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ADventures in Law

When Can the FTC Get $50,000 for a Consumer Review Snafu? Key Things to Know about the Rule on the Use of Consumer Reviews and Testimonials

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The <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003consumerreviewstestimonialsfinalrulefrn.pdf" target="_blank" rel="noreferrer noopener">Final Trade Regulation Rule on the Use of Consumer Reviews and Testimonials</a> was issued yesterday. It becomes effective 60 days after the rule is published in the Federal Register, which has not happened yet so no clock is ticking just yet. But it’s good for advertisers to have some time to get ahead of this. In particular, companies should take a fresh look at their policies and practices for encouraging employees, friends, and family to post about the company’s products, and how they are moderating reviews (or deciding which reviews get published and which don’t), as such conduct is covered by the Rule. It was a surprise to us that all five commissioners voted in favor of the Rule. We have been eagerly awaiting some spicy dissent language from our new Republican commissioners. Perhaps this should not be a shock as the Rule really focuses more on the particularly egregious uses of reviews and testimonials that borders on fraud rather than the run-of-the-mill issues that most advertisers struggle with that are more generally covered by the <a href="https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-publishes-final-guides-governing-endorsements-testimonials/091005revisedendorsementguides.pdf" target="_blank" rel="noreferrer noopener">Guides Concerning the Use of Endorsements and Testimonials in Advertising</a>.

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We thought it would be helpful to review what is covered by the Rule.  But first, many may be wondering <a href="https://www.adventures-in-law.com/blogs/five-stars-for-speedy-delivery-ftc-takes-a-quick-and-major-step-toward-regulating-online-review-practices/" target="_blank" rel="noreferrer noopener">why we need to supplement</a> the longstanding business guidance on the use of testimonials and endorsements in advertising that was <a href="https://www.adventures-in-law.com/blogs/ftc-revises-endorsement-and-testimonial-guides/" target="_blank" rel="noreferrer noopener">recently updated last year</a> with a formal rule. Violations of any rule mean the FTC can seek penalties of up to <a href="https://www.adventures-in-law.com/blogs/rise-in-penalty-amounts-to-kick-off-the-new-year/" target="_blank" rel="noreferrer noopener">roughly $50,000 per violation</a>. The FTC a few years ago tried to back door into penalties for testimonial violations by <a href="https://www.adventures-in-law.com/blogs/ftc-cracks-down-on-endorsements-and-reviews/" target="_blank" rel="noreferrer noopener">sending those dreaded Notices of Penalty Offense letter</a>s. But as we flagged at the time, there are <a href="https://www.adventures-in-law.com/blogs/less-to-the-ftcs-notice-of-penalty-offenses-than-meets-the-eye/" target="_blank" rel="noreferrer noopener">real questions</a> whether and how the FTC can rely on these letters <a href="https://www.adventures-in-law.com/blogs/bamboozling-part-ii-the-ftc-brings-back-retro-penalty-offense-letters-like-bell-bottoms-and-big-hair/" target="_blank" rel="noreferrer noopener">to attempt to obtain penalties</a>. But with rules, it is far more cut and dry.

So bottom line, this rule ups the ante for violations, and responsible marketers will want to stay far away from any conduct that could arguably be swept up into the rule. Such as? Well . . .

Buying, selling or writing fake reviews/testimonials:  The general practice of soliciting reviews from real customers are outside the scope of the Rule. <a href="https://www.ftc.gov/business-guidance/blog/2024/08/well-pay-you-give-our-new-rule-good-review" target="_blank" rel="noreferrer noopener">The FTC’s blog</a> notes that fraudulent fake review practices, however have the potential to really go off the rails with widespread access to AI tools. What else can get swept in here that?  Perhaps things like encouraging loyalty program members to write reviews about a new product launch whether or not they have tried the product. The Rule also prohibits buying fake followers or likes to make you or your product look more popular.

Buying good reviews (or bad reviews about your competition): It is fine to offer incentives for reviews (as long as any material connections are disclosed of course) but specifically predicating payment or other goodies on the sentiment of the review is a Rule violation. It is a good idea to look at how you solicit reviews to make sure it is clear you are asking for truthful feedback and not just the glowing positives.

Review sites being falsely promoted as independent: Review sites owned by marketers that appear to be independent and objective are outlawed by the Rule. The FTC made some modifications to the initial proposed rule to clarify that it was not prohibiting consumer review forums on retail websites.

Lots of activity involving executive, employee or insider reviews. This is one that brands should take a close look at now, before the Rule becomes final. We all know you can’t require employees to create fake accounts to post reviews. But the Rule covers encouraging employee reviews and friend-and-family reviews and requires disclosures. In particular, the Rule requires that companies give clear instructions to employees about reviewing company products, including that they disclose in the review where they work. For there to be a Rule violation, there needs to be reviews without clear disclosures and knowledge by the company of such reviews, but a fresh review of how employees/agents/relatives are instructed about posting about the company is just good business.

Hiding Bad Reviews:  All companies moderate or review reviews before they are posted.  This makes great good sense, as your website should not include reviews with hate speech or PII.  But failing to post reviews simply because they are critical violates the Rule. It is a good time to kick the tires on your review moderation practices. Often this gets delegated to third parties, and taking a look at how a vendor moderates reviews on your behalf is key as well. The good faith key here is to have practices that treat good reviews the same as bad reviews in your decision-making process of what gets posted.

A few other things to note that jumped out to us at first read:

Disclaimers: The Rule speaks to material connection disclosures in connection with employee and company insider reviews and testimonials. The FTC reiterated that any such required material connection disclosures must be unavoidable and difficult to miss. This is different from the longstanding clear and conspicuous standard. The FTC received comments that this standard was ambiguous. The FTC disagreed stating simply: “‘Unavoidable means that a consumer cannot avoid a disclosure such as by failing to click on a link or by failing to scroll. ‘Easily noticeable’ is a simple and objective standard evaluated from the perspective of a reasonable consumer.” The FTC also addressed whether disclosures need to be on audio and video and had this to say: “If a communication makes an endorsement in only its visual or audio portion, then it should be sufficient for a disclosure to appear in the same format as the claim that requires the disclosure. On the other hand, if an endorsement is conveyed in both the audio and visual portions of a communication, then the disclosure should be made in both the audio and visual portions.” The FTC noted that this was the standard in the Rule as it relates to company disclosures and does not relate to standard influencer disclosures, which are not covered by the Rule. It is difficult to imagine why there would be a different standard for different situations requiring a material connection disclosure, so we are paying attention to this. The final Rule did make some changes from the initial proposed rule that some read as always requiring both audio and written disclosures.

Review Hijacking: The original proposed rule would have <a href="https://www.adventures-in-law.com/blogs/comments-hijack-review-hijacking-provision-of-proposed-rule-on-reviews/" target="_blank" rel="noreferrer noopener">prohibited review repurposing</a> or the kind of conduct from the FTC’s NBTY case where allegedly reviews for one product were reposted to reviews of a different product. The FTC removed this provision from the Rule because of timing concerns with resolving the numerous comments and concerns it received regarding this practice.

Quantifying the problem: the FTC includes some interesting data analysis on the dollars and time wasted based on problematic reviews and testimonials. It is interesting reading for those of us wonky types.

We will be digesting more and likely sharing additional observations with our readers over the next few weeks. We did converse with one of the FTC Staff attorneys who was one of the primary drafters of the Rule and its accompanying Statement of Basis and Purpose that reviewed the comments the FTC received. He said that the comments received from industry made the final Rule a better rule. We say it a lot but actually engaging with the FTC in the request for comment process can result in meaningful change.

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