FTC Begins Rulemaking on Reviews and Endorsements

The Federal Trade Commission announced today that it is considering issuing new rules to "combat deceptive or unfair review and endorsement practices, such as using fake reviews, suppressing negative reviews, and paying for positive reviews."  In an Advance Notice of Proposed Rulemaking, the FTC is seeking public comment on whether the FTC should, in fact, issue a trade regulation rule on the use of reviews and endorsements that would permit the FTC to obtain civil penalties from advertisers who violate the law. 

In announcing the ANPR, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, "Companies should know by now that fake reviews are illegal, but this scourge persists.  We’re exploring whether a rule that would trigger stiff civil penalties for violators would make the market fairer for consumers and honest businesses." 

The FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising, which have guided marketers for decades on how to use endorsements and testimonials in a manner that complies with Section 5 of the FTC Act, are also currently being revised by the FTC.  The Endorsement Guides are advisory-only and, if an advertiser violates them, the FTC doesn't generally have the right to obtain civil penalties.  While the FTC acknowledged in the ANPR that the Endorsement Guides are "well-established" and "reportedly remain very helpful to legitimate actors in the marketplace," the FTC said that it feels that "Truly bad actors will not be deterred by Commission guidance, but the possibility of substantial civil penalties changes the economic incentives and may provide greater deterrence as to both legitimate and bad actors." 

In the ANPR, the FTC said that it does not intend to propose a rule that covers all of the issues addressed in the Endorsement Guides.  Instead, it is considering a rule that would address the following concerns: 

• Reviews of endorsements by people who do not exist, who did not actually use or test the product or service, or who are misrepresenting their experience with it;
• Review hijacking, where a seller steals or repurposes reviews of another product; 
• Marketers offering compensation or other incentives in exchange for, or conditioned on, the writing of positive or negative consumer reviews; 
• Owners, officers, or managers of a company writing reviews or testimonials of their own products or services, or publishing testimonials by their employees or family members, which fail to provide clear and conspicuous disclosure of those relationships; 
• Owners, officers, or managers of a company soliciting reviews from employees or relatives without instructing them to disclose their relationships;
• The creation or operation of websites, organizations, or entities that purportedly provide independent reviews or opinions of products or services but are, in fact, created and controlled by the companies offering the products or services; 
• Misrepresenting that the consumer reviews displayed represent most or all of the reviews submitted when, in fact, reviews are being suppressed based upon their negativity; 
• The suppression of customer reviews by physical threat or unjustified legal threat; and
• Selling, distributing, or buying followers, subscribers, views, and other indicators of social media influence.  

The ANPR will soon be published in the Federal Register, and then the public will have 60 days to submit comments.  The FTC said it also plans to hold public workshops about the proposed rule as well. 

The FTC voted 3-1 to publish the ANPR, with Commissioner Christine S. Wilson voting no. In a dissenting statement, she explained that, "I do not believe that initiating yet another Section 18 rulemaking is the best use of our scarce resources, particularly given the nature of the harm at issue here."   In her own statement in support of the ANPR, Chair Lina M. Khan said, "These practices don’t only harm the consumers who place their trust in fake reviews. They also pollute the marketplace and put honest businesses at a competitive disadvantage."

While this rulemaking is still at the very early stages, the FTC has already made its views very clear about how to properly solicit and use reviews and endorsements.  And, through numerous enforcement actions, the FTC has also shown that it intends to punish marketers that violate FTC standards.  What's particularly interesting about the ANPR, though, is that it highlights, very specifically, the practices that the FTC considers to be most problematic.