The Federal Trade Commission (the FTC or the Commission) voted on August 14 to approve its Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (Final Rule). The Final Rule, which will be effective on October 21, 2024, will ban marketers from using fake reviews, consumer testimonials and celebrity testimonials, and will prohibit companies from paying for either positive or negative reviews. It will authorize the FTC to seek consumer restitution and, for knowing violators, civil penalties of up to $51,744 per violation.
The Final Rule builds on the Biden-Harris Administration's efforts to aggressively police practices that "degrade" the "quality of life" of Americans. 1 Just days before the FTC's vote, for example, the White House released a Fact Sheet highlighting efforts designed to "crack down on everyday headaches and hassles that waste Americans' time and money."2
During the FTC's September 19 Open Commission Meeting, FTC Chair Lina Khan described the new rule as one that "will make a marketplace that is better for consumers and honest businesses alike." FTC staff attorney and primary author of the new rule Michael Ostheimer further remarked that the goal of the rule is to "focus on truly egregious and inarguably deceptive or unfair practices involving consumer reviews and testimonials, while not burdening honest business."
To be sure, the FTC has long placed companies that employ fake reviews in its crosshairs. In 2023, for example, the FTC updated its existing guidance (Guides Concerning Use of Endorsements and Testimonials in Advertising (the Endorsement Guides)) to reflect current marketing trends, including social media and consumer reviews, and to articulate principles for compliance with Section 5 of the FTC Act.3 The FTC also has a long history of enforcement actions and taking other efforts to deter deceptive reviews and testimonials.4 In 2019, for example, the FTC filed a complaint against a skincare company for allegedly posting fake reviews and failing to disclose that reviewers were employees.5 In 2020, the FTC brought an action against a tea marketer for allegedly deceptive health claims and endorsements by well-known social media influencers who did not adequately disclose they were being paid for their posts.6 The FTC also sentwarning letters to the 10 influencers named in the complaint, which included Cardi B—though notably, while the Endorsement Guides warn that failure to disclose a "material connection" is deceptive, such practices by themselves are not prohibited by the Final Rule, which is narrower in scope.7 Following this, in 2021, the FTC issued a Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials.8 In 2022, the FTC challenged an online fashion store's alleged misrepresentation that the reviews on its website reflected the views of all customers who submitted reviews, when in fact, reviews with ratings lower than four stars were being suppressed.9 And even more recently, in November 2023, the FTC sent warning letters to social media influencers; in particular, the letters identified that the influencers failed to adequately disclose that they were paid by the industry to promote such content.10
Businesses that make use of consumer reviews and testimonials should consider reviewing both the recently published notices and the prohibitions in the Final Rule (discussed below) to evaluate whether their current practices and disclosures are sufficient for compliance. Furthermore, businesses and marketers should review the Endorsement Guides, which cover a broader range of practices than does the Final Rule, which focuses on a very specific subset of deceptive practices that the FTC has found to be prevalent (e.g., review suppression, fake reviews).
Key Highlights of Final Rule
Issuance of the Final Rule also follows an advance notice of proposed rulemaking (which we wrote about here) and a notice of proposed rulemaking. As the FTC noted in the background to the Final Rule, "the Commission received 100 responsive and non-duplicative comments" and while "some commenters raised concerns and recommended specific modifications or additions to the Commission's proposal, the majority of commenters generally supported the Commission's proposal." The Final Rule, which will go into effect on October 21, 2024, allows the FTC to seek significant civil penalties (up to $51,744 per violation of a trade rule) in addition to other forms of consumer redress.11
Notably, the Final Rule prohibits:
– Fake or False Reviews and Testimonials
– Businesses are prohibited from writing, creating or selling consumer reviews, consumer testimonials and celebrity testimonials that materially misrepresent (i) the existence of the person giving the review (e.g., AI-generated reviews or testimonials); and (ii) the experience of the person giving the review.
