[Federal Register Volume 89, Number 163 (Thursday, August 22, 2024)]
[Rules and Regulations]
[Pages 68034-68079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18519]
[[Page 68033]]
Vol. 89
Thursday,
No. 163
August 22, 2024
Part II
Federal Trade Commission
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16 CFR Part 465
Trade Regulation Rule on the Use of Consumer Reviews and Testimonials;
Final Rule
Federal Register / Vol. 89 , No. 163 / Thursday, August 22, 2024 /
Rules and Regulations
[[Page 68034]]
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FEDERAL TRADE COMMISSION
16 CFR Part 465
RIN 3084-AB76
Trade Regulation Rule on the Use of Consumer Reviews and
Testimonials
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
issuing this final rule and Statement of Basis and Purpose (``SBP'')
relating to certain specified unfair or deceptive acts or practices
involving consumer reviews or testimonials. This final rule, among
other things, prohibits selling or purchasing fake consumer reviews or
testimonials, buying positive or negative consumer reviews, certain
insiders creating consumer reviews or testimonials without clearly
disclosing their relationships, creating a company-controlled review
website that falsely purports to provide independent reviews, certain
review suppression practices, and selling or purchasing fake indicators
of social media influence.
DATES: This rule is effective October 21, 2024.
FOR FURTHER INFORMATION CONTACT: Michael Ostheimer, (202) 326-2699,
Attorney, Division of Advertising Practices, Bureau of Consumer
Protection, Federal Trade Commission, Room CC-6316, 600 Pennsylvania
Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Advance Notice of Proposed Rulemaking
B. Notice of Proposed Rulemaking
C. Notice of Informal Public Hearing
II. The Legal Standard for Promulgating the Rule
A. Prevalence of Acts or Practices Addressed by the Rule
B. Manner and Context in Which the Acts or Practices Are
Deceptive or Unfair
C. The Economic Effect of the Rule
III. Overview of the Comments
A. Furthering the Commission's Goal
B. Adoption of the Proposed Rule as a Final Rule
IV. Section-by-Section Analysis
A. Sec. 465.1--Definitions
1. Overview
2. Definition-by-Definition Analysis
a. Business
b. Celebrity Testimonial
c. Clear and Conspicuous
d. Consumer Review
e. Consumer Testimonial
f. Indicators of Social Media Influence
g. Officers
h. Purchase a Consumer Review
i. Reviewer
j. Substantially Different Product
k. Testimonialist
l. Unjustified Legal Threat
3. Proposed Additional Definitions
a. Dissemination
b. Manager
c. Relative
d. Purchase or Procure Fake Indicators
e. Review Hosting
B. Sec. 465.2--Fake or False Consumer Reviews, Consumer
Testimonials, or Celebrity Testimonials
1. Common Language in Sec. 465.2(a), (b), and (c)
2. Sec. 465.2(a)
3. Sec. 465.2(b)
4. Sec. 465.2(c)
5. Sec. 465.2(d)
6. Knowledge Standard
7. Other Proposals
C. Sec. 465.3--Consumer Review or Testimonial Reuse or
Repurposing
D. Sec. 465.4--Buying Positive or Negative Consumer Reviews
E. Sec. 465.5--Insider Consumer Reviews and Consumer
Testimonials
1. Material Connections
2. Relatives
3. Agents
4. Scope
5. Knowledge Standard
6. Other Suggestions
F. Sec. 465.6--Company-Controlled Review Websites or Entities
G. Sec. 465.7--Review Suppression
1. Sec. 465.7(a)
2. Sec. 465.7(b)
H. Sec. 465.8--Misuse of Fake Indicators of Social Media
Influence
I. Sec. 465.9--Severability
V. Final Rule
VI. Final Regulatory Analysis Under Section 22 of the FTC Act
A. Need for, and Objectives of the Final Rule
B. Anticipated Costs and Benefits of the Final Rule
1. Estimated Benefits of the Final Rule
a. Consumer Welfare Benefits From Better-Informed Purchase
Decisions
b. Consumer Time Savings From Increased Reliability of Summary
Ratings
c. Benefits Related to Competition
2. Estimated Costs of the Final Rule
a. Compliance Costs
b. Other Impacts of the Final Rule
C. Reasonable Alternatives and Explanation of Why Particular
Alternative Chosen
VII. Paperwork Reduction Act
VIII. Regulatory Flexibility Act--Final Regulatory Flexibility
Analysis
A. Reasons for the Rule
B. Issues Raised by Comments, the Commission's Assessment and
Response, and Any Changes Made as a Result
C. Comments by the Chief Counsel for Advocacy of the SBA, the
Commission's Assessment and Response, and Any Changes Made as a
Result
D. Description and Estimate of the Number of Small Entities to
Which the Rule Will Apply
E. Description of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements
F. Description of Steps Taken To Minimize Impact of the Rule on
Small Entities
IX. Congressional Review Act
I. Background
A. Advance Notice of Proposed Rulemaking
On November 8, 2022, the Federal Trade Commission (``Commission''
or ``FTC'') published an advance notice of proposed rulemaking
(``ANPR'') to address certain deceptive or unfair acts or practices
involving consumer reviews or testimonials.\1\ Specifically, the ANPR
discussed: (1) reviews or endorsements by people who do not exist, who
did not actually use or test the product or service, or who were
misrepresenting their experience with it; (2) review hijacking, where a
seller steals or repurposes reviews of another product; (3) marketers
offering compensation or other incentives in exchange for, or
conditioned on, the writing of positive or negative consumer reviews;
(4) owners, officers, or managers of a company (a) writing reviews or
testimonials of their own products or services, or publishing
testimonials by their employees or family members, which fail to
provide clear and conspicuous disclosures of those relationships, or
(b) soliciting reviews from employees or relatives without instructing
them to disclose their relationships; (5) the creation or operation of
websites, organizations, or entities that purportedly provide
independent reviews or opinions of products or services but are, in
fact, created and controlled by the companies offering the products or
services; (6) misrepresenting that the consumer reviews displayed
represent most or all of the reviews submitted when, in fact, reviews
are being suppressed based upon their negativity; (7) the suppression
of customer reviews by physical threat or unjustified legal threat; and
(8) selling, distributing, or buying followers, subscribers, views, and
other indicators of social media influence. As part of the ANPR, the
Commission solicited public comment on, among other things, whether
such practices are prevalent and, if so, whether and how to proceed
with a notice of proposed rulemaking
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(``NPRM'').\2\ The ANPR provided for a 60-day comment period, and the
Commission received 42 responsive comments \3\ from review platforms
and other businesses, trade associations, consumer advocacy
organizations, entities dedicated to fighting fake reviews, a public
interest research center, a think tank, academic researchers, and
individual consumers.\4\ Most commenters expressed support for the
Commission proceeding with the rulemaking. Five comments expressed the
view that a rulemaking was unnecessary, was premature, or should not
apply to the commenter's constituents, or expressed skepticism about
the utility of a rulemaking.
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\1\ Fed. Trade Comm'n, Trade Regulation Rule on the Use of
Reviews and Endorsements, 87 FR 67424 (Nov. 8, 2022) [hereinafter
``ANPR''], https://www.federalregister.gov/documents/2022/11/08/2022-24139/trade-regulation-rule-on-the-use-of-reviews-and-endorsements. The ANPR was entitled ``Trade Regulation Rule
Concerning Reviews and Endorsements.'' In order to better reflect
its content, the Commission subsequently decided to change the name
of the proposed rule to ``Trade Regulation Rule on the Use of
Consumer Reviews and Testimonials.''
\2\ See ANPR, 87 FR 67427.
\3\ The Commission also received six unresponsive comments.
\4\ The comments are publicly available on this rulemaking's
docket at https://www.regulations.gov/docket/FTC-2022-0070/comments.
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B. Notice of Proposed Rulemaking
Based on an extensive review of the comments received in response
to the ANPR, the Commission's own history of enforcement, and other
sources of information, the Commission published the NPRM on July 31,
2023.\5\ In the NPRM, the Commission stated that it has reason to
believe that certain unfair or deceptive acts or practices involving
consumer reviews or testimonials are prevalent, including: (1) fake
consumer reviews and testimonials, as well as reviews and testimonials
that otherwise misrepresent the experiences of the reviewers and
testimonialists; (2) the unfair or deceptive reuse or repurposing of
consumer reviews; (3) the giving of incentives for reviews conditioned
on the sentiment of the reviews; (4) the use of consumer reviews and
testimonials written by company insiders without disclosure of their
relationships to the company; (5) marketers setting up purportedly
independent websites, organizations, or entities to review or endorse
their own products; (6) seller websites representing that the consumer
reviews displayed represent most or all of the reviews submitted when,
in fact, reviews are being suppressed based upon their negativity; (7)
review suppression by unjustified legal threat or physical threat; and
(8) the sale and misuse of fake indicators of social media influence
for commercial purposes.\6\ The Commission identified no disputed
issues of material fact; explained its considerations in developing the
proposed rule; solicited additional public comment thereon, including
specific questions designed to assist the public in submitting
comments; and provided interested parties the opportunity to request to
present their position orally at an informal hearing.\7\ Finally, the
NPRM set out the Commission's proposed regulatory text.\8\
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\5\ See Fed. Trade Comm'n, Trade Regulation Rule on the Use of
Consumer Reviews and Testimonials, 88 FR 49364 (July 31, 2023)
[hereinafter ``NPRM''], https://www.federalregister.gov/documents/2023/07/31/2023-15581/trade-regulation-rule-on-the-use-of-consumer-reviews-and-testimonials.
\6\ See id. at 49370-77.
\7\ Id. at 49377-81, 49389-90.
\8\ Id. at 49390-92.
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In response to the NPRM, the Commission received 100 responsive and
non-duplicative comments \9\ from entities and individuals interested
in the proposed rule,\10\ which are discussed in sections III and IV.
Although some commenters raised concerns and recommended specific
modifications or additions to the Commission's proposal, the majority
of commenters generally supported the Commission's proposal. Three
commenters submitted timely requests to make oral statements at an
informal hearing (``the hearing requesters'').\11\
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\9\ The Commission also received sixteen comments that were non-
responsive and two that were duplicates.
\10\ The comments are publicly available on this rulemaking's
docket at https://www.regulations.gov/document/FTC-2023-0047-0001/comment.
\11\ Fake Review Watch, Cmt. on NPRM at 4-5 (Aug. 8, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0015 (``Fake
Review Watch Cmt.''); Interactive Advertising Bureau, Cmt. on NPRM
at 14-15 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0101 (``IAB Cmt.''); Researchers at Brigham Young
University, Pennsylvania State University, and Emory University,
Cmt. on NPRM at 4 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0060 (``The Researcher Cmt.'').
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C. Notice of Informal Public Hearing
On January 16, 2024, the Commission published an Initial Notice of
Informal Hearing, which also served as the Final Notice of Informal
Hearing.\12\ The Notice designated the Honorable Carol Fox Foelak, an
Administrative Law Judge for the Securities and Exchange Commission, to
serve as the presiding officer for the informal hearing and stated that
the hearing requesters could speak at the informal hearing, make
documentary submissions to be placed on the public rulemaking record,
or both. Written submissions were due on or before January 30, 2024. In
response to the Notice of Informal Hearing, the Commission received
seven comments.\13\ The Notice also stated that the Commission had
decided not to proceed with proposed Sec. 465.3,\14\ which pertained
to the unfair or deceptive reuse or repurposing of a consumer review
written or created for one product so that it appears to have been
written or created for a substantially different product.
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\12\ Fed. Trade Comm'n, Trade Regulation Rule on the Use of
Consumer Reviews and Testimonials, 89 FR 2526 (Jan. 16, 2024)
[hereinafter ``Hearing Notice''], https://www.federalregister.gov/documents/2024/01/16/2024-00678/rule-on-the-use-of-consumer-reviews-and-testimonials.
\13\ The comments are publicly available on this rulemaking's
docket at https://www.regulations.gov/docket/FTC-2024-0004/comments.
\14\ Hearing Notice, 89 FR 2528.
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As announced in the Notice of Informal Hearing, the informal
hearing began as scheduled on February 13, 2024.\15\ Because the
Commission had not designated disputed issues of material fact, the
February 13 hearing session included no cross-examination or rebuttal
submissions but did include oral statements from the three hearing
requesters.\16\ One of the hearing requesters, the Interactive
Advertising Bureau (``IAB''), a trade association, argued that there
were two disputed issues of material fact.\17\ The other two hearing
requesters discussed their comments submitted pursuant to the NPRM. At
the conclusion of this hearing session, the presiding officer issued an
order inviting further submissions, including specific evidence,
concerning whether there were disputed issues of material fact.\18\ IAB
submitted a letter that described the results from a survey directed to
its members--to which eighteen unidentified members responded \19\--
regarding the impact of the proposed rule, including their estimated
compliance costs.\20\
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\15\ Members of the public were able to watch the informal
hearing live on the Commission's website, https://www.ftc.gov.
\16\ A transcript of the February 13 hearing session is
available at https://www.ftc.gov/system/files/ftc_gov/pdf/transcript-consumer-reviews-and-testimonials-rule-informal-hearing-feb-13-2024.pdf [hereinafter ``February 13 Hearing Transcript''].
\17\ IAB's proposed disputed issues of material fact were
``whether the compliance costs for businesses will be minimal,
particularly if the `knew or should have known' standard is
finalized'' and ``whether the Commission finding that unattended
consequences from the NPRM are unlikely is accurate.'' February 13
Hearing Transcript at 9.
\18\ Order by Presiding Officer Foelak at 2 (Feb. 13, 2024),
https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240213.pdf.
\19\ IAB ``represents over 700 leading media companies, brand
marketers, agencies and technology companies.'' February 13 Hearing
Transcript at 6.
\20\ Letter Brief from Interactive Advertising Bureau to
Presiding Officer Foelak (Feb. 20, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmission20240220.pdf.
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On February 23, 2024, the presiding officer issued an order finding
one disputed issue of material fact, namely, ``[w]hether the compliance
costs for businesses will be minimal.'' \21\ However, the February 23
order stated that ``[i]t can be argued that . . . even
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if the actual costs are more than double what the FTC assumed, it would
not change the outcome of the rule, and therefore, it is not a
`disputed issue[ ] of material fact necessary to be resolved.' '' \22\
The order provided that the presiding officer was nevertheless
scheduling an additional hearing session for March 5, 2024, because
``an expert witness or proposed testimony from affected firms'
compliance officers or legal counsel'' might ``shed light on what would
be involved with compliance review and implementation'' and ``could
give the FTC a way of better quantifying cost.'' \23\ The March 5
hearing session was subsequently moved to March 6, 2024 at the trade
association's request.\24\
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\21\ Order by Presiding Officer Foelak (Feb. 23, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/p311003aljorder20240226.pdf.
\22\ Id.
\23\ Id.
\24\ Order by Presiding Officer Foelak (Feb. 28, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003_alj_order_3_2024.02.28.pdf.
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At the March 6 hearing session, the trade association put on one
witness: its Executive Vice President for Public Policy, an attorney,
who testified about the results of two limited surveys of its
members.\25\ FTC staff conducted cross examination. The attorney's
testimony about the surveys \26\ did not call the Commission's cost
estimates into legitimate question. Only a small number of unidentified
trade association members completed the surveys, and no evidence was
submitted to indicate that they were representative of any group, much
less all affected businesses.\27\ Further, only a few of the survey
respondents gave compliance cost estimates, none of which were
accompanied by explanation or evidence of their factual bases, and all
of which could have been influenced by the trade association's
misconceptions about the law and the proposed rule.\28\
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\25\ A transcript of the March 6 hearing session is available at
https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf. See also, Interactive
Advertising Bureau's Submission of Exhibits (Mar. 5, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmissionexhibits20240305.pdf.
\26\ The presiding officer stated that testimony by the trade
association's ``attorney about survey responses is hearsay and will
be weighed accordingly.'' Order by Presiding Officer Foelak (Mar. 4.
2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240304-1.pdf.
\27\ IAB received eighteen responses to the first survey and
nineteen to the second. See Post-Hearing Letter Brief from
Interactive Advertising Bureau to Presiding Officer Foelak (Mar. 13,
2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabposthearingbrief20240313.pdf.
\28\ See Transcript of Informal Hearing on Proposed Trade
Regulation Rule on the Use of Consumer Reviews and Testimonials
(Mar. 6, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf.
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The presiding officer issued a recommended decision on May 8, 2024,
stating that based on the evidence, ``it cannot be found whether or not
the proposed rule will have compliance costs that will be minimal.''
\29\ Later in the decision, the presiding officer explained that the
evidence ``falls short as the basis for a finding that compliance costs
would not be minimal'' because ``a minute sample of businesses that
would be affected by the proposed rule responded to the surveys, and
there is insufficient information about the nature of those businesses,
how they calculated potential compliance costs, and the methodology of
the surveys.'' \30\
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\29\ Order by Presiding Officer Foelak at 5 (May 8, 2024),
https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljdecision20240508.pdf. The presiding officer added that,
``[u]nquestionably, there is insufficient evidence in the record to
make a specific finding as to the size of the compliance costs
associated with the proposed rule.'' Id. at 5 n.9.
\30\ Id. at 6.
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In crafting the final rule, the Commission has carefully considered
the comments received and the rulemaking record as a whole, which
includes the oral statements made at and documents submitted for the
informal hearing. As a result, the final rule contains some changes
from the proposed rule. These modifications, mostly clarifications and
limitations, discussed in detail in section IV of this document, are
based upon input from commenters and careful consideration of relevant
law. Section IV also discusses commenters' recommendations that the
Commission declined to adopt, along with the Commission's reasons for
rejecting them. Accordingly, the Commission adopts the proposed rule
with limited modifications as discussed below. The rule will take
effect October 21, 2024.
II. The Legal Standard for Promulgating the Rule
The Commission is promulgating 16 CFR part 465 pursuant to section
18 of the FTC Act, 15 U.S.C. 57a, which authorizes the Commission to
promulgate, modify, and repeal trade regulation rules that define with
specificity acts or practices in or affecting commerce that are unfair
or deceptive within the meaning of section 5(a)(1) of the FTC Act, 15
U.S.C. 45(a)(1).\31\
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\31\ See 15 U.S.C. 57a(a)(1)(B).
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Whenever the Commission promulgates a rule under section
18(a)(1)(B), the rule must also include a Statement of Basis and
Purpose (``SBP'') that addresses: (1) the prevalence of the acts or
practices addressed by the rule; (2) the manner and context in which
the acts or practices are unfair or deceptive; and (3) the economic
effect of the rule, taking into account the effect on small businesses
and consumers.\32\ In this section of the preamble, the Commission
summarizes its findings regarding each of these requirements.
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\32\ 15 U.S.C. 57a(d)(1). In addition, section 22(b)(2) of the
FTC Act requires the Commission to prepare a final regulatory
analysis. 15 U.S.C. 57b-3(b)(2). The final regulatory analysis is in
section VI of this document.
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A. Prevalence of Acts or Practices Addressed by the Rule
In its ANPR, the Commission described its enforcement record,
demonstrating the pervasiveness of the deceptive or unfair commercial
acts or practices involving reviews or other endorsements it was
examining.\33\ In the NPRM, the Commission cited additional enforcement
evidence, including actions brought by State Attorneys General
(``AGs'') and private lawsuits, as well as international evidence, and
also took notice of additional indications of prevalence that came from
commenters.\34\
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\33\ ANPR, 87 FR 67425-26.
\34\ NPRM, 88 FR 49370-77.
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In support of the finding that fake reviews are prevalent, the NPRM
cited to (1) FTC, State, and private cases; (2) statistics from review
platforms, a platform insider, academic and other researchers, consumer
surveys, investigative journalists, and others about the incidence of
fake reviews; (3) information about the pervasiveness of consumer
review rings that facilitate the buying, selling, or exchange of fake
reviews; (4) the experiences of regulators in other countries and of
international bodies; and (5) reporting regarding the use of generative
artificial intelligence (``AI'') tools that make it easier for bad
actors to write fake reviews.\35\ In support of the finding that fake
testimonials are prevalent, the NPRM discussed relevant FTC cases, an
in-depth Better Business Bureau investigative study that examined fake
celebrity endorsements, a celebrity lawsuit involving the fraudulent
use of the celebrities' names, and an FTC consumer alert about fake
Shark Tank celebrity testimonials.\36\ In support of the finding that
misrepresentations of endorsers' experiences are prevalent, the NPRM
cited to FTC cases and a
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comment by the North American Insulation Manufacturers Association
(``NAIMA'') asserting that testimonials by those misrepresenting their
experiences with insulation products are plentiful.\37\ The Commission
concluded that the unfair or deceptive reuse or repurposing of consumer
reviews is prevalent, relying upon a prior Commission case and numerous
news articles.\38\ To show how commonly incentives are given in
exchange for reviews with the incentives conditioned on the sentiment
of the reviews, the NPRM pointed to FTC and private cases, analyses by
researchers of markets for procuring reviews, and the experience of a
small business employee commenter who said a competitor was providing
incentives for 5-star reviews.\39\ The Commission found prevalence of
unfair or deceptive insider reviews and testimonials based on its prior
cases; a State AG action; statistics from a review platform commenter
about how many reviews of businesses were written by their owners,
officers, or employees, or their family members; and an individual
commenter who relied upon insider reviews in selecting an auto repair
shop.\40\ The NPRM cited prior cases regarding the prevalent practice
of marketers setting up purportedly independent websites,
organizations, or entities to review or endorse their own products.\41\
The Commission found prevalence of suppression of negative reviews on
retailer or business websites based on a platform's comment, a recent
FTC case, and what it learned in another investigation about more than
4,500 merchants that were automatically publishing only 4- or 5-star
consumer reviews.\42\ The NPRM relied upon reports by platform and
other commenters, as well as FTC and State AG cases, regarding review
suppression by unjustified legal threat or physical threat.\43\
Finally, with respect to the prevalence of sales and misuse of fake
indicators of social media influence for commercial purposes, the NPRM
discussed cases brought by the FTC, a State AG, and private parties,
and published reports on social media bots and fake social media
accounts.\44\
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\35\ Id. at 49370-72. AI tools make it easier for bad actors to
pollute the review ecosystem by generating, quickly and cheaply,
large numbers of realistic but fake reviews that can then be
distributed widely across multiple platforms. AI-generated reviews
are covered by the final rule, which the Commission hopes will deter
the use of AI for that illicit purpose.
\36\ NPRM, 88 FR 493720-73.
\37\ Id. at 49373.
\38\ Id. at 49373-74.
\39\ Id. at 49374.
\40\ Id. at 49374-75.
\41\ Id. at 49375
\42\ Id. at 49376.
\43\ Id.
\44\ Id. at 49376-77.
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B. Manner and Context in Which the Acts or Practices Are Deceptive or
Unfair
The rule is intended to curb certain unfair or deceptive uses of
consumer reviews and testimonials. It contains several provisions to
promote accuracy and truthfulness in reviews and testimonials and,
thus, will allow American consumers to make better-informed purchase
decisions. The key provisions of the rule prohibit conduct that is
inherently deceptive or unfair, including creating, selling, and buying
fake or false reviews or testimonials; buying reviews in exchange for,
or conditioned on, their sentiment; and using reviews and testimonials
from company insiders that hide their relationships to the company. The
rule also includes prohibitions against misleading, company-controlled
review websites or entities; unfair or deceptive review suppression
practices; and the misuse of fake indicators of social media influence.
C. The Economic Effect of the Rule
As part of the rulemaking proceeding, the Commission solicited
public comment and data (both qualitative and quantitative) on the
economic impact of the proposed rule and its costs and benefits.\45\ In
issuing the final rule, the Commission has carefully considered the
comments received and the costs and benefits of each provision, taking
into account the effect on small businesses and consumers, as discussed
in more detail in sections VI and VIII of this document. The record
demonstrates that the most significant anticipated benefit of the final
rule is increased deterrence of clearly unfair or deceptive acts or
practices involving consumer reviews or testimonials. Another
significant benefit is the expansion of the remedies available to the
Commission, including the ability to more effectively obtain monetary
relief. This is particularly critical given the U.S. Supreme Court's
decision in AMG Capital Management, LLC v. FTC, which held that
equitable monetary relief, including consumer redress, is not available
under section 13(b) of the FTC Act.\46\ Post-AMG, the Commission's
primary means for obtaining redress is section 19 of the FTC Act. By
issuing the final rule, the Commission can obtain such redress based on
violations of the rule in one proceeding under section 19(a)(1), which
will be significantly faster than the two-step process for obtaining
redress under section 19(a)(2).\47\ By allowing the Commission to
secure redress more quickly and efficiently, this rule will also allow
the Commission to preserve enforcement resources for other mission
priorities.\48\ As an additional benefit, the rule will enable the
Commission to seek civil penalties against violators.\49\ Without an
efficient way to seek civil penalties, bad actors have little fear of
being penalized for using fraud and deception in connection with
reviews and endorsements. Increased deterrence will have consumer
welfare benefits and will benefit honest competition.\50\ Moreover, the
final rule is likely to impose relatively small compliance costs on
honest businesses.\51\
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\45\ ANPR, 87 FR 67426-27; NPRM, 88 FR 49387-88.
