FTC and State AGs Can Continue Joint Case Over Fake Reviews
Fake reviews continue to be a hot topic in consumer protection. In 2022, we reported that six states and the Federal Trade Commission filed a lawsuit against Roomster – a platform through which people can find rooms and roommates – along with its owners, alleging that they had “inundated the internet with tens of thousands of fake positive reviews to bolster their false claims that properties listed on their Roomster platform are real, available, and verified.” At the same time, the regulators announced a settlement with an individual who allegedly sold Roomster many of the fake reviews.
Roomster then filed a motion to dismiss and in early February, the court denied the motion. While the denial is no surprise, there are some key takeaways from the order.
- There is nothing improper about the FTC bringing a joint enforcement action together with the states whose own consumer protection statutes have been violated. In fact, since AMG Cap. Mgmt., LLC v. FTC, we continue to see states and the FTC working together to leverage the strength of the differing laws and remedies. (Click here for a recent example.)
- While the FTC cannot obtain monetary relief following the AMG case in a case like this brought under section 13(b) of the FTC Act, it is fine for the states to seek monetary relief in a joint action with the FTC, with the money going to the states only and not the FTC if that relief is granted.
- State consumer protection statutes have territorial limitations. In regard to deceptive trade practices, they generally apply to those (1) conducted in whole or in part within a state against residents or non-residents of that state and (2) conducted outside of the state against the state’s residents if there is a direct connection to any deceptive trade practices conducted in whole or in part within the state. In reviewing New York specific law (where the case was filed), the court disagreed with Roomster’s assertion that allegations must contain sufficient details to show that consumers were deceived in the forum state, and rather looked to the location of, and the strength of the state’s connection to, the allegedly deceptive transactions.
- Deceptive or not deceptive – what would a [reasonable] consumer think? Unlike the deception standard defined by the FTC, state consumer protection laws vary as to how “deceptive” acts are defined, in particular whether it is necessary to show that the act has the capacity to, or is likely to, deceive “reasonable” consumers. Defendants argued that it would be unreasonable for consumers to rely on subjective user-supplied reviews when deciding whether they should purchase a paid Roomster account, and therefore, the alleged fraudulent reviews are not deceptive pursuant to state law. Just what a reasonable consumer is (if reasonableness is a requirement at all) differs throughout the states, so in its analysis, the court used the strictest “reasonable” consumer standard, indicating:
- There’s a difference between authentic consumer reviews, and the allegations here, that the reviews are fake. The alleged deception therefore is that the reviews appear to be, but are not, truthful representations made by actual users of the platform, quashing defendants’ argument that it would be unreasonable for consumers to rely on subjective user-supplied reviews.
- If a platform has thousands of reviews, it would be reasonable for consumers to assume that the platform has thousands of users.
- If a platform has thousands of users, it would reasonably make a consumer more inclined to think they could find what they are looking for on the platform (a rental in this case) when signing up for paid services.
- If a potential user knew that reviews had been generated by the owners of a platform instead of actual users, the potential user might be less inclined to sign up for services.
- Puffery is not a defense for fake reviews. Per the court, misrepresentations that are false because they are not real – they were made up and paid for – can never by definition be puffery.
States and the FTC have worked together for years, filing joint actions when both federal and state consumer protection statutes have been violated, and will continue to do so. Arguing joint actions are inappropriate will likely be unsuccessful. This court even included in a footnote that there is nothing exceptional about these circumstances – this sort of thing happens all the time. Furthermore, businesses should be aware of state consumer protection laws, their broad application, their differing legal standards, and their limitations. Finally, consumer reviews will remain a focus of regulators – and claims of a company purchasing/posting fake reviews will definitely make the regulators take notice.