FTC Finalizes Long-Awaited Rule on Use of Consumer Reviews and Testimonials

On August 14, 2024, the Federal Trade Commission (“FTC”) published its long-anticipated Final Rule on the Use of Consumer Reviews and Testimonials (“Final Rule”), marking a significant development in the regulation of online reviews and endorsements (16 CFR Part 465). Following notices of proposed rulemaking in 2022 and 2023 and an informal hearing in February 2024, the Final Rule aims to enhance transparency, protect consumers, and ensure that businesses adhere to fair advertising practices in light of ongoing noncompliance with Section 5 of the FTC Act and the Agency’s Guides Concerning the Use of Endorsement and Testimonials in Advertising.

The Final Rule largely codifies existing FTC policy related to reviews and testimonials and generally sets forth limitations for six categories of conduct that the FTC will consider deceptive:

• Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials: The Final Rule forbids businesses from creating, buying, selling or disseminating fake or false reviews or testimonials — including fabricating positive reviews for its own products, as well as negative reviews intended to harm competitors. The scope of this regulation includes AI-generated reviews and reviews from anyone with no actual experience with the product. (16 CFR §465.2)
• Purchasing Reviews: The Final Rule prohibits all conditional incentivized reviews. In this regard, businesses are prohibited from providing compensation or other incentives contingent upon a consumer writing a positive review or a review expressing a particular sentiment. Violations will include situations in which such a contingency is express or implied and will not be shielded by a reviewer’s disclosure of having received an incentive. (16 CFR §465.4)
• Insider Reviews: It is a violation under the Final Rule for an officer or manager to solicit or demand a review from immediate relatives or any employee or agent of the business without a clear and conspicuous disclosure of the material relationship to the business. Similarly, an officer or manager of a business is prohibited 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 relationship to the business. Businesses are also prohibited from disseminating testimonials by company insiders without clear disclosures if the businesses knew or should have known of the relationship. Note that all of these prohibitions hinge upon the undisclosed relationship being material to customers. (16 CFR §465.5)
• Company Controlled Review Websites: The Final Rule prohibits companies from creating or controlling review websites or platforms that appear independent but are, in fact, operated by the company itself. (16 CFR §465.6)
• Review Suppression: The Final Rule prohibits businesses from selectively suppressing negative reviews or otherwise manipulating the overall perception of their product by only showing positive feedback. The FTC requires all reviews to be treated fairly, ensuring that consumers see a true representation of customer experiences. Under the Final Rule, it is also a prohibited act for a business to make an “unfounded or groundless legal threat, a physical threat, intimidation, or a public false accusation” in an attempt to suppress a review or cause it to be removed. (16 CFR §465.7)
• Misuse of Indicators of Social Media Influence: The Final Rule prohibits the sale or distribution of fake indicators of social media influence (e.g., likes, followers, subscribers, views, or reposts) that have been artificially inflated or purchased to falsely represent the popularity or reach of a product or service. The Final Rule also bars anyone from buying or procuring such fake indicators. (16 CFR §465.8)

The Final Rule additionally authorizes the FTC to seek civil penalties of up to $51,744 per violation, significantly boosting the Agency’s ability to pursue monetary damages and deter future deception. The Final Rule also will allow the FTC to seek court orders requiring violators to compensate consumers for any harms caused by a business’s unlawful conduct.

Of note, the FTC declined to finalize the provision covering “review hijacking” (i.e., taking reviews for one product and repurposing them for a “substantially different product”) — an element that was included in the proposed rule. The FTC explained that it was not able to resolve stakeholder concerns about the definition of “substantially different product” but that it could choose to later engage in further rulemaking to address this issue.

The Rule will become effective on October 21, 2024.

Implications for Businesses

The FTC has historically been attentive to challenging illegal practices regarding reviews and testimonials. We now anticipate the FTC will pursue more aggressively the types of deceptive or unfair practices described in these regulations. Businesses can stay ahead by implementing proactive compliance strategies. In particular, companies should immediately review and update their policies and practices to ensure compliance with these and other relevant FTC requirements. Some key steps could include (a) auditing current review and testimonial practices to identify and address any potential areas of noncompliance; (b) implementing or modifying existing procedures for disclosing material connections; (c) ensuring all customer reviews are treated and published fairly, without bias or manipulation; and (d) educating employees and affiliates on the Final Rule, as well as ensuring that third-party advertising and marketing partners understand them, to prevent inadvertent violations.

If you have any questions about this Final Rule, please contact the authors or your Goodwin attorney.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.