\46\ See AMG Cap. Mgmt., LLC v. FTC, 593 U.S. 67, 82 (2021).
\47\ See 15 U.S.C. 57b(a)(1), (2); see also NPRM, 88 FR 49377-78
(discussing impact of AMG Cap. Mgmt.).
\48\ When the rule has been violated, the Commission can
commence a Federal court action and seek to recover money for
consumers or obtain an order imposing civil penalties. See 15 U.S.C.
57b(a)(1), 15 U.S.C. 45(m)(1)(A). Without the rule, the path to
monetary relief is longer and requires the Commission to first
conduct an administrative proceeding to determine whether the
respondent violated the FTC Act; if the Commission finds that the
respondent did so, the Commission issues a cease-and-desist order,
which might not become final until after the resolution of any
resulting appeal. Then, to recover money for consumers, the
Commission must prove in a separate Federal court action that the
violator engaged in fraudulent or dishonest conduct. See 15 U.S.C.
57b(a)(2).
\49\ See section 5(m)(1)(A) of the FTC Act, 15 U.S.C.
45(m)(1)(A) (providing that violators of a trade regulation rule
``with actual knowledge or knowledge fairly implied on the basis of
objective circumstances that such act is unfair or deceptive and is
prohibited by such rule'' are liable for civil penalties for each
violation). In addition, any entity or person who violates such a
rule (irrespective of the state of knowledge) is liable for any
injury caused to consumers by the rule violation. The Commission may
pursue such recovery in a suit under section 19(a)(1) of the FTC
Act, 15 U.S.C. 57b(a)(1).
\50\ NPRM, 88 FR 49382-85.
\51\ Id. at 49385-87; see infra sections VI and VIII of this
document.
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III. Overview of the Comments \52\
---------------------------------------------------------------------------
\52\ Minor changes to formatting, grammar, and punctuation have
been made to some of the comments quoted in this document. These
changes do not entail any substantive changes.
---------------------------------------------------------------------------
The Commission received 100 responsive and non-duplicative comments
in response to the NPRM from a diverse group of individuals (including
consumers and law students), industry groups and trade associations,
review platforms, retailers, and other businesses, consumer advocacy
organizations, and government entities.
In the NPRM, the Commission invited the public to comment on any
issues or concerns the public believed were relevant or appropriate to
the Commission's consideration of the
[[Page 68038]]
proposed rule.\53\ The NPRM also posed twenty-three specific questions
for the public.\54\ The first two are broad questions addressed in this
section III, which also discusses several issues or concerns that
commenters raised generally without reference to particular sections of
the rule. Responses to the more specific questions in the NPRM are
discussed in section IV of this document, a section-by-section analysis
of the final rule. Questions relating to the Paperwork Reduction Act
(``PRA'') and Regulatory Flexibility Act (``RFA'') and are addressed in
sections VII and VIII of this document, respectively.\55\
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\53\ NPRM, 88 FR 49388.
\54\ Id. at 49388-89.
\55\ Id. at 49388. In addition to soliciting public comment on
the NPRM's PRA and RFA analyses in the PRA and RFA sections, the
NPRM also posed two specific questions related to the PRA and RFA
analyses. Question 4 inquired whether ``the proposed rule contains a
collection of information,'' and Question 5 asked, ``Would the
proposed rule, if promulgated, have a significant economic impact on
a substantial number of small entities? If so, how could it be
modified to avoid a significant economic impact on a substantial
number of small entities?'' Id. at 49381-86, 49388.
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A. Furthering the Commission's Goal
In Question 1 of the NPRM, the Commission asked whether its
proposal would further the Commission's goal of protecting consumers
from clearly unfair or deceptive acts or practices involving consumer
reviews and testimonials.\56\
---------------------------------------------------------------------------
\56\ NPRM, 88 FR 49388.
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Several commenters expressly addressed this question. A review
platform and a business that specializes in identifying fake online
reviews submitted comments stating that the proposed rule would further
the Commission's goal of protecting consumers from clearly unfair or
deceptive acts or practices involving consumer reviews.\57\ Another
review platform commenter answered that there are ``numerous advantages
of the FTC's proposed new Rule,'' that it is ``generally supportive of
this intervention overall,'' and that the proposed rule ``will be
helpful to set out clear rules that expressly prohibit practices like
writing or purchasing fake reviews, providing compensation or
incentives in exchange for reviews, and certain acts of unfair review
suppression.'' \58\ A business commenter similarly answered that the
``Proposed Rule addresses many concerns about unfair or deceptive acts
or practices involving consumer reviews and testimonials, such as false
and biased reviews.'' \59\ Both of these commenters also noted areas in
which they thought certain provisions of the proposed rule should be
adjusted or clarified; those issues are addressed below.\60\ A consumer
organization said that ``[i]n general, . . . the proposed Rule will
reduce the incentives for businesses to purchase, disseminate, or sell
fake consumer reviews or testimonials,'' but thought that the proposed
rule should have placed explicit restrictions on third-party review
platforms.\61\ The Commission notes that this topic is beyond the scope
of the rulemaking, which focuses instead on those responsible for
inarguably unfair or deceptive acts or practices regarding reviews and
testimonials.
---------------------------------------------------------------------------
\57\ Yelp Inc., Cmt. on NPRM at 3 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0088 (``Yelp Cmt.''); The
Transparency Company, Cmt. on NPRM at 1, 5 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0107 (``Transparency
Company Cmt.'').
\58\ Trustpilot, Cmt. on NPRM at 2 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0084 (``Trustpilot
Cmt.'').
\59\ Family First Life, LLC, Cmt. on NPRM at 2 (Sept. 29, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0104 (``Family
First Life Cmt.'').
\60\ Trustpilot Cmt. at 2-3; Family First Life Cmt. at 2-3.
\61\ Consumer Reports, Cmt. on NPRM at 2-3 (Sept. 29, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0099 (``Consumer
Reports Cmt.'').
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B. Adoption of the Proposed Rule as a Final Rule
In Question 2 of the NPRM, the Commission inquired whether it
should finalize the proposed rule, the reasons for why commenters were
in favor of or against the finalization of the proposed rule, and
whether the Commission should make any changes to its original
proposal.\62\
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\62\ NPRM, 88 FR 49388.
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Only two commenters directly addressed this question. A business
commenter agreed that the Commission should finalize the proposed
rule.\63\ A review platform commenter said it ``supports this Rule and
would support the Commission finalizing the Rule.\64\ It also suggested
adjustments to the Commission's proposal, which are addressed below in
this document.
---------------------------------------------------------------------------
\63\ Transparency Company Cmt. at 6.
\64\ Trustpilot Cmt. at 3.
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Numerous individual commenters,\65\ trade associations,\66\ and
consumer organizations \67\ expressed general support for the proposed
rule. For example, an individual commenter wrote, ``I completely agree
with the proposal. . . . Because review sections have become so
untrustworthy (being impossible to tell whether a company has paid for
positive reviews of its own product, or for negative reviews on a
rival's product), review sections have become functionally useless for
me. This makes it difficult to purchase any products online, since real
consumer feedback is one of the few ways to determine whether I should
buy the product or service without first examining it in person.'' \68\
Another individual stated, ``I support the rules as specified, and
applaud the FTC's action in this regard. It is extremely difficult for
the consumer to determine the validity of online reviews--even within
specific retailers such as amazon. There is little benefit for large
online retailers to ensure that reviews are accurate, and this fact is
evident in the large number of bogus reviews found on amazon, newegg,
youtube and other sites.'' \69\ A third individual wrote, ``I strongly
support the rules against fake review
[[Page 68039]]
and testimonials and fines for businesses and people who write them. As
a consumer, I often use reviews to help determine whether a product or
service is reliable; the prevalence of fake reviews makes this
impossible.'' \70\ A trade association commented, ``The NPRM proposes
rules that are appropriately scoped to target the bad actors [who are]
intent on committing fraud through fake or deceptive reviews. . . . The
NPRM strikes the appropriate balance between enhancing the Commission's
tools to target bad actors and preserving industry flexibility to
develop innovative and effective solutions to maintain consumer
confidence in reviews.'' \71\ A consumer organization stated, ``The
Commission absolutely should finalize the proposed rule to better
protect shoppers and hold businesses accountable.'' \72\
---------------------------------------------------------------------------
\65\ Amelia Markey, Cmt. on NPRM (July 31, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0003 (``Markey Cmt.'');
Chris Hippensteel, Cmt. on NPRM (Aug. 1, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0006 (``Hippensteel
Cmt.''); Jeremy Anderson, Cmt. on NPRM (Aug. 1, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0007 (``Anderson Cmt.'');
Caroline Fribance, Cmt. on NPRM (Aug. 11, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0017 (``Fribance Cmt.'');
Pia Edborg, Cmt. on NPRM (Aug. 17, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0027 (``Edborg Cmt.'');
Anonymous 1, Cmt. on NPRM (Aug. 20, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0031 (``Anonymous 1
Cmt.''); Jessica Ludlam, Cmt. on NPRM (Aug. 24, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0036 (``Ludlam Cmt.'');
SUPERGUEST, Cmt. on NPRM (Sept. 8, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0046 (``Superguest
Cmt.''); Sean Poole, Cmt. on NPRM at 1-2 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0063 (``Poole Cmt.'');
Artemio Magana, Cmt. on NPRM (Sept. 28, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0079 (``Magana Cmt.'').
\66\ American Dental Association, Cmt. on NPRM at 1 (Sept. 28,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0078 (``ADA
Cmt.''); Travel Technology Association, Cmt. on NPRM at 1, 4-5
(Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0097 (``Travel Tech. Cmt.'').
\67\ Coalition of Civil Society Organizations, Cmt. on NPRM at
1-3 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0108; U.S. Public Interest Research Group Education Fund, Cmt.
on NPRM at 2 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0109 (``US PIRG Cmt.'').
\68\ Markey Cmt.
\69\ Anderson Cmt.
\70\ Anonymous 1 Cmt.
\71\ Travel Tech. Cmt. at 1, 4.
\72\ US PIRG Cmt. at 2.
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A number of individual consumers,\73\ a review platform,\74\ other
industry members,\75\ and consumer organizations \76\ supported the
Commission's proposal, but urged the Commission to go further and
impose additional requirements, such as by adding provisions that would
apply to third-party review platforms. As noted above, such provisions
would be beyond the scope of the rulemaking. Similarly beyond the scope
of the rulemaking is an individual's suggestion that the Commission
should restrict the highlighting of testimonials on websites and
prohibit payments for reviews.'' \77\ A review platform's comment
``applaud[ed] . . . the Commission . . . for its extensive efforts to
address the problem of deceptive review practices, as reflected in the
Commission's notice of proposed rulemaking, and . . . fully support[ed]
and endorse[d] the Commission's proposed Rule.'' \78\ Its suggestions
for several provisions are discussed below. A consumer group stated
that the proposed rule ``is needed'' and ``addresses an urgent problem:
fabricated and otherwise deceptive reviews and ratings of products and
services,'' but asked for numerous modifications to strengthen it.\79\
These proposals are discussed below.
---------------------------------------------------------------------------
\73\ Michael Ravnitzky, Cmt. on NPRM at 1-2 (Aug. 6, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0013 (``Ravnitzky
Cmt.''); Adam Foster, Cmt. on NPRM at 1-2 (Sept. 21, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0052 (``Foster Cmt.'');
Anonymous 2, Cmt. on NPRM at 1, 4 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0065 (``Anonymous 2
Cmt.''); Anonymous 3, Cmt. on NPRM (Sept. 27, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0069 (``Anonymous 3
Cmt.'').
\74\ Yelp Cmt. at 1, 5-8.
\75\ Strategic Marketing, Cmt. on NPRM (Aug. 7, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0014; PerfectRec Inc.,
Cmt. on NPRM at 1-3 (Aug. 23, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0035; Mozilla, Cmt. on NPRM at 5-7 (Sept. 28,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0076
(``Mozilla Cmt.''); The Responsible Online Commerce Coalition, Cmt.
on NPRM at 2, 4-6 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0086.
\76\ Fake Review Watch Cmt. at 1-4; Truth in Advertising, Inc.,
Cmt. on NPRM at 2, 4-11 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0083 (``TINA Cmt.'');
National Consumers League, Cmt. on NPRM at 2-9 (Sept. 29, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0096 (``NCL
Cmt.''); Consumer Reports Cmt. at 2-11.
\77\ Anonymous 3 Cmt.
\78\ Yelp Cmt. at 1, 4-8.
\79\ TINA Cmt. at 4, 6.
---------------------------------------------------------------------------
A few individual commenters \80\ and industry commenters \81\ were
supportive of a rule but expressed the need for clarifications or
modifications. An individual commenter wrote that ``[a]ll of the rules
proposed . . . make (common) sense'' but identified ``a few scenarios
that highlight that the language in the proposed rules is a bit
ambiguous'' and that with ``steep penalties like this, guidelines need
to be clear, concrete, AND simple so businesses can understand.'' \82\
Another individual commenter said that the proposed rule ``takes great
strides,'' but that two proposed sections, 465.4 and 465.6, are too
restrictive.\83\ A retailer wrote, ``On the whole, . . . the Proposed
Rule contains provisions that are reasonable and would provide
additional protection to consumers'' but ``there are a few provisions .
. . that are not well drafted or that need additional language.'' \84\
Another retailer said that it ``supports a tailored rule that focuses
on the bad actors that harm consumers,'' but that the proposed rule
``sweeps more broadly, extending to the activities of legitimate
businesses that do not uncover abuses that they `should have'
identified, regardless of their good faith efforts'' and that ``[s]uch
an overbroad rule would have significant unintended negative
consequences on legitimate conduct.'' \85\ An industry organization
commented that the proposed rule ``is an important step, and we share
the Commission's goal of improving consumer confidence in reviews and
testimonials'' but ``strongly urge[d] the Commission to reexamine . . .
[four] provisions'' to address what it viewed as First Amendment
concerns and for other reasons.\86\ The specific suggestions or
concerns raised by these and other commenters are addressed below. In
particular, whether in the text of the final rule or in the discussion
below, the Commission is clarifying the scope or meaning of various
rule provisions to cover the specific activities or conduct that harm
consumers and avoid ambiguity or overbreadth.
---------------------------------------------------------------------------
\80\ Anonymous 4, Cmt. on NPRM (Sept. 1, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0040 (``Anonymous 4
Cmt.''); Riley Albert, Cmt. on NPRM at 3 (Sept. 21, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0053 (``Albert Cmt.'');
Alyssa Frieling, Cmt. on NPRM at 1-4 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0059 (``Frieling Cmt.'').
\81\ Hammacher, Schlemmer and Co., Inc., Cmt. on NPRM at 1-7
(Aug. 21, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0032 (``Hammacher Schlemmer Cmt.''); Amazon.com, Inc., Cmt. on NPRM
at 5-13 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0085 (``Amazon Cmt.''); TechNet Cmt. on NPRM at 2-4 (Sept.
29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0089
(TechNet Cmt.''); Family First Life Cmt. at 2-16.
\82\ Anonymous 4 Cmt.
\83\ Frieling Cmt. at 1-4.
\84\ Hammacher Schlemmer Cmt. at 1.
\85\ Amazon Cmt. at 5.
\86\ TechNet Cmt. at 2-4.
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Only four commenters, two individual commenters \87\ and two trade
associations,\88\ said that the proposed rule was unnecessary or
unwarranted. One of the individuals, wrote that ``the rule seems to be
unnecessary as it is unlikely to actually provide the benefit to
consumers of removing falsified reviews'' because it is difficult to
identify and trace fake reviews and ``punish[ ] an offender'' and that
the proposed rule ``also has potential to penalize non-offenders'' when
competitors purchase ``review bombs.'' \89\ The commenter asserted that
the FTC's estimated benefits are based on faulty assumptions such as
that ``the entirety of the loss'' from false reviews ``would be
eliminated simply because the rule is enacted.\90\ The commenter said
that the FTC should either maintain the status quo or require websites
with consumer reviews to include a disclosure that ``some reviews may
have not been made by genuine customers, may potentially have been paid
[[Page 68040]]
testimonials, etc.'' \91\ The other individual commenter said that the
``proposed rule is unnecessary because all of the practices considered
by the rule `are already unlawful under Section 5 of the FTC Act,' it
has potentially massive compliance costs for American businesses''
(citing the FTC's estimated cost), ``and the better salutation [sic] is
to work with States and review platforms to resolve the issue.'' \92\
One of the trade associations stated that the ``Proposed Rule is
[u]nnecessary,'' that ``current FTC enforcement authority has been
effective in addressing such clearly deceptive practices, and there is
no indication how or why a trade regulation rule is needed, or how such
a rule would more effectively address concerns about such deceptive
practices,'' and that ``a need to alleviate the `difficulty' of
obtaining monetary relief under the FTC Act where such authority has
never existed, does not provide an adequate basis for the issuance of a
Magnuson-Moss rulemaking.'' \93\ The other trade association asserted
that (1) it ``does not believe that rulemaking is warranted, wise, or a
balanced approach, in part because it raises serious First Amendment
concerns;'' (2) ``a well-designed rule would focus on a defined trade''
but the ``record to date does not establish that customer reviews, the
use of those reviews, or the dissemination of those reviews by
commercial platforms is itself a defined trade;'' (3) the ``FTC should
not promulgate a rule solely because the augmented penalties attendant
to a rule violation could ostensibly advance a Commission goal
generally;'' and (4) ``the FTC fail[ed] to show how enforcement
actions, many of which were settled by consent order, translate into
`prevalence.' '' \94\
---------------------------------------------------------------------------
\87\ Marc Slezak, Cmt. on NPRM at 1-5 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0054 (``Slezak Cmt.'');
Sumner Camp-Martin, Cmt. on NPRM at 1-5 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0056 (``Camp-Martin
Cmt.'').
\88\ National Automobile Dealers Association, Cmt. on NPRM at 1-
2 (Sept. 28, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0077 (NADA Cmt.''); Association of National Advertisers, Cmt.
on NPRM at 3-7 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0105 (``ANA Cmt.'').
\89\ Slezak Cmt. at 1-4.
\90\ Id. 3.
\91\ Id. 4.
\92\ Camp-Martin Cmt. at 1-2. The commenter said, ``In the
alternative to the complete abandonment of the proposed rule,
Section 465.4 should be amended'' and broadened. Id. at 1.
\93\ NADA Cmt. at 1-2.
\94\ ANA Cmt. at 3-7.
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The Commission disagrees with the four commenters who said that the
proposed rule was unnecessary or unwarranted. The Commission believes
that the status quo is inadequate to address consumer harm and that the
rule will add deterrence and aid enforcement even though the practices
covered by the rule are already unlawful under section 5 of the FTC
Act. Greater deterrence and more effective enforcement are legitimate
reasons to engage in a rulemaking, whereas difficulties in enforcing a
rule against some violators are no reason to eschew it.\95\ Further,
the compliance costs estimated by the Commission are greatly outweighed
by the estimated benefits to consumers and honest competition. The
Commission notes that the harm caused by the acts and practices
addressed cut across multiple trades. The Commission addresses
potential First Amendment concerns and arguments regarding prevalence
below.
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\95\ The Commission is aware that a business could attempt to
damage a competitor's reputation by purchasing fake positive reviews
for that competitor and then reporting those reviews to the platform
on which they appear. In investigating a fake review matter, FTC
staff would take such a possibility into account.
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IV. Section-by-Section Analysis
The following discussion provides a section-by-section analysis of
the provisions proposed in the NPRM, and discusses the comments
received, the Commission's responses to the comments, and the
provisions adopted in the final rule.\96\
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\96\ The Commission notes that many commenters raised similar
concerns or addressed overlapping issues. To avoid repetition, the
Commission has endeavored to respond to issues raised in similar
comments together. Responses provided in any given section apply
equally to comments addressing the same subject in the context of
other sections. Moreover, throughout the SBP, the Commission
discusses justifications for the final rule that are informed by its
careful consideration of all comments received, even where that
discussion is not linked to a particular comment.
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A. Sec. 465.1--Definitions
1. Overview
The proposed rule included definitions for the following terms:
``business''; ``celebrity testimonial''; ``clear and conspicuous'';
``consumer review''; ``consumer testimonial''; ``indicators of social
media influence''; ``officers''; ``purchase a consumer review'';
``reviewer''; ``substantially different product''; ``testimonialist'';
and ``unjustified legal threat.'' In Question 6 of the NPRM, the
Commission asked whether the proposed definitions are clear and what
changes should be made to any definitions. In Questions 11 and 21 of
the NPRM, the Commission asked specifically about the definitions of
``substantially different product'' and ``unjustified legal threat,''
respectively. In the following definition-by-definition analysis, the
Commission discusses each definition proposed in the NPRM, relevant
comments not otherwise addressed in the discussion of the corresponding
substantive provisions of the final rule, and the definitions that the
Commission is finalizing.\97\
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\97\ Because the Commission is adding additional definitions and
not including one proposed definition, the definitions are
renumbered in the final rule.
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2. Definition-by-Definition Analysis
a. Business
The proposed rule defined ``business'' as ``an individual,
partnership, corporation, or any other commercial entity that sells
products or services.'' This term appeared in the proposed definitions
of ``celebrity testimonial,'' ``consumer review,'' ``consumer
testimonial,'' and ``officers,'' and in every substantive section of
the proposed rule. For the following reasons, the Commission adopts the
definition of ``business'' largely as proposed, with a minor, non-
substantive clarification as described below.
A trade association commenter noted correctly that the Commission's
rulemaking authority is limited to acts or practices ``in or affecting
commerce.'' \98\ It recommended that the Commission insert ``in or
affecting commerce as defined in section 4 of the Federal Trade
Commission Act (15 U.S.C. 44)'' in the definition of a ``business.''
\99\ The Commission declines to make this modification. An entity that
is selling products or services is engaging in commerce and, even
without the commenter's proposed addition, the acts and practices
covered by the final rule are limited to commercial practices.
---------------------------------------------------------------------------
\98\ National Federation of Independent Businesses, Cmt. on NPRM
at 2 (Sept. 12, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0047 (``NFIB Cmt.'').
\99\ Id.
---------------------------------------------------------------------------
A consumer advocacy organization commenter argued that the
definition of a business potentially liable under the proposed rule was
unduly narrow and should be expanded to include ``advertisers,''
``endorsers,'' and ``[a]dvertising agencies, public relations firms,
review brokers, reputation management companies, and other similar
intermediaries.'' \100\ However, advertisers, advertising agencies,
public relations firms, review brokers, reputation management
companies, and other similar intermediaries all sell products or
services and are covered by the Commission's definition of
``business.'' To the extent that an endorser is in the business of
selling reviews or testimonials, the endorser is covered by the
definition. The Commission is therefore not making the proposed change.
---------------------------------------------------------------------------
\100\ TINA Cmt. at 6-7.
---------------------------------------------------------------------------
A review platform commenter suggested that, to avoid ambiguity, the
Commission clarify that ``sells products or services'' in the
definition of ``business'' applies to each of the types of entities
listed in the definition, not just to ``any other commercial
[[Page 68041]]
entity.'' \101\ The Commission is adopting this recommendation to
clarify the intended scope of the definition.
---------------------------------------------------------------------------
\101\ Yelp Cmt. at 3.
---------------------------------------------------------------------------
For the reasons explained in this section, the Commission is
finalizing the definition of ``business'' to mean an individual who
sells products or services, a partnership that sells products or
services, a corporation that sells products or services, or any other
commercial entity that sells products or services.
b. Celebrity Testimonial
The proposed rule defined ``celebrity testimonial'' as ``an
advertising or promotional message (including verbal statements,
demonstrations, or depictions of the name, signature, likeness, or
other identifying personal characteristics of an individual) that
consumers are likely to believe reflects the opinions, beliefs, or
experiences of a well-known person who purchased, used, or otherwise
had experience with a product, service, or business.'' The Commission
is finalizing the definition of this term--which is used in Sec.
