FTC Goes After Fake Reviews to Protect Consumers: But What About Protecting the Merchants?

On June 30, 2023, the Federal Trade Commission (FTC) introduced a groundbreaking proposal to combat deceptive marketing practices involving fake reviews and endorsements. This proposed rule aims to protect consumers seeking genuine feedback on products and services while promoting fairness for honest businesses. The proposed rule, if adopted in its current form, would impose civil penalties on violators, ultimately leveling the playing field for ethical companies. Many consumers and merchants have waited for this proposed rule for more than two decades. This long-awaited proposal will hopefully alleviate the existing skepticism that consumers have been experiencing after decades of relying substantially on merchant reviews to determine whether to consume a particular good or service from a merchant. The bigger question is whether these proposed rules sufficiently address fake reviews from the merchant’s perspective.

Overview of Proposed Rules:

The FTC’s notice of proposed rulemaking highlights past cases involving deceptive review practices and acknowledges the growing prevalence of generative AI, which could facilitate the creation of fake reviews by malicious actors. To tackle these deceptive practices head-on, the proposed rule sets forth several measures, including but not limited to the following:

Prohibition of Fake Consumer Reviews and Testimonials: Businesses would be barred from writing or selling reviews or testimonials from non-existent individuals or those who lack genuine experience with the product or service. Similarly, businesses would be prohibited from procuring or disseminating such fake reviews or testimonials knowingly or negligently.

Prevention of Review Hijacking: It would be unlawful for businesses to repurpose a consumer review intended for one product to falsely appear as if it pertained to a substantially different product.

Ban on Buying Positive or Negative Reviews: Companies would be prohibited from incentivizing consumer reviews by providing compensation or other rewards conditioned on expressing a specific sentiment, whether positive or negative.

Regulation of Insider Reviews and Consumer Testimonials: The proposed rule mandates that officers and managers of a company disclose their relationship when writing reviews or testimonials about their own products or services. Additionally, businesses would need to disclose relationships with insiders whose testimonials they disseminate. Certain solicitations by officers or managers of reviews from company employees or their relatives would also be restricted, depending on the businesses’ knowledge of these relationships.

Ban on Selling Fake Social Media Indicators: Selling false indicators of social media influence, such as fake followers or views, would be prohibited. Likewise, purchasing such indicators for commercial purposes to mislead others would also be barred.

The proposed rule builds upon the FTC’s prior actions in this area but acknowledges that case-by-case enforcement without the ability to seek monetary relief under the FTC Act may not be sufficient to deter deceptive practices. By establishing clear guidelines and enabling the imposition of civil penalties through judicial means, the rule seeks to enhance deterrence and FTC enforcement efforts.

Does this Proposed Rule Protect Merchants?

While the FTC aims to promote fairness and prohibit deceptive trade practices in the marketplace, this recently proposed rule-making begs the question, of whether the FTC is going far enough to protect merchants. Whether the proposed rule will equally empower merchants to remove unwarranted negative reviews as compared to the removal of unfair and deceptive positive reviews is yet to be seen. There are many good merchants, that, unfortunately, suffer economic loss as a direct result of fake negative reviews. These well-meaning merchants often fall prey to false and misleading fake reviews by disgruntled consumers or even by ill-meaning competitors. Such fake negative reviews deserve the same scrutiny by the CFPB as those false and misleading positive reviews, which include positive reviews that are purchased by the more nefarious, competing merchants.