, endorsers and intermediaries. Advertisers must now monitor and take responsibility for the actions of their endorsers, and advertisers can be liable for endorsers’ violations (in addition to the endorsers’ individual liability). An advertiser’s liability could extend to “deceptive endorsements” and not just whether an endorser’s statement is true. For example, an advertiser could be held liable for publishing an advertisement containing an endorser who makes a truthful statement that reflects atypical results of using the product.

• Emphasizing that child-directed advertising remains of special concern. Practices that would not ordinarily be questioned in advertisements directed toward adults may be questioned when directed to minors. However, the FTC has not imposed specific requirements for child-directed advertising.

In addition to the updated Endorsement Guides, the FTC published an updated comprehensive FAQs resource. This resource now provides specific guidance for influencers regarding disclosure of material connections on various social media platforms and sets out specific FTC views on influencer monitoring for brands and platform disclosure tools. This updated FAQ also incorporates additional guidance on using and publishing online reviews.

SUMMARY: PROPOSED RULE BANNING FAKE REVIEWS AND TESTIMONIALS

The FTC’s proposed “Rule on the Use of Consumer Reviews and Testimonials” seeks to update FTC authority “to attack deceptive advertising in the digital age.”

If the proposed rule takes effect, violations will carry a fine of up to $50,120 per violation for businesses and individuals. Marketers that rely on, solicit or post customer reviews should be aware of the unfair or deceptive acts or practices involving consumer reviews or testimonials that the FTC seeks to ban. These potentially prohibited practices include:

• Selling or obtaining fake consumer reviews and testimonials. The proposed rule would prohibit businesses from writing or selling consumer reviews or testimonials by someone who does not exist, did not use or experience the product or service, or falsely portrayed their experiences. The proposed rule would further prohibit businesses from obtaining such reviews or displaying such testimonials if they knew or should have known that the statements were fake or false.

• Review hijacking. The proposed rule would prohibit businesses from using or repurposing a consumer review written for one product such that it deceptively appears to have been written for a substantially different product.

• Buying positive or negative reviews. The proposed rule would prohibit businesses from offering compensation or any incentive conditioned on writing positive or negative consumer reviews.

• Writing insider reviews and consumer testimonials. The proposed rule would prohibit a company’s officers and managers from writing reviews or testimonials of its products or services without clearly disclosing their relationship to the company. This prohibition would also apply to these employees’ relatives.

• Running company-controlled “independent” review websites. The proposed rule would prohibit businesses from creating or controlling a website that claims to provide independent opinions about a category of products or services that includes its own products or services.

• Review suppression via intimidation or other illicit means. The proposed rule would prohibit businesses from using intimidation, threats or false accusations to prevent or remove a negative consumer review. It would also prohibit businesses from misrepresenting that the reviews on its website represent all reviews submitted when negative reviews have been suppressed or deleted.

• Selling fake social media indicators. The proposed rule would prohibit businesses from selling false and deceptive indicators of social media influence, such as fake followers or views.

The FTC is seeking public comment on the proposed rule, which has not yet been published in the Federal Register. Businesses that could be impacted by this rule are encouraged to submit comments within 60 days after its publication.

Royce Brosseau, a summer associate in the Washington, DC, office, also contributed to this article.