465.2, Fake or False Consumer Reviews, Consumer Testimonials, or
Celebrity Testimonials--with one modification.
A trade association commenter said that the definition of a
celebrity endorsement should be clarified to exclude ``a situation
where a celebrity or celebrity likeness appears or is used by a
business as a promotion, without any specific advertising or opinions
presented.'' \102\ The commenter gave the example of an athlete who
appears at a business to sign autographs or simply appears, without
making any statements or representations about the business.\103\ Such
situations should not be excluded from the scope of the definition
because a business's use in advertising or promotion of a celebrity or
a celebrity's image can, even without any additional statements, imply
that the celebrity has a positive opinion of the business or its
products or services and therefore constitute a celebrity testimonial.
However, if consumers would not interpret the celebrity's appearance to
reflect the celebrity's opinions of, beliefs about, or experiences
with, a business or its products or services, then the appearance is
not a testimonial. That issue is thus highly dependent on specific
facts. Further, to take the commenter's example, it is highly unlikely
that a celebrity who does nothing more than sign autographs or appear
at a business could violate Sec. 465.2, because such signings or
appearances alone would likely not communicate anything to consumers
about the celebrity's use or experience with a product, service, or
business.
---------------------------------------------------------------------------
\102\ NADA Cmt. at 5.
\103\ Id.
---------------------------------------------------------------------------
A second trade association asserted that the definition of a
``celebrity testimonial'' does not give advertisers adequate notice as
to when a testimonial is a ``celebrity'' testimonial or a ``consumer''
testimonial.\104\ The commenter requested that the Commission provide
further guidance on what constitutes a ``well-known'' individual.\105\
Based upon common usage, well-known individuals include those famous in
the areas of entertainment, such as film, music, writing, or sport, and
those known to the public for their positions or successes in business,
government, politics, or religion. Individuals who earn money through
their work as ``influencers'' are also well known, as are those who
have been featured in the news or media. More important, whether
someone is well known does not matter for purposes of rule
interpretation and enforcement because any provisions that apply to
celebrity testimonials also apply to consumer testimonials.
---------------------------------------------------------------------------
\104\ IAB Cmt. at 14.
\105\ Id.
---------------------------------------------------------------------------
A business commenter suggested replacing ``a well-known person'' in
the definition with a ``widely known all-purpose public figure'' or
``widely known public figure'' for the purpose of ``clarity.'' \106\ It
said that Black's Law Dictionary defines the term ``all-purpose public
figure'' to mean ``[s]omeone who achieves such pervasive fame or
notoriety that he or she becomes a public figure for all purposes and
in all contexts.'' \107\ To be ``well known,'' one need not have such
pervasive fame as to be a public figure for all purposes and in all
contexts. For example, an influencer may be well known to a subset of
individuals interested in a particular subject. The commenter gave no
justification for narrowing the definition of a ``celebrity
testimonial,'' and the Commission declines to do so.
---------------------------------------------------------------------------
\106\ Family First Life Cmt. at 4-5.
\107\ Id. at 5. See Black's Law Dictionary (11th ed. 2019).
---------------------------------------------------------------------------
A public interest research center commenter said that the
definitions of ``celebrity testimonials'' and ``consumer testimonials''
should ``be broadened to explicitly include non-natural persons, such
as businesses and public sector entities.'' \108\ Although endorsements
by such organizations are addressed in the Commission's Endorsement
Guides,\109\ the Commission did not intend for any provision using the
term ``testimonials'' to apply to endorsements by entities. To clarify
that the Commission does not intend for any provision using the term
``testimonials'' to apply to endorsements by entities, the Commission
is substituting the word ``individual'' for the word ``person''
wherever the word appeared in the Commission's original proposal.\110\
The only section of the rule that applies to endorsements by entities
or purported entities is Sec. 465.6, which addresses company-
controlled review websites or entities. However, Sec. 465.6 does not
apply to consumer or celebrity testimonials.
---------------------------------------------------------------------------
\108\ Electronic Privacy Information Center, Cmt. on NPRM at 3
(Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0111 (``EPIC Cmt.'').
\109\ See Fed. Trade Comm'n, Guides Concerning Use of
Endorsements and Testimonials in Advertising (``Endorsement
Guides''), 16 CFR 255.4.
\110\ The Commission is using the term ``individual'' in the
context of this rule to mean a single human being. See Individual
(def. 1), Dictionary.com, LLC, https://www.dictionary.com/browse/individual (last visited July 5, 2024) (defining ``individual'' as
``a single human being, as distinguished from a group''). The
Commission notes that, in the context of a different rulemaking, it
has proposed defining ``individual'' to mean ``a person, entity, or
party, whether real or fictitious, other than those that constitute
a business or government'' under 16 CFR 461. See Fed. Trade Comm'n,
Trade Regulation Rule on Impersonation of Government and Businesses,
89 FR 15072, 15083 (Mar. 1, 2024).
---------------------------------------------------------------------------
c. Clear and Conspicuous
The proposed rule defined ``clear and conspicuous'' to mean ``that
a required disclosure is easily noticeable (i.e., difficult to miss)
and easily understandable,'' including in eight enumerated ways,
listing proposed requirements for ``any communication that is solely
visual or solely audible,'' ``[a] visual disclosure,'' ``[a]n audible
disclosure,'' and ``any communication using an interactive electronic
medium,'' and providing, inter alia, that such disclosures ``must use
diction and syntax understandable to ordinary consumers,'' ``must
appear in each language in which the representation that requires the
disclosure appears,'' and ``must not be contradicted or mitigated by,
or inconsistent with, anything else in the communication.'' Based on
the following, the Commission is finalizing the definition of this
term--which is used in Sec. 465.5, Insider Consumer Reviews and
Consumer Testimonials--with one modification.
A trade association commenter suggested not using the terms
``diction'' and ``syntax'' in the definition because many of those
subject to the rule ``may not know the meaning of th[os]e words.''
\111\ The commenter suggested replacing them with ``words'' and
[[Page 68042]]
``grammar.'' \112\ ``Diction'' means the choice and use of words.\113\
``Syntax'' involves the arrangement of words and phrases and is a
subset of grammar.\114\ The Commission believes that the meaning of
``diction'' and ``syntax'' are sufficiently clear.
---------------------------------------------------------------------------
\111\ NFIB Cmt. at 2.
\112\ Id.
\113\ See Diction (def. 2), Merriam-Webster.com Dictionary,
https://www.merriam-webster.com/dictionary/diction (last visited
July 5, 2024) (defining ``diction'' as the ``choice of words
especially with regard to correctness, clearness, or
effectiveness'').
\114\ See Syntax (defs. 1a, 1b), Merriam-Webster.com Dictionary,
https://www.merriam-webster.com/dictionary/syntax (last visited July
5, 2024) (defining ``syntax'' as the ``the way in which linguistic
elements (such as words) are put together to form constituents (such
as phrases or clauses)'' and as ``the part of grammar dealing with
this'').
---------------------------------------------------------------------------
One trade association commenter asserted that it is unnecessary to
have a definition of ``clear and conspicuous'' because the ``phrase . .
. has a meaning under FTC jurisprudence.'' \115\ The definition is
based on that jurisprudence and decades of Commission experience
policing deceptive and unfair conduct. The Commission believes it is
both helpful and necessary that the rule provides more explicit
guidance on what does and does not constitute a clear and conspicuous
disclosure.
---------------------------------------------------------------------------
\115\ ANA Cmt. at 11.
---------------------------------------------------------------------------
Several commenters asserted that the proposed definition was overly
prescriptive and not sufficiently flexible.\116\ The Commission
disagrees and reiterates that the definition contains basic, common-
sense principles, such as requiring visual disclosures in a size
consumers can see and audible disclosures at a volume they can hear.
The definition merely provides a baseline and provides a great deal of
flexibility in what a disclosure should say and how it appears. The
basic, enumerated requirements are necessary for a disclosure to be
effective.
---------------------------------------------------------------------------
\116\ IAB Cmt. at 14; U.S. Chamber of Commerce, Cmt. on NPRM at
7-8 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0087 (``Chamber of Commerce Cmt.''); National Retail
Federation, Cmt. on NPRM at 10 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0090 (``NRF Cmt.'').
---------------------------------------------------------------------------
Two commenters objected to the requirement that internet
disclosures be ``unavoidable,'' an objective standard that depends on
whether consumers could have avoided the disclosure, which, per the
definition is the case when ``a consumer must take any action, such as
clicking on a hyperlink or hovering over an icon, to see'' the
disclosure.\117\ The commenters do not believe that a disclosure has to
be unavoidable for it to be effective; they noted that a staff business
guidance document, issued in 2000 and updated in 2013, allowed for the
possibility that avoidable disclosures, e.g., those available through a
hyperlink, could be clear and conspicuous.\118\ The Commission believes
that a disclosure is not effective when it is not seen or heard,
including when the reason for it not being seen or heard is its
avoidability. The staff guidance said that ``[d]isclosures that are an
integral part of a claim or inseparable from it should not be
communicated through a hyperlink,'' and the purported independence and
objectivity of a reviewer or testimonialist is often integral.\119\
Further, some readers misunderstood the staff guidance about the
necessity of properly labeling hyperlinks to convey the ``importance,
nature, and relevance of the information'' to which the hyperlinks
lead. The staff guidance said that, to be effective, the label of the
hyperlink might need to give the essence of the disclosure, with the
hyperlink leading to the details.\120\ Even had these qualifications
been absent, the Commission is not bound by the 2013 staff business
guidance, which is currently under review in light of an evolution of
views over time regarding online disclosures and avoidability.\121\
---------------------------------------------------------------------------
\117\ IAB Cmt. at 14; Chamber of Commerce Cmt. at 8.
\118\ Id.
\119\ Fed. Trade Comm'n, .com Disclosures: How to Make Effective
Disclosures in Digital Advertising at 10 (Mar. 2013), https://www.ftc.gov/system/files/documents/plain-language/bus41-dot-com-disclosures-information-about-online-advertising.pdf.
\120\ Id. at 11. (``Although the label itself does not need to
contain the complete disclosure, it may be necessary to incorporate
part of the disclosure to indicate the type and importance of the
information to which the link leads.'')
\121\ See Press Release, Fed. Trade Comm'n, FTC Looks to
Modernize Its Guidance on Preventing Digital Deception (June 3,
2022), https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-looks-modernize-its-guidance-preventing-digital-deception.
---------------------------------------------------------------------------
One commenter asked whether a disclosure in the first line of a
product review would be considered unavoidable.\122\ For the purposes
of this rule, the Commission would consider such a disclosure to be
unavoidable. A different commenter expressed concern that the
requirement that a disclosure ``stand out'' would require new
formatting techniques for companies hosting reviews and preclude a
disclosure from being in the review itself.\123\ For the purposes of
this rule, the Commission would consider a disclosure at the beginning
of a text-only consumer review to ``stand out.''
---------------------------------------------------------------------------
\122\ Trustpilot Cmt. at 14. The same commenter also raised
concerns about the applicability of the definition to ratings and
aggregate ratings. Id. That is issue is discussed below in the
discussion of the corresponding substantive rule provision. See
infra section IV.E.6 of this document.
\123\ NRF Cmt. at 10.
---------------------------------------------------------------------------
A trade association said that ``the average social media user is
familiar with where text is found in any given social media post, and
social media platforms already make text visible against a variety of
backgrounds'' so ``[r]equiring the endorsement-disclosure text to
differ from other text is not only impractical, but it could actually
create confusion for social media users who have grown accustomed to
viewing all text related to a post in a certain manner.'' \124\ The
Commission recognizes that, on a social media platform that allows only
uniform text, it is not possible to have the text of a disclosure
appear in different text. As with a text-only consumer review, the
Commission would consider a disclosure at the beginning of such a text-
only testimonial to ``stand out.'' On visual platforms with
superimposed text, it is quite possible and reasonable to require that
the text of a disclosure ``stand out.''
---------------------------------------------------------------------------
\124\ Id. at 11.
---------------------------------------------------------------------------
One commenter asserted that being ``unavoidable'' and being
``easily noticed'' are ambiguous concepts.\125\ The Commission
disagrees. ``Unavoidable'' means that a consumer cannot avoid a
disclosure such as by failing to click on a link or by failing to
scroll. ``Easily noticeable'' is a simple and objective standard
evaluated from the perspective of a reasonable consumer.
---------------------------------------------------------------------------
\125\ ANA Cmt. at 11.
---------------------------------------------------------------------------
Two commenters asserted that it would be difficult to make clear
and conspicuous disclosures required by the proposed rule on a small
screen.\126\ They did not explain why that would be the case, and the
Commission does not believe that compliance with the rule's disclosure
requirement should be difficult on handheld devices.
---------------------------------------------------------------------------
\126\ IAB Cmt. at 14; NRF Cmt. at 11.
---------------------------------------------------------------------------
One commenter asserted that, because of the proposed definition of
clear and conspicuous, ``[t]here is no need for the FTC to determine
whether the resulting speech is rendered deceptive, untrue, or
inaccurate.'' \127\ The Commission disagrees. The only substantive
provision for which the definition is relevant is Sec. 465.5. A
business would not violate that provision merely by having a disclosure
that is not clear and conspicuous. Rather, the business would have to
engage in conduct that would be unfair or deceptive in the absence of a
clear and conspicuous disclosure (e.g., a corporate officer
[[Page 68043]]
giving a consumer endorsement without disclosing that they are an
insider). As discussed below, the Commission is finalizing proposed
Sec. 465.5 with a modification to clarify to clarify that the
provision is limited to conduct that would violate section 5 of the FTC
Act.\128\ The same commenter also surmised, based on the similarity of
the definition of ``clear and conspicuous'' to the definition of the
same phrase in the Endorsement Guides, that the Commission intends that
the examples used in the Endorsement Guides would also be examples of
violative behavior under the rule.\129\ That is not the case. The
Endorsement Guides address a broader range of conduct than the rule. Of
the three examples in the Endorsement Guides that illustrate whether
disclosures are clear and conspicuous, two of them address issues--the
payment of influencers and implied typicality--not covered by the
rule.\130\ The third example involves a disclosure that individuals
appearing in a television ad and giving testimonials are paid
actors.\131\ Such conduct would not be covered by the rule unless the
underlying testimonials were fake or false.
---------------------------------------------------------------------------
\127\ ANA Cmt. at 11.
\128\ See infra section IV.E.1 of this document.
\129\ Id.
\130\ 16 CFR 255.0(g)(9) and (11).
\131\ 16 CFR 255.0(g)(10).
---------------------------------------------------------------------------
One commenter, a trade association, stated that it was ``unclear if
the Commission has considered any social media platform constraints
with respect to the length of posts (e.g., character and time
limits),'' and asked (1) whether and how hashtags can meet the ``clear
and conspicuous'' requirement, (2) whether ```#Ad' is a sufficient
visual disclosure of a material relationship,'' and (3) that the
Commission ``provide more examples, including appropriate use of
hashtags in disclosures, in its final rule.'' \132\ Another trade
association requested in its comment that the Commission provide
``visual examples of `insider' endorsement disclosures that the
Commission finds acceptable.'' \133\ The Commission believes it is not
difficult to comply with the rule's disclosure requirements in the
social media context. Depending upon their wording and appearance,
hashtags can be clear and conspicuous for purposes of the rule. In a
social media post promoting a brand, it might be sufficient to
prominently disclose an employee relationship via a hashtag beginning
with the brand name and followed by the word ``employee.'' Whether
``#ad'' would be an adequate disclosure would depend on the specific
context. It could be adequate at the beginning of a social media post
by the testimonialist, but it would likely be inadequate in a
television ad or magazine ad featuring the testimonialist. Because the
only provision for which the definition is relevant is Sec. 465.5,
which addresses the failure to disclose insider relationships, the
disclosure could be as simple as the testimonialist describing a
product as ``my company's'' or ``my wife's company's.''
---------------------------------------------------------------------------
\132\ Retail Industry Leaders Association, Cmt. on NPRM at 5
(Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0094 (``RILA Cmt.'').
\133\ NRF Cmt. at 10.
---------------------------------------------------------------------------
A commenter asserted that disclosures ``utilizing a social media
platform's built-in disclosure tool should be . . . at least sufficient
enough to avoid the risk of penalties under the FTC's rulemaking
authority.'' \134\ As it has previously said, the Commission supports
development of effective, built-in disclosure tools but is concerned
that some of the existing tools lead to inadequate disclosures that are
too poorly contrasting, fleeting, or small, or may be placed in
locations where they do not catch the user's attention.\135\ Whether a
business could be subject to civil penalties for social media posts by
insiders who utilized a social media platform's built-in disclosure
tool would depend on whether a court would find that the business met
the knowledge standard of section 5(m)(1)(A) of the FTC Act.
---------------------------------------------------------------------------
\134\ Id.
\135\ Fed. Trade Comm'n, Guides Concerning the Use of
Endorsements and Testimonials in Advertising, 87 FR 44288, 44290
(July 26, 2022) (proposing changes to guides and soliciting public
comment).
---------------------------------------------------------------------------
A trade association's comment expressed concerns about the proposed
requirement that ``[i]n any communication made through both visual and
audible means, such as a television advertisement, the disclosure must
be presented simultaneously in both the visual and audible portions of
the communication even if the representation requiring the disclosure
is made in only one means.'' \136\ The commenter said that ``it is
unnecessary and duplicative to require video endorsements that include
visual and audio components to include both visual and audio
disclaimers,'' and ``requiring an additional visual disclaimer, on top
of a disclaimer that an endorser may easily include via audio, is
cumbersome, and restricts companies' marketing capabilities.'' \137\ On
reflection, in the context of this rulemaking and as to the
relationships of company insiders, if a communication makes an
endorsement in only its visual or audio portion, then it should be
sufficient for a disclosure to appear in the same format as the claim
that requires the disclosure. On the other hand, if an endorsement is
conveyed in both the audio and visual portions of a communication, then
the disclosure should be made in both the audio and visual portions.
Consumers can watch a video with the sound off or listen to it without
looking at the screen. The Commission is changing the relevant language
to, ``[i]n any communication made through both visual and audible
means, such as a television advertisement, the disclosure must be
presented in at least the same means as the representation(s) requiring
the disclosure.'' This change makes the rule less restrictive while
still accomplishing the Commission's goal of ensuring that consumers
are fully informed. A different trade association noted that the
``simultaneous disclosure requirement is confusing and would benefit
from examples of sufficient simultaneous disclosure.'' \138\ Because
the Commission is not finalizing the simultaneous disclosure
requirement contained in the proposed rule, it is not providing further
guidance on the meaning of simultaneous.
---------------------------------------------------------------------------
\136\ NRF Cmt. at 11.
\137\ Id.
\138\ RILA Cmt. at 5.
---------------------------------------------------------------------------
The second trade association also asked ``if a social media
influencer posts a video and discloses verbally in the video that they
have a brand ambassador relationship with the retailer/brand, is it
sufficient to display in the text accompanying the posted video some
written disclosure'' or would the disclosure ``need to be embedded or
flash across the video itself.'' \139\ The rule does not address or
apply to an influencer's disclosure of a brand ambassador relationship.
The rule's only disclosure requirements are in Sec. 465.5 and apply to
company insiders. Whether a testimonial in a social media post by a
company insider requires a superimposed textual disclosure depends on
whether there is an endorsement communicated by the visual portion of
the post. If there is an endorsement in the visual portion, there would
need to be a disclosure in the visual portion. If the endorsement is
communicated only in the audio portion of the post, there would not
need to be a disclosure in the visual portion.
---------------------------------------------------------------------------
\139\ Id.
---------------------------------------------------------------------------
d. Consumer Review
The proposed rule defined ``consumer review'' as ``a consumer's
evaluation, or a purported consumer's evaluation, of a product,
service, or business that is
[[Page 68044]]
submitted by the consumer or purported consumer and that is published
to a website or platform dedicated in whole or in part to receiving and
displaying such evaluations.'' The proposed definition also noted that,
for the purposes of the rule, consumer reviews include consumer ratings
regardless of whether they include any text or narrative. The
Commission has determined to finalize the definition of this term--
which is used in Sec. Sec. 465.2 through 465.6--with a minor,
technical change.
A comment from a review platform supported the proposed definition,
calling it ``particularly clear and holistic.'' \140\
---------------------------------------------------------------------------
\140\ Trustpilot Cmt. at 8.
---------------------------------------------------------------------------
A comment from an individual asserted that the ``definition of
`consumer' implies an individual who purchased the product for their
own use'' and that when a ``product is provided by the company seeking
a review, for the purposes of it being reviewed, the reviewer is
arguably not a consumer.'' \141\ The Commission disagrees that a
``consumer'' is necessarily a purchaser. For purposes of the rule, a
consumer is a person who purchased, used, or otherwise had experience
with a product, service, or business.
---------------------------------------------------------------------------
\141\ Anonymous 2 Cmt. at 1.
---------------------------------------------------------------------------
A trade association commenter suggested deleting the definition's
element that a consumer review be ``published.'' \142\ It said that a
``consumer review should still be considered a `review' before it is
publicly displayed by a website or platform.'' \143\ Although that may
be true for some purposes, the Commission declines to make that change.
A consumer review that is submitted to a website or platform but never
published does not in and of itself deceive consumers, although the
failure to publish a review may be deceptive pursuant to paragraphs
(a)(1) and (b) of Sec. 465.7. Paragraphs (a)(1) and (b) of Sec. 465.7
are worded in a way that does not limit their application to published
reviews, because they relate to suppressed reviews.
---------------------------------------------------------------------------
\142\ IAB Cmt. at 13-14.
\143\ Id.
---------------------------------------------------------------------------
A comment from a consumer advocacy organization suggested deleting
the portion of the definition that refers to publication to a website
or platform ``dedicated in whole or in part to receiving and displaying
such evaluations.'' \144\ It asked whether the definition would ``only
apply to reviews on a website `dedicated' to posting reviews, such as
Yelp'' and whether ``it include[s] any website where reviews are
possibly posted, like Reddit?'' \145\ The commenter continued, ``Would
a website be excluded if only a very small portion of the website
contained consumer evaluations?'' \146\ The commenter asserted that
``[a]ll fake reviews and ratings that are used to market a product or
service should be captured in the . . . Rule--no matter where they are
posted.'' \147\ The definition is not limited to consumer reviews on
websites that are dedicated entirely to posting such reviews. It would
also cover reviews on a portion of a website, no matter how small a
portion, that is dedicated to receiving and displaying such reviews,
such as a reviews page or the review sections of product pages on a
retailer's website. The definition would not, however, cover consumer
statements about products or services on a website or portion of a
website, such as Reddit, that is not dedicated to receiving and
displaying reviews. Such free-floating consumer statements are outside
of the generally understood context in which content is submitted and
published as reviews. Under some circumstances, such statements might
be considered ``consumer testimonials,'' such as when an advertiser has
paid for them.
---------------------------------------------------------------------------
\144\ TINA Cmt. at 7.
\145\ Id.
\146\ Id.
\147\ Id.
---------------------------------------------------------------------------
A comment from a review platform raised two issues with the
``consumer review'' definition.\148\ It said that ``[b]are ratings
provide no context, making them virtually useless for other consumers
or to businesses that might use consumer feedback to improve their
services'' and suggested that ``the Commission differentiate between
reviews and ratings.'' \149\ The fact that bare ratings do not provide
context does not mean that consumers do not rely on them or on
aggregate ratings that include bare ratings. The Commission does not
see a reason to distinguish between reviews and ratings for the
purposes of the rule, and the commenter did not provide such a reason.
The same commenter also expressed ``concern[ ] with the definition's
use of the word `purported[,]' . . . which has a negative connotation
that feeds into the false narrative that consumer reviews are
inherently unreliable'' and suggested replacing ``purported'' with
different language.\150\ The definition simply recognizes and accounts
for the undisputed fact that some reviews are fake. Just because some
reviews are unreliable does not suggest that reviews are generally
unreliable. The Commission declines to adopt this recommendation.
---------------------------------------------------------------------------
\148\ Yelp Cmt. at 3-4.
\149\ Id.
\150\ Id. at 4.
