FTC Issues FAQs To Clarify Recently Finalized Rule on the Use of Consumer Reviews and Testimonials
Earlier this month, the Federal Trade Commission (FTC) issued guidance in the form of FAQs on its recently finalized Rule on the Use of Consumer Reviews and Testimonials (the "Rule"), which Rule took effect on October 21, 2024. As we noted earlier, the Rule targets certain review and testimonial practices that the commission deems deceptive and unfair, including: (i) endorsements/reviews by fake folks or those faking use or experience; (ii) providing incentives conditioned on positive (or negative) review writing; (iii) review suppression practices—e.g., misrepresenting that all reviews are displayed; (iv) buying or misrepresenting numbers of followers or "indicators of social media influence"; (v) businesses creating or managing "independent" review sites that aren't, but are instead company owned; and (vi) a company's failure to disclose or ensure others disclose material connections of employment, family connection, etc.
Unlike with the FTC's Endorsement Guides, knowing violations of an FTC Rule provide the FTC a path to obtain civil penalties. While not law, the new guidance provides several helpful insights on how FTC staff views questions relating to applicability of the Rule, including the following:
- Consumer Reviews vs. Testimonials: The FAQ seeks to clarify the difference between reviews and testimonials and where a business's obligations overlap and where they differ. Although one might argue the FTC is really talking about distinctions without any actual difference, since fraud is fraud, the guidance seems to draw a line between reviews and testimonials which is erased when either is fake or fraudulent. For example, it describes reviews as "evaluations by consumers" which generally appear on review or company websites, while testimonials are a kind of endorsement which purport to reflect personal experiences and appear more broadly in social media. Businesses are not charged with investigating whether reviews that they merely host are fake or for that matter to investigate the truth of independent testimonials. However, if a business pays for or gives incentives for consumer reviews of its business, products, or services, then those incentivized reviews would be considered "testimonials" under the Rule—meaning they must be true and material connections disclosed. In other words, although the FTC's FAQs state that "[m]ost consumer reviews are not consumer testimonials, and most consumer testimonials are not consumer reviews," it cautions that once a business provides any kind of incentive to obtain that review or testimonial—the difference goes by the wayside—the resulting product is advertising, it must be truthful, and if it falsely conveys the writer's experience (or lack thereof) with the product or service, all involved in its creation may be liable.
- Review Hosting: As noted, businesses hosting reviews are not generally liable for fake reviews posted on their site by third parties (including if those reviews were broadly solicited or aggregated) unless the business is involved in creating or purchasing the fake reviews or knew or should have known that the reviews were fake or false. However, where a business actively highlights or reposts testimonials/reviews on its own website, i.e., is not merely allowing others to post but is taking control in some way of the posted content to its own benefit, the FTC views those testimonials as advertising. If those testimonials are fake or false, the business could be liable.
- Company-Controlled Sites: The Rule makes it an unfair or deceptive act or practice to materially misrepresent that a website, organization, or entity that it controls, owns, or operates provides independent reviews or opinions about a category of businesses, products, or services. The FAQ makes clear that this section is intended to apply more broadly than to just websites and offers examples of how representations of independent reviews or opinions may or may not cross the line. More specifically, it notes that setting up a seemingly independent program for granting seals or certifications could come under the Rule.
- Watch for Red Flags: Testimonials/reviews should reflect the user's genuine experience, opinions, and beliefs. The FTC expects businesses to watch for signs (so called red flags) that a testimonial may be false, such as the reviewer expressing an opinion before ever receiving or using the product. Likewise, the FAQ discourages businesses from writing copy for a testimonial absent a reasonable basis to conclude that it reflects the honest experiences of the user.
- Liability: Businesses, influencers, and business-controlled entities can be liable for fake reviews or testimonials. Ordinary consumers are not liable under the rule according to the FAQ, albeit the guidance does not clarify what happens if such "ordinary consumers" receive real compensation for their fake review or testimonial. That said, the guidance does note that the Rule does not apply to "individual consumers who are paid or given incentives to write honest reviews."
- Employee Disclosures: The Rule prompted a lot of questions about employee reviews. The FAQ clarifies that—at least where the business has not asked its employees to post—businesses are not liable if employees write reviews without disclosing that they are employees, even where the employee writes in response to a general solicitation to all product purchasers. The commission does not expect businesses to "scour every review of the business for possible insider reviews appearing without a disclosure." However, the FTC does expect businesses to remain mindful of red flags and follow up on them should they appear.
- Review Suppression: The Rule prohibits suppression of negative reviews. Organizing reviews by helpfulness or rating is not suppression. However, making negative reviews difficult for consumers to know about or find may still violate Section 5 of the FTC Act.
- Social Media Influence: The prohibition on the purchase of fake social media followers is limited to those which the party knew or should have known to be fake. Put another way, don't ignore red flags that suggest that followers may be fake, such as those generated by bots or hijacked accounts.
Finally, one key point that recurs throughout the FAQ is that conduct that does not rise to the level of a Rule violation may still be unfair or deceptive under Section 5 of the FTC Act. The FTC's previously issued endorsement guidance, "What People Are Asking," offers several helpful examples in response to "what if" questions.