Background

The Proposed Rule, published on 30 June 2023, would "stop marketers from using illicit review and endorsement practices such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, which deceive customers looking for real feedback on a product or service and undercut honest business." Using its authority under Section 18(a)(1)(B) of the FTC Act, the FTC would specifically amend title 16, chapter I, subchapter D of the Federal Regulations by adding part 465 - Rule on the Use of Consumer Reviews and Testimonials. The notice also includes solicitations of written comment, data and arguments to inform the FTC's decision-making on the proposed trade regulation rule.

The Proposed Rule was motivated by three factors. First, by the FTC's history of enforcement against the use of deceptive reviews and testimonials compelled action. Second, the FTC noted that the widespread emergence of generative AI played a factor that would likely made it easier for bad actors to write fake reviews. Lastly, the FTC was influenced by the broad range of examples of clearly deceptive practices involving consumer reviews and testimonials in the comments from consumers, small businesses, advocacy organizations, trade associations, review platform operators, and researchers in response to its November 2022 Advanced Notice of Proposed Rulemaking.

In addition to the Proposed Rule, the FTC has also recently clarified existing rules on deceptive reviews and testimonials in its revised Guides Concerning the Use of Endorsements and Testimonials in Advertising and has published its updated "FTC's Endorsement Guides: What People are Asking", which includes 40 more answered questions, and focuses on influencers, the required disclosure of material connections across different platforms, and issues related to reviews. These regulatory steps closely track the FTC's recent escalation in enforcement activity around endorsements, testimonials and product reviews.

In depth

The Proposed Rule would encompass all businesses, defined broadly as "an individual, partnership, corporation, or any other commercial entity that sells product or services." According to the FTC, the "proposed rule on fake reviews shows that we're using all available means to attack deceptive advertising in the digital age". The newly created part 465 in the Proposed Rule would prohibit the following practices:

• Section 465.2 Fake or false consumer reviews, consumer testimonials, or celebrity testimonials. Under this section of the Proposed Rule, it is a violation for a business to write, create, sell, purchase or procure a consumer review, consumer testimonial or celebrity testimonial by a reviewer who: (1) does not exist; (2) did not use or otherwise have experience with the product, service or business that is the subject of the review or testimonial; or (3) that materially misrepresents, expressly or by implication, the reviewer’s experience with the product, service or business that is the subject of the review or testimonial. 
• Section 465.3 Consumer review repurposing: Under Rule 465.3, businesses would be prohibited from using or repurposing a consumer review written for one product so that it appears to have been written for a substantially different product. The term “substantially different product” is defined as "a product that differs from another product in one or more material attributes other than color, size, count, or flavor." 
• Section 465.4 Buying positive or negative reviews: Under this section, businesses would be prohibited from offering compensation or other incentives in exchange for, or conditioned on, the writing of a consumer review expressing a particular sentiment (whether positive or negative). 
• Section 465.5 Insider reviews and consumer testimonials: Section 465.5 of the Proposed Rule would prohibit a company’s officers and managers from writing reviews or testimonials of its products or services, without a clear and conspicuous disclosure of their relationships with the company. Consistent with the recently revised FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising, under the clear and conspicuous standard, a disclosure needs to be "easily noticeable (i.e., difficult to miss) and easily understandable by ordinary consumers." Notably, "ordinary consumers" means the member of the group of which the representation or sales practice is targeting. The Proposed Rule gives examples of what would satisfy the "clear and conspicuous" threshold in this context: (1) the disclosure must be made through the same means through which the communication is presented; (2) a visual disclosure must stand out from any accompanying text or other visual elements so that it is easily noticed, read and understood; (3) an audible disclosure must be delivered in a volume, speed and cadence sufficient for ordinary consumers to easily hear and understand; and (4) in any communication using an interactive electronic medium, the disclosure must be unavoidable. A disclosure is not considered clear and conspicuous if a consumer must take any action, such as clicking on a hyperlink or hovering over an icon, to see it. 
• Section 465.6 Company controlled review websites or entities: It is an unfair or deceptive act or practice and a violation of this Proposed Rule for a business to represent, expressly or by implication, that a website, organization, or entity that it controls, owns, or operates provides independent reviews or opinions about a category of businesses, products, or services including the business or one or more of its products or services. 
• Section 465.7 Review suppression: Section 465.7 prohibits businesses from using unjustified legal threats, other forms of intimidation, or false accusations to prevent or cause the removal of a negative consumer review. The Proposed Rule also would bar a business from misrepresenting that the reviews on its website represent all or most reviews submitted when certain reviews have been suppressed based on their negativity. The provision also makes clear that the nonpublication of consumer reviews for certain enumerated reasons is not considered to be impermissible review suppression, so long as the criteria for withholding reviews are applied to all reviews submitted without regard to the favorability of the review. The listed acceptable reasons for not publishing a review are: (a) that the review contains (i) trade secrets or privileged or confidential commercial or financial information, (ii) libelous, harassing, abusive, obscene, vulgar, or sexually explicit content, (iii) the personal information or likeness of another person, (iv) content that is discriminatory with respect to race, gender, sexuality, ethnicity, or another protected class, or (v) content that is clearly false or misleading; (b) the seller reasonably believes it is fake; or (c) the review is wholly unrelated to the products or services offered by or available at the website or platform. These criteria are based upon those enumerated in the Consumer Review Fairness Act, 15 U.S.C. 45b(b)(2) and (3).
• Section 465.6 Misuse of fake indicators of social media influence: This rule would prohibit anyone from selling or distributing fake indicators of social media influence that can be used by persons or businesses to misrepresent their influence or importance for a commercial purpose. In addition, it would be illegal to purchase or procure fake indicators of social media influence to misrepresent their influence or importance for a commercial purpose.

Commentary

The proposed rule comes amid the FTC's increasing enforcement activity around allegedly deceptive reviews and its recognition that the rise of generative AI will likely compound the problems of fake online reviews. It is therefore probable that the FTC will finalize at least some form of the Proposed Rule. The FTC is repeatedly demonstrating that it wants to protect consumers and to "level the playing field for honest companies".

What's next

Regardless of whether or not the Proposed Rule is passed in its current form, companies should: (1) audit how they solicit their product and service reviews and testimonials; and (2) review how they market and manage reviews and testimonials. Businesses should subject product and service review and testimonials to scrutiny, and as necessary engage the help of specialist counsel, as this Proposed Rule — along with the FTC's long history combatting and commenting on the use of deceptive reviews and testimonials — demonstrate that the FTC is placing fake and misleading reviews near the top of its regulatory agenda.

Once the notice is published in the Federal Register (pending), the public can submit comments electronically or in writing within 60 days from the publication date. The FTC will consider the public comments when deciding whether and how to implement the Proposed Rule.