---------------------------------------------------------------------------
To conform with the Office of the Federal Register's drafting
requirements, the Commission is changing a reference to ``this Rule''
to ``this part.'' \151\
---------------------------------------------------------------------------
\151\ The Commission is making this change throughout the rule,
including in Sec. Sec. 465.2(a), (b), and (c), 465.4, 465.5(a),
465.6, 465.7, 465.8, and 465.9.
---------------------------------------------------------------------------
e. Consumer Testimonial
The proposed rule defined ``consumer testimonial'' as ``an
advertising or promotional message (including verbal statements,
demonstrations, or depictions of the name, signature, likeness, or
other identifying personal characteristics of an individual) that
consumers are likely to believe reflects the opinions, beliefs, or
experiences of a consumer who has purchased, used, or otherwise had
experience with a product, service, or business.'' The Commission is
finalizing the definition of the term--which is used in Sec. Sec.
465.2 and 465.5--as originally proposed.
A trade association commenter expressed concern that consumers
seeing a clearly dramatized television commercial might unreasonably
believe that the actors' scripted lines actually reflected their
opinions, beliefs, or experiences and could therefore be considered
consumer testimonials.\152\ It suggested clarifying the definition by
inserting ``reasonably in the circumstances'' after ``that consumers
are likely to believe.'' \153\ The Commission agrees that it would not
be reasonable for viewers to consider ``an obviously fictional
dramatization'' to be an endorsement.\154\ The Commission does not,
however, believe it is necessary to modify the definition. The concept
of ``reasonable consumers'' from FTC jurisprudence \155\ is
incorporated into the concept of consumers being likely to believe
something.
---------------------------------------------------------------------------
\152\ NFIB Cmt. at 2-3.
\153\ Id. at 4.
\154\ See Endorsement Guides, 16 CFR 255.0(g)(2).
\155\ See, e.g., Fed. Trade Comm'n, FTC Policy Statement on
Deception, 103 F.T.C. 174, 176-77 (1984) [hereinafter FTC Policy
Statement on Deception] (appended to In re Cliffdale Assocs., Inc.,
103 F.T.C. 110 (1984)), available at https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.
---------------------------------------------------------------------------
The same public interest research center that commented, as
discussed above, that the Commission should broaden the definition of
``celebrity testimonials'' to explicitly include non-natural persons
(such as businesses and
[[Page 68045]]
public sector entities) \156\ made the same comment with respect to the
definition of ``consumer testimonials.'' \157\ The Commission declines
to make that change in the latter definition for the same reason it
declined to make it in the former definition.
---------------------------------------------------------------------------
\156\ See supra Section IV.A.2.b of this document.
\157\ EPIC Cmt. at 3.
---------------------------------------------------------------------------
f. Indicators of Social Media Influence
The proposed rule defined ``indicators of social media influence''
as ``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.'' For the following reasons, the Commission adopts the
definition of ``indicators of social media influence''--a term which is
used in Sec. 465.8, Misuse of Fake Indicators of Social Media
Influence--largely as proposed, with one modification described below.
A comment from a consumer advocacy organization suggested
explicitly including ``Saves'' and ``Shares'' within the definition of
indicators of social media influence.'' \158\ The commenter explained
that the number of times that social media posts are saved or shared
serves as indicators of social media influence and that both ``Saves''
and ``Shares'' are offered for sale on the internet.\159\ Because the
NPRM proposed to define the term as ``any metrics used by the public to
make assessments of an individual's or entity's social media
influence,'' ``Saves'' and ``Shares'' were already covered by the
definition as originally proposed. However, merely for the purpose of
clarification, the Commission is adding them to the listed examples of
indicators. The same commenter also suggested that the Commission
expand the definition to include engagement metrics that are not
publicly visible but that are used to gain an algorithmic
advantage.\160\ Such non-visible indicators are outside the scope of
this rulemaking, and the Commission chooses not to address them at this
time.
---------------------------------------------------------------------------
\158\ NCL Cmt. at 3.
\159\ Id. at 3-6.
\160\ Id. at 6-8.
---------------------------------------------------------------------------
One review platform commenter suggested that the Commission
``simplify the definition to exhaustively list the current metrics that
are such indicators.'' \161\ The commenter continued that ``whether a
given metric is `used by the public to make assessments of an
individual's or entity's social media influence' may become the subject
of substantial dispute in future cases . . . in the absence of an
exhaustive, disjunctive list of indicators.'' \162\ The Commission
intends the listed indicators to be examples and non-exhaustive, a
flexible and efficient approach that avoids having to modify the rule
when such metrics change. The Commission has no reason to believe that
its approach will result in substantial disputes in its cases.
---------------------------------------------------------------------------
\161\ Yelp Cmt. at 4-5.
\162\ Id. at 5.
---------------------------------------------------------------------------
For the reasons explained in this section, the Commission is
finalizing the definition of ``indicators of social media influence''
to mean 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, saves, shares,
reposts, and comments.
g. Officers
The proposed rule defined ``officers'' as ``including owners,
executives, and managing members of a business.'' The Commission is
finalizing the definition of this term--which is used in Sec. Sec.
465.2 and 465.5.
A review platform commenter said that including ``managing
members'' in the definition of ``officers'' ``could suggest that
managers are officers.'' \163\ The commenter also suggested that the
definition of ``officers'' ``should be refined to only include `senior
management members' of a business,'' thereby creating ``a clearer
distinction between those in a position of leadership versus lower-
level employees, or staff that may have the title `manager' without any
practical level of control and power to exert influence over others.''
\164\
---------------------------------------------------------------------------
\163\ Trustpilot Cmt. at 12.
\164\ Id.
---------------------------------------------------------------------------
Because a ``managing member'' is a commonly understood term
referring to an owner and senior manager of a limited liability
company, and because the term does not refer to all ``managers'' of a
business, the Commission declines to remove ``managing members'' from
the definition of ``officer.'' As discussed below, the Commission
continues to believe it appropriate that Sec. Sec. 465.2 and 465.5
apply to both officers and managers and is therefore not limiting the
definition of ``officers'' to ``senior management members.'' A new
definition of ``managers'' is discussed below.\165\
---------------------------------------------------------------------------
\165\ See infra Section IV.A.3.b of this document.
---------------------------------------------------------------------------
h. Purchase a Consumer Review
The proposed rule defined ``purchase a consumer review'' as
``provid[ing] something of value, such as money, goods, or another
review, in exchange for a consumer review.'' For the following reasons,
the Commission adopts the definition of ``purchase a consumer
review''--a term which is used in Sec. 465.2, Fake or False Consumer
Reviews, Consumer Testimonials, or Celebrity Testimonials--largely as
proposed, with two modifications described below.
An individual commenter wrote, ``[r]egarding payment for reviews,
the use of . . . discounts on future purchases from the business should
be specifically prohibited as well.'' \166\ A review platform commenter
suggested ``that the Commission list additional examples of . . . what
the Commission considers `value.' '' \167\ Specifically, it suggested
adding ``gift certificates,'' ``services,'' ``discounts,'' ``coupons,''
and ``contest entries.'' \168\ Such examples of value were covered by
the proposed definition, which applies to ``something of value''
provided in exchange for a consumer review'' but, for purposes of
clarification, the Commission is adding these examples of value in the
final definition. The review platform commenter also suggested adding
``other incentives,'' \169\ which the Commission thinks is unnecessary,
given that the list is only exemplary and preceded by the words ``such
as.''
---------------------------------------------------------------------------
\166\ John Christofferson, Cmt. on NPRM (Aug. 16, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0025.
\167\ Yelp Cmt. at 5.
\168\ Id.
\169\ Id.
---------------------------------------------------------------------------
Another review platform commenter suggested using language
explicitly stating that the listed examples of ``value'' are not
exhaustive.\170\ The Commission believes that, because the phrase
``such as'' precedes the list of examples, this is already sufficiently
clear from the language of the definition.
---------------------------------------------------------------------------
\170\ Trustpilot Cmt. at 8.
---------------------------------------------------------------------------
The proposed definition used the term ``goods.'' To ensure that
terminology is used consistently throughout the rule, the Commission is
replacing the term ``goods'' with the synonymous word ``products'' in
the final definition.\171\
---------------------------------------------------------------------------
\171\ The Commission is also replacing the term ``goods'' with
the word ``products'' in the final definition of the phrase
``purchase a consumer review'' (final Sec. 465.1(m)).
---------------------------------------------------------------------------
For the reasons explained in this section, the Commission is
finalizing the definition of ``purchase a consumer review'' to mean to
provide something
[[Page 68046]]
of value, such as money, gift certificates, products, services,
discounts, coupons, contest entries, or another review, in exchange for
a consumer review.
i. Reviewer
The proposed rule defined ``reviewer'' as ``the author or purported
author of a consumer review.'' The Commission is finalizing the
definition of the term--which is used in Sec. Sec. 465.2 and 465.5--as
originally proposed.
One review platform commenter objected to the use of the word
``purported'' in the definition of ``reviewer,'' just as it objected to
that word's inclusion in the definition of ``consumer review.'' \172\
The commenter asserted that ``purported'' feeds into the false
narrative that consumer reviews are inherently unreliable. As discussed
above, the use of the word ``purported'' simply recognizes and accounts
for the undisputed fact that some reviews are fake.\173\ The Commission
declines to modify the definition of ``reviewer.''
---------------------------------------------------------------------------
\172\ Yelp Cmt. at 4.
\173\ See supra Section IV.A.2.d of this document.
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j. Substantially Different Product
The proposed rule defined ``substantially different product'' as a
product that differs from another product in one or more material
attributes other than color, size, count, or flavor. The defined term
appeared in proposed Sec. 465.3, Consumer Review or Testimonial Reuse
or Repurposing, which the Commission is no longer planning on
finalizing.\174\ Given that the Commission has decided not to proceed
with proposed Sec. 465.3 at this time, it is not including a
definition of ``substantially different product'' in the final rule.
---------------------------------------------------------------------------
\174\ Some commenters suggested edits to the definition, such as
removing ``flavor'' from the list of attributes that might not be
material, adding other product attributes to that list, or adding
flexibility by removing the listed attributes altogether. TINA Cmt.
at 6; Amazon Cmt. at 9-10; Chamber of Commerce Cmt. at 6-7; RILA
Cmt. at 3; NRF Cmt. at 7-8; IAB Cmt. at 8.; ANA Cmt. at 15-16; NRF
Cmt. at 8. Other commenters asked questions about how the definition
would apply to an updated version of a product or to different
scenarios. Magana Cmt.; NADA Cmt. at 5.
---------------------------------------------------------------------------
k. Testimonialist
The proposed rule defined ``testimonialist'' as ``the person giving
or purportedly giving a consumer testimonial or celebrity
testimonial.'' None of the comments received addressed the definition
of testimonialist. As already discussed in section IV.A.2.b of this
document, the Commission is substituting the word ``individual'' for
the word ``person'' wherever the word appeared in the Commission's
original proposal. Aside from this minor, clarifying modification, the
Commission has determined that it will finalize the definition of the
term--which is used in Sec. Sec. 465.2 and 465.5--as originally
proposed.
l. Unjustified Legal Threat
The proposed rule defined ``unjustified legal threat'' as ``a
threat to initiate or file a baseless legal action, such as an action
for defamation that challenges truthful speech or matters of opinion.''
For the following reasons, the Commission adopts the definition--a term
which is used in Sec. 465.7, Review Suppression--largely as proposed,
with two modifications described below.
The NPRM asked whether ``the definition of `unjustified legal
threat' is sufficiently clear.'' One company's comment said that the
proposed definition was clear.\175\ A trade association said ``the term
`unjustified' is a vague standard that leaves unclear what legal
support a business must have for its legal position before it warns the
creator of a review of possible legal proceedings.'' \176\ A comment
from State Attorneys General suggested changing ``unjustified'' to
``unfounded, groundless, or unreasonable'' in order to provide a more
objective legal standard for evaluating the types of legal threats that
are not permitted.\177\ The Commission agrees in part with this
recommendation. As a clarification of what it intended, the Commission
is changing ``unjustified'' to ``unfounded or groundless.''
Specifically, this change avoids the unintended, potentially broader
scope of the term ``unjustified,'' which is also freighted with
subjective considerations, in favor of terms that reflect objective
legal standards. For similar reasons, the Commission is not adding
``unreasonable,'' a term which is unnecessary and not as precise in
this particular situation as ``unfounded or groundless.''
---------------------------------------------------------------------------
\175\ Transparency Company Cmt. at 14.
\176\ NFIB Cmt. at 4.
\177\ State Attorneys General, Cmt. on NPRM at 2-3 (Sept. 29,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0100
(``State AGs Cmt.'').
---------------------------------------------------------------------------
The State Attorneys General comment also recommended that the
definition include ``a threat to enforce an agreement that is void,
voidable, or unenforceable.'' \178\ It said that the word
``unjustified'' may be insufficient to address merchants arguing that
their legal threats were justified by their non-disclosure agreements
that limit consumer reviews.\179\ The change from ``unjustified'' to
``unfounded or groundless'' addresses this concern. A comment from a
review platform suggested that the Commission expand the definition to
include threats based on form contracts that violate the Consumer
Review Fairness Act (``CRFA'').\180\ Given that such form contracts are
already prohibited by the CRFA,\181\ the Commission declines to address
them in this rulemaking.
---------------------------------------------------------------------------
\178\ Id. at 2.
\179\ Id. at 3.
\180\ Yelp Cmt. at 5.
\181\ Consumer Review Fairness Act of 2016 Sec. 2(b)(1), 15
U.S.C. 45b(b)(1).
---------------------------------------------------------------------------
A consumer group's comment disagreed with the definition's use of
the phrase ``baseless legal action'' on the basis that it ``open[s]
just as many questions as the underlying term it attempts to define.''
\182\ A company's comment noted that the phrase ``a baseless legal
action'' is vague, and recommend that the Commission instead adopt
language that is based upon Rule 11(b)(2) of the Federal Rules of Civil
Procedure.\183\ Specifically, the commenter recommended changing ``a
baseless legal action'' to ``a legal action that is not warranted by
existing law or a nonfrivolous argument for extending, modifying, or
reversing existing law or establishing new law.'' \184\
---------------------------------------------------------------------------
\182\ Consumer Reports Cmt. at 10.
\183\ Family First Life Cmt. at 16.
\184\ Id.
---------------------------------------------------------------------------
The Commission is partially adopting the commenter's suggestion by
adopting language that is loosely based upon Federal Rule of Civil
Procedure 11(b)(2) and (3).\185\ However, the Commission is not
adopting the phrase ``extending, modifying, or reversing existing law
or establishing new law'' because it is highly doubtful that companies
would threaten consumers by asserting that, while no lawsuit is
warranted under existing law, they will bring a lawsuit anyway and try
to change existing law. Instead, the Commission chooses to clarify the
definition by changing ``threat to file a baseless legal action'' to
``legal threat based on claims, defenses, or other legal contentions
unwarranted by existing law or based on factual contentions that have
no evidentiary support or will likely have no evidentiary support after
a reasonable opportunity for further investigation or discovery.''
---------------------------------------------------------------------------
\185\ See Fed. R. Civ. P. 11(b)(2) and (3).
---------------------------------------------------------------------------
A review platform commenter was concerned that the proposed
definition's ``wording opens the door to bad actors being able to claim
defamation on weakly justified grounds and to seek to game the system
by deliberately constructing legal terms which can then be deployed to
suppress reviews.'' \186\ The Commission believes that the revised
definition addresses this
[[Page 68047]]
concern, especially given its inclusion of language from Federal Rule
of Civil Procedure 11(b)(2) and (3), which is intended to avoid such
misuse of the court system. In any event, the Commission is deleting
``such as an action for defamation that challenges truthful speech or
matters of opinion'' because this example is unnecessary and possibly
confusing in this context.
---------------------------------------------------------------------------
\186\ Trustpilot Cmt. at 17-18.
---------------------------------------------------------------------------
For the reasons explained in this section, the Commission is
adopting the proposed definition of an ``unfounded or groundless legal
threat'' with clarifying changes. The final definition provides that an
``unfounded or groundless legal threat'' is a legal threat based on
claims, defenses, or other legal contentions unwarranted by existing
law or based on factual contentions that have no evidentiary support or
will likely have no evidentiary support after a reasonable opportunity
for further investigation or discovery.
3. Proposed Additional Definitions
In Question 7 of the NPRM, the Commission asked what additional
definitions, if any, are needed. In Questions 14 and 18 of the NPRM,
the Commission asked whether it should define the terms ``managers''
and ``relatives,'' respectively. As discussed below, various commenters
suggested that the Commission define the following terms and phrases
that appear in the proposed rule: ``dissemination,'' ``manager,''
``relative,'' and ``purchase or procure fake indicators.'' One
commenter suggested that the Commission define ``review hosting'' and
exclude it from the scope of Sec. 465.2.\187\
---------------------------------------------------------------------------
\187\ As discussed below in Section IV.H. of this document, the
Commission is adding definitions of two phrases in response to
concerns raised by commenters: ``fake indicators of social media
influence'' and ``distribute fake indicators of social media
influence.''
---------------------------------------------------------------------------
a. Dissemination
The term ``disseminate'' appears in both proposed and final
Sec. Sec. 465.2 and 465.5. A comment from a trade association stated
that the Commission should define ``disseminate'' ``within Proposed
Sec. 465.2(b) to include only the affirmative posting or intentional
distribution of reviews, where a company has actual knowledge that the
reviews are false or fraudulent in nature.'' \188\ The commenter
continued by saying that ``disseminate'' should ``not include passive
actions such as allowing a review to be posted or published on a
company's web page, unless the company has actual knowledge that the
review is false or fraudulent in nature'' or ``retailers sharing
reviews with third-party platforms such as Google.'' \189\ Within both
Sec. Sec. 465.2 and 465.5, however, ``disseminate'' applies only to
testimonials, not to consumer reviews. One of the basic canons of
statutory and regulatory construction is that words are to be
understood in their ordinary, everyday meanings--unless the context
indicates that they bear a technical sense.\190\ In Sec. Sec. 465.2
and 465.5, the Commission intended for the term to have its ordinary,
everyday meaning--that is, to spread or to convey something, rather
than the proposed definition.\191\ Accordingly, the Commission declines
to add the proposed definition.
---------------------------------------------------------------------------
\188\ NRF Cmt. at 3.
\189\ Id. at 3-4. The Commission elsewhere addresses whether
Sec. 465.2 applies to a business allowing reviews to be posted or
published on its web page or to retailers sharing reviews with
third-party platforms. See infra Section IV.B.5 of this document.
\190\ See, e.g., Kouichi Taniguchi v. Kan Pac. Saipan, Ltd., 566
U.S. 560, 566 (2012); Tanzin v. Tanvir, 592 U.S. 43, 48 (2020)
(``Without a statutory definition, we turn to the phrase's plain
meaning at the time of enactment.''); Lamar, Archer & Cofrin, LLP v.
Appling, 584 U.S. 709, 715 (2018) (``Because the Bankruptcy Code
does not define the words `statement,' `financial condition,' or
`respecting,' we look to their ordinary meanings.'').
\191\ Disseminate, Dictionary.com, LLC, https://www.dictionary.com/browse/disseminate (last visited July 5, 2024)
(defining ``disseminate'' as ``to scatter or spread widely, as
though sowing seed; promulgate extensively; broadcast; disperse'');
Disseminate, Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/disseminate (last visited July 5, 2024)
(defining ``disseminate'' as ``to spread abroad as though sowing
seed'' or ``to disperse throughout''); Disseminate, Cambridge
Dictionary, https://dictionary.cambridge.org/us/dictionary/english/disseminate (last visited July 5, 2024) (defining ``disseminate'' as
``to spread or give out something, especially news, information,
ideas, etc., to a lot of people'').
---------------------------------------------------------------------------
b. Manager
The term ``manager'' appeared in proposed Sec. 465.5, Insider
Consumer Reviews and Consumer Testimonials, and was undefined. Due to
the clarifying changes to Sec. 465.2 that are discussed in further
detail below, the term is now included in both final Sec. 465.5 and
final Sec. 465.2, Fake or False Consumer Reviews, Consumer
Testimonials, or Celebrity Testimonials.
One business commenter noted that it is unnecessary to define
``manager.'' \192\ An industry organization wrote in its comment that
the failure to define the term ``manager'' ``raises concerns about the
number of a firm's employees impacted.'' \193\ A review platform
commenter said that using the term ``manager'' without any definition
is particularly problematic,\194\ noting that someone ``may have the
title `manager' without any practical level of control and power to
exert influence over others. For example, it is possible in a business
for a person to have the title `manager' while holding a relatively
junior position and without having any employees that directly report
to them.'' \195\ Proposed and final Sec. 465.5(c) address ``managers''
soliciting or demanding consumer reviews from employees or agents. In
this context, the Commission's intent was for the term ``manager'' to
be limited to those who supervise others. Thus, the Commission is
adopting a definition for the term ``manager'' to make this
clarification, which will ensure that Sec. 465.5(c) is not interpreted
as more restrictive than the Commission intended.\196\
---------------------------------------------------------------------------
\192\ Transparency Company Cmt. at 13.
\193\ TechNet Cmt. at 3.
\194\ Trustpilot Cmt. at 9.
\195\ Id. at 12.
\196\ If the term were only to appear in Sec. 465.2(c), such a
clarification would not be needed. This is because Sec. 465.2(c)
also covers employees and agents.
---------------------------------------------------------------------------
A business commenter that operates in the insurance-marketing space
explained that independent-contractor insurance agents who build their
own agencies are referred to as ``managers'' and asked that the
definition of ``managers'' expressly carve out ``managers in the
insurance marketing space'' or at least clarify that managers are those
``who are employed by the company.'' \197\ As similar situations may
arise in other contexts, the Commission is adopting the commenter's
latter recommendation, and clarifying that managers are employees of
the businesses.
---------------------------------------------------------------------------
\197\ Family First Life Cmt. at 13.
---------------------------------------------------------------------------
For the reasons explained in this section, the final rule adopts a
definition for the term ``manager.'' The final rule defines the term
``manager'' as an employee of a business who supervises other employees
or agents and who either holds the title of a ``manager'' or otherwise
serves in a managerial role.
c. Relative
The term ``relative'' appeared in proposed Sec. 465.5, Insider
Consumer Reviews and Consumer Testimonials. It was undefined in the
proposed rule.
Two commenters suggested that the Commission define the term
``relative.'' A comment from a review platform said that a plain
reading of ``relative'' could cover ``an extremely broad range of
people'' and ``is likely to extend to persons who may not be biased
since they are in reality not close to the
[[Page 68048]]
business.'' \198\ The commenter suggested that the prohibition in Sec.
465.5(c) be limited to close relatives such as immediate family
members.\199\ A comment from a business organization said that the term
``relative'' is too vague and that ``[i]t is unclear whether the rule
applies to third cousins, the spouses of a stepbrother's child from a
previous marriage, or friends that are considered family.'' \200\ The
commenter continued that ``[l]arge companies creating monitoring
programs for testimonials need some clarity about what relatives will
be captured under the Rule.'' \201\
---------------------------------------------------------------------------
\198\ Trustpilot Cmt. at 12.
\199\ Id.
\200\ Chamber of Commerce Cmt. at 7.
\201\ Id.
---------------------------------------------------------------------------
As discussed below, the Commission believes that some rule
provisions should be limited to ``immediate relatives.'' \202\ The
Commission is adding a definition of an ``immediate relative,'' which
clarifies that the term refers to a spouse, parent, child, or sibling.
In the final rule, the term ``immediate relative'' is used in
Sec. Sec. 465.2(c) and 465.5(c).
---------------------------------------------------------------------------
\202\ See infra Section IV.E.2 of this document.
---------------------------------------------------------------------------
d. Purchase or Procure Fake Indicators
The phrase ``purchase or procure fake indicators of social media
influence'' is used in proposed and final Sec. 465.8, Misuse of Fake
Indicators of Social Media Influence. The phrase was undefined in the
proposed rule.
A consumer advocacy commenter stated that leaving the terms
``purchase'' and ``procure'' undefined ``leaves ambiguity regarding
which types of incentives are restricted,'' and suggested defining the
phrase ``purchase or procure fake indicators of social media
influence'' to mean ``to provide something of value, such as money,
goods, or another indicator of social media influence (i.e.[,] a
`like'), in exchange for a fake indicator of social media influence.''
