The Federal Trade Commission (FTC) has issued a proposal that would prohibit the posting of fake reviews online. The proposal, if enacted, would make it unlawful for sellers to post endorsements without disclosing whether they are paid or unpaid. The FTC also recommends requiring disclaimers for social media influencers posting about products and services, and making sure such posts clearly state that the celebrity or other individual does not represent their views as those of the company.
Recent FTC Action
The new rule, if passed, will prohibit companies from creating fake reviews and paying influencers to endorse their products.
However, the FTC has been cracking down on fake reviews for some time now. In late 2017, it sued a company that paid people hundreds of dollars to post positive Amazon reviews for its teeth-whitening product; in 2018, the agency sued a similar company that operated out of California’s Coachella Valley; and just this year they fined an Illinois firm $50 million for allegedly hiring writers from Bangladesh who could produce 1,000 positive reviews per day.
In addition to targeting the companies themselves for paying for fake endorsements, the FTC has also gone after individual social media stars who are paid thousands of dollars by marketers in exchange for promotional posts about their products or services—even though many of these influencers have large followings on Instagram or SnapChat and could probably attract buyers without being paid off. These legal actions against individual influencers may be harder because they’re not directly employed by anyone else except through sponsorship deals like those mentioned above (i.e., they’re self-employed), so there might be less precedent here than with larger firms/corporations trying unethically market themselves online using deceptive tactics like this.*
Biased Social Media Influencers
One of the most common forms of fake reviews is where a social media influencer promotes products or services they haven’t actually tried. This can be done in two ways:
- A social media influencer gives a positive review to their own product(s) without disclosing that they were paid to do so.
- A social media influencer gives negative reviews on competitor products without disclosing that they were paid to do so.
The Proposed Rule
The FTC is proposing a new rule that prohibits unfair practices in the marketing of digital products. This proposed rule would address several types of unfair practices, including:
- Fake reviews
- Deceptive endorsements or testimonials
- Misleading use of third-party endorsements or testimonials
Reviewer Disclosure Requirements
The proposed rule requires the following disclosures:
- The reviewer’s relationship with the company being reviewed. If a reviewer has no financial relationship with a company, they must disclose that fact. If they have any financial arrangement at all, they must disclose what it is and how much money it involves.
- The reviewer’s compensation for reviewing the product or service. If they were paid anything, even $1 (or bitcoin), they must say so in their review.
- The reviewer’s affiliation with any third parties that may have influenced their review. This can include affiliate links and other advertisements appearing on the website where you read your reviews—it could also mean that your favorite blogger gets paid based on clicks to her site or views of her video tutorials (and not just by ad revenue).
Aggregate Disclosure Statements
- The proposed rule would require that all endorsements be accompanied by a disclosure statement that clearly and conspicuously conveys the material connections between the advertiser and the reviewer. It should also be clear, conspicuous, written in language that is easy to understand, and not misleading.
- For example, it’s not hard to imagine a case where someone makes an endorsement without knowing about some kind of connection with the product or service being advertised. For example, if you’re posting on your own blog about how great your favorite new pair of running shoes is, but you don’t realize (or at least didn’t know) that the company paid for your trip to go try out their new shoes at their headquarters in Italy last year—and then later got access to those same shoes before they go on sale—you may have violated this proposed rule if someone else tells them about their relationship with the company without disclosing it first themselves.
Buyer Beware
If you don’t want to fall for fake reviews, it might be best to take the advice of Samuel Goldwyn: “If you want to send a message, use Western Union.”
Or, as Mr. Goldwyn put it more eloquently: “Buyer beware!”
The FTC has proposed new rules that would require review sites like Yelp and Amazon to have clear policies on disclosing whether reviewers are being compensated by businesses they review—and if so, how much they’re getting paid. The FTC also wants these sites to disclose when an advertiser or anyone else pays for their services; if a site failed to do this (or didn’t clearly state its policies), then any such reviews could be considered deceptive.
The Proposed Rule vs. Anti-SLAPP Laws
The Proposed Rule vs. Anti-SLAPP Laws
While the FTC’s Proposed Rule would prohibit false or misleading reviews, it does not protect free speech in the same way that anti-SLAPP laws do. An anti-SLAPP law is a state law that protects against lawsuits filed to silence and intimidate critics of businesses or their products, by requiring those filing such suits to pay for defendants’ legal expenses if they lose. The Proposed Rule would be a federal law that applies across all states and would not require plaintiffs who bring fake review lawsuits to pay defendants’ legal fees if they lose their case.
No Safe Harbors for Digital Endorsers or Marketers
The proposed rule also does not provide any safe harbors for digital endorsers or marketers. The FTC has stated that it intends to apply this prohibition broadly, and on a case-by-case basis.
In short, if you are a marketer of consumer products, you must take great care in how you use social media platforms to promote your brand and ensure that your marketing practices comply with the FTC’s new rules.
Consumers and digital marketers need to closely monitor the proposed rule.
The proposed rule is subject to public comment until December 20, 2022. Once it takes effect, any business with an annual revenue of $25 million or more will be required to have a written policy prohibiting deceptive and misleading review practices. The rule would also apply to all forms of digital marketing, including social media platforms like Facebook and YouTube.
The proposed rule is the latest in a long history of FTC action against deceptive and unfair business practices. The agency has been very active in this area and has imposed fines on companies like Google, Facebook and Amazon for failing to adequately disclose that their reviews are fake or biased. It also targets social media influencers who fail to disclose when they have been paid by brands, which could mislead consumers into believing they are being honest when they are not. This proposed rule seems like a natural next step as more people rely on online reviews as part of their purchasing decisions, especially when shopping online where there are fewer opportunities for face-to-face interaction with salespeople or friends who’ve already made purchases at particular businesses (and thus can provide valuable insights).
