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Seyfarth Synopsis: FTC publishes proposed
consent order with cosmetic company that posted fake customer
reviews but some FTC commissioners place doubt on its effectiveness
because there is no financial penalty.
Earlier this year, we reported that fake news consumer reviews was on
the federal regulators' radar, especially with the passage of
the Consumer Review Fairness Act in late 2017. We identified a
cosmetic company that faced negative media after a former employee
leaked an internal, company email that insisted employees post
positive reviews of a new product and even provided detailed
instructions on what to say about the product as well as how to
avoid tracing a review back to the company's IP address. As a
result of that activity, on October 21, 2019, the FTC brought a complaint for two violations under the Federal
Trade Commission Act: (1) making false or misleading claims that
the fake review reflected the opinions of ordinary users of the
products and (2) deceptively failing to disclose that the views
were written by the company's CEO and her employees.
In the press release announcing a proposed settlement of the complaint, Andrew
Smith, Director of the FTC's Bureau of Consumer Protection
states: "Dishonesty in the online marketplace harms shoppers,
as well as firms that play fair and square." Consistent with
the press coverage last year, the FTC's investigation revealed
that the cosmetic company's CEO, managers, and other employees
posted reviews of their products under fake accounts on a
third-party retailer's website. Pursuant to the proposed
settlement agreement, the company consented to (i) not make any
misrepresentations about the status of any endorser or person
providing a review of the product, (ii) that any of the
company's officers, agents, employees, and attorneys and all
other persons who participate with any of them who make a
representation about a product must disclose their connection; and
(iii) notify each employee, agent, and representative with clear
disclosure responsibilities for endorsements. In addition, the
company is subject to compliance reporting and monitoring
requirements. Noticeable absent from the settlement agreement is
any monetary fine or penalty, which Commissioner Rohit Chopra
raised in a separate statement and Commissioner Rebecca Kelly
Slaughter joined.
In dissenting the proposed order, Commissioner Chopra pointed
out it "includes no redress, no disgorgement of ill-gotten
gains, no notice to consumers, and no admission of
wrongdoing." Commissioner Chopra voices that because there is
no financial penalty, the proposed settlement is unlikely to deter
other potential wrongdoers. To this point, she explains that for
companies, the potential benefits of posting false reviews,
including, "higher ratings, more buzz, better positioning
relative to competitors, and higher sales," can outweigh the
potential cost of getting caught. Review fraud, however, goes
largely undetected, unless, as in this particular case, there is
some whistleblower action. By the proposed resolution, Commissioner
Chopra believes it suggests that even the narrow subset of
wrongdoers who are caught will face minimal sanctions from law
enforcement. This, of course, sends the wrong message to the
marketplace. Commissioner Chopra insists that while monetary relief
can be difficult to calculate, it should not deter form the FTC
from seeking it.
This matter raises two critical take-aways:
(1) As Commissioner Chopra identifies, review fraud is
permeating the online marketplace on popular websites, demanding
FTC action, including analyzing the problem and determining whether
e-commerce firms have the right incentives to police their
platforms.
(2) Deterrence is a key factor in an enforcement action, but it
is undermined when wrongdoers are merely asked to not break the law
again. This case was an instance in which the company and even its
CEO were strategically involved with review fraud and are getting
by with nothing more than a "stern talking to" not to do
it again. This type of conduct goes beyond strict liability in that
the parties were aware of the implications of their reviews,
raising product rankings, and by imposter means, hiding their IP
address and making multiple posts under different identities.
At this time, the proposed consent order has been placed on the
public record for 30 days for receipt of comments by interested
persons. After 30 days, the Commission will review the order again
along with the comments received to decide whether it should
withdraw the order or make it final.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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