\203\ The Commission declines to adopt the commenter's suggestion.\204\
The definition proposed by the commenter would unnecessarily narrow the
types of actions that would be covered by the rule to an exchange. In
the final rule, the Commission intends for the term ``procure'' to bear
its ordinary, everyday meaning--that is, to obtain something.\205\ Even
if there is any ambiguity in the term ``purchase,'' any exchange of
value in order to obtain fake indicators of social media influence
would be ``procuring'' the fake indicators.
---------------------------------------------------------------------------
\203\ Consumer Reports Cmt. at 4.
\204\ Commenters also expressed concern about or sought guidance
on the meaning of the term ``procure'' as used in proposed Sec.
465.2(c), but they did not expressly suggest that the Commission
define the term. The use of the term ``procure'' in Sec. 465.2 is
discussed below in the context of that substantive provision. See
infra Section IV.B.4 of this document.
\205\ See Procure (def. 1), Merriam-Webster.com Dictionary,
https://www.merriam-webster.com/dictionary/procure (last visited
July 5, 2024) (establishing that the word ``procure'' means, among
other things, ``to get possession of (something)'' or ``to obtain
(something) by particular care and effort'').
---------------------------------------------------------------------------
e. Review Hosting
A retailer submitted a comment suggesting that ``review hosting''
be defined and excluded from the scope of Sec. 465.2.\206\ The
commenter suggested the following definition:
---------------------------------------------------------------------------
\206\ Amazon Cmt. at 7. As discussed below, other commenters
also argued that Sec. 465.2 should not apply to merely hosting
reviews. See infra section IV.B.5 of this document.
Review hosting includes but is not limited to activity
associated with maintaining a repository of consumer reviews and
testimonials for display such as: offering review submission
functionality, collecting and moderating reviews, organizing and
displaying reviews, aggregating reviews into star ratings, and
providing guidance to consumers about how to leave reviews where no
incentive is offered.\207\
---------------------------------------------------------------------------
\207\ Id. at 7.
As discussed below, the Commission did not intend for its proposal
to apply to simply hosting consumer reviews.\208\ The Commission is
therefore, for the purpose of clarification, adopting a definition of
the term ``consumer review hosting'' in order to exclude mere review
hosting from certain provisions of the rule. The Commission is not
adopting the commenter's proposed definition because it included
activities that go beyond the core of mere review hosting and because
it begins with the phrase ``include but is not limited to,'' which
would allow it to include an unknown, larger category of activities.
The final rule defines ``consumer review hosting'' as providing the
technological means by which a website or platform allows consumers to
see or hear the consumer reviews that consumers have submitted to the
website or platform. The exclusion of ``consumer review hosting'' from
certain sections of the rule is discussed below.
---------------------------------------------------------------------------
\208\ See infra section IV.B.5 of this document.
---------------------------------------------------------------------------
B. Sec. 465.2--Fake or False Consumer Reviews, Consumer Testimonials,
or Celebrity Testimonials
Proposed Sec. 465.2 addressed fake or false consumer reviews,
consumer testimonials, and celebrity testimonials. Based on the
following, the Commission has determined to finalize these
prohibitions, with a number of revisions. The following paragraphs
discuss comments relating to (1) proposed Sec. 465.2 generally, (2)
common language in all three paragraphs, (3) the individual paragraphs,
4) the knowledge standard, and (5) other potential requirements.
Numerous individual commenters wrote about the importance of
authentic reviews or testimonials and that fake or false ones should be
prohibited.\209\ A technology company commenter wrote that it ``would
welcome rules to prohibit fake reviews and place stronger obligations
on businesses who host them to better protect consumers.'' \210\
---------------------------------------------------------------------------
\209\ See, e.g., William Hardy, Cmt. on NPRM (July 31, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0002; Eric Beback,
Cmt. on NPRM (Aug. 1, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0005 (``Beback Cmt.''); Hippensteel Cmt.; Anderson
Cmt.; Nathan Wilson, Cmt. on NPRM (Aug. 2, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0008; fred foreman, Cmt.
on NPRM (Aug. 6, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0012; Ravnitzky Cmt. at 1; Fribance Cmt.; Ian wolk, Cmt.
on NPRM (Aug. 15, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0020; Edborg Cmt.; Anonymous 5, Cmt. on NPRM (Aug. 18,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0030;
Anonymous 1 Cmt.; Steven Osburn, Cmt. on NPRM (Aug. 22, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0033 (``Osburn
Cmt.''); Ludlam Cmt.; Janette Ponticello, Cmt. on NPRM (Sept. 5,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0042;
Hannah Abbott, Cmt. on NPRM at 1 (Sept. 20, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0051 (Abbott Cmt.).
\210\ Pasabi, Cmt. on NPRM at 2 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0103.
---------------------------------------------------------------------------
A celebrity commenter wrote that he had ``received more than 100
emails from consumers who have been induced to purchase fake products
through the mis-use of . . . [his] image and the images of other Shark
Tank `sharks.' '' \211\
---------------------------------------------------------------------------
\211\ Mark Cuban, Cmt. on NPRM (Sept. 25, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0066.
---------------------------------------------------------------------------
A business commenter suggested explaining the ``financial
consequence of fake reviews,'' such as whether it is ``~$50,000 per
fake review.'' \212\ The maximum civil penalty is currently $51,744 per
violation, but courts must take into account the statutory factors set
forth in section 5(m)(1)(C) of the FTC Act and may impose much lower
per-violation penalties.\213\ Ultimately, courts will also decide how
to calculate the number of violations in a given case.
---------------------------------------------------------------------------
\212\ Transparency Company Cmt. at 9.
\213\ See 15 U.S.C. 45(m)(1)(C).
---------------------------------------------------------------------------
1. Common Language in Sec. 465.2(a), (b), and (c)
Proposed Sec. 465.2 consisted of three paragraphs, each of which
sought to address unfair or deceptive conduct by
[[Page 68049]]
prohibiting specified types of reviews or testimonials: (1) by someone
who ``does not exist,'' (2) by someone ``who did not use or otherwise
have experience with the product, service, or business that is the
subject'' of it, or (3) ``that materially misrepresents, expressly or
by implication, the [person's] . . . experience with the product,
service, or business.'' For the purpose of the following discussion,
references to ``fake or false'' reviews or testimonials cover these
three types of reviews or testimonials.
A trade association asserted that the Commission lacked sufficient
evidence of prevalence of reviews and testimonials that ``materially
misrepresent[ ] . . . the reviewer's or testimonialist's experience.''
\214\ The trade association asserted that some of the cases cited by
the Commission also involved ``actual fake reviews'' and therefore
should not count as evidence of prevalence.\215\ The Commission
disagrees: a fake or fabricated review misrepresents the purported
reviewer's experience (e.g., that the reviewer used the product and
what their experience was). The commenter also asserted that five of
the cases cited by the Commission to establish prevalence ``provide no
additional details about the unfair or deceptive act or practice at
issue aside from bare allegations that the consumer testimonials in the
case involved misrepresentations of the consumer's experience,'' and
therefore are insufficient to establish prevalence.\216\ However, the
quoted representations in each of the Commission's complaints makes
clear the nature of the misrepresentations.\217\ Furthermore, even if a
Commission complaint does not provide all details about a specific
misrepresentation, that does not mean that it cannot serve as evidence
of prevalence. The Commission thus has a strong basis for its
conclusion that reviews and testimonials misrepresenting the
experiences of the reviewers and testimonialists are prevalent.
---------------------------------------------------------------------------
\214\ IAB Cmt. at 3.
\215\ Id.
\216\ Id. at 4 & n.12.
\217\ Complaint at 8-11, 17-18, FTC v. NextGen Nutritionals,
LLC, No. 8:17-cv-2807 (M.D. Fla. filed Nov. 20, 2017) (testimonials
in ads made specific quantified claims of weight loss and blood
pressure reduction); In re Esrim Ve Sheva Holding Corp., 132 F.T.C.
736, 737 (2001) (testimonial made specific quantified claims about
increased mileage and decreased harmful pollutants); In re Computer
Bus. Servs., Inc., 123 F.T.C. 75, 78 (1997) (endorsers made specific
quantified earnings claims); In re Twin Star Prods., Inc., 113
F.T.C. 847, 849-51, 853-54 (1990) (endorsements made regarding a
weight-loss product, a baldness treatment, and an impotency
treatment); In re National Sys. Corp., 93 F.T.C. 58, 61-62 (1979)
(testimonials about jobs obtained by graduates of respondents'
schools).
---------------------------------------------------------------------------
The same trade association and another one expressed concern that
the ``prohibition on all reviews that are authored by individuals that
[sic] `do not exist' or have not used the product would prohibit a wide
swath of non-deceptive speech, including for example, any satirical
reviews that a business authors, creates, sells, purchases,
disseminates, or procures.'' \218\ As discussed in the NPRM, the
Commission's intent was to prohibit misrepresentations resulting from
reviews or testimonials by someone who does not exist or who did not
use or otherwise have experience with the product, service, or
business.\219\ The Commission is unsure of the extent to which there
are satirical reviews that could run afoul of the provision as
proposed. Nonetheless, upon a review of the comments, the Commission
now recognizes that absent an express reference to material
misrepresentations, the provision could be interpreted to prohibit
other potentially non-deceptive speech, such as the use of virtual
influencers.\220\ To avoid this unintended consequence, the Commission
is clarifying that Sec. 465.2 is limited to prohibiting material
misrepresentations. As finalized, the prohibitions in Sec. 465.2 are
expressly limited to reviews and testimonials ``materially
misrepresent[ing], expressly or by implication . . . that the reviewer
or testimonialist exists; . . . that the reviewer or testimonialist
used or had experience with the product, service, or business that is
the subject of the review or testimonial; or . . . the reviewer's or
testimonialist's experience with the product, service, or business that
is the subject of the review or testimonial.''
---------------------------------------------------------------------------
\218\ IAB Cmt. at 6; NRF Cmt. at 6.
\219\ NPRM, 88 FR 49373.
\220\ A virtual influencer is a computer-generated fictional
character that can be used for a variety of marketing-related
purposes, but most frequently for social media marketing, in lieu of
human influencers. See, e.g., Koba Molenaar, Discover the Top 12
Virtual Influencers for 2024--Listed and Ranked!, Influencer
MarketingHub (Mar. 29, 2024), https://influencermarketinghub.com/virtual-influencers/.
---------------------------------------------------------------------------
A different trade association raised several concerns about the
common language of proposed Sec. 465.2. It asserted that the provision
``would prohibit the use of a dead person's endorsement because
arguably that person does not exist.'' \221\ The Commission does not
interpret a person who ``does not exist'' to include a person who died
after making an endorsement, but that concern should be resolved by the
new language regarding material misrepresentations. The commenter went
on to question ``what constitutes an `actual experience,' '' asking
whether a person who saw a label had actual experience with it and
whether a person who tasted an item purchased at a restaurant but did
not visit the restaurant had actual experience.\222\ The proposed
provision did not use the term ``actual experience,'' and the persons
in the commenter's posited hypotheticals did have legitimate experience
with the product or service but should not misrepresent that experience
as more than it was. The commenter also said that ``it is unclear if
the . . . element--materially misrepresenting the experience with the
product or service--relates to the experience or an opinion about the
product or service.'' \223\ It relates to the person's ``experience''
with the product or service, that is, what actually happened when they
used or otherwise experienced it and not simply their ``opinion'' of
it. The same commenter asked whether ``an actor portraying an actual
reviewer'' is misrepresenting their experience as long as it is ``clear
that it is an actor portrayal.'' \224\ The provision does not prohibit
using an actor to portray a real testimonialist.
---------------------------------------------------------------------------
\221\ ANA Cmt. at 12.
\222\ Id.
\223\ Id.
\224\ Id.
---------------------------------------------------------------------------
An individual commenter who raised the same concern about whether
actors could portray real testimonialists \225\ went on to express
concerns that the actor ``shouldn't misrepresent who the original
person was,'' such as by misrepresenting ``the effectiveness/health
benefits of [a] product by hiring a very fit in shape person.'' \226\
The Commission has issued guidance stating that ``use of an endorsement
with the image or likeness of a person other than the actual endorser
is deceptive if it misrepresents a material attribute of the
endorser.'' \227\ Nevertheless, the Commission does not intend for
Sec. 465.2 to address such misrepresentations.
---------------------------------------------------------------------------
\225\ Beback Cmt.
\226\ Id.
\227\ See Endorsement Guides, 16 CFR 255.1(g).
---------------------------------------------------------------------------
A consumer organization's comment requested that the Commission
``explicitly indicate that fake . . . ratings are an independent and
separate violation from deceptive narrative reviews.'' \228\ The
Commission believes that making this distinction is unnecessary and
declines to make this change.
---------------------------------------------------------------------------
\228\ TINA Cmt. at 8.
---------------------------------------------------------------------------
[[Page 68050]]
2. Sec. 465.2(a)
Proposed Sec. 465.2(a) would have made it a violation for a
``business to write, create, or sell a consumer review, consumer
testimonial, or celebrity testimonial'' that is fake or false.
An individual commenter noted that the prohibition ``is too
specific and it would be easy for a business to find an alternative
method not prohibited by the rule.'' \229\ The commenter posited an
example: ``a business could have someone next to them tell them their
review and someone could transcribe it, technically the business did
not create, make, or sell anything and thus would not be in
violation.'' \230\ If a business is paying an individual to transcribe
a fake or false review, it is creating or making the review, and would
therefore have violated Sec. 465.2(a). Accordingly, the Commission
declines to modify the prohibition in response to the commenter's
concern.
---------------------------------------------------------------------------
\229\ Albert Cmt. at 3.
\230\ Id.
---------------------------------------------------------------------------
A trade association submitted a comment asking the Commission to
``confirm that when a real consumer authors the review, the business
cannot be said to have written or created it, and thus . . . section
[465.2(a)] could not apply.'' \231\ The Commission is unsure what the
commenter means by a ``real consumer authors the review.'' The
provision would apply if, for example, a business employs a ``real
consumer'' to write fifty reviews of a product under different names.
---------------------------------------------------------------------------
\231\ IAB Cmt. at 6.
---------------------------------------------------------------------------
A comment from a retailer that publishes reviews said that ``review
brokers and other bad actors . . . coordinate the high-volume writing,
buying, and selling of fake reviews'' and that the rule should apply to
those ``approaching customers, instructing them on how to create fake
reviews and avoid detection, and connecting them with bad actors
operating [fake] accounts.'' \232\ Brokers of fake reviews would
generally fall under the provision's prohibition against selling a
consumer review, given that such brokers are generally being paid to
provide fake reviews.
---------------------------------------------------------------------------
\232\ Amazon Cmt. at 6.
---------------------------------------------------------------------------
A trade association commenter suggested clarifying that
``business'' in Sec. 465.2(a) ``refers to a business that helps to
create or sell reviews or testimonials.'' \233\ Although the paragraph
does apply to such businesses, it also applies to a business that
writes or creates fake reviews or testimonials for its own products or
services. For this reason, the Commission declines to adopt the
commenter's suggestion.
---------------------------------------------------------------------------
\233\ Computer & Communications Industry Association, Cmt. on
NPRM at 3 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0110 (``CCIA Cmt.'').
---------------------------------------------------------------------------
An individual commenter asked whether the prohibition covers
``people who leave reviews in good faith'' if ``they were getting paid
for it.'' \234\ Neither Sec. 465.2(a) nor any section of the rule
imposes liability on individual consumers who write honest reviews,
even if they are paid for doing so.
---------------------------------------------------------------------------
\234\ Wilson Cmt.
---------------------------------------------------------------------------
Another individual commenter requested that civil penalties be
imposed ``on the company for soliciting the reviews, rather than on the
reviewer, unless the reviewer knowingly is leaving fake reviews.''
\235\ Under Sec. 465.2(a), an individual who is in the business of
writing, creating, selling, or brokering reviews could be liable for
creating consumer reviews that are fake or false. That individual could
only be subject to civil penalties if they did so with actual knowledge
or knowledge fairly implied on the basis of objective circumstances
that they were engaging in an act or practice that is unfair or
deceptive and is prohibited by the rule.\236\
---------------------------------------------------------------------------
\235\ Osburn Cmt.
\236\ See 15 U.S.C. 45(m)(1)(A) (establishing that the recovery
of civil penalties requires a showing of ``actual knowledge or
knowledge fairly implied on the basis of objective circumstances
that such act is unfair or deceptive and is prohibited by such
rule'').
---------------------------------------------------------------------------
An individual commenter expressed concern that ``competing parties
could potentially create fake reviews on another party in order to give
the impression that the party is in violation of the'' rule.\237\
Although such misconduct is possible, the target of such misconduct
would not be liable under Sec. 465.2(a), based on how it is worded.
For example, the target would not have been the one who created, wrote,
or sold the review, nor would the target have purchased the review. The
competitor who engaged in such misconduct might be liable for deceptive
or unfair conduct under the FTC Act.
---------------------------------------------------------------------------
\237\ Slezak Cmt. at 1.
---------------------------------------------------------------------------
3. Sec. 465.2(b)
Proposed Sec. 465.2(b) would have made it a violation for a
business to ``purchase a consumer review'' or ``disseminate or cause
the dissemination of a consumer testimonial or celebrity testimonial''
about ``the business or one of its products or services'' which ``the
business knew or should have known'' was fake or false.
A consumer organization commented that, by limiting Sec. 465.2(b)
to a business posting reviews or disseminating or causing the
dissemination of testimonials about ``the business or one of its
products or services,'' the Commission's proposal limits liability to
the business itself ``instead of including other . . . creators or
disseminators of deceptive reviews and testimonials.'' \238\ In
response to the commenter's concern, the Commission notes that those
creating or disseminating deceptive reviews and testimonials could be
liable under Sec. 465.2(a).
---------------------------------------------------------------------------
\238\ TINA Cmt. at 6 n.23.
---------------------------------------------------------------------------
A trade association asked whether a business `` `disseminates'
reviews for its products merely by . . . placing them in advertising/
marketing materials.'' \239\ Section 465.2(b) applies only to the
dissemination of testimonials, but if a business includes consumer
reviews in its advertising or marketing materials, those reviews become
``testimonials'' and are covered.
---------------------------------------------------------------------------
\239\ NRF Cmt. at 5.
---------------------------------------------------------------------------
Another commenter requested that the Commission ``clarify the
limited applicability of `to disseminate or cause the dissemination' in
proposed Sec. 465.2(b) so the definition does not wrongly apply to
third parties that host or license reviews.'' \240\ The phrase ``to
disseminate or cause the dissemination'' applies only to testimonials
and not to consumer reviews, so it could not apply to third parties
that host or license reviews. The only situation in which Sec.
465.2(b) applies to consumer reviews is when a business purchases a
consumer review.
---------------------------------------------------------------------------
\240\ CCIA Cmt. at 3.
---------------------------------------------------------------------------
4. Sec. 465.2(c)
Proposed Sec. 465.2(c) would have made it a violation for a
business to ``procure a consumer review for posting on a third-party
platform or website, about the business or one of its products or
services,'' which ``the business knew or should have known'' was fake
or false.
Several commenters questioned the scope and ``vagueness'' of the
undefined term ``procure'' in proposed Sec. 465.2(c).\241\ A trade
association wrote that ``the Commission should explain that a retailer
does not `procure a consumer review for posting on a third-party
platform or website' simply by requesting that previous customers
submit reviews, and then allowing submitted reviews to be posted on the
retailer's own website or sharing customer reviews with Google.'' \242\
The
[[Page 68051]]
Commission did not intend to cover such activities. Instead, the
Commission intended to cover a much more limited set of activities: the
procurement of fake and false reviews from company insiders. The
Commission is therefore revising Sec. 465.2(c) by limiting it to a
business procuring consumer reviews ``from its officers, managers,
employees, or agents, or any of their immediate relatives.''
---------------------------------------------------------------------------
\241\ NRF Cmt. at 4; ANA Cmt. at 12; IAB Cmt. at 4; Amazon Cmt.
at 7.
\242\ NRF Cmt. at 4.
---------------------------------------------------------------------------
A trade association's comment questioned the phrase ``its products
or services'' in the context of what was proposed Sec. 465.2(c).\243\
It asked whether the term would apply to all of the products sold by a
department store, an online marketplace, or a consignment
business.\244\ The Commission recognizes that the phrase ``its products
or services'' was ambiguous. In order to address this inadvertent
ambiguity, the Commission is making clarifying changes by replacing the
phrase ``its products or services'' with the phrase ``the products or
services it sells'' in Sec. 465.2(b) and (c), as well as in other
places where it appears in the rule.\245\ The revised language captures
what the Commission originally intended and would apply to products
sold by a department store, an online marketplace, or a consignment
business.
---------------------------------------------------------------------------
\243\ Id. at 5.
\244\ Id. at 5-6.
\245\ See Sec. Sec. 465.5(a), (b), and (c), 465.6, and 465.7(b)
of the rule.
---------------------------------------------------------------------------
5. Sec. 465.2(d)
Upon consideration of the comments received, the Commission is
adding paragraph (d) in Sec. 465.2 to clarify the scope of Sec.
465.2(b) and (c). The Commission recognizes that, when a business sends
a broad solicitation to customers to post customer reviews, one or more
recipients might also be employees of the business. If any such
employee then posts reviews, one might consider those reviews to have
been ``procured'' from the employee. Similarly, the Commission
recognizes that broad, incentivized solicitations to the general public
or past customers to post about a product on social media could be
considered ``causing the dissemination'' of testimonials. It would not
be reasonable to expect a business to know whether such resulting
reviews or testimonials were fake or false, and the Commission did not
intend to cover those reviews in this section of the proposed rule.
Therefore, the Commission is adding Sec. 465.2(d)(1), which clarifies
that Sec. 465.2(b) and (c) do not apply to ``generalized solicitations
to purchasers to post reviews or post testimonials about their
experiences with the product, service, or business that is the subject
of the review or testimonial.'' By ``generalized solicitations,'' the
Commission means to exempt from Sec. 465.2(b) and (c) solicitations
sent to large groups of customers, such as those who purchased a
particular item or who became customers during a given time period,
where specific customers are not chosen based on the likelihood that
they will express a particular sentiment. In contrast, solicitations
made only to customers whom the business believes to be happy customers
would not be ``generalized solicitations'' and would therefore be
subject to Sec. 465.2(b) and (c).
As the Commission said in the NPRM, Sec. 465.2 does not ``apply to
any reviews that a platform simply publishes and that it did not
purchase.'' In other words, the Commission did not intend for Sec.
465.2 to apply to platforms that simply host third-party content and
does not believe that the section can be interpreted otherwise.
Nonetheless, numerous commenters expressed concern over whether the
section covered the mere hosting of third-party content.\246\ A number
of industry commenters and an individual commenter asked the Commission
to expressly exempt those who host consumer reviews created by a third
party.\247\ Three industry comments asked the Commission to create a
safe harbor for review hosting when the company has reasonable
processes in place to identify and remove fake reviews.\248\ Consistent
with its statement in the NPRM, the Commission is adding Sec.
465.2(d)(2) to provide an explicit exemption for ``merely engaging in
consumer review hosting'' from the scope of Sec. 465.2(b) and (c).
---------------------------------------------------------------------------
\246\ One industry commenter expressed a general concern that
was not tied to a specific provision ``that the Proposed Rule
imposes liability on companies for the dissemination and/or display
of fake reviews that clashes with Section 230 of the Communications
Decency Act.'' TechNet Cmt. at 3. As discussed below, the Commission
is including exemptions for mere consumer review hosting in
Sec. Sec. 465.2 and 465.5. See infra section IV.B.5 of this
document.
\247\ See, e.g., NRF Cmt. at 5-6; IAB Cmt. at 6; Amazon Cmt. at
7-9; CCIA Cmt. at 3; Abbott Cmt.
\248\ TechNet Cmt. at 2; IAB Cmt. at 5; NRF Cmt. at 7. A trade
association also requested a ``safe harbor'' but did not tie it to
any specific provision of the proposed rule. NADA Cmt. at 4.
---------------------------------------------------------------------------
A trade association noted that, in the ``case of reviews being
shared between retailers and third-party platforms,'' ``it would be
unfair to immunize the search platform from liability for the review
shared by the retailer, but not to immunize the retailer for the review
created by the potential bad actor.'' \249\ However, a retailer or
other entity will not be liable for sharing consumer reviews unless it
would have been liable for displaying those same reviews on its own
website.
---------------------------------------------------------------------------
\249\ NRF Cmt. at 6.
