Finalized last year, the U.S. Federal Trade Commission’s (FTC) Final Rule on the Use of Consumer Reviews and Testimonials (the “Final Rule”) principally addresses the sale, purchase, and publication of fake online reviews and testimonials. However, it is also broader than its name suggests. As a result, companies need to ensure that they have a clear understanding of the full scope of the Final Rule’s prohibitions—and they need to ensure that they are taking all of the steps that are necessary to comply.
For some companies, this will involve updating their FTC compliance programs to ensure that they do not inadvertently run afoul of the Final Rule’s prohibitions going forward. For others, it will involve revisiting their current practices related to online reviews and consumer testimonials—and potentially taking additional steps to come into compliance. As with all areas of FTC compliance, a comprehensive and good-faith approach is critical, including policies that ensure only authentic reviews are solicited and published, and companies should be prepared to affirmatively demonstrate their compliance efforts to the FTC if necessary.
“The FTC has prioritized enforcement in the area of online advertising in recent years. While prior recent rulemaking and enforcement efforts have focused primarily on social media (and this remains a core focus for the Commission), with its new Final rule, the FTC is now targeting companies’ use of fake reviews and testimonials as well.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
So, what do company owners and executives need to know about the FTC’s Final Rule on the Use of Consumer Reviews and Testimonials? Here are 10 key considerations for effectively managing compliance and mitigating the risk of facing FTC scrutiny:
1. Understanding What Constitutes a Fake “Customer Review”
The FTC’s new Final Rule applies to “customer reviews.” It defines a customer review as, “a consumer’s evaluation, or a purported consumer’s evaluation, of a product, service, or business that is submitted by the consumer or purported consumer and that is published [online].”
This definition has a few important implications. Perhaps most significantly, it covers not only actual customer reviews, but “purported” customer reviews as well. As we’ll see below, this comes into play with respect to several of the Final Rule’s prohibitions. Also noteworthy is the fact that the Final Rule’s definition of customer reviews includes consumer ratings, “regardless of whether they include any text or narrative.”
2. Understanding What Constitutes a Fake “Customer Testimonial”
The FTC’s new Final Rule applies to “customer testimonials” as well. It defines a customer testimonial as, “an advertising or promotional message . . . that consumers are likely to believe reflects the opinions, beliefs, or experiences of a consumer who has purchased, used, or otherwise had experience with a product, service, or business.”
While the FTC’s new Final Rule defines “customer reviews” and “customer testimonials” separately, as you can see from the definitions, there isn’t necessarily a clear distinction between the two. However, one key difference is that while customer reviews must appear on, “a website or platform dedicated in whole or in part to receiving and displaying such evaluations,” customer testimonials can appear, “on a company website, in Internet ads, or in social media,” among other online locations.
3. Understanding What Constitutes a Fake “Celebrity Testimonial”
In addition to prohibiting fake customer reviews and testimonials, the FTC’s new Final Rule also prohibits fake “celebrity testimonials.” It defines a celebrity testimonial as, “an advertising or promotional message . . . that consumers are likely to believe reflects the opinions, beliefs, or experiences of a well-known individual who purchased, used, or otherwise had experience with a product, service, or business.”
Thus, the only difference between a customer testimonial and a celebrity testimonial is that the latter comes from (or purports to come from) a “well-known individual.” While the Final Rule does not include an additional definition for this term, the commentary preceding the Final Rule’s official language states, “[b]ased upon common usage, well-known individuals include those famous in the areas of entertainment, such as film, music, writing, or sport, and those known to the public for their positions or successes in business, government, politics, or religion.” The commentary goes on to state that, “[i]ndividuals who earn money through their work as ‘influencers’ are also well known, as are those who have been featured in the news or media.”
4. Paying for Customer Reviews and Testimonials
As a general principle, the FTC’s new Final Rule does not necessarily prohibit companies from providing compensation for customer reviews and testimonials. It does, however, prohibit companies from conditioning payment “expressly or by implication on, the writing or creation of consumer reviews expressing a particular sentiment,” as this can amount to deceptive advertising. Crucially, as the FTC also makes clear, “paying consumers to change or remove truthful negative reviews may violate the [Federal Trade Commission Act (FTC Act)] as an unfair or deceptive act or practice,” even if this falls outside of the scope of the new Final Rule.
