ADventures in Law

Home | ADventures in Law

Part 2 in a Series on the FTC, Reviews and Endorsements

core/paragraph

A lot of ink has been spilled on many of the pending Federal Trade Commission (FTC) consumer protection rulemakings – commercial surveillance, subscription services and earnings claims, to name a few. But the rulemaking on reviews and testimonials has been a bit under the radar. We wrote about it&nbsp;<a href="https://www.adventures-in-law.com/ftc/the-15th-commission-meeting-brings-us-back-to-the-1970s-with-more-rulemaking/">last October</a>&nbsp;in a post that discussed the junk fees rulemaking as well as the reviews rulemaking. Apparently, the junk fees rulemaking struck a far larger nerve –&nbsp;<a href="https://www.regulations.gov/docket/FTC-2022-0069">with 6,000 comments filed</a>. In contrast, only 42 comments were filed in connection with the Advance Notice of Proposed Rulemaking on reviews and testimonials. That said, we have some major activity to discuss on the reviews rulemaking.

Last week, after finalizing&nbsp;<a href="https://www.ftc.gov/news-events/news/press-releases/2023/06/federal-trade-commission-announces-updated-advertising-guides-combat-deceptive-reviews-endorsements">changes to the Endorsements Guides</a>, the FTC issued a&nbsp;<a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003consumerreviewsandtestimonials_nprm.pdf">Notice of Proposed Rulemaking</a>&nbsp;(NPRM) on the Use of Consumer Reviews and Testimonials. Keeping us on our toes, FTC. In the NPRM, the FTC analyzes the 42 comments it received and provides its explanations and justifications for promulgating a rule in this area – and most importantly, provides text for a proposed rule.

Although this rulemaking perhaps did not excite the public like other rulemakings have, it is nevertheless a really important area of focus for the FTC, and the commission wants an easier path to monetary recovery when it comes to deceptive review practices. Devotees of this blog have learned about a lot of FTC cases that have challenged a variety of review practices, including actions involving&nbsp;<a href="https://www.adventures-in-law.com/ftc/ftc-reviews-fashion-nova-review-suppression-leads-to-double-trouble/">Fashion Nova</a>&nbsp;(alleged review suppression),&nbsp;<a href="https://www.adventures-in-law.com/ftc/all-eyes-on-us-the-latest-ftc-case-involves-contact-lenses-plus-an-important-lesson-about-incentivized-reviews/">Hubble</a>&nbsp;(incentivized reviews) and&nbsp;<a href="https://www.adventures-in-law.com/ftc/roomster-gets-one-star-review-ftc-six-states/">Roomster</a>&nbsp;(alleged fake reviews and in litigation). For all these cases, the FTC has alleged that the review practices violated the FTC Act prohibition on deceptive or unfair practices; however, there are real limits on how the agency can get money for FTC Act violations. Once and if the FTC creates a final rule here, it will be able to seek much broader relief, including civil penalties, because the commission has broader and clearer remedial powers for rule violations.

So what’s in the proposed rule? Well, it would address several of the questionable review practices that the FTC has talked about quite frequently as well as some more novel practices that it has also challenged of late. Although the rule is still in the proposal stage, if you are involved in the collection, curation or presentation of reviews, you should take a very close look at the proposal. Even without a rule, the FTC can and has challenged many of the practices described in the proposal under the FTC Act and will continue to do so. The commission is certainly not waiting to challenge these practices until a review is finalized.

Broadly speaking, here are some of the key practices that the rule would prohibit:

Creating, selling or purchasing fake consumer reviews or testimonials.&nbsp;The rule would prohibit businesses from writing or selling fake reviews and would also hold businesses liable if they knew or should have known that a review they purchased, procured or disseminated was false. (The knowledge standard would not apply in other circumstances.)

core/list-item

Review repurposing.&nbsp;The FTC referred to this practice as “review hijacking” in its recent case against&nbsp;<a href="https://www.ftc.gov/news-events/news/press-releases/2023/02/ftc-charges-supplement-marketer-hijacking-ratings-reviews-amazoncom-using-them-deceive-consumers">The Bountiful Company</a>. The proposal describes this as a practice “to use or repurpose a consumer review written or created for one product so that it appears to have been written or created for a substantially different product”; a substantially different product is defined as a product that “differs from another product in one or more material attributes other than color, size, count[] or flavor.”