---------------------------------------------------------------------------
Two comments raised the issue of hosting both reviews and
testimonials. A trade association commenter expressed concern that the
Commission should ``avoid sweeping in companies such as online
retailers that host consumer reviews and testimonials and engage in
activities such as organizing, moderating, aggregating, and prompting
the submission of reviews and testimonials.'' \250\ Another trade
association made a very similar comment and ``urge[d] the FTC to
confirm that liability under this section would require the company to
do more than host reviews/testimonials.'' \251\ As for reviews, Sec.
465.2 will not prohibit an online business that hosts reviews from
prompting the submission of reviews from the general public or from
organizing, moderating, or aggregating them. Nonetheless, certain
unfair or deceptive conduct that involves prompting the submission of
reviews or moderation could violate Sec. 465.4 or Sec. 465.7(b),
respectively.\252\ As for testimonials, it is unclear what hosting
scenarios the commenters are contemplating. The Commission is not
adding an exemption for ``merely hosting testimonials'' because there
is no provision in the rule that applies to testimonial hosting because
testimonials are, by definition, advertising or promotional messages. A
business that puts testimonials on its own website is ``disseminating''
them and is not merely ``hosting'' them. When such testimonials are
fake or false, the business should face potential liability under this
paragraph. On the other hand, a business that has on its website a
community forum in which consumers can comment about the business and
the products or services it sells could be merely hosting the community
forum. A comment in the community forum touting one of the business's
products, which was posted by a consumer who was not incentivized to do
so and who has no other connection to the company, is not a testimonial
in the first place, so it would not fall under Sec. 465.2(b). The same
analysis would apply to a business that hosted a section on its website
[[Page 68052]]
where consumers could answer questions posed by other consumers.
---------------------------------------------------------------------------
\250\ IAB Cmt. at 4.
\251\ ANA Cmt. at 12-13.
\252\ Prompting the submission of consumer reviews that must be
positive in order to obtain an incentive could violate Sec. 465.4.
Moderation of consumer reviews that results in the suppression of
some of them based upon their ratings or their negative sentiment
could violate Sec. 465.7(b).
---------------------------------------------------------------------------
A business organization commenter said the Commission should ``make
clear [that] Section 465.2 does not apply to platforms or retailers
that display ratings even if they prompt review submissions or
aggregate star ratings of submitted reviews.'' \253\ Paragraphs (b) and
(c) of Sec. 465.2 do not apply to mere consumer review hosting, even
if the business prompts review submissions or aggregates star ratings.
---------------------------------------------------------------------------
\253\ Chamber of Commerce Cmt. at 4.
---------------------------------------------------------------------------
The commenter continued by saying that ``the Commission must
clearly indicate that the Rule provision would not apply to any website
displaying a consumer review or testimonial that they did not purchase
or procure,'' arguing that ``Section 230 [of the Communications Decency
Act] . . . broadly immunizes providers of an interactive computer
service from liability for presenting third party content.'' \254\ If a
business creates fake or false reviews or testimonials and displays
them on its website, it is not presenting third-party content. It could
be liable for such reviews or testimonials under Sec. 465.2(a). The
commenter made a similar argument with respect to the applicability of
Sec. 465.2(b) to a website that displays a fake or false testimonial
and thus causes its dissemination.\255\ Section 465.2(b) does apply if
such testimonials are about the business or one of the products or
services it sells. Such testimonials are advertising, not third-party
content covered by section 230 of the Communications Decency Act (47
U.S.C. 230).
---------------------------------------------------------------------------
\254\ Id.
\255\ Id.
---------------------------------------------------------------------------
6. Knowledge Standard
Like proposed Sec. 465.2(b) and (c), final Sec. 465.2(b) and (c)
are limited to situations in which businesses ``knew or should have
known'' that they were engaging in the conduct that was prohibited.
Commenters had varied reactions to this standard, with some finding it
appropriate, others finding it too high, and others finding it too low.
A corporate commenter noted that, for the purpose of Sec. 465.2(b)
and (c), ```[s]hould have known' needs to be the standard.'' \256\
Similarly, an individual commenter recommended that the FTC adopt the
``knew or should have known'' standard for purposes of Sec. 465.2(b)
and (c):
---------------------------------------------------------------------------
\256\ Transparency Company Cmt. at 11.
because it: (1) sufficiently effectuates consumers' shared interest
in reducing the prevalence of unfair or deceptive online consumer
reviews and testimonials, (2) avoids unfairly imposing liability on
unwitting, blameless business transgressors, and (3) conveniently
aligns with the FTC's existing ``has good reason to believe''
standard for similar purpose of application of FTC Act Section 5 to
the use of endorsements and testimonials in advertising.\257\
---------------------------------------------------------------------------
\257\ Poole Cmt. at 2.
However, several commenters objected to the imposition of civil
penalties based upon a ``should have known'' standard, believing that
standard would be too onerous.\258\ For example, an industry
organization said that proposed Sec. 465.2(b) and (c) are
``problematic because [they] place[ ] the onus on the business to have
knowledge of the author's state of mind as to whether their actual
experience was expressed. . . , an impossible task for anyone but the''
author.\259\ The industry organization also claimed that the risk of a
civil penalty will ``likely . . . compel businesses to drastically
limit the consumer reviews or testimonials they seek out or even allow
on their websites.'' \260\ Under section 5(m)(1)(A) of the FTC Act, 15
U.S.C. 45(m)(1)(A), however, the Commission can seek civil penalties
for a rule violation only by showing that a defendant had ``actual
knowledge or knowledge fairly implied on the basis of objective
circumstances that such act is unfair or deceptive and is prohibited by
such rule'' (hereinafter shortened to ``actual knowledge or knowledge
fairly implied''). A lower knowledge standard in a Commission rule--
such as the ``knew or should have known'' standard found within certain
sections of the proposed rule--does not override the higher standard
found in section 5(m)(1)(A) of the FTC Act. The Commission has not
suggested otherwise in the course of this rulemaking.
---------------------------------------------------------------------------
\258\ IAB Cmt. at 5-6; NRF Cmt. at 2-5; NADA Cmt. at 3-4;
Chamber of Commerce Cmt. at 2-3; TechNet Cmt. at 2.
\259\ TechNet Cmt. at 2.
\260\ Id.
---------------------------------------------------------------------------
Other commenters objected similarly, saying that ``knew or should
have known'' is too low as a knowledge threshold and that the standard
should be actual knowledge, but did not tie their concerns to the
imposition of civil penalties.\261\ For example, some of the comments
expressing concern about a ``knew or should have known'' standard
appeared to focus primarily on the standard's supposed applicability
to, and harsh impact on, websites hosting reviews.\262\ As another
example, a trade association commenter recommended ``that the
Commission define `knew,' as used in . . . Sec. 465.2, as `having
actual knowledge,' and remove the `should have known' language.'' \263\
---------------------------------------------------------------------------
\261\ Amazon Cmt. at 8; ANA Cmt. at 13; Trustpilot Cmt. at 5, 8;
NRF Cmt at 3; Family First Life Cmt. at 5-8.
\262\ Amazon Cmt. at 7-8; ANA Cmt. at 12-13; NRF Cmt. at 2-5.
One trade association commenter disagreed, asserting that the ``knew
or should have known'' standard the Commission proposed for Sec.
465.2 will ``not unduly burden review platforms.'' Travel Tech Cmt.
at 4.
\263\ NRF Cmt. at 3.
---------------------------------------------------------------------------
Additionally, two commenters advocated for a standard higher than
``should have known'' but lower than actual knowledge. With respect to
activities such as ``purchasing'' a review, they said that businesses
should be held responsible for ensuring the reviews are authentic but
recommended a ``knew or consciously avoided'' standard.\264\ One of the
commenters asserted that the proposed ``should have known'' standard
``is vague and does not provide adequate specificity about the sorts of
actions businesses should take to ensure that they will not be held
liable for not detecting that a review they purchased was fake.'' \265\
The commenter said a ``consciously avoided'' knowing standard would
allow for liability when a business takes no steps to respond to
receiving repeated complaints raising red flags about the authenticity
of a particular purchased review.\266\
---------------------------------------------------------------------------
\264\ Amazon Cmt. at 9; IAB Cmt. at 5.
\265\ Amazon Cmt. at 9.
\266\ Id.
---------------------------------------------------------------------------
As part of the NPRM, the Commission also inquired whether, instead
of the ``should have known'' standard, the Commission should adopt a
``knew or could have known'' standard. Only two commenters addressed
that proposed standard. An individual commenter said that such a
standard would ``ambiguously expand the proposed Rule's prosecutorial
scope and possibly open unsuspecting businesses to financial penalties
for violations they had no inkling of having committed in the moment.''
\267\ Another individual commenter, who incorrectly thought the
proposed rule provided a private right of action, said that such a
standard ``provides scienter never used in consumer law'' and the
``courts could potentially become overwhelmed with an influx of
claims.'' \268\
---------------------------------------------------------------------------
\267\ Poole Cmt. on at 1.
\268\ Albert Cmt. at 3.
---------------------------------------------------------------------------
Other commenters advocated for a lower standard than ``knew or
should have known.'' An individual commenter did not think that ``knew
or should have known'' was appropriate because it would make it ``very
difficult to prove'' violations and recommended that the Commission
require ``businesses to be able to show they used reasonable
[[Page 68053]]
diligence through policies and procedures to prove that the[ ] reviews
are legitimate.'' \269\ A consumer organization said in its comment
that ``there is no need for a knowledge or intent requirement under
this Rule'' as ``Section 5 of the FTC Act does not otherwise require
the Commission to prove knowledge or intent when enforcing against
entities engaging in deceptive practices.'' \270\ It continued that
``the Commission can and should consider knowledge and intent in
deciding the equities of bringing any enforcement action.'' \271\
---------------------------------------------------------------------------
\269\ Annie Horgan, Cmt. on NPRM at 1-2 (Sept. 22, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0058.
\270\ Consumer Reports Cmt. at 4.
\271\ Id. at 4-5. An individual commenter disagreed, stating
that ``the complete removal of a knowledge requirement in favor of a
strict liability approach would almost guarantee situations of
unwarranted punishment under the proposed rule.'' Poole Cmt. at 3.
---------------------------------------------------------------------------
After reviewing and considering the comments received, the
Commission believes that the most appropriate standard for imposing
liability under Sec. 465.2(b) and (c) is the ``knew or should have
known standard.'' As discussed above,\272\ those paragraphs were not
intended to apply to consumer review hosting and Sec. 465.2(d)(2) now
contains an explicit exemption for consumer review hosting.\273\ Thus,
the ``knew or should have known'' language in Sec. 465.2(b) and (c)
will not have a harsh impact on review platforms, as some of the
commenters suggested. Eliminating the knowledge standard altogether,
however, may indeed have an overly harsh impact on businesses in some
circumstances, and the idea garnered almost no public support. For
example, it would be unreasonable to hold a company liable for
publishing a testimonial when it had no reason to know that the
testimonial misrepresented the testimonialist's experience. The
Commission sees no reason why the standard should be higher than ``knew
or should have known.'' The ``knew or should have known'' standard--
which the Commission has used in other rules \274\--thus best achieves
the appropriate, equitable balance between protecting consumers and
holding marketers accountable for deceptive conduct while not overly
burdening marketers that engage in the responsible use of reviews and
testimonials.
---------------------------------------------------------------------------
\272\ See supra section IV.B.5. of this document.
\273\ The final rule would therefore not require a business that
is merely hosting consumer reviews on its platform to prove that the
reviews it is hosting are legitimate.
\274\ Other Commission rule provisions with a ``knew or had
reason to know'' requirement include Sec. 460.8 of Labeling and
Advertising of Home Insulation (commonly known as the R-Value Rule),
which prohibits non-manufacturers of home insulation from relying on
R-value data provided by the manufacturer if they ``know or should
know'' the data is false or not based on proper tests. 16 CFR 460.8;
see also 16 CFR 460.19(e) (non-manufacturers are liable only if they
``know or should know that the manufacturer does not have a
reasonable basis for the claim''); 16 CFR 436.7(d) (franchise
sellers must notify prospective franchisees of any material changes
``that the seller knows or should have known occurred'').
---------------------------------------------------------------------------
Two trade associations' comments said that if ``the Commission . .
. imposes a `should have known' standard, the Commission must provide
greater clarity about what sorts of indicators of inauthenticity would
provide companies with sufficient notice to trigger liability.\275\
They both said, ``Without that guidance and faced with the risk of
significant civil penalty exposure for failing to stop the actions of
undiscovered third parties, many businesses would likely be deterred
from using consumer reviews or testimonials at all.'' \276\ The
Commission has already addressed the knowledge standard found in
section 5(m)(1)(A), which applies to the imposition of civil penalties.
In the discussion of Sec. 465.2(b) and (c) below, the Commission
provides further guidance as to what is intended by ``knew or should
have known.''
---------------------------------------------------------------------------
\275\ IAB Cmt. at 5-6; ANA Cmt. at 13. An individual commenter
said that the Commission should ``provide some clear and objective
criteria or indicators for identifying fake reviews, such as the use
of bots, scripts, templates, or multiple accounts, or the lack of
verifiable purchase or experience, or the inconsistency with other
reviews or information'' and this ``would help businesses and
consumers to distinguish between genuine and fake reviews.''
Ravnitzky Cmt. at 1.
\276\ IAB Cmt. at 5-6; ANA Cmt. at 13. As explained above, these
concerns are unwarranted given that the ``should have known''
standard has no bearing here on the imposition of civil penalties,
for which the Commission must prove that a defendant met the higher
knowledge standard of section 5(m)(1)(A) of the FTC Act.
---------------------------------------------------------------------------
Several other commenters discussed general views about the
application of the ``knew or should have known'' standard. For example,
an individual commenter said that ``[a] business cannot always
reasonably know that a testimonial contains testimony that is fake or
false, if the influencer expresses to them that it is true.'' \277\ The
Commission agrees with this assertion.
---------------------------------------------------------------------------
\277\ Taylor V, Cmt. on NPRM at 2 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0062 (``Taylor V. Cmt.'').
---------------------------------------------------------------------------
A comment from a public interest research center said that the
``lack of an adequate endorser oversight program should be a per se
violation of the `know or should have known' standard as that is
tantamount to the company deliberately avoiding knowing.'' \278\ A
consumer organization commenter said that the following actions should
be considered knowledge that a review is fake or false: ``failure to
meaningfully police'' for suspicious review activity, ``inducements to
provide reviews without clearly instructing the reviewer to clearly
disclose material conflicts,'' ``materially incentivizing reviews where
it's impossible to convey material conflicts (e.g., providing a five-
star review with no accompanying narrative on TripAdvisor),'' and
``failure to take meaningful steps to confirm the existence of the
purported celebrity or meaningfully document the celebrity's purported
experience with the product or service.'' \279\ The Commission
encourages businesses to have endorser oversight programs, and whether
a company has and follows such a program could impact the exercise of
prosecutorial discretion. The Commission does not intend, however, for
companies to be liable under this section of the rule based merely on
the absence of an oversight program or on these other suggested bases.
---------------------------------------------------------------------------
\278\ EPIC Cmt. at 3.
\279\ Consumer Reports Cmt. at 5.
---------------------------------------------------------------------------
A corporate commenter said that ``how a business `should have
known' that a reviewer does not exist is not apparent,'' and posited
that, under a ``should have known'' standard, ``perhaps [a] business
may be under a duty to reach out to the reviewer, but it is unclear how
many resources the business must expend to attempt to contact the
reviewer.'' \280\ First, as noted, Sec. 465.2(d)(2) exempts businesses
merely engaging in consumer review hosting from Sec. 465.2(b) and (c).
Another key limitation here is the exemption for generalized
solicitations under Sec. 465.2(d)(1). That exemption means that
businesses can send such solicitations to their customers without
creating any investigative obligation for resulting reviews under Sec.
465.2(b) or (c), even if such reviews have been ``purchased.'' \281\
---------------------------------------------------------------------------
\280\ Family First Life Cmt. at 6.
\281\ Paying for or giving other incentives in exchange for
consumer reviews expressing a particular sentiment regarding the
product, service, or business that is the subject of the review
would violate Sec. 465.4 of the rule.
---------------------------------------------------------------------------
With respect to ``purchased'' reviews under Sec. 465.2(b)the
rule's ``knew or should have known'' standard does not impose a general
duty to reach out to the reviewers or investigate whether each
resulting review is fake or false. While each case will depend on its
specific facts, it is possible that a business may possess clear
indications that purchased reviews are likely to be fake or false, in
which case a failure to investigate further may trigger liability under
the ``should have known''
[[Page 68054]]
standard. For example, a business that hires a third party to provide
free samples of its products to consumers in order to generate reviews,
without more, may have no reason to investigate the resulting reviews.
However, a business may be on notice that the resulting reviews are
likely fake or false if they are submitted too quickly after purchase
or many of them are submitted in a very short period of time or refer
to the wrong product. As for Sec. 465.2(c), which applies only to
reviews by insiders, a possible reason for knowing that such reviews
are likely fake or false could be that an insider sent emails to a
manager over time that together showed that the insider was using
multiple accounts to submit reviews to the same website.
A company that is in the business of identifying fake consumer
reviews described ways that a business purchasing or procuring a
consumer review should know that the review is fake or false. These
indications include the named reviewer not being a customer, the
content of the review being vague or odd, many reviews arriving at
once, and the use of unnatural language or ``keyword stuffing.'' \282\
A review platform commenter gave similar ways that a business could
identify fake reviews, such as ``the review text describes a product or
service that is not offered by the business, the review clearly
references the wrong business name, or perhaps if a review . . .
acknowledges that the reviewer has never shopped there.'' \283\
Although, as previously stated, each case depends on its specific
facts, these various indications may indeed suggest that one or more
purchased or insider reviews are likely fake or false, in which case a
failure to reasonably investigate them may trigger liability under the
``should have known'' standard.
---------------------------------------------------------------------------
\282\ Transparency Company Cmt. at 11.
\283\ Trustpilot Cmt. at 10.
---------------------------------------------------------------------------
With respect to testimonials, there may be red flags that should
indicate to a business that a testimonial is likely fake or false, and,
thereby, would serve as indicia of the fact that the business should
have known that the testimonials that it disseminated were fake or
false. For example, the Commission alleged that Google asked
iHeartMedia, Inc. radio personalities to record product testimonials
for a smartphone using a standard script written for Google and refused
to provide the radio personalities with the product when
requested.\284\ If a business provides the text for a testimonial, it
should have a reasonable basis to conclude, based on inquiry or
otherwise, that the text is truthful for the testimonialist. A
testimonialist asking for the product should cause a business to
question whether the testimonialist used the product. If a business
knows that a testimonialist is using a competing product, it should
inquire into whether a testimonial for its own product is truthful. For
example, a business should investigate whether a celebrity testimonial
for its new smartphone is false if the testimonial claims the celebrity
exclusively uses the smartphone, but the social media post containing
the testimonial indicates that the celebrity posted it using a
competing smartphone brand.
---------------------------------------------------------------------------
\284\ Complaint at 2-5, In re Google, LLC, Nos. C-4783 and C-
4784 (F.T.C. Feb. 8, 2023).
---------------------------------------------------------------------------
A review platform said in its comment that, ``if procuring fake
reviews is the action of a single, rogue employee trying to help the
business they work for, on a practical level it may be difficult for a
business to have knowledge of'' it.\285\ The commenter suggested that
the Commission consider ``whether it is in fact disproportionate for
knowledge and liability to be attributed to a business because of the
actions of a well-intentioned rogue employee.'' \286\ Whether a
business will be held responsible under the rule for a rogue employee
under a ``knew or should have known'' standard will be a fact-intensive
inquiry. While a business may not be aware of every employee's
activities, it should be pay attention to red flags. Assuming that the
facts are such that the business should have known of the rogue
employee's actions, whether the business would also be subject to civil
penalties would depend on whether a court finds that the business met
the actual knowledge or knowledge fairly implied standard of section
5(m)(1)(A) of the FTC Act.
---------------------------------------------------------------------------
\285\ Trustpilot Cmt. at 9-10.
\286\ Id.
---------------------------------------------------------------------------
7. Other Proposals
Some commenters suggested that the Commission impose additional
requirements. Many commenters suggested that third-party platforms
featuring reviews should be held responsible for certain conduct, such
as for: failing to report businesses that they suspect are posting fake
reviews,\287\ the ``lack of identification verifications,'' \288\ not
posting notices reminding consumers that there is no guarantee of the
veracity or accuracy of customer reviews,\289\ engaging in review
``manipulation'' for advertising purposes,\290\ failing to disclose
publicly certain information about posted reviews,\291\ or failing to
employ reasonable measures to root out fraud and deceptive
reviews.\292\ A review platform suggested imposing requirements on
social media companies and internet service providers to address the
sale of fake reviews,\293\ and a trade association proposed that the
Commission require reviewers to identify themselves and that social
media sites hosting reviews verify reviewers' identities.\294\ As
explained above, the Commission's intent from the outset of this
rulemaking was to focus on clearly unfair or deceptive conduct
involving reviews and testimonials. This intent is reflected in, as
explained above, the addition of a definition of the term ``consumer
review hosting'' and the explicit exclusion of such mere hosting from
the coverage of certain rule provisions. This focus should not be taken
to signal that third-party platforms do not bear significant
responsibility for combatting fake reviews.
---------------------------------------------------------------------------
\287\ Anonymous 3 Cmt.
\288\ Foster Cmt. at 2.
\289\ Frieling Cmt. at 2; see also Anonymous 6, Cmt. on NPRM
(Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0082.
\290\ Wilhelmina Randtke, Cmt. on NPRM at 1 (Sept. 26, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0068.
\291\ Fake Review Watch Cmt. at 2-3.
\292\ Consumer Reports Cmt. at 3.
\293\ Trustpilot Cmt. at 3, 7.
\294\ ADA Cmt. at 2.
---------------------------------------------------------------------------
An individual commenter recommended ``requir[ing] proof of purchase
of [a] product for a consumer to leave a review.'' \295\ Another
individual commenter would have the Commission hold businesses that
recruit, direct, and compensate influencers responsible for the
influencers' false or fake testimonials.\296\ A third commenter asked
that the Commission ``ensure there is a way for anyone who is believed
to have violated reviewing policies [to have] a chance to reinstate
their ability to leave
[[Page 68055]]
reviews.'' \297\ A consumer organization recommended making clear that
``it is a deceptive practice to aggregate fake reviews in a product's
consumer rating'' and that ``reviews requiring a disclosure should not
be included in a product's rating.'' \298\ The Commission appreciates
these additional suggestions but declines to add any of them to the
rule. The suggestions are beyond the scope of the rulemaking, which
focuses instead on those responsible for clearly unfair or deceptive
acts or practices regarding reviews and testimonials, and which is
limited to those acts or practices for which the Commission has
evidence of prevalence.
---------------------------------------------------------------------------
\295\ Albert Cmt. at 4; see also Yanni Kakouris, Cmt. on NPRM at
1, 3 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0055. The commenter also expressed concerns that ``violators
are too difficult to track,'' asserted that civil penalties would
somehow deter consumers from posting honest, negative comments about
a business, and misunderstood the purpose and use of civil
penalties, thinking that a large portion of civil penalties would go
to businesses maligned by false comments. Id. at 1-2. A review
platform commenter said that the proposed rule ``upholds legitimate
consumer speech by ensuring that, `proposed Sec. 465.2 does not
limit legitimate reviews to reviews by purchasers or verified
purchasers' '' and ``by preserving anonymous reviews.'' Tripadvisor
LLC, Cmt. on NPRM at 4-5 (Sept. 29, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0092 (``Tripadvisor
Cmt.'').
\296\ Taylor V. Cmt. at 2.
\297\ Osburn Cmt.
\298\ TINA Cmt. at 6.
---------------------------------------------------------------------------
In response to other commenters suggesting that the Commission
impose liability on review sites and online retailers, a trade
association asked the Commission to make clear that sections 5 and 18
of the FTC Act contain no express authorization for assisting-and-
facilitating liability.\299\ As this legal issue goes beyond, the
context of this rulemaking, the Commission declines to address it here.
---------------------------------------------------------------------------
\299\ Chamber of Commerce Cmt. at 2.
---------------------------------------------------------------------------
C. Sec. 465.3--Consumer Review or Testimonial Reuse or Repurposing
Proposed Sec. 465.3 sought to address a business using or
repurposing a consumer review written or created for one product so
that it appears to have been written or created for a substantially
different product. It also sought to cover businesses that caused such
use or repurposing.
