Podcast - The FTC’s Proposed Rule Banning Deceptive Reviews and Testimonials

Welcome to another podcast of Clearly Conspicuous. As we've noted in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory environment, make you aware of what's going on with both federal and state consumer protection agencies and give you practical tips for success. It's a privilege to be with you today.

FTC's Proposed Rule to Stop Fake Reviews, Suppression of Negative Reviews and Buying Positive Reviews

Today we discuss the Federal Trade Commission holding of an informal hearing on its proposed rule banning fake reviews and testimonials on February 13 of this year. During the hearing, which will be open to the public and available via webcast, parties will provide oral statements addressing issues raised during the rulemaking process.

As background, in July of last year, the FTC published a Federal Register notice proposing a new rule to stop marketers from using illicit review and endorsement practices such as fake reviews, suppressing honest negative reviews and paying for positive reviews, which allegedly deceive consumers looking for real feedback on a product or service and undercut honest businesses. In response to the proposed rulemaking, three of the 100 commentators requested to present their positions to an informal hearing. They include the Interactive Advertising Bureau, Fake Review Watch and a group of academic researchers. The lead staffer on this matter is Michael Atleson  in the FTC Bureau of Consumer Protection, and he is somebody that I and my colleagues have interviewed several times on our programs called Conversations That Matter.

What the Rule Would Prohibit

But let's dig deeper right now. The Federal Trade Commission proposed new rule to stop marketers from using illicit review and endorsement practices, such as using fake reviews, suppressing honest negative reviews and paying for positive reviews. In its Notice of Proposed Rulemaking, the commission cited examples of clear, deceptive practices involving consumer reviews and testimonials from its past cases and noted the widespread emergence of generative AI. Specifically, the proposed rule would prohibit 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, who did not have experience with the product or service, or who misrepresented their experiences. It also would prohibit businesses from procuring such reviews or disseminating such testimonials if the businesses knew or should have known that they were false or fake.

Then there's review hijack. Businesses would be prohibited from using or repurposing a consumer review written for one product so that it appears to have been written for a substantially different product. The FTC recently brought its first review hijacking case enforcement action. Buying positive or negative reviews, businesses would be prohibited from providing compensation or other incentives conditioned on the writing of consumer reviews, expressing a particular sentiment, either positive or negative. Then there's insider reviews and customer testimonials. The proposed rule would prohibit companies, officers and managers from writing reviews or testimonials of its products or services without clearly disclosing their relationship. It would also prohibit the businesses from disseminating testimonials by insiders without clear disclosures of their relationships, and it will prohibit certain solicitations by officers and managers of reviews from company employees or their relatives, depending on whether the businesses knew or should have known of these relationships.

Then there's company control review websites. Businesses would be prohibited 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. Then there's illegal reviews suppression. Businesses would be prohibited from using unjustified legal threats or other intimidation or false accusations to prevent or remove a negative consumer review. The proposed rule would also bar business from misrepresenting that the reviews on its website represent all reviews submitted when negative reviews have been suppressed.

And finally, selling the false media indicators. Businesses would be prohibited from selling false indicators of social media influence by false followers or views. The proposed rule would also bar anyone from buying such indicators to misrepresent their importance for a commercial purpose.

Closing Remarks

Although the FTC has taken strong enforcement action in this area recently, case-by-case enforcement without civil penalty authority just might not be enough for the FTC to deter clearly deceptive review and testimonial practices. We looked to the Supreme Court's decision in AMG Capital Management, which hindered the FTC's ability to seek monetary relief for consumers under the FTC Act. A rule clearly spelling out prohibited practices and allowing for the judicial imposition of civil penalties could strengthen deterrence and FTC enforcement action. So, here's the key takeaway. Social media advertising, fake reviews and its regulations on testimonial, endorsements are on the front burner at the FTC right now. Every single company in every single industry must pay attention to these developments and develop compliance management strategies to deal with these FTC developments in this space.

So stay tuned to further programs as we identify and address the key issues and developments and provide strategies for success. I wish you all continued success and a meaningful day. Thank you so much.