On Wednesday, August 15, 2024, the Federal Trade Commission (FTC) unanimously approved a final rule that prohibits fake reviews and testimonials, including AI-generated reviews, suppression of negative reviews, and paying folks for positive or negative reviews. The proliferation of fake online reviews has been a focus for the agency in recent years. The Final Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (Final Rule), with civil penalties, ensures the agency will continue aggressive enforcement of online review practices.
Deceptive Review Practices Now Face Major Monetary Penalties
The Final Rule largely follows the previously proposed language with one key exception and a few notable clarifications. So, how is the FTC planning to clean up online reviews? Through a number of key prohibitions:
- Companies cannot buy, sell or write fake or disingenuous reviews. This prohibition captures reviews from people who do not exist (such as AI-generated fake reviews) or from individuals who craft reviews that do not reflect their actual experience with the product.
- Companies cannot condition payment on the content or tone of the review. However, the FTC does not prohibit paid or incentivized reviews. Businesses can still offer compensation including discounts, coupons, and contest entries in exchange for reviews so long as they do not request a specific sentiment and the payment is properly disclosed.
- Company insiders who write reviews or offer testimonials must clearly disclose their relationship to the business. Officers or managers cannot solicit consumer reviews from their immediate relatives, employees or agents if the officer or manager (1) encouraged reviewers not to disclose their material relationship to the company, (2) failed to instruct the insiders to make a disclosure about their relationship to the company, or (3) knew or should have known that the review appeared without such a disclosure and failed to take remedial steps. The FTC indicated that appropriate disclosures could be as simple as describing a product as “my company’s” or “my wife’s company’s” or #[brand]employee.
- Companies cannot use threats of any kind to prevent or remove a negative review. Illegal review suppression includes a company’s misrepresentation that the reviews on a portion of its website dedicated to receiving and displaying reviews represent most or all submitted reviews.
- Companies cannot buy “fake indicators” of social media influence such as followers or views generated by bots or hacked accounts.
- Businesses cannot deceptively claim that company-controlled review websites are independent.
Changes of Note in the Final Rule
The FTC eliminated one prohibition previously included in the proposed rule—review hijacking. Review hijacking is the practice of taking reviews for one product and reusing them for a “substantially different product.” The FTC elected not to resolve a factual dispute regarding the definition of “substantially different product” and did not include the provision in the final rule. Although review hijacking is not prohibited by the final rule, the FTC has already sued a company for the practice, alleging that it is a deceptive practice to repurpose product reviews.
The FTC recognized that when a business sends broad solicitations to customers to post customer reviews, recipients might be employees of the business, creating a risk that the company is procuring employee reviews. Similarly, broad, incentivized solicitations to past customers to post about a product on social media might be considered “causing the dissemination” of testimonials. But the FTC noted that “[i]t would not be reasonable to expect a business to know whether such resulting reviews or testimonials were fake or false.” The FTC clarified that these rule prohibitions do not apply to “generalized solicitations.” Generalized solicitations must be just that, generalized; the exemption does not apply to companies that only seek reviews or testimonials from “happy customers.”
The Commission also clarified in the text of the Final Rule that the prohibitions against purchasing fake reviews, disseminating fake testimonials, or disseminating employee testimonials without adequate disclosures of material connections do not apply to companies that simply host consumer reviews, even if the business prompts review submissions or aggregates star ratings.
Key Considerations
The Final Rule provides lots of details for companies to consider as they update or revise consumer review practices.
- The prohibition on incentivized reviews covers both express and implied claims. The FTC provides a few examples of violative implied incentives: (1) “Tell us how much you loved [product] for 10% off your next purchase!”; (2) “Tell us how much you loved your visit to John’s Steakhouse and get a $5 coupon”; (3) “Tell your friends about all the fun you had at Jane’s Arcade for a chance to win prizes.” The FTC indicates simple messages like “write a review and save 10% next time” do not run afoul of the rule.
- The Final Rule does not prevent companies from attempting to make it right with customers who post negative reviews. Companies are allowed to resolve issues raised in negative reviews and then ask customers to consider updating reviews.
- Blogs and the press release indicate that there is an AI focus to this rule even though there is no mention of AI in the text of the rule. The Commission has indicated that the FTC will use the Final Rule to go after companies that use AI to generate fake reviews or fake reviewers.
What is Next?
The FTC has a long history of suing companies for fake reviews (from deceptive infomercials, sham news sites, and phony celebrity endorsements to hidden 1-star reviews and fake social media followers). The new rule, which comes into effect 60 days after it is published in the official government publication called the Federal Register, gives the FTC another tool to tackle deceptive review practices – financial penalties of nearly $52,000 per violation. New civil penalty authority gives the FTC an added incentive to pursue enforcement against fake reviews and testimonials.
Now is the time for companies to carefully audit their review practices, including the review solicitation and moderation practices of any advertising and marketing partners. Businesses must carefully develop and rigorously enforce consumer review and employee review policies. For more information about how the FTC’s new Fake Review Rule may apply to your company, please contact any authors of this article for additional information.