The Final Rule prohibits companies from paying for fake customer reviews as well, a practice aimed at misleading consumers into believing the feedback is genuine. This is where the prohibition on “purported” customer reviews comes into play. Customer reviews--whether submitted directly or through third-party review platforms--can be classified as “purported” under the Final Rule if either: (i) the customer doesn’t actually exist; (ii) the customer doesn’t have experience with the company, product, or service it is reviewing; or, (ii) the review materially represents the customer’s experience.
5. Selling Customer Reviews and Testimonials
Along with imposing penalties for companies that purchase deceptive reviews and testimonials, the FTC’s new Final Rule also imposes penalties for companies that “write, create, or sell” them. Thus, parties on both sides of transactions involving fake reviews and testimonials can face scrutiny under the Final Rule. FTC investigations into companies selling fake reviews and testimonials may lead to scrutiny of their customers (and vice versa), and evidence that the FTC obtains from one party may provide the FTC with grounds to pursue enforcement against another.
6. Publishing Customer Reviews and Testimonials
Companies can also face FTC enforcement actions under the agency's new Final Rule if they alter the review portion of their site by publishing materially positive or negative reviews or testimonials that they generate or modify themselves. The Final Rule does not focus exclusively on situations where consumers are paid to write reviews or where testimonials are procured through commercial transactions. Rather, companies can also face enforcement (and civil monetary penalties (CMP)) under the Final Rule based on:
- Internally generating false consumer reviews;
- Internally altering real reviews; and,
- Publishing reviews from company employees without taking steps to adequately disclose material connections to the company.
The FTC’s new Final Rule generally does not impose liability for companies that publish genuine reviews submitted externally as a matter of course. As the FTC explains, a business is “not liable under the rule for such reviews, assuming [it] didn’t write or buy them. Section 465.2(d) of the rule provides an exception for reviews that appear on a website or platform when the business is doing nothing more than hosting consumer reviews.” Notably, however, this does not apply to customer testimonials, as “[a] business that puts testimonials on its own website is disseminating them . . . not merely ‘hosting’ them[, and i]f those testimonials are fake or false, the business could be liable.”
7. When is a Review or Testimonial Considered “Fake”?
All of this raises an important question: When is a review or testimonial considered “fake”? While the specific can vary, the Final Rule generally provides that a review or testimonial will be considered fake if it “materially misrepresents, expressly or by implication,” one of the following:
- “That the reviewer or testimonialist exists;”
- “That the reviewer or testimonialist used or otherwise had experience with the product, service, or business that is the subject of the review or testimonial;” or,
- “The reviewer’s or testimonialist’s experience with the product, service, or business that is the subject of the review or testimonial.”
The Final Rule generally uses this standard with respect to customer reviews, customer testimonials, and celebrity testimonials. However, it is important to remember that these are not necessarily the only prohibitions that apply. As mentioned above, for example, reviews posted by company insiders can trigger CMP under the Final Rule if the insiders’ relationships to the company are not adequately disclosed.
8. Dealing with Negative Customer Reviews
The FTC’s new Final Rule also addresses negative customer reviews in a few different ways. For example, under the Final Rule, it generally constitutes an unfair or deceptive act or practice to:
- Pay for fake negative reviews targeting a company’s competitors;
- Pay, pressure, or intimidate customers to revise or delete negative consumer reviews; or,
- Suppress negative reviews while promoting positive reviews.
The Final Rule also specifically addresses what it calls “company-controlled review websites.” As the FTC explains, under this portion of the Final Rule, it constitutes an unfair or deceptive act or practice for a company to “misrepresent[] that a website or entity it controls provides independent reviews or opinions about a category of products or services that includes its own products or services.”
9. Paying for “Indicators of Social Media Influence”
In addition to establishing prohibitions related to fake reviews and testimonials, the FTC’s new Final Rule also addresses fake “indicators of social media influence.” This is a complex topic on its own; and, for now, we will simply highlight the need for companies (and their legal counsel) to consider these additional prohibitions when addressing online FTC compliance.
10. Maintaining Broader Compliance with the FTC Act
Finally, in this same vein, we will close with a reminder of the need for companies to address all pertinent areas of FTC compliance. From how companies solicit reviews to social media endorsements and consumer credit practices, the FTC has oversight of a wide range of other matters as well. Since non-compliance in one area can trigger FTC scrutiny in others, it is imperative that companies take a comprehensive and custom-tailored approach to complying with the FTC Act (and the other statutes that fall within the FTC’s enforcement authority).
