FTC publishes final rule banning fake consumer reviews and testimonials

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The Final Rule prohibits the sale and purchase of fake consumer reviews as well as the purchase of positive or negative consumer reviews and includes instructions on appropriate disclosures for online reviews written by company insiders.¹The Final Rule becomes effective October 21, 2024 and makes formal the prohibition of certain practices relating to consumer reviews and testimonials as unfair or deceptive under the FTC Act.

Companies selling goods and services to end customers – and the businesses that promote, market, or otherwise assist such companies – should take note, as the Rule enhances the FTC’s ability to pursue civil penalties for false and misleading practices regarding use of online reviews.

Background

The Final Rule is part of the FTC’s initiative to strengthen regulation of online advertising to consumers and promote fair, honest, and competitive markets. As part of this initiative, the FTC had previously published updated Endorsement Guides in July 2023 that provide guidance on the proper use of product endorsements and reviews in advertising.²

Summary of Final Rule

The Final Rule would prevent businesses (including their marketers and agents) from engaging in practices that deceive purchasers looking for consumer feedback on a product, including using fake reviews, suppressing honest negative reviews, and paying for positive reviews. The Final Rule largely follows the Proposed Rule³ and focuses on prohibiting businesses from using deceptive endorsement and review practices. It also adds several definitions for terms used in the regulations, including for “consumer review hosting” and “fake indicators of social media influence.” We summarize the new requirements below:

• 16 CFR § 65.2, Fake or false consumer reviews, consumer testimonials, or celebrity testimonials
  • Advertisers may not create or sell reviews and testimonials that misrepresent they are by someone that doesn’t exist (e.g., AI-generated reviews), that does not have an experience with the product, or that misrepresents their experience.⁴
  • Advertisers also may not buy, procure, or disseminate these types of reviews when the business knew or should have known that the reviews or testimonials were fake or false.
• 16 CFR § 465.4, Buying positive or negative consumer reviews
  • Advertisers may not incentivize, either through a direct purchase or other incentive (e.g., coupon, gift card), a consumer to write a review when the incentive is conditioned – expressly or implicitly – on the review expressing a particular sentiment (positive or negative). A company may still offer incentives for consumers to write reviews but may not, for example, condition the incentive on a 5-star review. Note that the FTC’s Endorsement Guides separately require companies to disclose when a review is compensated with monetary payment or another incentive. The FTC also notes that this provision does not apply to the use of social media testimonials, and rather is limited to consumer reviews “that appear on a website or portion of a website dedicated to receiving and displaying such reviews.”
• 16 CFR § 465.5, Insider consumer reviews and consumer testimonials
  • Advertisers may not publish reviews or testimonials written by an officer or manager of the business without disclosing the reviewer’s relationship to the company.⁶
  • Advertisers may also not disseminate a consumer testimonial written by an officer, manager, employee, or agent without a clear and conspicuous disclosure of the testimonialist’s relationship to the business (provided that the relationship is not otherwise clear to the audience).
  • The Final Rule also adds requirements regarding reviews solicited from immediate relatives of officers, managers, employees, or agents of a company. These requirements include ensuring that an officer/manager/employee/agent soliciting a review from an immediate relative encourage the relative to clearly disclose their relationship to the business. The advertiser must also take remedial steps when they know or should have known that a review without such a disclosure has been posted. The Final Rule provides, however, that companies that engage in generalized solicitations to purchasers to post testimonials about their experiences with the product, service or business or merely engaging in consumer review hosting (i.e., providing a forum for reviews to be posted) will not violate this provision—the review must be specifically solicited from the company insider to violate the rule).
• 16 CFR § 465.6, Company-controlled review websites or entities
  • Advertisers may not represent that a website, organization, or entity they control, own, or operate provides independent reviews or opinions about the advertiser’s products or services.
• 16 CFR § 465.7, Review suppression
  • Advertisers may not use an “unfounded or groundless legal threat” (defined as a legal threat based on claims, defenses, or other legal contentions that do not have evidentiary support) or other physical threat, intimidation, or false accusation to prevent a review from being written or created or to cause the review to be removed.
  • Advertisers are also prohibited from misrepresenting (expressly or impliedly) that reviews on its website or other platform represent all reviews submitted when some reviews are being suppressed or otherwise not displayed based on their ratings or negative sentiment. The Final Rule does not prohibit companies from sorting or organizing reviews, but the FTC notes in the preamble to the Final Rule that organizing reviews in a way that makes it difficult for consumers to know about or find negative reviews could be an unfair or deceptive act. The Final Rule notes that advertisers may filter/withhold some reviews, so long as the criteria for doing so is “applied equally to all reviews submitted without regard to sentiment,” such as if the review contains trade secrets or other confidential information, personal information, discriminatory content, or content that is false and misleading. A website could still feature select positive reviews elsewhere on the website so long as they don’t give the impression that they are representative of all reviews received and are not in the portion of the website or platform dedicated in whole or in part to receiving and displaying consumer reviews.
• 16 CFR § 465.8, Misuse of fake indicators of social media influence
  • This provision prohibits selling, distributing, purchasing, or procuring “fake indicators of social media influence” (defined as including followers or views generated by a bot or fake account) that are fake or should be known to be fake and could be or are used to misrepresent a business’s or individual’s influence or importance for a commercial purpose. Unintentional or unknowing distribution of fake indicators would not violate the provision, and a company could not be held vicariously liable for the actions of independent endorsers. For instance, the FTC notes that a company would not violate the law if they hire an influencer who, unbeknownst to the company, has fake followers.

