By Leonard L. Gordon, Michael A. Munoz & Ellis McKennie

On Tuesday, February 13, the Federal Trade Commission (FTC) held an informal hearing regarding the Proposed Rule on the Use of Consumer Reviews and Testimonials. Three interested parties each had the opportunity to submit 30 minutes of oral commentary on the proposed rule and generally voiced concerns about the rule’s ability to address the issues surrounding consumer reviews.

The FTC’s proposed rule seeks to prohibit certain unfair or deceptive acts involving consumer reviews and testimonials. Specifically, it would prohibit buying positive reviews, selling or obtaining fake reviews, suppression of negative reviews, and selling fake social media indicators. Perhaps most importantly, if the rule becomes final, the FTC would be able to seek civil penalties against those engaged in violative review and testimonial practices. Previously, the FTC has only been able to obtain injunctive relief when combating fake reviews, and would have to rely on state attorneys general to join a suit to obtain monetary relief.

The first testifying party, Fake Review Watch, argued that the rule doesn’t go far enough to increase transparency from third-party review platforms that host reviews for companies potentially violating the proposed rule. Fake Review Watch indicated that, although Section 230 of the Communications Decency Act likely protects third-party review platforms from liability for hosting reviews, the FTC may have the ability to force third-party review platforms to increase transparency, which could increase the trust in reviews. Specific recommendations from Fake Review Watch include requiring third-party platforms to show users the number of fake reviews removed, give access to information for all removed reviews, provide the geographic location of reviewers, and link to a reviewer’s other reviews.

Next, the Interactive Advertising Bureau (IAB) shared concerns that the proposed rule violates Section 230 and the First Amendment. IAB stated that the proposed rule could be chilling on speech and not without excessive cost of compliance for those subject to the proposed rule. In addition to the substantive critiques, IAB remained critical of the lack of transparency and participatory process required by the FTC’s Magnusson-Moss rulemaking procedures. IAB argued that curtailing these procedures has impeded the FTC’s ability to promulgate an effective rule.

Finally, Ben Beck, a professor from Brigham Young University introduced multiple studies on the potential impact of the proposed rule and its ability to improve consumer trust. The study concluded that there are five effective ways to build trust in reviews: identity disclosure, monitoring, sanctioning, community building, and status endowment. Inasmuch as privacy is a key factor in any policy decision, the professor advocated against identity disclosure in the proposed rule, as it could present a host of privacy issues, such as misuse and exploitation. However, he argued that if the other four “governance mechanisms” are properly implemented, then identity disclosure in reviews is unnecessary.

At the conclusion of the interested parties’ testimony, the presiding administrative law judge outlined the remainder of the informal rulemaking process. Any comments in response to proposed disputed issues of material fact are due on February 20, and if another informal hearing is needed, that will take place on February 27. Be sure to check back in as we continue to follow the rulemaking process.

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