FTC’s Proposed Rule on “Fake Reviews” Covers Much More; Provides Clarity on Some Issues, Uncertainty on Others
On the Friday before a long 4th of July weekend, the FTC delivered some light beach reading in the form of a 100-page notice of proposed rulemaking (NPRM) “banning fake reviews and testimonials.” While banning fake reviews and testimonials seems uncontroversial, the proposed rule would actually do much more, including authorizing civil penalties for businesses that procure or disseminate deceptive (not just “fake”) reviews when they “knew or should have known” the review was deceptive and where the review fails to disclose the testimonialist’s relationship with the business or product.
The proposed rule came just one day after the FTC’s release of updated Endorsement Guides, which we reviewed here. As currently drafted, the proposed rule would prohibit:
- Fake or false reviews and testimonials, which are defined to include reviews by reviewers who do not exist, did not use the product or service, or that materially misrepresent their experience with the product or service;
- Repurposing consumer reviews written for one product so that they appear for a “substantially different” product;
- Compensating or otherwise incentivizing or conditioning consumer reviews, whether positive or negative;
- Posting reviews by employees or “insiders” without disclosures regarding their material connection to the company;
- Creating seemingly “independent” review websites that are in fact controlled by the company and are not truly independent;
- Suppressing negative reviews, including by “unjustified” legal threats or “false accusations” or by declining to post negative reviews for a product or service unless for a specified reason unrelated to the negative nature of the review; and
- Selling, distributing, purchasing, or procuring “fake indicators” that misrepresent social media influence.
Many of these practices are already addressed in the FTC’s recently updated Endorsement Guides. Many are also listed in the Commission’s Notice of Penalty Offense letters on endorsements sent to over 700 companies last year, which we discussed here. For those practices that have long been considered deceptive, the proposed rule is clearly intended to open a path to consumer redress and civil penalties.
In other ways, however, the FTC is not just looking to authorize new remedies but also to substantively move the needle on the current legal standard. These efforts raise a host of issues and questions ripe for comment by interested parties, including:
- Should companies be liable for civil penalties based on a negligence theory and is the FTC authorized to do so under their Magnuson-Moss rulemaking authority? The proposed rule draws on concepts of negligence and third-party liability to propose that businesses will be liable directly if they disseminate or cause to be disseminated deceptive reviews (e.g., ones that materially misrepresent the testimonialist’s experience or that fail to disclose the relationship between the business and the testimonialist) if they “knew or should have known” of the facts giving rise to the deception. This new standard raises a number of important questions, which the FTC to its credit specifically seeks input on. Even assuming the FTC is authorized to seek civil penalties based on such a standard, what would this mean in practice for companies when they oversee and review reviews, and how would they show that they “should not have known” about a particular fact.
- What is a “substantially different” product for the purposes of the rule’s prohibition against “review repurposing”? Under the proposed rule, companies may not repurpose consumer reviews from one product and apply it to a “substantially different” product, which is defined as one that “differs from another product in one or more material attributes other than color, size, count, or flavor.” But the proposed rule does not specify which attributes might not be “material” for purposes of review repurposing other than color, size, count or flavor, nor does it consider that other product attributes – similar to flavor – could hinge on consumers’ subjective preferences. For example, what about a cleaning spray that comes in different fragrances? Or the same exact shirt featuring a V-neck and a boat neck? What about a supplement that comes in gummy form and tablet form, where all active ingredients are the same? The agency also does not take into account the benefit consumers experience when viewing different product options listed on the same product page.
- How far-reaching is the prohibition against characterizing reviews as “independent” on company-controlled websites? Proposed section 465.6 would authorize civil penalties where a business “represent[s], expressly or by implication, 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 including the business or one or more of its products or services.” While staff’s intent appears to be to prohibit companies from misrepresenting the purported independence of a company-controlled review site, in practice, the language of the proposed rule would prohibit companies from representing that any consumer reviews or opinions featured on their own sites are independent, even if they are.
In addition to these specific issues related to proposed requirements, there are the general questions as to whether a rule is necessary in the first place. As many will remember, the NPRM was preceded by an ANPR in October 2022, in which the agency announced its intent to explore rulemaking in this space. At that time, former Commissioner Wilson – the sole “no” vote on issuing the ANPR – noted that “the harm that results from the deception at issue is speculative in nature” and opined that “the Commission already has a multi-pronged strategy in place to combat [deceptive endorsements or fake reviews].” In her view, “churning out another proposed rule” downplays the impact of other enforcement tools and unnecessarily diverts already-strained staff resources.
The comment period for the NPRM will run for 60 days following the publication of the proposed rule in the Federal Register, and we encourage stakeholders to submit comments addressing the above-mentioned topics and any other areas of concern.