The Final Rule also includes a severability provision, so that if any provisions are ruled unlawful by a court, the other provisions would stand. The FTC excluded from the Final Rule a provision from its proposed rule that would have prevented advertisers from using or repurposing a consume review written or created for one product so that it appears to have been written or created for a substantially different product (i.e., “review hijacking”). This is an area where the FTC has previously taken enforcement action.⁶ The Commission found it was not able to resolve concerns raised in comments regarding the definition of a “substantially different product” and left room to include this provision in a future rule.

Importantly, the FTC intends for the Final Rule to enhance its ability to pursue monetary damages on behalf of consumers. Violation of the Final Rule entitles the FTC to seek significant penalties (in the amount of up to $51,744 per violation, or per day for ongoing violations). A 2021 Supreme Court decision inAMG Capital Management, LLC v. FTC⁷ limited the FTC’s long history of obtaining consumer redress from companies engaging in unfair or deceptive practices under Section 13(b) of the Federal Trade Commission Act (FTC Act) (15 USC § 53(b)) where there is no specific violation of a rule. The FTC states the Final Rule would allow it to pursue civil penalties for companies violating the above regulations under Section 19(a)(1) (15 USC § 57b(a)(1)) of the FTC Act, which allows the FTC to obtain redress only when a company has violated a regulation.

Next Steps & Recommendations

The Final Rule will be effective October 21, 2024.

In advance of this effective date, we suggest that companies that use consumer reviews, consumer testimonials or celebrity testimonials review their current marketing strategies, websites and advertisements to identify potential variances with the Final Rule and swiftly implement remedial measures as needed. A forward-looking compliance plan should then be implemented. Such companies should ensure that any third-party marketing or advertising agencies have plans in place to do the same.

We are available to assist with questions regarding the Final Rule.

References

189 Fed. Reg. 68034 (August 22, 2024).

2See 88 Fed. Reg. 48092 (July 26, 2023); Hogan Lovells Update, FTC publishes updated Endorsement Guides and proposed rule banning fake reviews (July 10, 2023).

3See 88 Fed. Reg. 49364 (July 31, 2023); Hogan Lovells Update, FTC publishes updated Endorsement Guides and proposed rule banning fake reviews (July 10, 2023).

4See Hogan Lovells, The Data Chronicles, Fake reviews no more, the FTC’s new rule and what it means for AI and you (Sept. 5, 2024).

5In the Final Rule, the Commission added a definition clarifying that the term “manager” applies to personnel supervising others.

6In 2023, the FTC brought its first enforcement action related to “review hijacking” in a case against The Bountiful Company (makers of Nature’s Bounty dietary supplements) where the company merged new product listings with existing product listings on Amazon.com to take advantage of the existing ratings, reviews, and website features highlighting those existing products, e.g., Amazon’s “Amazon’s Choice” badges. SeeIn the Matter of The Bountiful Co., FTC No. 222-3019 (2023). The company settled the complaint for $600,000, and in March 2024, the FTC announced it was returning more than $527,000 to impacted consumers.See FTC, FTC Sends More Than $527,000 in Refunds to Bountiful Consumers Deceived By “Review Hijacking” on Amazon.com (Mar. 14, 2024).

7593 U.S. 67, 82 (2021).