Conditioned incentives for reviews.&nbsp;It would be unlawful to provide any incentive for a review where the incentive is conditioned on the writing of a review that expresses a particular sentiment, whether positive or negative.

Insider consumer reviews and testimonials.&nbsp;The rule would require clear and conspicuous disclosures when reviews or testimonials are from a company’s officers or managers or when companies disseminate “insider” testimonials or reviews. Insiders would include employees and their relatives.

Company-controlled review websites.&nbsp;Companies would not be allowed to represent that a website it controls provides independent reviews about a category of products that includes its own products or services.

Review suppression.&nbsp;Intimidation or unjustified legal threats cannot be used to prevent reviews from being written. Further, if negative reviews are suppressed, a business is not allowed to represent that the reviews on its website represent most or all of the reviews submitted. Interestingly, this provision provides the criteria that are allowable for suppressing reviews and includes reviews that are discriminatory, harassing, false or misleading or that contain trade secrets or privileged or confidential information.

Fake social media indicators.&nbsp;We all want to appear popular online, but this provision would make it unlawful to sell, distribute or purchase fake indicators of social media influence for commercial purposes.

core/list

There are many other things to point out about the proposal (since the NPRM does go on and on for 100 pages). First, it is particularly interesting that a good deal of the support for parts of the rule come from companies that regularly confront fake reviews and provide knowledgeable insights regarding the scope and magnitude of the fake review problem. As readers may know, to create new rules here, the FTC has to show that the practices are deceptive or unfair and prevalent in the marketplace. And certainly, for some of the rule provisions, there appears to be a fairly robust record of prevalence. The ultimate challenge will be whether there is a sufficient record for a few, some or all of the proposed rule provisions and whether the proposed rule is sufficiently tailored to address the deceptive practices. For example, the record appears more complete that buying or posting fake reviews is a prevalent problem as opposed to the practice of review repurposing, which has far less record support. These are the issues the FTC will have to address as it considers next steps in the complex&nbsp;<a href="https://www.adventures-in-law.com/ftc/you-do-have-time-for-this-the-new-wave-of-ftc-rulemaking/">Mag Moss rulemaking process</a>, which will likely include informal hearings and eventually a final rule. Promulgating rules is difficult, and the language and terms used can have a real impact on whether a rule is sufficiently tailored.

You might be wondering why the FTC needs to do this in light of the&nbsp;<a href="https://www.bakerdatacounsel.com/advertising/ftc-puts-700-companies-on-notice-to-expect-to-pay-penalties-for-any-endorsement-violations/">Notice of Penalty Offense letters</a>&nbsp;it sent out back in 2021, which would theoretically also allow for the recovery of monetary relief in some related situations. And the answer is because the practices in the proposed rule go quite a bit further than those letters in terms of specifying practices that would be unlawful, and there are&nbsp;<a href="https://www.adventures-in-law.com/ftc/less-to-the-ftcs-notice-of-penalty-offenses-than-meets-the-eye/">real questions</a>&nbsp;regarding how far the FTC can utilize the authority of the letters, which also only allows for the recovery of penalties. Rule violations can allow for penalties as well as other forms of monetary relief pursuant to Section 19 of the FTC Act.

You may also be wondering why the proposal focuses so heavily on review practices and is quite limited in addressing general practices regarding testimonials. I think the answer is twofold. First, the FTC is particularly focused on deceptive review practices that have the potential to more broadly impact consumer purchasing practices. And second, rules need to be sufficiently specific and must target practices that are deceptive and prevalent in the market. The FTC wants to create rules that will be upheld by a federal appeals court when they are eventually challenged – and a rule focused on deceptive reviews has the potential to be more specific and more difficult to challenge than rules regarding testimonial practices that can be far more fact-specific and nuanced.

Given the speed with which the FTC acted to get this proposal out, we can assume that this rule is fast-tracked. Comments are due 60 days after the proposal is published in the Federal Register, and that has not happened yet. So for now, the earliest due date would be in the beginning of September.

And if reviews are indeed your thing, then please head on over and check out a&nbsp;<a href="https://www.bakerlaw.com/podcasts/ad-nauseam-online-reviews">recent episode of our “Ad Nauseam” podcast</a>, which discusses online reviews and some recent FTC and National Advertising Division actions in this area, including a recent case involving review repurposing.

Five Stars for Speedy Delivery – FTC Takes a Quick and Major Step Toward Regulating Online Review Practices