Earlier this month, the Federal Trade Commission (FTC or Commission) published a final rule prohibiting certain specified unfair or deceptive acts or practices involving consumer reviews and testimonials. Effective October 21, 2024, this latest addition to the FTC’s toolkit enhances the agency’s ability to exact civil penalties and consumer redress for noncompliance.
The Commission announced the issuance of the Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (Final Rule or Rule) on August 14, 2024. The Final Rule was published in the Federal Register on August 22, 2024 and will go into effect on October 21. [1]
The Final Rule formally prohibits certain practices identified as unfair or deceptive in the updated Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides), which were released in June 2023. [2] But unlike the Endorsement Guides, which are not themselves independently enforceable, violations of the Final Rule carry specific, direct consequences. The Commission will be empowered to impose penalties against violators in the amount of up to $51,744 per rule violation (subject to annual inflation adjustment), along with other relief—including consumer redress, conduct restraints, and broad oversight authority.
In an FTC press release published last week, Commission Chair Lina M. Khan characterized the Final Rule as “strengthening the FTC’s toolkit to fight deceptive advertising[.]” Of note, Chair Khan stated that the Final Rule will “put businesses that unlawfully game the system on notice,” signaling that noncompliant businesses will be an enhanced focus of scrutiny. Companies engaged in marketing that involves the use of reviews and testimonials should assess their current practices with an eye toward swift correction in light of this Rule.
The Final Rule issued on August 14 specifically defines and prohibits certain unfair or deceptive acts or practices involving (1) fake or false consumer reviews, consumer testimonials, and celebrity testimonials; (2) buying positive or negative reviews; (3) insider reviews and consumer testimonials; (4) company-controlled websites; (5) review suppression; and (6) misuse of fake social media indicators.
In July 2023, the Commission published a proposed version of the Final Rule in a notice of proposed rulemaking, followed by public comments and informal hearings. We wrote about the proposed rule (and the updated Endorsement Guides) here. As discussed below, the Final Rule includes all but one of the previously proposed provisions. The Final Rule otherwise largely tracks the proposed rule with modifications characterized by the Commission as “mostly clarifications and limitations.” We summarize the key definitions, provisions, and notable modifications or clarifications below.
The Final Rule also includes several new defined terms. We highlight three notable additions below:
The Final Rule defines “consumer review hosting” as “providing the technological means by which a website or platform enables consumers to see or hear the consumer reviews that consumers have submitted to the website or platform.” In its section-by-section analysis, the FTC explained that it adopted this new definition to enable the exemption of “mere consumer review hosting” (i.e., a platform simply publishing or hosting reviews that it did not purchase) from certain provisions.
By way of example, § 465.5 prohibits a business from disseminating or causing the dissemination of a consumer testimonial by one of its officers, managers, employees, or agents without necessary disclosure of the testimonialist’s material relationship with the business but exempts “merely engaging in consumer review hosting.” Thus, an unsolicited employee review that merely appears on a business’s website does not violate the provision against disseminating insider testimonials.
The Final Rule adopts the proposed rule’s definition of “indicators of social media influence” as “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, saves, shares, reposts, and comments.” The Commission opted not to expand the definition to engagement metrics that are not publicly visible but are used to gain an algorithmic advantage.
Like the proposed rule, the Final Rule employs the phrase “distribute fake indicators of social influence” in § 465.8 (emphasis added). In response to public concern regarding the ambiguous nature of the words “distribute” and “fake,” the Commission opted to add two new formal definitions:
‘Fake Indicators of Social Media Influence’
This newly defined phrase was added in response to public confusion regarding the meaning of the term “fake.” Under the Final Rule, “fake indicators of social media influence” include indicators “generated by bots, purported individual accounts not associated with a real individual, accounts created with a real individual’s personal information without their consent, or hijacked accounts, or that otherwise do not reflect a real individual’s or entity’s activities, opinions, findings, or experiences.” The Commission explained: “If a company awards legitimate indicators of influence to certain users upon satisfaction of objective criteria reflecting the influence of the users, the company would not be selling ‘fake’ indicators, even if bad actors were able to deceive the company.”
‘Distribute Fake Indicators of Social Media Influence’
This phrase is defined as “the distribution of fake indicators of social media influence to individuals or businesses who could use the indicators to misrepresent their influence (emphasis added).” In explaining this new defined term, the Commission clarified that it is not seeking to impose vicarious liability on retailers who unknowingly distribute fake indicators of social media influence (e.g., by hiring an influencer or endorser who happens to have fake followers or likes). Rather, the Commission is focused on the intentional distribution of fake indicators to the public.
§ 465.2, Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials
The Final Rule prohibits businesses from writing, creating, selling, purchasing, or disseminating consumer reviews, consumer testimonials, or celebrity testimonials that materially misrepresent any of the following:
The Final Rule also prohibits a business from procuring consumer reviews from “officers, managers, employees, or agents, or any of their immediate relatives” for posting on a third-party platform or website when that review is about the business or one of its products or services and materially misrepresents any of the above-listed factors. Immediate relatives include spouses, parents, children, and siblings.
