United States: The Other Shoe

Well, so much for the useful guidance and education set forth in the Endorsement Guides! A day after the release of the newly revised FTC Endorsement Guides, the FTC published a Proposed Rule on the Use of Consumer Reviews and Testimonials. Whereas the Endorsement Guides are interpretations of how the FTC would enforce Section 5 of the FTC Act, which normally could lead to injunctive relief if the Commission were able to prove that a marketer's use of endorsement, consumer reviews, and testimonials were likely to mislead or deceive reasonable consumers in a material way, a new Proposed Rule identifies specific acts or practices that if proven to have occurred would expose the marketer to civil penalties in excess of $50,000 per violation.

What's in this new proposed rule?

First, there are definitions. Some are unsurprising, such as the definition of a "business." The Proposed Rule retreads the Endorsement Guides in many ways, such as in its basic definition of a "consumer testimonial" and its use of the virtually identical definition for "clear and conspicuous" used in the new version of the Endorsement Guides. But, there are other new definitions filled with ambiguous terms that will probably be the source of several public comments. For example, an "unjustified legal threat" is defined as "a threat to initiate or file a baselesslegal action, such as an action for defamation that challenges truthfulspeech or matters of opinion." It will be interesting to see how the FTC will justify being able to clearly determine when a threat of litigation is "baseless" or whether a person's statement is "truthful" prior to initiating an investigation where it seeks monetary penalties. (Delving into this area fraught with First Amendment implications may be why the new Proposed Rule unusually contains a severability provision.)

Second, the Proposed Rule prohibits the use of "fake or false" reviews or testimonials. That endorsements must reflect the honestly held beliefs, findings, and opinions of the person depicted has been the cornerstone of the Endorsement Guides for decades. Now, the FTC is turning it into a rule except it uses potentially problematic terms "fake" and "false." The Proposed Rule is unclear whether it's focused on the falsity of the review's content or if authenticity. Presumably, it's the latter, but as a "rule," it ought to be clearer.

Third, picking up on a recent enforcement action involving the "recycling" or "repurposing" of reviews from one product for another product, the FTC has explicitly made that practice unlawful. Of course, "repurposing" isn't defined, so that should be an interesting area for exploration in during the comment period.

Fourth, codifying another consent order from a recent enforcement action, the FTC makes unlawful providing compensation or other incentives in exchange for, or conditioned on, the writing or creation of consumer reviews expressing a particular sentiment, whether positive or negative, regarding the product, service, or business that is the subject of the review. It's interesting that there is no exception for disclosure of the compensation. So, the Proposed Rule is a blanket prohibition against paying for or providing incentives for reviews. How many sweepstakes involving customer reviews would be affected by this? The incentivized product review industry will need to be focused on this provision.

Fifth, codifying several enforcement actions that involve employees or other "insiders" writing testimonials purporting to be from unaffiliated consumers, the Proposed Rules prohibits this practice, although "clear and conspicuous" disclosure is a remedy.

Sixth, the Proposed Rule would make unlawful creating or controlling a website that claims to provide independent opinions about a category of products or services that includes its own products or services. Again, there's no acknowledgement that disclosure might dispel confusion or mistake as to whether a material connection might exist between the platform and the reviews about products that are offered on the platform.

Seventh, the Proposed Rule lists several actions that might "suppress" customer reviews (presumably only the "negative" reviews). That includes using "an unjustified legal threat or a physical threat, intimidation, or false accusation in an attempt to prevent a consumer review or any portion thereof from being written or created or cause a consumer review or any portion thereof to be removed." To complicate the rule even more, the FTC has included a list of reasons why a business might be able to remove a review. Thus, compliance with the Rule once finalized will probably require use of some sort of process by which the company identifies specifically which exception it is using to remove a review.

Finally, the Proposed Rule codifies another consent order to prohibit the sale or distribution of fake "indicators of social media influence," which is a newly defined term meaning "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, reposts, and comments." Think: followers or "likes."

The Proposed Rule will be subject to public comment. The public will have 60 days within which to supply comments from the date when the Proposed Rule is ultimately published in the Federal Register.

We knew that the FTC was contemplating rulemaking in this regard. Only 24 hours ago we were focused on how the FTC had modified its guidance to the industry as to the use of endorsements and testimonials. Well, so much for "guidance." The other shoe has dropped.

This article is presented for informational purposes only and is not intended to constitute legal advice.