The FTC’s Proposed Rule, codified under 16 C.F.R. part 465, would prohibit the following identified practices related to consumer reviews and testimonials.
Section 465.1 Definitions. The FTC has proposed several definitions, mostly taken from the definitions proposed in the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides). These definitions include “Celebrity Testimonial,” “Clear and Conspicuous,” “Consumer Review,” “Consumer Testimonial,” and Indicators of “Social Media Influence.” There are other new definitions filled with ambiguous terms such as “unjustified legal threat” (defined as “a threat to initiate or file a baseless legal action, such as an action for defamation that challenges truthful speech or matters of opinion.”). It will be interesting to see how the FTC will justify being able to clearly determine when a threat of litigation is “baseless” or whether a person’s statement is “truthful” prior to initiating an investigation where it seeks monetary penalties.
Section 465.2 Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials. The Proposed Rule states that advertisers must not write, create, or sell a consumer review, consumer testimonial, or celebrity testimonial from someone that does not exist or does not have an experience with the product or service. Advertisers must not procure or disseminate fake reviews if the advertiser knows or should know the review is from someone that does not exist or does not have an experience with the product or service.
Section 465.3 Consumer Review Repurposing. The Proposed Rule prohibits advertisers from using or repurposing consumer reviews written or created for one product so that it appears to have been written or created for a substantially different product. This was picked up from the FTC’s recent enforcement action involving the “recycling” or “repurposing” of reviews from one product for use with another product.
Section 465.4 Buying Positive or Negative Consumer Reviews. Codifying another consent order from a recent enforcement action, the FTC makes it unlawful for advertisers to provide compensation or other incentives in exchange for, or conditioned on, the writing or creation of consumer reviews expressing a particular sentiment, whether positive or negative, regarding the product, service, or business that is the subject of the review.
Section 465.5 Insider Consumer Reviews and Consumer Testimonials. The Proposed Rule states that advertisers are prohibited from the following practices regarding consumer reviews related to employees or “insiders”:
a. An officer or manager of a business to write or create a consumer review about the business or one of its products or services without clear and conspicuous disclosure.
b. A business to disseminate a consumer testimonial about the business or one of its products or services by one of its officers, managers, employees, or agents, or any of their relatives without clear and conspicuous disclosure regarding the testimonialist’s relationship to the business when the business knows or should know the testimonialist's relationship to the business.
c. An officer or manager to solicit or demand a consumer review about the business from an employee, agent, or relative of any such officer, manager, employee, or agent.
Section 465.6 Company-Controlled Review Websites or Entities. Largely based on the FTC’s enforcement activities, the Proposed Rule would make it unlawful for an advertiser to create or control a website that claims to provide independent opinions about a category of products or services that includes its own products or services.
Section 465.7 Review Suppression. The Proposed Rule lists several actions that might “suppress” customer reviews, including using “an unjustified legal threat or a physical threat, intimidation, or false accusation in an attempt to prevent a consumer review or any portion thereof from being written or created or cause a consumer review or any portion thereof to be removed.” The FTC has included a list of reasons why a business might be able to remove a review, including, for example, those involving trade secrets, confidential information, or libelous/vulgar/obscene/sexually explicit content, and content that is clearly false.
Section 465.8 Misuse of Fake Indicators of Social Media Influence. Finally, it is prohibited for advertisers to (i) sell or distribute fake indicators of social media influence that can be used to misrepresent influence or importance for a commercial purpose, or (ii) purchase or procure fake indicators of social media influence to misrepresent influence or importance for a commercial purpose. Fake “indicators of social media influence” is a newly defined term meaning “any metrics used by the public to make assessments of an individual’s or entity’s social media influence, such as followers, friends, connections, subscribers, views, plays, likes, reposts, and comments.” Think: followers or “likes.”
Whereas the Endorsement Guides are interpretations of how the FTC would enforce section 5 of the FTC Act, which normally could lead to injunctive relief if the Commission were able to prove that a marketer’s use of endorsement, consumer reviews, and testimonials was likely to mislead or deceive reasonable consumers in a material way, the new Proposed Rule identifies specific acts or practices that, if proven to have occurred, would expose the marketer to civil penalties in excess of $50,000 per violation. As stated, the Proposed Rule is subject to public comment. All comments are due by September 29, 2023.
Client Alert 2023-169