The “materially misrepresent” language is a departure from the proposed rule. Under the Final Rule, a company can utilize a virtual influencer to promote a product or service so long as they do not materially misrepresent the virtual influencer’s existence (e.g., by presenting the virtual influencer as a real person or failing to disclose that the influencer is a computer-generated, fictional character) or the virtual influencer’s use of or experience with the product, service, or business being promoted.
The Final Rule also includes a new § 465.2(d) that exempts the application of § 465.2 to reviews resulting from (1) general solicitations sent to large groups of customers where “[i]t would not be reasonable to expect a business to know whether such resulting reviews or testimonials were fake or false” and (2) reviews resulting from consumer review hosting.
§ 465.4, Buying Positive or Negative Consumer Reviews
The Final Rule prohibits businesses from providing compensation or other incentives in exchange for, or conditioned on (either expressly or by implication), the writing or creation of consumer reviews that express a particular sentiment about a product, service, or business.
The prohibition is specifically intended to prohibit paid or incentivized reviews “when the business soliciting the review provides compensation or an incentive in exchange for a review expressing a particular sentiment.” For example, a business that offers customers $5 off a future purchase in exchange for a product review is not inherently unlawful. It would be unlawful, however, for that same business to offer customers $5 off a future purchase in exchange for a five-star review (or the equivalent).
§ 465.5, Insider Consumer Reviews and Consumer Testimonials
An officer or manager of a business is prohibited from writing or creating a consumer review or consumer testimonial about its business (or its products or services) without clearly and conspicuously disclosing their “material relationship to the business” unless, in the case of a consumer testimonial, the relationship is otherwise clear to the audience.
With respect to consumer testimonials specifically, businesses are prohibited from disseminating (or causing the dissemination of) consumer testimonials by officers, managers, employees, or agents without appropriate disclosures, unless the testimonialist’s relationship to the business is otherwise clear to the audience. There are two exceptions to this prohibition on businesses—it does not apply to (1) unsolicited social media posts by employees or social media posts that result from generalized solicitations and (2) unsolicited employee reviews merely appearing on the business’s website because of its consumer review hosting function.
With respect to consumer reviews, an officer or manager is prohibited from soliciting or demanding consumer reviews about their business, products, or services from immediate relatives (defined as a spouse, parent, child, or sibling) or employees and agents of the business if such solicitation or demand results in the creation of a review without appropriate disclosure of the reviewer’s material relationship and the officer or manager encouraged the omission of a disclosure, failed to instruct reviewers about the need for a disclosure, or knew (or should have known) that such a review appeared and failed to take remedial action. This prohibition extends to soliciting or demanding employees or agents to seek such reviews from their relatives.
§ 465.6, Company-Controlled Review Websites or Entities
Businesses are prohibited from materially misrepresenting a review website, organization, or entity that it controls, owns, or operates as “independent” in nature when it is, in fact, controlled, owned, or operated by the business and features products or services of the business.
§ 465.7, Review Suppression
The Final Rule prohibits businesses from attempting to suppress negative or unfavorable reviews, except in limited circumstances. These limited circumstances include when a review contains trade secrets, privileged or confidential information, personal information of another individual, or content that is defamatory, harassing, abusive, obscene, vulgar, sexually explicit, discriminatory, or “clearly false or misleading.” § 465.7 also applies where a business “reasonably believes the review is fake” or “wholly unrelated to the products or services” being offered. Additionally, the provision prohibits businesses from misrepresenting that select consumer reviews represent most or all reviews. As a prime example, a business may not represent favorable reviews for one of its products as representative of all of its products when reviews of negative sentiment are being suppressed.
§ 465.8, Misuse of Fake Indicators of Social Media Influence
The Final Rule broadly prohibits the sale, distribution, or purchase of fake indicators of social media influence—such as followers, friends, connections, subscribers, views, plays, likes, saves, shares, reposts, and comments—where (1) the person “knew or should have known” the indicator to be fake and (2) the indicator can be used by individuals or businesses “to materially misrepresent their influence or importance for a commercial purpose.”
The proposed rule included a provision (proposed § 465.3) that pertained to the unfair or deceptive reuse or repurposing of consumer reviews. Specifically, proposed § 465.3 “sought to address a business using or repurposing a consumer review written or created for one product so that it appears to have been written or created for a substantially different product” and was intended to “cover businesses that caused such use or repurposing.” In response to varied public comments expressing concerns about the applicability of the provision, the Commission explained that it is not able to resolve the expressed concerns and has opted not to finalize the provision at this time.
The Final Rule will go into effect on October 21. The violation of a trade regulation rule entitles the FTC to seek significant penalties (in the amount of up to $51,744 per violation), as well as consumer redress and other remedial measures. Companies that use consumer reviews and testimonials in advertising should take a close look at current marketing practices and contracts to identify and address actual (and potential) areas of noncompliance, conduct in-house trainings for appropriate personnel, and refresh best practices to enable prompt compliance with the Final Rule.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
[1] Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, Federal Register (Aug. 22, 2024).
[2] Of note, the Commission’s section-by-section analysis of the Final Rule explains that the Endorsement Guides “address a broader range of conduct than the rule.” The Endorsement Guides set forth general principles relating to the use of endorsements and testimonials in advertising and reflect the FTC’s administrative interpretation of how Section 5 of the FTC Act, 15 U.S.C. § 45—which prohibits “unfair or deceptive acts or practices in or affecting commerce”—applies to the same.