– Businesses also cannot buy, procure or disseminate such reviews or testimonials where they knew or should have known that the reviews or testimonials were fake or false. There are also explicit prohibitions against the procurement of reviews from a business's officers, managers, employees or agents, or any of their immediate
Footnotes
1 See Fact Sheet, White House, FACT SHEET: Biden-Harris Administration Launches New Effort to Crack Down on Everyday Headaches and Hassles That Waste Americans' Time and Money (Aug. 12, 2024), https://www.whitehouse.gov/briefing-room/statements-releases/2024/08/12/fact-sheet-biden-harrisadministration-launches-new-effort-to-crack-down-on-everyday-headaches-and-hassles-that-wasteamericans-time-and-money/.
2 See id. ("The FTC has proposed a rule that, if finalized as proposed, would stop marketers from using illicit review and endorsement practices such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, which deceive consumers looking for real feedback on a product or service and undercut honest businesses.").
3 The Endorsement Guides cannot be directly enforced by the FTC but provide examples of disclosures and other steps that marketers can take to comply with Section 5 when using endorsements or testimonials and describe practices the FTC has found to be deceptive. See Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255.0(a) (2023).
4 See, e.g., Complaint, In the Matter of Sunday Riley Modern Skincare LLC, Docket No. C-4729 (Oct. 21, 2019), https://www.ftc.gov/system/files/documents/cases/192_3008_sunday_riley_complaint_0.pdf [hereinafter Sunday Riley Compl.]; In the matter of Fashion Nova, LLC, Docket No. C-4759 (Mar. 21, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/1923138C4759FashionNovaComplaint.pdf [hereinafter "Fashion Nova Compl."].
5 See Sunday Riley Compl. Note that the conduct alleged would be prohibited under the Final Rule.
6 See Press Release, FTC, Tea Marketer Misled Consumers, Didn't Adequately Disclose Payments to WellKnown Influencers, FTC Alleges (Mar. 6, 2020), https://www.ftc.gov/news-events/news/pressreleases/2020/03/tea-marketer-misled-consumers-didnt-adequately-disclose-payments-well-knowninfluencers-ftc-alleges.
7 See id. For examples of practices that would be prohibited by the Final Rule, see Sunday Riley Compl.; Fashion Nova Compl.
8 See Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials, FED. TRADE COMM'N (2021), https://www.ftc.gov/system/files/attachments/penaltyoffenses-concerning-endorsements/notice-penalty_offenses-endorsements.pdf. Note that a Notice of Penalty Offenses lists certain types of conduct that the FTC has determined to be unfair or deceptive via one or more litigated administrative cases. By sending such notices, the FTC puts the companies on notice of its holdings so that it can seek civil penalties if the company engages in practices the Commission previously has held were deceptive. See Notices of Penalty Offenses, FED. TRADE COMM'N: ENFORCEMENT, https://www.ftc.gov/enforcement/penalty-offenses.
9 See Fashion Nova Compl. Note that the conduct alleged would be prohibited under the Final Rule.
10 See Press Release, FTC, FTC Warns Two Trade Associations and a Dozen Influencers About Social Media Posts Promoting Consumption of Aspartame or Sugar (Nov. 15, 2023), https://www.ftc.gov/newsevents/news/press-releases/2023/11/ftc-warns-two-trade-associations-dozen-influencers-about-social-mediaposts-promoting-consumption.
11 Section 5(m) of the FTC Act allows the Commission to pursue civil penalties where: (1) there has been a violation of any FTC rule involving unfair and deceptive acts or practices (but excluding "interpretive rule[s] or a rule violation of which the Commission has provided is not an unfair or deceptive act or practice"). See 15 U.S.C. § 45(m)(1)(A). Violations of Section 5(m)(1)(A) are calculated on a per-violation basis, and, as of 2024, defendants can be liable for up to $51,744 per violation. See Press Release, Fed. Trade Comm'n, FTC Publishes Inflation-Adjusted Civil Penalty Amounts for 2024 (Jan. 11, 2024), https://www.ftc.gov/newsevents/news/press-releases/2024/01/ftc-publishes-inflation-adjusted-civil-penalty-amounts-2024.
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