Deceptive reviews and endorsements have been an increasing area of scrutiny by the Federal Trade Commission (FTC or Commission). In the last few years, the Commission has brought myriad complaints against companies for engaging in such practices. Last year, the FTC resurrected its long-dormant Penalty Offense Authority, warning more than 700 companies in a Notice of Penalty Offenses that they could be liable for significant civil penalties if they post misleading reviews or endorsements. Last month, for the second time in just a few months, the FTC announced an Advance Notice of Proposed Rulemaking (ANPR) under Section 18 of the Federal Trade Commission Act with a view to issuing a possible Trade Regulation Rule (TRR), asserting that the Commission’s current enforcement tools are insufficient to deter bad actors. The October 20, 2022 announcement, as with this summer’s announcement of an ANPR on commercial surveillance and data security, is the first step in a formal rulemaking process. The FTC seeks public comment on whether a mandatory rule is needed to address the growing problem of fake or hijacked reviews, suppression of negative reviews, or reviews that lack proper disclosures of a connection with the advertiser.
The FTC argues in the October ANPR that its “current remedial authority is limited. Monetary relief is no longer available under Section l 3(b), disgorgement is not available under Section 19(b), 15 U.S.C. 57b(b), and, while the Commission has deployed new tools to combat this problem, in many cases, it remains difficult to obtain monetary relief. Under these circumstances, the availability of a civil penalty remedy may provide a potent deterrent.” The FTC goes on to stress that the Commission’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides) provide useful recommendations to businesses on how to avoid making deceptive marketing claims, but they are not enforceable. The FTC asserts that the deterrence effect of a rule with the possibility of civil penalties “would benefit consumers, help level the playing field, and not burden legitimate marketers.”
The vote approving publication of the ANPR in the Federal Register was 3-1. Commissioner Christine S. Wilson, voting against issuance, cited the cost of the rulemaking and the sufficiency of the FTC’s existing tools for holding businesses accountable for deceptive reviews and endorsements. In a statement, Wilson said that “the Commission already has a multi-pronged strategy in place to combat this issue,” which includes the Endorsement Guides to educate businesses regarding their obligations and a companion business guidance piece. Wilson also referenced the Commission’s request for comments on potential updates and revisions to the Endorsement Guides issued earlier this year, and the Notice of Penalty Offenses issued in October 2021, which may enable the Commission to obtain civil penalties from marketers that use fake or deceptive endorsements or reviews.
The FTC invites stakeholders to weigh in on any aspect of the issues covered in the ANPR but is particularly interested in feedback on the prevalence of fake or deceptive reviews and endorsements, the costs and benefits of a rule that would address them, and alternatives to such a rulemaking, such as additional consumer and business education. The deadline for comments is 60 days after the ANPR’s publication in the Federal Register (which has not occurred as of the time of this writing). While the FTC’s commercial surveillance ANPR is expected to draw significant opposition from industry, false reviews do create competitive harms to businesses, and this proceeding is a chance for businesses and consumers to address those harms.