The Commission received varied comments, both supportive and
critical, about this provision.\300\ As described above, some
commenters also raised concerns about the definition of ``substantially
different product,'' a term that appeared only in this provision and is
key to determining the circumstances in which the provision would
apply; one of those commenters proposed a disputed issue of material
fact related to that definition.\301\ The Commission would need to
address those concerns before finalizing the provision. As it is not
able to resolve those concerns on the current rulemaking record, the
Commission has decided not to finalize the provision. If the Commission
chooses later to engage in further rulemaking regarding the provision,
it will address the comments at that time.
---------------------------------------------------------------------------
\300\ See, e.g., IAB Cmt. at 7-8; ANA Cmt. at 14; Chamber of
Commerce Cmt. at 5-6; Trustpilot Cmt. at 10; Consumer Reports Cmt.
at 5-6; Amazon Cmt. at 10; CCIA Cmt. at 3; NRF Cmt. at 7-8;
Ravnitzky Cmt. at 2.
\301\ See supra sections I.C. and IV.A.2.j of this document.
---------------------------------------------------------------------------
D. Sec. 465.4--Buying Positive or Negative Consumer Reviews
Proposed Sec. 465.4 sought to address businesses 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.'' Based on the
following, the Commission has decided to finalize this provision with
two modifications.\302\
---------------------------------------------------------------------------
\302\ One minor modification is changing ``Rule'' to ``part.''
---------------------------------------------------------------------------
Comments from a retailer and a trade association expressed that
they found the section important and useful. The retailer said, ``This
section is important to ensure that the rule covers bad actors that
seek inauthentic reviews reflecting a particular predetermined
sentiment.'' \303\ The trade association wrote, ``Providing
compensation in exchange for reviews that must reflect a particular
sentiment is a deceptive practice,'' and expressed support for ``the
Commission's goal of targeting and eliminating this practice.'' \304\
---------------------------------------------------------------------------
\303\ Amazon Cmt. at 6.
\304\ IAB Cmt. at 8.
---------------------------------------------------------------------------
Three individual commenters mistakenly thought that proposed Sec.
465.4 banned paid or incentivized customer reviews and were opposed to
such a ban. One of them said the proposed provision would ``ban reviews
which are made by those who have been provided an item,'' that
``[g]enerally the writer includes a list of sponsors on, or within,
their blog/website,'' and that ``[i]f such sponsorship relationships
are eliminated . . ., the ability of writers to review a variety of
items will disappear.'' \305\ The second one wrote, ``Section 465.4 of
the proposed rule prohibits the incentivization of or compensation on
for the creation of consumer reviews or testimonials. . . . [I]t is
unnecessarily restrictive.'' \306\ The third commenter did not support
the provision ``forbidding paying for reviews'' because the practice
``does not . . . deceive the public unless the paid review service
dictates that the review must be positive.'' \307\ These commenters
misunderstand the nature of Sec. 465.4. First, Sec. 465.4 does not
apply to testimonials, only to consumer reviews, and then only to
reviews that appear on a website or portion of a website dedicated to
receiving and displaying such reviews. A blogger's ``review'' is not
considered a consumer review for purposes of the rule; if such a review
was incentivized, it would be considered a testimonial. Second, Sec.
465.4 does not prohibit paid or incentivized consumer reviews. It only
prohibits paid or incentivized consumer reviews when the business
soliciting the review provides compensation or an incentive in exchange
for a review expressing a particular sentiment.
---------------------------------------------------------------------------
\305\ Alex Rooker, Cmt. on NPRM (Aug. 15, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0019.
\306\ Frieling Cmt. at 2.
\307\ Anonymous 7, Cmt. on NPRM (Aug. 15, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0021.
---------------------------------------------------------------------------
In Question 12 of the NPRM, the Commission asked whether the
prohibition in Sec. 465.4 should ``distinguish in any way between an
explicit and implied condition that a consumer review express a
particular sentiment.'' \308\
---------------------------------------------------------------------------
\308\ NPRM, 87 FR 49389.
---------------------------------------------------------------------------
A business commenter responded, ``Real consumers' reviews often
contain multiple sentiments on what businesses did right and what they
did wrong. This is helpful.'' \309\ The meaning of this comment is
unclear.
---------------------------------------------------------------------------
\309\ Transparency Company Cmt. at 12.
---------------------------------------------------------------------------
Another business commenter responded to Question 12 of the NPRM by
stating that Sec. 465.4 ``should unequivocally prohibit explicit
conditions only,'' because this would ``provide[ ] a clear standard for
businesses and reviewers to follow,'' and ``the lack of clarity in how
the Proposed Rule would prohibit `implied conditions' [would] stifle[ ]
businesses' ability to encourage and to entice reviews in a legitimate
manner.'' \310\ The Commission disagrees and believes that businesses
are capable of soliciting and encouraging reviews without suggesting
that the reviews must be positive to obtain an incentive. The commenter
also asserted that the Commission ``has no experience bringing
enforcement actions against a business for allegedly creating an
implied condition that a review or endorsement be positive,''
referencing the cases the Commission cited in the NPRM.\311\ That
assertion is incorrect. The respondent in AmeriFreight, Inc. did not
expressly state that the reviews needed to be positive but only implied
it, encouraging past customers to submit reviews in order to be
eligible for a $100 ``Best Monthly Review Award'' given to ``the review
with the most captivating subject line and best content.'' \312\ The
respondent also told past customers that
[[Page 68056]]
they should ``be creative and try to make your review stand out for
viewers to read.'' \313\
---------------------------------------------------------------------------
\310\ Family First Life Cmt. at 8-9.
\311\ Id. at 10-11.
\312\ In re AmeriFreight, Inc., 159 F.T.C. 1626, 1627-30 (2015).
\313\ Id. at 1628.
---------------------------------------------------------------------------
Two trade associations gave examples of what they asserted were
innocuous requests for reviews that could be considered as implying
that reviews need to be positive in order to receive an incentive. One
said that its members will sometimes automatically contact customers
saying, ``Tell us how much you loved [product] for 10% off your next
purchase!'' and that such a request could ``be read to violate this
Section of the Proposed Rule--even if a negative review would still
entitle the consumer to the incentive or bonus.'' \314\ The other
commenter wrote that, if the Commission says that ``a business may not
implicitly seek positive reviews in exchange for incentives, then the
rule could apply to such offers as, `Tell us how much you loved your
visit to John's Steakhouse and get a $5 coupon' or `Tell your friends
about all the fun you had at Jane's Arcade for a chance to win prizes,'
'' and asserted that such requests are justified because businesses
``prefer to use these enthusiastic and positive messages when seeking
reviews, as opposed to less inspiring messages like, `Write a review
and save 10% next time.' '' \315\ The problem with the enthusiastic and
positive messages suggested by these commenters is that consumers
receiving them could reasonably take the message that their reviews
must be positive and enthusiastic in order to obtain the reward. As the
second commenter noted, there are perfectly acceptable, albeit less
``inspiring,'' alternatives. The second commenter also said that ``a
reasonable consumer would infer that a business prefers positive
reviews, and so even a neutral request such as, `Write a review and
receive a discount off your next purchase,' might be construed as
impliedly requesting a positive review.'' \316\ The Commission
disagrees. The fact that businesses prefer positive reviews is not a
basis on which to conclude that consumers would interpret any such
``neutral request'' as containing an implied condition that reviews
must be positive to receive the offered discount.
---------------------------------------------------------------------------
\314\ NRF Cmt. at 8.
\315\ ANA Cmt. at 8.
\316\ Id.
---------------------------------------------------------------------------
A consumer organization said in its comment that, ``[w]hen a
reviewer feels pressured to express a certain sentiment, regardless of
how that pressure was generated, the net result is a deceptive
review,'' and that there should be ``no distinction made between
explicitly and implicit conditioning of compensation or other
incentives.'' \317\ A second consumer organization commenter said that
``[i]mplied conditions may be just as salient as express conditions''
and quoting Aronberg v. FTC, 132 F.2d 165, 167 (7th Cir. 1942), said
that, ``[i]n interacting with businesses, `[t]he ultimate impression
upon the mind of the reader arises from the sum total of not only what
is said but also of all that is reasonably implied.' '' \318\ The
Commission agrees with both of these commenters.
---------------------------------------------------------------------------
\317\ Consumer Reports Cmt. at 6.
\318\ TINA Cmt. at 10. An individual commenter described the
pressure they felt to leave a positive review of a car dealership in
order to receive a gift card and said that proposed ``Sec. 465.4
should . . . address both explicit and implied conditions of
incentivization.'' Anonymous 8, Cmt. on NPRM at 3-5 (Sept. 22,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0061.
---------------------------------------------------------------------------
Advocating for limiting the provision to express conditions, a
trade association acknowledged that the NPRM clarified that the
provision does not cover review gating,\319\ the mere solicitation of
positive reviews, or incentivized reviews (except for those required to
express a particular sentiment), but argued that, ``[r]egardless, the
Proposed Rule still could be read to prohibit such behavior--i.e., when
a Company solicits a review that it has reason to believe will be
positive.'' \320\ The Commission does not consider this statement to be
a fair reading of the provision. Just because a business engages in
review gating or otherwise expects reviews to be positive does not mean
there is either an express or implied requirement that reviews need be
positive to obtain an incentive. The Commission notes that, although
Sec. 465.4 does not cover ``review gating,'' review gating can
nonetheless violate section 5 of the FTC Act.\321\
---------------------------------------------------------------------------
\319\ As the Commission explained in the NPRM, ``Review gating
occurs when a business asks past purchasers to provide feedback on a
product and then invites only those who provide positive feedback to
post online reviews on one or more websites.'' See NPRM, 88 FR
49379.
\320\ NRF Cmt. at 9. The commenter went on to ask that ``the
Rule be revised to only prohibit companies from `. . . provid[ing]
compensation or other incentives in exchange for . . . consumer
reviews explicitly required to express a particular sentiment,
whether positive or negative. . . .' '' (emphasis in original). Id.
\321\ See Endorsement Guides, 16 CFR 255.2(d) and (e)(11).
---------------------------------------------------------------------------
A review platform commenter said that prohibiting an ``implied
condition to express a particular sentiment could create a number of
gray areas'' and ``encouraged the FTC to provide guidance and examples
to businesses.'' \322\ The examples, discussed above, by the trade
association asking consumers to say how much they ``love'' something or
how much fun they had are excellent examples of implied conditions.
---------------------------------------------------------------------------
\322\ Trustpilot Cmt. at 11.
---------------------------------------------------------------------------
The Commission has decided to clarify that the rule prohibits
businesses from providing incentives conditioned on the writing or
creation of consumer reviews expressing a particular sentiment,
regardless of whether the conditional nature of the incentive is
express or implicit. For this purpose, the Commission is adding the
phrase ``expressly or by implication'' in Sec. 465.4 to clarify that,
although the incentive needs to be conditioned on the writing or
creation of consumer reviews expressing a particular sentiment in order
for conduct to violate Sec. 465.4, the condition may be implicit.
Three commenters argued that the Commission should allow the
compensation or incentives addressed in Sec. 465.4 as long as they are
disclosed in the resulting reviews. For example, the first commenter
wrote, ``A reasonable consumer can easily understand that when a
reviewer is incentivized or compensated, the content they produce may
be skewed in a more positive light. A mere disclaimer is sufficient to
stave off misrepresentation.'' \323\ This statement may be correct for
some incentivized reviews when there is no express or implied condition
for those reviews to express a particular sentiment. For such reviews,
an adequate disclosure that incentives were provided in exchange for
the review may be able to cure a misleading impression that the reviews
were independent and unbiased. However, such a disclosure does not
reveal to consumers the requirement that reviews be positive. In
addition, even if an individual review disclosed that it resulted from
incentives requiring the review to be positive, such a disclosure would
not be effective in instances where a consumer relies on the overall
average star rating and does not read all individual reviews.
Furthermore, the Commission believes that, if incentives are
conditioned on reviews expressing a particular sentiment, many
resulting reviews will not be merely misleading but false. For example,
the offer of an incentive in exchange for a positive review may lead
some reviewers to create positive reviews even when they had a negative
experience with the product, service, or business. No disclosure can
adequately cure a false review.\324\
---------------------------------------------------------------------------
\323\ Frieling Cmt. at 3.
\324\ See FTC Policy Statement on Deception, 103 F.T.C. at 180
(``[P]ro forma statements or disclaimers may not cure otherwise
deceptive messages''); Removatron Int'l Corp. v. FTC, 884 F.2d 1489,
1497 (1st Cir. 1989) (``Disclaimers or qualifications in any
particular ad are not adequate to avoid liability unless they are
sufficiently prominent and unambiguous to change the apparent
meaning of the claims and to leave an accurate impression. Anything
less is only likely to cause confusion by creating contradictory
double meanings.''); Joint FCC/FTC Policy Statement for the
Advertising of Dial-Around and Other Long-Distance Services to
Consumers (Mar. 1, 2000), https://www.ftc.gov/system/files/documents/public_statements/297751/000301jpsdeceptoveads.pdf (``If a
claim is false, a disclosure that provides contradictory information
is unlikely to cure the deception.''); FTC v. Direct Marketing
Concepts, Inc., 624 F.3d 1, 12 n.9 (1st Cir. 2010) (``A statement
that studies prove a product cures a certain disease, followed by a
disclaimer that the statement is opinion and the product actually
does not cure the disease, leaves an overall impression of nonsense,
not clarity.'').
---------------------------------------------------------------------------
[[Page 68057]]
The second commenter taking this position pointed to examples in
the Endorsement Guides,\325\ claiming inaccurately that they stand for
the proposition that businesses are allowed to offer incentives in
exchange for positive reviews.\326\ The Endorsement Guides do contain
an example involving incentives for reviews conditioned on the reviews
being positive: ``[a] manufacturer offer[ing] to pay genuine purchasers
$20 each to write positive reviews of its products on third-party
review websites.'' \327\ However, consistent with the Commission's
approach in this section, the Guides provide that ``[s]uch reviews are
deceptive even if the payment is disclosed because their positive
nature is required by, rather than being merely influenced by, the
payment.'' \328\
---------------------------------------------------------------------------
\325\ Endorsement Guides, 16 CFR 255.5(b)(2), (3), (7), (8),
(9), and (11).
\326\ Hammacher Schlemmer Cmt. at 3-4.
\327\ Endorsement Guides, 16 CFR 255.2(e)(9).
\328\ Id. (emphasis added).
---------------------------------------------------------------------------
The third commenter taking this position suggested that it should
be acceptable to use a disclosure like, ``We asked customers to tell us
how much they loved their visit to John's Steakhouse, and here's what
some of them said! (customers who submitted reviews received a $5
coupon).'' \329\ The scenario the commenter describes does not involve
consumer reviews. It involves consumer testimonials, which are not
covered by Sec. 465.4. Further, it is unlikely that one could make
such a disclosure in the context of consumer reviews, given how reviews
are usually presented on a business's own website and the lack of
control over the way they are presented on a third-party website. In
addition, the disclosure does not communicate that the customers had to
``tell how much they loved their visit in order to receive a $5
coupon.'' Furthermore, as discussed above, many incentivized reviews
conditioned on consumers saying how much they ``loved their visit'' are
likely false regardless of such a disclosure.
---------------------------------------------------------------------------
\329\ ANA Cmt. at 8.
---------------------------------------------------------------------------
Two commenters, an individual and a review platform, requested that
Sec. 465.4 go further and prohibit all incentives given in exchange
for reviews regardless of any requirement to express a particular
sentiment.\330\ An individual commenter would have the Commission
``require businesses to disclose any form of incentive that they
provide or arrange for reviewers.'' \331\ These requests are beyond the
scope of this rulemaking but are addressed in the Endorsement Guides,
which provide that unexpected material connections such as incentives
given in exchange for customer reviews without any requirement as to
the sentiment of the reviews must be disclosed clearly and
conspicuously.\332\ The Commission continues to believe that this
principle from the Endorsement Guides is an appropriate expression of
what incentivized review practices would or would not violate section 5
of the FTC Act. In any event, there is no basis on the current
rulemaking record for the Commission to conclude that all incentivized
reviews should be prohibited or that all incentivized reviews should
require a disclosure.
---------------------------------------------------------------------------
\330\ Anonymous 3 Cmt; Yelp Cmt. at 5-6.
\331\ Ravnitzky Cmt. at 1.
\332\ Endorsement Guides, 16 CFR 255.5(a) & (b)(6)(ii).
---------------------------------------------------------------------------
Two commenters, an individual and a review platform, recommended
that Sec. 465.4 also prohibit offering compensation to remove or
change consumer reviews.\333\ Another individual commenter inquired
about paid review removal without stating a position on the topic.\334\
The Commission previously noted that, ``[i]n procuring [or] suppressing
. . . consumer reviews of their products, advertisers should not take
actions that have the effect of distorting or otherwise misrepresenting
what consumers think of their products.'' \335\ A product marketer
paying consumers to change or remove truthful negative reviews may be
engaging in an unfair or deceptive act or practice that has the effect
of distorting or otherwise misrepresenting what consumers think of a
marketer's products. Nevertheless, that act or practice is beyond the
scope of this rulemaking.
---------------------------------------------------------------------------
\333\ Camp-Martin Cmt. at 4-5; Yelp Cmt. at 7.
\334\ Anonymous 4 Cmt.
\335\ Endorsement Guides, 16 CFR 255.2(d).
---------------------------------------------------------------------------
E. Sec. 465.5--Insider Consumer Reviews and Consumer Testimonials
Proposed Sec. 465.5 sought to prohibit certain undisclosed insider
reviews and testimonials. It had three subparts. Proposed Sec.
465.5(a) would have prohibited an officer or manager of a business from
writing or creating a consumer review or consumer testimonial about the
business or one of its products or services that failed to have a clear
and conspicuous disclosure of the officer's or manager's relationship
to the business.\336\ Proposed Sec. 465.5(b) would have applied to
testimonials, but not consumer reviews. It would have prohibited a
business from disseminating or causing the dissemination of a consumer
testimonial about the business or one of the products or services by
one of its officers, managers, employees, or agents, or any of their
relatives, if that testimonial failed to have a clear and conspicuous
disclosure of the testimonialist's relationship to the business or to
the officer, manager, employee, or agent, and if the business knew or
should have known of that relationship. Proposed Sec. 465.5(c) would
have applied to consumer reviews, but not testimonials, and would have
been limited to when an officer or manager of a business solicits or
demands a consumer review about the business or one of its products or
services from an employee, an agent, or a relative of any such officer,
manager, employee, or agent. Proposed Sec. 465.5(c) would have
prohibited that conduct when (1) the person requesting the review knew
or should have known the prospective reviewer's relationship to the
business (or to one of its officers, managers, employees, or agents),
(2) the request resulted in a consumer review without a disclosure, and
(3) the person requesting the review (a) did not instruct the
prospective reviewer to disclose clearly and conspicuously that
relationship, (b) knew or should have known that such a review appeared
without such a disclosure and failed to take remedial steps, or (c)
encouraged
[[Page 68058]]
the prospective reviewer not to make such a disclosure. The Commission
has determined to finalize proposed Sec. 465.5 with a number of
modifications.\337\
---------------------------------------------------------------------------
\336\ Due to an inadvertent drafting error, the regulatory text
of proposed Sec. 465.5(a), which addressed an officer or manager of
a business writing or creating a consumer review or consumer
testimonial about the business or its products or services, only
referenced disclosure of the officer's but not the manager's
relationship to the business. The Commission clearly intended that
proposed Sec. 465.5(a) require disclosure of the manager's
relationship as well. See NPRM, 88 FR 49379 (``Proposed Sec.
465.5(a) would prohibit an officer or manager of a business from
writing or creating a consumer review or consumer testimonial about
the business or its products or services if the consumer review or
consumer testimonial does not have a clear and conspicuous
disclosure of the officer's or manager's relationship to the
business.'').
\337\ Proposed Sec. 465.5(b) and (c) are being renumbered as
final Sec. 465.5(b)(1) and (c)(1).
---------------------------------------------------------------------------
Two individual commenters shared their experiences with insider
reviews. One individual commenter ``made a purchase based on a glowing
review'' but ``later discovered that the person who wrote the review
was, in fact, a salesperson for the same company, receiving a
commission based on my purchase,'' and the purchase turned out to be
``a fraudulent service.'' \338\ Another individual commenter shared
their experience as an employee: ``I was asked to leave positive
reviews in Amazon . . . and in other sites to boost the number of
positive reviews for our products. The CEO asked employees to do this
and include family members. In fact, I found the immediate family and
friends of the CEO leaving glowing reviews of the product.'' \339\
---------------------------------------------------------------------------
\338\ Anonymous 9, Cmt. on NPRM (Aug. 16, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0023.
\339\ Anonymous 5 Cmt.
---------------------------------------------------------------------------
A business commenter said, ``If you allow insider reviews,
disclosure [of the reviewers' relationship to the business] should be
mandatory.'' \340\ Another business commenter wrote that ``limiting . .
. Sec. 465.5(a)-(c) to circumstances in which the requisite disclosure
is absent is a fair restriction on businesses that would simultaneously
protect consumers all while allowing businesses to effectively
advertise.'' \341\ The commenter noted that the ``requirement for
clear-and-conspicuous disclosure is used widely throughout federal and
state consumer protection laws.'' \342\ The commenter was also
concerned that a rule might ``infringe on the ability of employees and
independent contractor agents . . . to inform others of their
experiences with an employer or principal.'' \343\ To the extent that
the commenter is referring to review websites that specialize in
reviewing employers from the perspective of employees, it is obvious
that the reviewers are employees or former employees, and no further
disclosure appears necessary.
---------------------------------------------------------------------------
\340\ Transparency Company Cmt. at 13.
\341\ Family First Life Cmt. at 13.
\342\ Id.
\343\ Id. at 3.
---------------------------------------------------------------------------
A trade association commented that it ``understands the
Commission's concern that in some cases, employees may have an
incentive to post positive reviews on behalf of their company's
products,'' but the concern ``is already addressed through Section 5
and the Endorsement Guides.'' \344\ The Commission continues to believe
that certain conduct should be addressed by a trade regulation rule
even if it can also be addressed through section 5 enforcement actions.
Having specific conduct addressed by a rule provides the general public
with further clarity as to what steps are necessary to conform its
conduct to the requirements of the law, deters prevalent unlawful
conduct, and allows the Commission to bring enforcement actions more
efficiently and effectively.
---------------------------------------------------------------------------
\344\ NRF Cmt. at 9.
---------------------------------------------------------------------------
A retailer recommended that the provision ``be revised to further
incorporate a requirement that the `insider' review/testimonial be
`fake' or `false,' in order to better target the deceptive acts of bad
actors that use their employees to generate fake reviews and
testimonials that purport to be from actual customers.'' \345\ The
Commission rejects that suggestion, as the intention of Sec. 465.5 is
to address certain inherently biased reviews and testimonials. Fake and
false reviews are already addressed by Sec. 465.2.
---------------------------------------------------------------------------
\345\ Amazon Cmt. at 11.
---------------------------------------------------------------------------
1. Material Connections
Commenters pointed out what they saw as inconsistencies between
proposed Sec. 465.5 and section 5 of the FTC Act. A retailer commenter
wrote that proposed Sec. 465.5 was ``inconsistent with the
longstanding principles in the Endorsement Guides . . . that
disclosures must be made when the connection between a reviewer and the
sponsoring advertiser is material, meaning it would affect the weight
or credibility that consumers give to the endorsement.'' \346\ A trade
association noted in its comment that the section ``seeks to impose
liability for reviews and testimonials authored by certain employees or
their relatives that lack disclosures regardless of context, and
whether that connection is material under the circumstances'' and
``would impose civil penalties for reviews or testimonials that are not
even deceptive.'' \347\ Another trade association opined ``that a
reviewer's out-of-state second cousin [who] works a minimum-wage job at
a retailer would (hopefully) not be a `material connection' requiring
disclosure under the Endorsement Guides, because such connection would
not bias the reviewer's review, and therefore would not make the review
misleading.'' \348\ The same trade association and a business
organization also commented that the provision poses concerns under the
First Amendment by ``broadly prohibiting certain reviews or
testimonials by `insiders' regardless of whether that speech is
deceptive in context.'' \349\ The Commission intended for Sec. 465.5
to be limited to unfair or deceptive failures to disclose material
connections, and is now clarifying this intent. Specifically, in
paragraphs (a) through (c) of Sec. 465.5, the Commission is limiting
the covered relationships to ``material'' relationships. In Sec.
