United States: New York Attorney General Settles With Medrite And Carmel Over Paid Online Consumer Reviews

MedRite Urgent Care and Carmel Car & Limousine Service have settled with the New York State Office of the Attorney General over claims that they paid or incentivized customers to post positive reviews on various consumer-facing websites, and in the case of MedRite, paid third parties who had not used MedRite's services to post reviews online. The attorney general had alleged that these practices violated New York state law as well as the Federal Trade Commission's (FTC) Guides Concerning the Use of Endorsements and Testimonials in Advertising (the "FTC Endorsement Guides"). As a part of the settlement, MedRite and Carmel agreed to pay $100,000 and $75,000 in penalties, respectively, and to increase the transparency of their consumer reviews in the future.

MedRite Settlement

MedRite is an emergency care service that provides individualized health care on a walk-in basis. According to the attorney general's office, beginning in 2012, MedRite paid internet advertising companies and freelance writers to post positive reviews on Yelp.com, CitySearch, Yahoo Local and Google Plus at a rate of $10 and $25 per review. In particular, MedRite solicited writers via job postings on Craigslist.com to write positive reviews, and in 2014, began emailing Yelp users via their Yelp accounts and offering to pay the users for their reviews. Upon discovering this tactic, Yelp posted a consumer alert for 90 days on MedRite's Yelp profile, notifying consumers that MedRite was "caught red-handed trying to buy reviews."

Importantly, MedRite did not require any of the paid reviewers to actually visit MedRite's facilities or experience its services, nor did it require any of the paid reviewers to disclose the paid nature of their reviews.

Carmel Settlement

Carmel is a car service based in New York City. According to the attorney general's office, between May and July, 2016, Carmel sent over 160,000 email messages to its customers requesting that they rate their most recent ride with Carmel. Customers were offered the option to rate the ride "Perfect" or "Good," for which they were offered a $10 discount off their next ride, or "Bad," for which they would not receive a discount. Further, whereas the "Perfect" or "Good" links directed users to consumer review websites such as Yelp.com, the "Bad" link directed consumers to a web portal run by Carmel, which allowed consumers to provide feedback that was not posted publicly. As was the case with MedRite, Carmel did not instruct consumers to disclose that they received discounts for posting positive reviews.

Allegations Indicate Trend

In both cases, the New York State Office of the Attorney General alleged that the practices at issue violated both New York state's Executive Law Section 63(12) and General Business Law Sections 349 and 350, as well as the FTC Endorsement Guidelines. In particular, the attorney general alleged that MedRite's and Carmel's practices would lead reasonable consumers to believe that the company at issue was being reviewed by a neutral, third-party customer, even though the reviews were specifically incentivized via both monetary compensation and discounts for future services. In the case of MedRite, the attorney general also alleged that the failure to require reviewers to actually visit MedRite's facilities and experience its services misled consumers.

This is not the first time Attorney General Eric T. Schneiderman has investigated false online reviews. In 2013 and again in 2016, the attorney general's office settled with companies that paid for positive reviews that were either fake or did not disclose that they were paid for. As was the case here, Attorney General Schneiderman cited both New York state law and the FTC Endorsement Guides in alleging that the conduct at issue was deceptive.

Best Practices

We wrote earlier this year about the FTC's action against Lord & Taylor for its failure to require disclosures in a native advertising campaign (click here to read the D&G Alert on this topic). With both state and federal regulators focusing on native advertising content online, brands and agencies must ensure that the nature of any paid placement is fully disclosed to consumers. Where the native content involves reviewing a product or service, advertisers should consider the following guidelines:

  • Incentivizing third parties who have not actually used a product or service to submit positive reviews is false advertising, regardless of whether the nature of their compensation is disclosed;
  • Incentivized consumer reviews must be accompanied by prominent disclosures that describe the nature of the compensation received for the review; and
  • Broad-based attempts to promote positive reviews while suppressing or hiding negative reviews are likely to run afoul of state and federal consumer protection laws.

Bottom Line

The New York State Office of the Attorney General has made clear that it will continue prosecuting businesses that incentivize positive reviews without adequate disclosure, and that it will consult the FTC Endorsement Guides in interpreting New York state consumer protection laws. Regardless of how the changing political climate may affect the FTC's future enforcement priorities, advertisers and brands across industries can expect state attorneys general to continue enforcing both state and federal consumer protection laws as they apply to online reviews.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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