By John Nagle

Understanding the Federal Trade Commission’s (FTC) recently-issued Final Rule prohibiting businesses from publishing fake online reviews of their products or services will be critical for companies in industries where online reviews are often key drivers of consumer choice. The Final Rule sends a strong message that the FTC intends to monitor the effect of online reviews on fair competition and consumer welfare by establishing potentially harsh penalties for violations, including fines that may exceed $50,000.

The Final Rule, which became effective on October 22, 2024, includes six subsections, each related to ensuring the information consumers may use to select products or services is not misleading. The subsections are as follows:

  • Fake or False Consumer Reviews, Consumer Testimonials, and Celebrity Testimonials: Reviews and testimonials from people who do not exist, who do not have actual experience with the business or its products or services, or that misrepresent the experience of the person giving the review are prohibited.
  • Buying Positive or Negative Reviews: Providing compensation or other incentives to others conditioned on writing consumer reviews that express a particular sentiment, either positive or negative, is prohibited.
  • Insider Reviews and Consumer Testimonials: Reviews and testimonials written by company insiders must clearly and conspicuously disclose the reviewer’s material connection to the business. This rule applies to officers and managers, as well as reviews solicited by management from employees and immediate relatives.
  • Company-Controlled Review Websites: Businesses are prohibited from misrepresenting that a website or entity it controls provided independent reviews for products or services that include their own products or services.
  • Review Suppression: Businesses are prohibited from using unfounded legal threats, physical threats, intimidation or false public accusations to prevent or remove a negative consumer review. Businesses are also prohibited from misrepresenting that reviews on their website represent all or most of the reviews submitted if, in fact, negative reviews have been suppressed.
  • Misuse of Fake Social Media Indicators: Selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account, is prohibited.

When publishing the Final Rule in August, the FTC released a statement that the rule was being implemented to “enhance deterrence and strengthen FTC enforcement actions” by providing for civil penalty authority. Before implementing the rule, the FTC’s enforcement efforts around fake reviews were hampered by a 2021 U.S. Supreme Court decision in AMG Capital Management LLC v. FTC, which held that the FTC lacked authority to obtain monetary relief for restitution or disgorgement under the Federal Trade Commission Act.

While the Final Rule provides a new enforcement mechanism for the FTC to pursue companies that are misleading consumers with self-created propaganda and advertising that is disguised as a seemingly objective review, it is also important to understand exactly what is and is not prohibited by the Final Rule. To that end, additional details are included below.

  • Reviews vs. Testimonials: The Final Rule prohibits providing compensation for a consumer review that expresses a particular sentiment, but it does not prohibit compensation for testimonials. The Final Rule defines a “Consumer Review” to include a consumer’s evaluation “published to a website or platform dedicated in whole or in part to receiving and displaying such evaluations,” whereas a “Consumer Testimonial” appears in the form of advertising or promotional messages that consumers are likely to believe reflects the opinions of a consumer of the product or service in question.

That would mean a business that compensates bona fide customers for providing a testimonial that it then uses on the company website (or other advertising) is not violating the Final Rule so long as it is presented as a “review”—but companies cannot provide an incentive for the same customer to post a positive review to review-hosting sites, such as Yelp or Angi, or in a “review” section of their own website.

  • Encouraging Customers to Submit Reviews is not Prohibited but Requires Caution: The Final Rule clarifies that “generalized solicitations” to consumers to post reviews about their experiences, without attempting to influence the character of those reviews, is not prohibited. To run afoul of the Final Rule, there must be an incentive or compensation “in exchange for a review expressing a particular sentiment.”

With that said, the rule provides room for interpretation by prohibiting practices that compensate for expressing a particular sentiment “expressly or by implication.” While an express offer of compensation for a positive review (or negative review of a competitor) seems easy to understand as prohibited, it remains to be seen what the FTC may consider a violation of the rule as encouragement of a particular sentiment “by implication.”

Offering compensation, such as a discount on future services, in exchange for submitting a review (even without explicitly telling the consumer that the review needs to be positive) might be seen as attempting to coerce the reviewer to express a particular sentiment. It will be important to see what standards the FTC applies, or how courts treat that language, if challenged.

  • Review Site Operators Are Not Subject to the Rule: The Final Rule only applies to businesses with respect to reviews of their own products or services, or those of their competitors. That means that the Final Rule does not create an additional obligation on the operators of platforms that host the reviews of multiple products or businesses to confirm that the individual reviews are following the rule.

Fake reviews already violate the policies of some of the most popular review platforms, such as Yelp and Amazon, and they have created internal controls to attempt to identify and remove fake reviews. Nonetheless, the issue has persisted. The Final Rule now provides a stronger disincentive to such fake reviews, with real penalties attached.

  • Businesses Are Responsible for Their Outside Agencies: If a company employs an outside marketing agency that has a digital and social media strategy, the business can be held responsible for violations of the Final Rule done on its behalf. So, it is not sufficient that businesses themselves refrain from posting fake reviews. Businesses must also monitor the policies and activities of their outside agencies to ensure compliance, and review any contracts with third parties to determine if changes are needed.

Now that the Final Rule is in place, it will be vital to see how it is applied in practice. With a new administration and likely a change in leadership at the FTC to come in 2025, agency priorities are sure to change in meaningful ways. That being said, protecting consumers from misinformation has been a priority for the FTC under prior administrations, as demonstrated by the fact that the FTC filed complaints against companies for conduct that would violate the Final Rule in 2019 and 2020.

We encourage our clients who provide goods and services that are subject to consumer reviews to be aware of all the possible pitfalls under the Final Rule. Moreover, businesses should be on the lookout for a competitor’s conduct that may harm their business in violation of the Final Rule.

Kenney & Sams will be keeping a close eye on how the Final Rule is implemented and enforced and is well-equipped to help you navigate these issues.   

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This alert is for informational purposes only and may be considered advertising.  It does not constitute the rendering of legal, tax or professional advice or services.  You should seek specific detailed legal advice prior to taking any definitive actions.