FTC Publishes new Guidelines on Consumer Reviews and Initiates Anticipated Enforcement Actions
1 February 2022
The Federal Trade Commission (“FTC“) has announced a settlement with Fashion Nova, LLC, an online fashion retailer, over allegations that the latter concealed negative product reviews from being posted on its website, in violation the FTC Act. Under this Settlement, the company will pay the FTC $4.2 million. This is the FTC’s first case involving a company’s efforts to conceal negative customer reviews.
According to the FTC’s complaint, Fashion Nova used a third party product review service to automatically allow the posting of positive reviews (four and five-stars) to its website, while more negative reviews (lower-starred) were pending the company’s approval. The complaint states that between 2015 and 2019, the company never approved or posted any of such hundreds of thousands of lower-starred, more negative reviews.
Except for the monetary penalty, Fashion Nova is also prohibited from making misrepresentations about customer reviews or other endorsements. The company must also post all customer reviews regarding its products, with the exception of reviews that are unrelated to the products or contain unlawful content (e.g. racist or obscene content).
In addition to this enforcement case, the FTC has also recently settled with Vision Path Inc. (“Vision Path“). While the Vision Path’s settlement mainly relies on alleged violations regarding contact lenses’ prescriptions, the FTC also alleged that the company violated the FTC Act by failing to disclose that many of its products’ reviews were not by unbiased consumers but were written by reviewers who were compensated for their reviews.
Pursuant to these recent cases, the FTC has published two new guidelines regarding customer reviews: on “Soliciting and Paying for Online Reviews” (“Marketers Guidelines“) and on “Featuring Online Customer Reviews” (“Platforms Guidelines“).
The Marketers Guidelines relate to customer reviews in general, regardless of whether or not a company includes such reviews on its own website. According to these guidelines, companies need to comply with the rules of external platforms and websites, which may prohibit incentivized review or require appropriate disclosures. Companies should also avoid asking affiliated connections (i.e. staff) for reviews, avoid misusing reporting mechanisms, and ensure they are familiar with the practices of third party service providers in this regard, as it is ultimately the companies’ responsibility for what they do on their behalf.
The Platforms Guidelines relate to companies’ websites or platforms that features reviews. According to these guidelines, companies should avoid, inter alia, conditioning incentives on positive reviews or discouraging negative reviews. In addition, companies should have processes in place to verify that reviews are genuine, and treat all reviews equally, including by way of publishing all genuine reviews without any misleading alterations.
Deceptive and unfair reviews and endorsement have been on the FTC’s radar for a while now, as reflected in notices of penalty that were sent to over 700 companies in this regard (see our update here). In addition to these notices, ten letters were also recently sent to companies offering review management services, placing them on notice. These recent enforcement actions and guidelines build upon this increased regulatory scrutiny, and suggest that the FTC will continue to take action against unlawful practices.
Companies that involve reviews and endorsement as part of their operation should ensure that their practices are aligned with the FTC’s new guidelines. Please feel free to contact us if you have any questions regarding the implications of these enforcement action and guidelines on your company’s practices.
Please feel free to contact us if you have any question.
Ariel Yosefi, Partner
Head of Technology & eCommerce Regulation