FTC Proposes New Rule on Fake Reviews and Other Misleading Endorsement Practices

Last week, the Federal Trade Commission proposed a new rule intended to combat the use of fake reviews and other misleading endorsement practices.  In its notice of proposed rulemaking, the FTC published a draft of the proposed rule, the "Trade Regulation Rule on the Use of Consumer Reviews and Testimonials" and invited public comment on its proposal.  This move follows up on an Advance Notice of Proposed Rulemaking that the FTC issued in late 2022.  

In announcing the proposed rule, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, “Our proposed rule on fake reviews shows that we’re using all available means to attack deceptive advertising in the digital age.”

Why is the FTC issuing a rule on endorsement-related practices when the FTC already has -- and just issued an updated version of -- its Guides Concerning the Use of Endorsements and Testimonials in Advertising?  It's all about financial relief.  As a general matter, when an advertiser violates the principles set forth in the Guides and is ultimately determined to have violated Section 5 of the FTC Act, the FTC isn't entitled to damages.  Once a trade regulation rule prohibits those same practices, however, it "will allow the Commission to seek civil penalties against the violators and more readily obtain monetary redress for their victims." 

While the new rule doesn't really announce any big new endorsement or review-related principles, it does clearly articulate some key issues that the FTC is concerned about right now.  And, once the rule is ultimately promulgated, due to the availability of civil penalties, the stakes for marketers are suddenly a lot higher.  

Here's a recap of the key provisions of the proposed rule. 

Definitions (16 C.F.R. 465.1)

The big news in the Definition section of the proopsed rule is how the FTC is proposing to define "clear and conspicuous."  The FTC said that, in order for a disclosure to be clear and conspicuous, it must be "easily noticeable (i.e., difficult to miss) and easily understandable by ordinary consumers."  In addition, the disclosure must satisfy additional criteria, depending on the medium in which it appears.  Most significantly, the FTC said that if a communication is made through visual and audible means, "the disclosure must be presented simultaneously in both the visual and audible portions of the communication even if the representation requiring the disclosure is made in only one means."  For online disclosures, they need to be "unavoidable."  This means that you can't require a consumer to "take any action, such as clicking on a hyperlink or hovering over an icon, to see it."  The proposed rule also says that, "The disclosure must comply with these requirements in each medium through which it is received, including all electronic devices and face-to-face communications."  This appears to mean, then, that advertisers are responsible for anticipating on what devices an advertisement could be seen and ensuring that their disclosures meet these standards, no matter what the device is.  

It's also worth paying attention to the definition of "consumer review," which limits the scope of the proposed rule.  The types of "consumer reviews" covered by the rule are only those which are "published to a website or platform dedicated in whole or in part to receiving and displaying such evaluations."  

Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials (16 C.F.R. 465.2)

The first substantive section of the proposed rule essentially prohibits the creation and dissemination of fake reviews and endorsements. 

The proposed rule prohibits anyone from writing, creating, or selling a consumer review, consumer testimonial, or celebrity testimonial, where the endorser doesn't exist, where the endorser didn't use the product or service being reviewed, or that materially misrepresents the endorser's experience. 

It also also prohibits anyone from purchasing a consumer review, or disseminating a consumer or celebrity testimonial, if you knew or should have known that the endorser doesn't exist, that the endorser didn't use the product or service being reviewed, or that materially represents the endorser's experience. 

In addition, the proposed rule prohibits anyone from procuring a consumer review (about your own products or service) for posting on a third party platform or website, if you know or should have known that reviewer doesn't exist, that the reviewer didn't use the product or service being reviewed, or that materially misrepresents the endorser's experience. 

Consumer Review Repurposing (16 C.F.R. 465.3)

The next section of the proposed rule prohibits anyone from using a consumer review written about one product for a "substantially different product."  In other words, if you substantially change one of your products, you can't simply keep using the reviews that apply to prior version of the product. 

Buying Positive or Negative Consumer Reviews (16 C.F.R. 465.4)

The proposed rule prohibits paying for, or providing other incentives for, a consumer review that "expresses a particular sentiment, whether positive or negative."  In other words, when you're obtaining reviews (and providing incentives to get them), you can't ask the reviewer to express a particular point of view. 

Insider Consumer Reviews and Consumer Testimonials (16 C.F.R. 465.5)

In the proposed rule, the FTC also wants to make sure that when businesses use reviews by their employees and other insiders, they clearly disclose that relationship. 

The proposed rule prohibits an officer or a manager of a business from giving a consumer review or testimonial about one of its products or services that fails to clearly and conspicuously disclose the person's relationship to the business.  

It also prohibits businesses from disseminating a review or testimonial about the business' products or services by one of its officers, managers, employees, or agents, or any of their relatives, if the review fails to clearly and conspicuously disclose the relationship, when the business knew or should have known about the relationship. 

In addition, the proposed rule prohibits an officer or manager of a business from asking for a consumer review about the business' products or services from an employee, from an agent, or from a relative of such officer, manager, employee, or agent, when (1) the officer or manager knew or should have known about the person's relationship to the business, (2) when the officer or manager did not instruct the person to clearly and conspicuously disclose that relationship, when the officer or manager knew or should have known that the review appeared without the disclosure and failed to take remedial steps, or when the office or manager encouraged the reviewer to not make the disclosure, and (3) the request results in the reviewer creating the review without the proper disclosure. 

Company-Controlled Review Websites or Entities (16 C.F.R. 465.6)

The proposed rule prohibits businesses from claiming that review websites that they own are independent, when that is not the case. 

Review Suppression (16 C.F.R. 465.7)

The proposed rule also aims at ensuring that consumer reviews are not improperly suppressed.  

It prohibits anyone from using improper threats to prevent consumer reviews from being published or to cause them to be removed. 

It also prohibits businesses from representing that their website or platform includes "most or all of the reviews submitted to the website or platform" when, in fact, certain reviews are not being displayed based on their ratings or negativity.  This section of the proposed rule also provides specific guidance on when reviews do not have to be published, such as when they disclose confidential information, include discriminatory or other inappropriate content, or include clearly false or misleading content. The proposed rule also says it is acceptable to not publish a review when the business "reasonably believes the review is fake" or when it is "wholly unrelated to the products or services offered by or available at the website or platform." 

Misuse of Fake Indicators of Social Media Influence (16 C.F.R. 465.8)

Finally, the proposed rule prohibits anyone from selling or distributing fake indicators of social media influence -- such as followers, friends, connections, plays, likes, etc. -- that can be used to misrepresent someone's "influence or importance for a commercial purpose."  The proposed rule also prohibits the purchasing or procuring of fake indicators of social media influence in order to "misrepresent their influence or importance for a commercial purpose." 

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Once the notice of proposed rulemaking is published in the Federal Register (which should happen shortly), you have 60 days to submit comments on the proposal.