FTC Finalizes Rule Prohibiting Fake Reviews, Giving Agency Civil Penalty Authority for First-Time Violations

On August 14, the FTC announced publication of its final rule intended to combat fake reviews and testimonials. Tracking closely its original notice of proposed rulemaking, the rule will prohibit the following conduct:

• Fake or False Consumer Reviews, Consumer Testimonials, and Celebrity Testimonials: The final rule addresses reviews and testimonials from someone who does not exist, such as AI-generated fake reviews, or who did not have actual experience with the business or its products or services, or that misrepresent the experience of the person giving it. It prohibits businesses from creating or selling such reviews or testimonials. It also prohibits them from buying such reviews, procuring them from company insiders, or disseminating such testimonials, when the business knew or should have known that the reviews or testimonials were fake or false.
• Buying Positive or Negative Reviews: The final rule prohibits businesses from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative. It clarifies that the conditional nature of the offer of compensation or incentive may be expressly or implicitly conveyed.
• Insider Reviews and Consumer Testimonials: The final rule prohibits certain reviews and testimonials written by company insiders that fail to clearly and conspicuously disclose the giver's material connection to the business. It prohibits such reviews and testimonials given by officers or managers. It also prohibits a business from disseminating such a testimonial that the business should have known was by an officer, manager, employee, or agent. Finally, it imposes requirements when officers or managers solicit consumer reviews from their own immediate relatives or from employees or agents—or when they tell employees or agents to solicit reviews from relatives and such solicitations result in reviews by immediate relatives of the employees or agents.
• Company-Controlled Review Websites: The final rule prohibits a business from misrepresenting that a website or entity it controls provides independent reviews or opinions about a category of products or services that includes its own products or services.
• Review Suppression: The final rule prohibits a business from using unfounded or groundless legal threats, physical threats, intimidation, or certain false public accusations to prevent or remove a negative consumer review. The final rule also bars a business from misrepresenting that the reviews on a review portion of its website represent all or most of the reviews submitted when reviews have been suppressed based upon their ratings or negative sentiment.
• Misuse of Fake Social Media Indicators: The final rule prohibits anyone from selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account. This prohibition is limited to situations in which the buyer knew or should have known that the indicators were fake and misrepresent the buyer's influence or importance for a commercial purpose.

Although part of the proposed rule, the final rule does not address so-called review hijacking, where an advertiser seeks to use reviews given for one product to enhance the reputation of a different product. The rule (like the proposed version) also fails to address third-party pay-for-play review sites, confining its prohibition to inadequately disclosed company-owned review sites.

Why Does This Matter?

Although the FTC recently updated its Guides Concerning the Use of Endorsements and Testimonials in Advertising, like all FTC guidance, the Endorsement Guides do not have the force of law. They simply represent the FTC's view of conduct that violates Section 5 of the FTC Act. This rule is yet another step by the FTC to enhance the agency's authority to obtain civil penalties from first-time offenders. As many readers know, in a typical Section 5 enforcement action, absent a rule violation, the FTC cannot obtain civil penalties for a first-time violation. Also, since the Supreme Court's decision in AMG Capital Management, the FTC has been testing out other avenues of obtaining financial penalties. Although not historically a rulemaking agency, with this rule prohibiting fake reviews and other examples such as the rule prohibiting false "Made in USA" labeling, the FTC is crafting more efficient routes to penalties and attempting to create a deterrent to deceptive or unfair activities. The potential cost? As much as $51,744 per violation, and how a violation will be calculated is not specified. The final rule takes effect 60 days from publication, which is October 13, 2024.