Authors: Jay Purcell, Shareholder; Kaci Hohmann, Attorney; Blake Marvis, Attorney; Leticia Maskell, Law Clerk
Summary.
On July 31, 2023, the Federal Trade Commission (“FTC”) published a proposed rule ((88 FR § 49364, entitled “Trade Regulation Rule on the Use of Consumer Reviews and Testimonials”) (the “Proposed Rule”)) focusing on businesses that self-publish reviews of their own products and services. Many businesses include reviews on their own websites, use testimonials in advertisements, and host reviews of other companies’ products. The Proposed Rule is aimed at advertisements and websites with reviews and testimonials. Please be aware that this memo is written to be informational only and is not legal advice. To understand how the Proposed Rule impacts your business, an individualized analysis is required. Until the final rule is promulgated, the Proposed Rule is not binding.
Background.
Anywhere you find e-commerce, you find reviews. From podcasts to Amazon to Weedmaps, customer reviews are a staple of modern advertising, especially consumer generated stars or scores. Unfortunately, many reviews are deceptive or fraudulent; authors are compensated, fictitious, or controlled by the merchant. Because these reviews inundate e-commerce, the FTC is taking action to prohibit deceptive reviews.
LendEDU.
The FTC’s case against LendEDU provides an example of the types of conduct the Proposed Rule will prohibit. LendEDU informed consumers that its rankings were objective, however, LendEDU allowed merchants to buy rankings. In addition, LendEDU paid or incentivized its employees, friends and family to write positive reviews of LendEDU on trustpilot.com; 90% of the 5-star reviews were written by people affiliated with LendEDU. The FTC forced LendEDU to pay a $350,000 fine and LendEDU’s reputation was destroyed. LendEDU’s founders were also named in the FTC’s complaint, meaning that both LendEDU and the individuals behind LendEDU likely paid a fortune in legal costs. The $350,000 fine may be just the tip of the penalty iceberg.
“Mattress Wars.”
A series of lawsuits filed by Casper Sleep, Inc. against three high-profile mattress review sites, as well as subsequent claims filed between Casper Sleep, Inc. and Nectar Brand LLC, further illuminate review-fixing practices. The heart of these cases is the relationship between a company and “reviewers.” In 2017, Casper claimed the review site Sleepopolis had actively discouraged users from purchasing Casper mattresses in response to Casper declining to renew its affiliate agreement with Sleepopolis. In separate litigation, Nectar argued that Casper unfairly influenced reviews when Casper indirectly acquired Sleepopolis and positive reviews then proliferated.
Rulemaking.
The FTC’s rulemaking process began last year and recently published its Proposed Rule. Impacted companies and consumers are encouraged to deliver feedback to the FTC by September 29, 2023. Submit your comments to https://www.regulations.gov and include “Reviews and Testimonials NPRM, R311003” in your comment. A final rule will likely go into effect later this year. Even though we cannot predict the exact text of the final rule, final rules generally fit within the contours of the proposed rules. Businesses can begin preparing now for what’s likely.
Anticipated Final Rule.
- Businesses may not write, create, or sell reviews or testimonials by fictitious authors, by authors who never used a product, or that are fraudulent. In other words, if a company’s website contains reviews that it knows are fake, these should come down. If a company paid for reviews to be created elsewhere, and the company knows these are fake or misleading, these also should come down.
- Businesses cannot pay for fake customer reviews. For a testimonial to stay on a company’s own website or in its advertisements, it should be genuine; in other words, the review should be written by a real human being who really used the product or service.
- Businesses cannot manipulate real reviews to appear written for another product. Generally, a company should never change a review for product A, to apply to product B.
- Businesses cannot offer compensation or incentives in exchange for writing a review that contains a particular sentiment. This means, a business cannot buy negative reviews of a competitor, and it cannot purchase positive reviews of itself. What about giving free products to users, and asking them to write reviews? This is fine, but the recipient needs the freedom to write a genuine review. “We’ll give you a weekend at the hotel, but only if you give us 5-stars” – this is prohibited. “We’ll give you a weekend at the hotel, but only if you write a review” – this is permitted.
- Businesses cannot publish reviews that are written by affiliates of the business (family, friends, staff), unless a “clear and conspicuous disclosure” is provided. Clear and conspicuous disclosure means the disclosure is unavoidable to viewers and does not require any clicking or mouse-hovering.
- Businesses may not create websites that pretend to be independent reviews when these sites are controlled by the business.
- Businesses may not suppress reviews by making unjustified physical or legal threats, intimidation, or false accusations.
- Businesses cannot report that a selection of reviews is “most or all” of its reviews. For example, a business cannot refuse to publish negative reviews and only publish positive reviews while representing that the published positive reviews represent most or all reviews. Essentially, the FTC is attempting to prohibit negative review suppression. However, if a business adopts a uniform fair “non-publication” criterion, reviews that fall within the criteria can remain unpublished or be taken down from the review website. Approved reasons for non-publication include: if a review contains confidential or trade secret information, is abusive, harassing, obscene, vulgar, contains personal information or likeness, is discriminatory, false or misleading, or is reasonably believed to be fake.
- Businesses are prohibited from creating fake social media accounts to misrepresent customer sentiment. For example, a business could not create a fake social media account or pay for the creation of a fake social media account that boosts or positively reviews the products or services of the business.
Next Steps.
If your advertising or website includes testimonials or customer reviews, that’s fine. A business should audit the reviews it promotes or publishes and determine if any are inauthentic or written by someone fake or controlled by the business. In addition, a business should stop buying reviews (positive or negative) and any gifting-relationships with review authors should allow for the reviews to be honest. Finally, a business should stop sponsoring any “controlled” review websites; meaning, if the business created a fake organization that creates glowing reviews about the business or terrible reviews about a competitor, this arrangement should be wound down in the coming months.
Please contact Blake Marvis, Jay Purcell, or Kaci Hohmann to discuss how the Proposed Rule will impact your business specifically.
