In August, the Federal Trade Commission (the "FTC"), the federal U.S. agency equivalent to Canada's Competition Bureau, issued a rule (the "Rule") to combat fake reviews and testimonials. The Rule will strengthen the FTC's enforcement toolkit by allowing it to seek civil penalties against "knowing violations," among other things.
In the Canadian context, it is important to note that the FTC and Competition Bureau often collaborate on important issues and share similar views with respect to violations and enforcement. On this point, the Competition Bureau noted in its Deceptive Marketing Practices Digest – Volume 1, Section 3. Online Reviews (its seminal guidance regarding false or misleading online reviews) that false or misleading online reviews is an international problem, and that the Competition Bureau takes note of FTC guidance in this area.
Accordingly, Canadian advertisers should carefully consider the Rule as we expect it will have a significant influence on the Competition Bureau's views on compliance, and it may be directly applicable to Canadian entities that are advertising and selling products or services to U.S. residents.
Significant enforcement mechanisms
The FTC has been focusing on false reviews and testimonials for years. As discussed in US Federal Trade Commission, online reviews: new guidance released, in 2022, the FTC published two guidance documents that outlined key principles for collecting, moderating, and publishing reviews in a manner that is unlikely to mislead consumers.
According to the FTC, however, guidance documents were not sufficient to deter false and misleading reviews and testimonials. This is why, according to a business blog posted by the FTC, it developed the Rule to clearly spell out "deceptive practices in this area, authorizing courts to impose civil penalties for knowing violations, strengthening [the FTC's] enforcement actions, and imposing a deterrent effect on bad actors."
The Rule now allows the FTC to impose civil penalties of up to $51,744 USD (approx. CAD) for each violation (each day that a violating review is publicly available is considered by the FTC as a new violation) provided that the violating organization knew or had constructive knowledge about the prohibited conduct.
Prohibited practices
The following is a high-level summary of practices that are prohibited under the Rule:
- Buying a specific sentiment Organizations can not pay reviewers to express a specific sentiment (whether that sentiment is positive or negative). For example, it is a violation to provide consumers with a $50 dollar gift card to leave a five-star review. Similarly, it is a violation to provide consumers with a $50 dollar gift card to leave a one-star review.
- Failing to make disclosures about insider reviews and testimonials Mangers and officers of an organization cannot publish reviews or testimonials about the organization's products/services without a clear and conspicuous disclosure of their connection to whatever it is they are reviewing. Similarly, officers and managers cannot ask their immediate relatives or the organization's employees for reviews without instructing these reviewers to include clear and conspicuous disclosures.
- Suppressing negative reviews Organizations cannot take any action that prevents or supresses negative reviews. Further, organizations cannot represent that a website displays every review, if only a portion of submitted reviews have been displayed.
- Claiming that a website is independent when it is not If an organization controls or operates a review website, it must ensure that the website accurately reflects this connection.
- Selling and buying fake social media indicators
Although perhaps not a traditional type of "review," the Rule also prohibits organization from selling or purchasing disingenuous social media indicators such as "likes" or "follows."
The Rule itself is new, but the underlying principles have not changed. While the Rule itself sets out the prohibitions in much more detail, the overarching takeaway is to ensure reviews accurately reflect consumer views, do not tamper with reviews and disclose any connection between the reviewer and the organization/product/service being reviewed.
Focus on Canada
False or misleading online reviews is an area of regulatory focus and active enforcement in Canada. Regarding the former, the Competition Bureau recently warned in a news release that companies could be liable under the Competition Act for false or misleading online reviews written by their employees. Regarding the latter, in recent years the Competition Bureau has initiated several significant enforcement actions targeting false or misleading reviews.
As noted above, we expect the Rule will have a significant influence on the Competition Bureau's views with respect to compliance, and therefore organizations should review the Rule, their current practices and consider their potential liability if their current practices do not comply with the Rule.
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