Intro

The FTC recently announced a new rule to combat fake consumer reviews and testimonials. Scott Hervey and Jessica Marlow explain how this decision will impact businesses and the influencer marketing industry in this episode of The Briefing.

Watch this episode on the Weintraub YouTube channel.

Show Notes:

Scott:
On August 14th, 2024, the Federal Trade Commission announced a final rule that will combat fake reviews and testimonials. All parties involved in influence or marketing or companies that have significant e-commerce businesses need to know about these rules, what they prohibit, and the consequences for violating them. Joining me to break down these new rules is fellow Weintraub partner Jessica Marlow on today’s installment of The Briefing.

Jessica, welcome back to The Briefing. It’s been a while.

Jessica:
It has. Thank you for having me.

Scott:
Good to have you back. We’re talking about one of your favorite topics, influencer marketing.

Jessica:
Absolutely. FTC, they’re coming up with new rules all the time, so I’m excited to dig in.

Scott:
Yeah. Well, so let’s start out with a rule that I think a number of online brands, companies that have significant online businesses, will find maybe problematic. So the FTC says that it’s an unfair or deceptive act or practice and a violation for a business to provide compensation or other incentives in exchange for the writing or creation of consumer reviews expressing a particular sentiment, whether negative or positive, regarding a product, service, or business that is the subject of the review. In other words, no pay-to-play for consumer reviews. Now, according to the FTC notes, this section doesn’t address testimonials such as a blogger or an influencer paid review. This section only applies to consumer reviews. Also, the FTC pointed out that this section doesn’t prohibit paid or incentivized consumer reviews, only those where the compensation is provided in exchange for expressing a specific sentiment.

Jessica:
What about a campaign where a brand solicits positive feedback on a product in exchange for a discount on a future purchase? Something like, Tell us how much you loved our product, and we’ll give you 10% off your next purchase.

Scott:
The FTC that just because a business expects a review to be positive doesn’t mean that there is an express or an implied requirement that the review needs to be positive to obtain an incentive. The condition that the review needs to be of a particular sentiment in exchange for the incentive, it needs to be expressed or implied by the circumstances. However, let’s be clear that review gating, where a business only asks for positive reviews for customers while filtering out negative views, is itself illegal.

Jessica:
The rule also says that companies are prohibited from creating, writing, or selling fake reviews or testimonials. This would prohibit reviews attributed to a person that doesn’t exist. This would include AI-generated fake reviews, but not necessarily AI-generated summaries of actual reviews or reviews by real people who do not have actual experience with the business, its products, or its services, or that maybe misrepresent their experience of the person giving it. The rule also prohibits businesses from buying fake reviews or testimonials or disseminating such reviews or testimonials when the business knew or should have known that the reviews or testimonials were fake or false. Something to think about for brands or agencies that contract directly with influencers. Make sure that your agreement requires actual use of the reviewed product and that the review reflects the reviewer’s actual experience.

Scott:
Yeah, I agree with that. I think having that rep and warranty in an agreement is a way that a business can say, Well, there’s no way that I should have known that these testimonials given by this person are fake. They had no personal knowledge of the product or these reviews or testimonials did not actually reflect their own personal experience because the contract had these reps and warranties that said that the person giving the testimonial had to use it and that they could only give their personal experience as a testimonial. That’s a really good point. The prohibition on fake reviews also extends the company insiders or their relatives. The rule prohibits procuring or disseminating a review from a company insider or their relative when that review is about the business or one of its products or services, when the business knew or should have known that the reviewer, either materially misrepresented, either expressly or by implication, that the viewer exists. So one, it’s a review by a fake person, or two, that the reviewer did not have actual experience with the business or its product or service, or that the review misrepresents that reviewer’s actual experience.

Jessica:
The prohibition does not apply to reviews or testimonials that resulted from a business making generalized solicitations to purchasers to pose reviews or testimonials about their experience with the product or service or the business, or that appear on a website or platform as a result of the business merely engaging in consumer review hosting.

Scott:
We mentioned above that businesses can’t create or sell fake testimonials. But the flip side of that coin is that The rule also says that businesses cannot buy consumer reviews or disseminate reviews or testimonials that are fake, either that they’re from a fake reviewer or that they materially misrepresent the reviewer’s experience with a the product or the service. They also can’t provide compensation or incentives for reviews expressing a particular sentiment.

Jessica:
The rule also addresses insider reviews. The rule prohibits an officer or a manager of a business from writing or creating a consumer review or consumer testimonial about the business or one of its products or services unless there is a clear and conspicuous disclosure of the officer’s or manager’s material relationship to the business. If the relationship is otherwise clear to the audience, then in the case of consumer testimonials, this disclosure isn’t necessary. Officers, managers, employees, or the relatives must disclose their relationship to the company when writing reviews, and companies must ensure that such disclosures are made when they know about these relationships as well.

Scott:
It’s quite frequent to see insiders provide some type of product review on TikTok or Instagram. Sometimes, there’s a disclosure about their relationship with the company and their employment status with the company. Other times there isn’t. But companies take note, if your head of social media marketing is also a generator of your TikTok or Instagram content, you need to make sure that you disclose the fact that this person is a company insider. There are some review websites that misrepresent their relationship to a business being reviewed. These rules prohibit a business from materially misrepresenting, either expressly or by implication, that a website, organization, or entity that it controls, owns, or operates provides independent reviews or opinions, other than consumer reviews, about a category of business products or services, including the businesses or one or more of the products or services that it sells.

Jessica:
The role also prohibits review suppression. So, companies can’t use unfounded legal threats, intimidation, or false accusations to prevent or remove reviews. And they also can’t misrepresent the displayed reviews represent most or all of the submitted reviews if negative reviews are being suppressed.

Scott:
The rule also includes a prohibition against the use of fake social media influence indicators. Businesses are prohibited from selling, distributing, purchasing, or using fake indicators of social media influence, like number of followers, number of subscribers, likes, etc, for commercial purposes.

Jessica:
Let’s talk about the impact of this rule on companies and brands that have some online focus.

Scott:
Sure. The first is review management. Companies need to be extremely cautious about how they manage their online reviews. They can’t artificially inflate positive reviews or suppress the negative ones.

Jessica:
And how about transparency? There’s an increased need for transparency, especially when employees or affiliates are the ones leaving those reviews.

Scott:
Right. And that ties into marketing practices. Social media marketing strategies need to be authentic, avoiding the use of fake followers, fake likes, or fake engagement metrics.

Jessica:
Let’s focus for a second on customer feedback. Companies should really focus on genuine customer feedback rather than incentivized or manipulated reviews.

Scott:
Then let’s not forget the lawyers. Legal compliance Compliance. Online businesses need to establish clear policies and training to ensure compliance with these rules across all digital platforms. Might I suggest maybe an audit of these practices every year or so because as we know, the FTC is always either changing rules or adopting existing rules to fit current times.

Jessica:
Absolutely. I think that plays into platform responsibility. If a company hosts reviews on its platform, it needs to ensure representation of all reviews.

Scott:
Influencer partnerships. When working with influencers or celebrities, companies must ensure proper disclosure of relationships and the authenticity of the testimonials given by those influencers or celebrities. Agreed. Now, these regulations aim to create a more honest and transparent online marketplace. At least that’s the goal of the FTC. This could potentially level the playing field for businesses, but it requires more diligence to in managing a business’s online presence and managing both negative and positive customer feedback.

Thank you for joining us for today’s episode of The Briefing. We hope you found this episode informative and enjoyable. If you did, please remember to subscribe, leave us a review, and share this episode with your friends and colleagues. If you have any questions about the topics we covered today, please leave us a comment.