Both business and consumers recognize the profound influence that consumer reviews and testimonials can have on commercial transactions. For businesses, reviews can make or break a business; for consumers, reviews can make or break a purchase. Accordingly, "[f]ake reviews not only waste people's time and money, but also pollute the marketplace and divert business away from honest competitors," said Lina M. Khan, a Chair of the Federal Trade Commission ("FTC").
To promote markets that are "fair, honest, and competitive," the FTC promulgated a new final rule banning fake reviews and testimonials, which took effect on October 21, 2024 (the "Rule"). Specifically, the Rule prohibits six categories of "unfair or deceptive acts or practices:"
- Creating, selling, or buying fake consumer or celebrity reviews or testimonials, including those generated by artificial intelligence or third parties falsely claiming to be consumers;
- Buying or incentivizing positive or negative reviews;
- Insider reviews or testimonials from officers, managers, employees, or agents of a business, or their immediate relatives, without clearly disclosing the relationship;
- Creating company-controlled review websites that falsely purport to provide independent reviews;
- Certain review suppression practices, including the use of groundless legal threats, physical threats, intimidation, or certain false public accusations; and
- Selling or buying fake indicators of social media influence, such as followers, reposts, or views, for commercial purposes.
The Rule also provides the FTC with expanded legal remedies, including the ability to seek civil penalties against violators, up to $51,744 per violation.
As the FTC has determined that "certain unfair or deceptive acts or practices involving consumer reviews or testimonials are prevalent," the Rule is expected to "help the vast majority of American consumers who rely on such reviews and testimonials to make better-informed purchase decisions" and it will "benefit honest competition."
The Rule introduces new legal risks and compliance challenges for businesses. Businesses should ensure that their acts and practices, use of artificial intelligence, and third-party contracts related to consumer reviews and testimonials are legitimate and in compliance with the Rule.
Whether a business with compliance questions or a consumer with concerns, it is important to discuss your questions with a professional.
This article originally appeared as a Gavel to Gavel guest column in the Journal Record on Oct. 31, 2024.
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.