465.5(a) and (b), the Commission is also clarifying that, under certain
circumstances, the relationship of a consumer testimonialist may be
clear to the audience without disclosure. For example, the audience may
already be aware that an executive is associated with a particular
company, or the context of an ad may otherwise communicate a
relationship with a particular company. Specifically, in Sec.
465.5(b), which applies only to consumer testimonials, the Commission
is adding the requirement that ``the relationship is not otherwise
clear to the audience,'' and in Sec. 465.5(a), which involves both
consumer reviews and testimonials, it is adding, ``unless, in the case
of a consumer testimonial, the relationship is otherwise clear to the
audience.'' The Commission does not believe that, absent a disclosure,
a relationship will ever be clear to consumers in the context of an
ordinary consumer review.
---------------------------------------------------------------------------
\346\ Id.
\347\ IAB Cmt. at 9.
\348\ NRF Cmt. at 9.
\349\ Id. at 11; TechNet Cmt. at 3.
---------------------------------------------------------------------------
2. Relatives
Proposed Sec. 465.5(b) and (c) would have required disclosures in
some circumstances involving consumer testimonials or reviews from
``relatives'' of a company's officers, managers, employees, or agents.
Some commenters voiced concerns pertaining to these requirements.
For example, a review platform, explaining that it prohibits
reviews about a business or its products by someone whose immediate
family owns or works for the business, asked how businesses would
``know whether reviews have been submitted by the extended family (such
as the second cousins) of their officers, managers, employees, or
agents,'' questioned whether it would be proportional to seek penalties
when extended family are involved, and suggested ``narrowing the scope
of the family requirement'' to ``immediate family.'' \350\ A trade
association said that ``relatives can include cousins, nieces/nephews,
and other more distant familial
[[Page 68059]]
relationships,'' that ``even immediate family relationships (parents,
children, siblings) are not always closely held'' because ``adult
siblings are not necessarily in each other's day-today lives,'' and
that ``it would be more appropriate to substitute the term . . .
`members of the same household' as that would suggest individuals that
have regular contact with an employee.'' \351\ A business organization
wrote in its comment that the term ``relative'' is too vague and that
``[i]t is unclear whether the rule applies to third cousins, the
spouses of a stepbrother's child from a previous marriage, or friends
that are considered family,'' concluding that ``[l]arge companies
creating monitoring programs for testimonials need some clarity about
what relatives will be captured under the Rule.'' \352\ A second trade
association said in its comment that ``relatives'' of ``any company
employee should not be considered `insiders''' because ``[i]n most
cases, such family members would have no incentive to post a fake
review.'' \353\ However, the Commission intended for Sec. 465.5 to
address biased reviews and testimonials by insiders or their relatives,
not the writing of ``fake [or false] reviews,'' which is addressed in
Sec. 465.2.
---------------------------------------------------------------------------
\350\ Trustpilot Cmt. at 5-6.
\351\ RILA Cmt. at 6.
\352\ Chamber of Commerce Cmt. at 7.
\353\ NRF Cmt. at 9.
---------------------------------------------------------------------------
To reduce the compliance burden, the Commission is removing
relatives from Sec. 465.5(b) and limiting what was originally proposed
as Sec. 465.5(c)(1), which is now split into three separate
prohibitions. One prohibition addresses officers or managers soliciting
or demanding a consumer review from ``any of their [own] immediate
relatives.'' A second prohibition addresses officers or managers
soliciting or demanding reviews from employees or agents. A third
prohibition addresses solicitations or demands by officers or managers
that ``employees or agents seek such [consumer] reviews from their
relatives.'' In such instances the request will likely be a general one
(such as ``Ask your relatives to review us'' or ``Get three family
members to review us''), although it could also be more specific (such
as ``Get your spouse to write us a review''). As set forth in Sec.
465.5(c)(1)(i), any reviews resulting from demands that employees or
agents solicit their relatives would only be violations if the
resulting reviews were written by immediate relatives of the employees
or agents.
3. Agents
A trade association objected to the inclusion of the undefined term
``agents'' in proposed Sec. 465.5(b) and (c) and suggested its
removal. The commenter said that ``it is not clear what individuals
would be considered `agents' of the business'' and the meaning of the
term ``agent'' could ``dramatically expand the scope of the compliance
programs that businesses will likely need to create in order to
mitigate their risks under this section'' which ``would be particularly
important for small businesses.'' \354\ The Commission intends for the
term ``agents'' in this rule to apply only to those agents that promote
the company or its products, such as representatives of advertising
agencies, public relations firms, and review management firms. As
discussed below, given the clarifications of and limitations to Sec.
465.5(b)(1) and (c)(1), the Commission has no reason to believe that
the inclusion of ``agents'' will ``dramatically expand the scope of the
compliance programs.'' \355\
---------------------------------------------------------------------------
\354\ IAB Cmt. at 10.
\355\ See infra section IV.E.4 and 5 of this document.
---------------------------------------------------------------------------
4. Scope
Several comments addressed the scope of proposed Sec. 465.5,
including the scope of liability of businesses in the context of
insider reviews and testimonials. For example, a trade association
asserted that Sec. 465.5 should ``be limited to the extent it
references employees (or agents) who are not officers or managers, and
who were not instructed by their superiors to post reviews.'' \356\ A
retailer asked for a safe harbor that would apply to employee reviews
and testimonials ``if businesses are not encouraging insider reviews
and testimonials.'' \357\ The Commission intended for the provision to
apply to reviews or testimonials by employees or agents who are not
officers or managers only when (1) the reviews are requested or
solicited by an officer or manager of the business or (2) the
testimonials appear in advertising or promotional messages actively
disseminated by the business. As discussed in this section, the
Commission's clarifications and limitations should resolve any concerns
arising from any broader interpretation.
---------------------------------------------------------------------------
\356\ NRF Cmt. at 10.
\357\ Amazon Cmt. at 11.
---------------------------------------------------------------------------
Two trade associations and another industry organization asserted
in their comments that Sec. 465.5 ``appears to impose liability on
businesses for distributing the content of third parties, even when
they had no knowledge that the content violated the proposed rule.''
\358\ As the commenters used the word ``distributing,'' the Commission
assumes that these comments pertain to the liability of businesses
under Sec. 465.5(b), which prohibits businesses from ``disseminating
or causing the dissemination of consumer testimonials'' by insiders
without disclosures. The testimonials covered by Sec. 465.5 are, by
definition, a business's advertising or promotional messages, so the
Commission does not consider them to be third-party content. The
section covers such testimonials when disseminated by the business
itself, by its officers or managers, or in response to solicitations or
demands from its officers or managers. With respect to the commenters'
concern that businesses will be liable even when they had no knowledge
that the content violated the rule, the Commission discusses below the
appropriate application of the ``knew or should have known'' standard.
---------------------------------------------------------------------------
\358\ NRF Cmt. at 11; IAB Cmt. at 10; TechNet Cmt. at 3.
---------------------------------------------------------------------------
A retailer's comment expressed ``significant concerns with this
section if the FTC intends to apply it to marketplace service providers
with hundreds of thousands of employees.'' \359\ A trade association
said in its comment that, ``to the extent the Commission intends for
this language to apply to reviews or testimonials written by employees
of online retailers with hundreds of thousands of employees, the
Commission has failed to demonstrate that this is an unfair or
deceptive act or practice that is prevalent'' as ``[n]one of the cases
cited in the NPRM involved this type of company.'' \360\ With respect
to employees, the section applies only to (1) testimonials by employees
that the company chooses to disseminate and (2) reviews that are
solicited or demanded by company officers or managers. Further, the
Commission has sufficient evidence of prevalence as to the use of
insider reviews and testimonials,\361\ and that evidence need not
specifically include examples of companies of every size, such as those
``with hundreds of thousands of employees.''
---------------------------------------------------------------------------
\359\ Amazon Cmt. at 11.
\360\ IAB Cmt. at 9.
\361\ See NPRM, 88 FR 49374-75.
---------------------------------------------------------------------------
A trade association's comment ``urge[d] the Commission to add a
safe harbor . . . that will assure businesses acting in good faith that
they will not face civil penalty liability for the actions of rogue
individuals.'' \362\ Again, whether a business will be subject to civil
penalties will depend on whether
[[Page 68060]]
the facts show that the business had actual knowledge or knowledge
fairly implied of the violation. A business will not violate the rule--
much less be subject to civil penalties--merely because employees write
consumer reviews without disclosing their relationship to the business,
but it may violate the rule when an officer or manager of the company
solicited or demanded such reviews. A business will also not be liable
under Sec. 465.5 simply because one of its employees (other than an
officer or manager) or agents makes an unsolicited social media post.
However, as discussed above, a business might be liable under Sec.
465.2(a) for an employee posting fake testimonials to social media on
behalf of the company.\363\
---------------------------------------------------------------------------
\362\ IAB Cmt. at 10.
\363\ See supra section IV.B.2 of this document.
---------------------------------------------------------------------------
Two commenters addressed general review solicitations from
businesses to their customers. A trade association said that
``[b]usinesses which seek reviews from their customers generally seek
reviews from all customers, and again, do not currently monitor or
screen for potential relatives or agency relationships.'' \364\ A
review platform operator wrote in its comment, ``An automated review
invitation system can operate via integration with, for example, a
C[ustomer] R[elationship] M[anagement] platform where customer details
are automatically fed through to generate review invitations following
on from purchases or experiences. The information within the system
could be as minimal as a name and email address. . . . It could
therefore be possible for businesses to inadvertently invite persons
that are related to an officer, manager, employee, or agent . . . . In
practice, it will be difficult to check whether any invitation
recipients could fall within the very wide group of persons outlined at
[Sec. ] 465.5(c), and it will also be difficult to draw a firm line
between what types of indicators are sufficient to warrant imputing
constructive knowledge.'' \365\ The Commission did not intend for Sec.
465.5(c) to cover such generalized invitations to past purchasers to
write reviews. The Commission is therefore adding language in Sec.
465.5(c)(2) to clarify that Sec. 465.5(c)(1) ``does not apply to
generalized review solicitations to purchasers for them to post reviews
about their experiences with the product, service, or business.'' The
Commission is making a similar clarification in Sec. 465.5(b)(2)(i);
specifically, that Sec. 465.5(b)(1) ``does not apply to generalized
review solicitations to purchasers for them to post testimonials about
their experiences with the product, service, or business.''
---------------------------------------------------------------------------
\364\ NADA Cmt. at 6.
\365\ Trustpilot Cmt. at 13.
---------------------------------------------------------------------------
The Commission has also added Sec. 465.5(b)(2)(ii), which exempts
``merely engaging in consumer review hosting'' from Sec. 465.5(b)(1).
Thus, an unsolicited employee review merely appearing on the business's
website cannot violate the provision against disseminating insider
testimonials.
A trade association noted that ``[l]arge national retail chains
collectively employ millions of workers who are also their customers''
and ``[w]hile a retailer may provide guidance on disclosing their
relationship, it should not be liable for policing their customer
reviews for posts that may have been submitted by any one of their
thousands or millions of employees--who in many cases may be using
ambiguous screennames or not be readily identifiable.'' \366\ The
Commission points out that only Sec. 465.5(c) applies to customer
reviews by employees, and that provision only applies to employee
reviews that an officer or manager has solicited or demanded. If there
are no such solicitations or demands, then Sec. 465.5 does not apply
to employee reviews. When an officer or manager does solicit or demand
a review, the business would only be liable if the officer or manager
(1) ``encouraged the prospective reviewer not to make . . . a
disclosure,'' (2) ``did not instruct that prospective reviewers
disclose clearly and conspicuously their relationship to the
business,'' \367\ or (3) ``knew or should have known that such a review
appeared without such a disclosure and failed to take remedial steps.''
It is only under the last of the three clauses that a business might be
liable for any ``policing'' of reviews, and, as discussed below, any
such obligations should not be unduly burdensome.\368\
---------------------------------------------------------------------------
\366\ RILA Cmt. at 6.
\367\ The Commission has slightly modified this clause, changing
``did not instruct the prospective reviewer to disclose clearly and
conspicuously that relationship'' to ``did not instruct that
prospective reviewers disclose clearly and conspicuously their
relationship to the business'' for purposes of clarity.
\368\ See infra section IV.E.5 of this document.
---------------------------------------------------------------------------
An industry organization commenter expressed concern that Sec.
465.5 ``would require the disclosure of personally identifying
information'' and impact employees' privacy.\369\ The Commission does
not see how the provision requires the disclosure of personally
identifying information. Section 465.5 requires the disclosure of
unexpected material connections but does not require that employees
identify themselves by name. Testimonialists and reviewers could be
anonymous, or use pseudonyms, and include general phrases indicating
their relationship to the business, such as ``my employer's product,''
``my company's,'' or ``my spouse's company.''
---------------------------------------------------------------------------
\369\ TechNet Cmt. at 3.
---------------------------------------------------------------------------
5. Knowledge Standard
A number of commenters discussed the ``knew or should have known''
standard contained in Sec. 465.5(b) and (c). A trade association said
that a `` `knew or should have known' standard . . . [in] Sec. 465.5
aptly reflects that the rule is targeting bad actors that intend to
commit fraud through fake reviews.'' \370\ A consumer organization
``advise[d] the Commission against relying on knowledge standards that
will introduce unnecessary evidentiary burdens in the enforcement
process'' and against making it ``a condition of liability,'' noting
that instead ``the Commission can and should consider knowledge and
intent in deciding the equities of bringing any enforcement action.''
\371\ A review platform said ``that `should have known' is too low as a
knowledge threshold and this should therefore be limited to `knew',
i.e., actual knowledge.'' \372\ A trade association called the ``should
have known'' standard ``vague.'' \373\ A business commenter also
described ``should have known'' as vague and suggested limiting the
knowledge standard to actual knowledge.\374\ A trade association and a
retailer said that civil penalties should not be based upon a ``should
have known'' standard.\375\ The retailer continued, ``In the
alternative, if the Commission refuses to elevate the knowledge
standard for this section, the final rule must provide greater guidance
on the sorts of scenarios that would give rise to liability.'' \376\
Specifically, the retailer asserted that the Commission would have to
provide ``additional information about when a company or officer/
manager `should' know that an `insider' review or testimonial violates
the rule.'' \377\ A trade association wrote in its comment that ``the
Commission should raise the knowledge standard for this section to
actual knowledge,'' which ``would ensure that companies that are
actually complicit in the proliferation of deceptive insider reviews
and testimonials are the targets of this section, rather than well-
meaning
[[Page 68061]]
businesses that fail to discover and remedy reviews or testimonials by
employees, managers, officers, agents, or any of those individuals'
relatives that lack disclosures.'' \378\ The commenter continued,
``[r]egardless of the knowledge standard the Commission imposes, the
final rule must provide greater guidance on what sorts of scenarios
would give rise to liability under this section.'' \379\
---------------------------------------------------------------------------
\370\ Travel Tech Cmt. at 4.
\371\ Consumer Reports Cmt. at 8.
\372\ Trustpilot Cmt. at 5, 8.
\373\ NRF Cmt. at 9.
\374\ Family First Life Cmt. at 15.
\375\ NADA Cmt. at 3; Amazon Cmt. at 11.
\376\ Amazon Cmt. at 11.
\377\ Id.
\378\ IAB Cmt. at 9.
\379\ Id. at 10.
---------------------------------------------------------------------------
The Commission chooses to retain the proposed ``knew or should have
known'' standard in Sec. 465.5(b)(1) and (c)(1)(ii)(c). First, the
Commission notes again that it cannot obtain civil penalties under
section 5(m)(1)(A) of the FTC Act for a rule violation unless it proves
that a defendant had actual knowledge or knowledge fairly implied that
the act or practice is unfair or deceptive and is prohibited by the
rule. With respect to Sec. 465.5(b)(1), the provision applies only to
testimonials that the business disseminates or causes to be
disseminated, i.e., it applies to the business's own advertising and
promotional activities. As noted above, Sec. 465.5(b)(1) does not
apply to unsolicited social media posts by employees or to social media
posts that result from generalized solicitations. The Commission does
not expect that a business will ask every potential testimonialist
whether they are an agent of the business. There may be red flags,
however, that should cause a business to realize that a prospective
testimonialist is likely an insider, such as the testimonial featuring
an image of that person standing in front of the company's
headquarters. If a business routinely asks prospective testimonialists
how they became interested in the business or its products, it should
not avoid looking at answers that might indicate a covered connection.
With respect to Sec. 465.5(c)(1)(ii)(c), the Commission believes
that, if officers and managers of a business request or demand that the
business's employees or agents write consumer reviews or solicit or
demand that such employees or agents seek such reviews from their
relatives, it is more than reasonable to have those officers and
managers take on certain responsibilities with respect to those
reviews. The employees, agents, and relatives on the receiving end of
such requests or demands are likely to assume that their reviews should
be positive, which gives such reviews an inherent bias. Therefore,
officers and managers should instruct that prospective reviewers make
disclosures. When they demand that employees or agents seek reviews
from their relatives, the officers or managers should instruct the
employees or agents to ask their immediate relatives to make
disclosures. The officers and managers should also take remedial steps
when they know or should know that resulting insider reviews appeared
without a disclosure. The Commission does not expect an officer or
manager to scour every review of the business for possible insider
reviews appearing without a disclosure. There may be red flags,
however, that should cause officers or managers to inquire further. An
example that is at least applicable to smaller companies is a review
without a disclosure by someone the soliciting officer or manager
recognizes as having the same last name as an employee whom the officer
or manager told to obtain reviews from relatives. Another example is an
employee sending a soliciting officer or manager a link to the
resulting review, in which case the officer or manager should take the
time to see if that review has a disclosure. By taking ``remedial
steps,'' the Commission means that the officer or manager should
request that the reviewer delete the review or add a clear and
conspicuous disclosure to it.
6. Other Suggestions
Commenters recommended that the Commission adopt a number of
additional requirements or prohibitions. An individual commenter said
that insider reviews should be banned and that disclosures are
insufficient to cure them.\380\ One consumer group proposed that (1)
``non-disclosed insider ratings'' should be ``independent and separate
violation[s] from deceptive narrative reviews;'' (2) ``symbolic
ratings--both independently and when aggregated--should feature a clear
and conspicuous disclosure of necessary material connections;'' and (3)
``reviews requiring a disclosure should not be included in a product's
aggregate rating without a disclosure.'' \381\ Another consumer group
suggested the following: (1) Sec. ``465.5(a) and (c) should apply to
all employees and board members of a business;'' (2) Sec. 465.5(b) and
(c) be extended ``to employees or board members of other companies with
a material business relationship with the first business;'' (3) Sec.
465.5(c) should be extended ``to include solicitations or demands of
employees of companies with which the business conducts material
business;'' (4) Sec. 465.5(c) should prohibit ``any employee or board
member of a business to solicit or demand from another employee or
board member (or relative of an employee or board member) a consumer
review about the business or one of its products or services;'' and (5)
``employees of a business should not be permitted to provide star or
numerical reviews that count toward an aggregate or average rating,
even if their conflict of interest is otherwise disclosed in an
accompanying narrative review.'' \382\ Some of these proposals go
beyond the scope of this rulemaking. Based on its policy expertise, the
Commission declines to make any of these changes at this time. The
Commission notes, however, that some may, in certain situations,
involve unfair or deceptive acts or practices that violate section 5 of
the FTC Act.
---------------------------------------------------------------------------
\380\ Anonymous 3 Cmt.
\381\ TINA Cmt. at 6 and 8.
\382\ Consumer Reports Cmt. at 7-8.
---------------------------------------------------------------------------
F. Sec. 465.6--Company-Controlled Review Websites or Entities
Proposed Sec. 465.6 sought to prohibit a business from
representing, expressly or by implication, that a website,
organization, or entity that it controls, owns, or operates provides
independent reviews or opinions about a category of businesses,
products, or services including the business or one or more of its
products or services. Based on the following, the Commission has
determined to finalize this provision with two limiting
modifications.\383\
---------------------------------------------------------------------------
\383\ Two modifications are changing ``Rule'' to ``part'' and,
as discussed above, changing ``its products or services'' to ``the
products and services it sells.'' See supra section IV.B.4. of this
document.
---------------------------------------------------------------------------
A business organization, a retailer, and a review platform
submitted comments supporting the intent of proposed Sec. 465.6.\384\
For example, the business organization noted that it ``was supportive
of a . . . rule aimed at addressing the practice of marketers setting
up purportedly independent websites, organizations, or entities to
review or endorse their own product.'' \385\
---------------------------------------------------------------------------
\384\ Chamber of Commerce Cmt. at 6; Amazon Cmt. at 12;
Trustpilot Cmt. at 4-5.
\385\ Chamber of Commerce Cmt. at 6.
---------------------------------------------------------------------------
Some commenters argued that, as drafted, the provision was overly
broad and would prohibit conduct that was not deceptive or unfair. A
business organization said that, as drafted, proposed Sec. 465.6 ``. .
. could capture retailers that sell their own house brands'' and
``prevent media companies from operating general review websites that
publish reviews by independent critics and consumers about films or
television produced by affiliated studios or divisions.'' \386\ A
consumer
[[Page 68062]]
organization similarly said that, ``as written, . . . [proposed Sec.
465.6] would make it illegal for companies to host any reviews
whatsoever so long as some of the reviews touch on a category of
business, products, or services the company provides'' and would
prohibit ``customer review forums on sites such as Home Depot and
Amazon.'' \387\ A retailer said that ``the plain text of . . .
[proposed Sec. 465.6 would] sweep[ ] in more conduct that is neither
deceptive nor unfair--for example, where Company A provides customer
reviews authored by others to Company B, without disclosing an
ownership relationship.'' \388\ A trade association wrote that proposed
Sec. 465.6 ``could be applied to prohibit retailers from representing
that any consumer reviews or opinions featured on their own websites
are independent, even if they are.'' \389\ A retailer commented that
proposed Sec. 465.6 is ``overly broad and would prohibit a business
from using a related entity from [sic] testing or comparing products in
good faith and publishing those results, even if the company clearly
disclosed that the test or comparison was done by an affiliate.'' \390\
A review platform asked in its comment that the Commission clarify that
the section would not ``unintentionally lead[ ] to review sites being
unable to host reviews of their own company or sector.'' \391\ The
Commission recognizes and agrees with the above concerns and is making
two responsive modifications to narrow final Sec. 465.6 in a way that
better reflects the Commission's intent. The Commission is excluding
``consumer reviews'' from the scope of final Sec. 465.6 and changing
the prohibition against ``represent[ing]'' to a prohibition against
``materially misrepresent[ing].''
---------------------------------------------------------------------------
\386\ Id.
\387\ Consumer Reports Cmt. at 9.
\388\ Amazon Cmt. at 12. The commenter suggested that the
Commission ``clarify the regulatory language to make clear that it
covers only reviews authored by the owner company or its agents.''
Id. The Commission is not adopting this approach because Sec. 465.6
is not limited to websites with reviews. It also applies to
organizations or entities that misrepresent that they provide
independent reviews or opinions (e.g., seals) about a category of
businesses, products, or services including the business or one or
more of the products or services it sells.
\389\ NRF Cmt. at 11-12.
\390\ Hammacher Schlemmer Cmt. at 5.
\391\ Trustpilot Cmt. at 5.
---------------------------------------------------------------------------
A trade association commented that ``many retailers host product
reviews on their online shopping websites and make no direct claims
that the reviews are independent'' and asked the Commission to ``make
clear that it is permissible for retailers to host product reviews on a
site they control and operate.'' \392\ Assuming that the commenter is
referring to retailers hosting independent consumer reviews on a site
they operate or control, then this is permissible under Sec. 465.6. If
the retailer's website misrepresents that it provides independent
reviews or opinions by experts or organizations, then the retailer
could be liable under Sec. 465.6.
---------------------------------------------------------------------------
\392\ RILA Cmt. at 7.
---------------------------------------------------------------------------
Two commenters asked the Commission to adopt a safe harbor
provision for disclosures of the relationship between the business and
the provider of the purportedly independent reviews or opinions.\393\
The Commission's modifications address this request effectively by
providing that businesses do not violate Sec. 465.6 if they are not
materially misrepresenting independence. The Commission believes that
contradictory disclosures cannot cure a false express claim, such as a
false express claim of independence. If a false claim of independence
is merely implied, whether a disclosure is adequate to cure it will
depend on the net impression of the website or advertisement, i.e.,
whether it materially misrepresents independence even with the
disclosure.
---------------------------------------------------------------------------
\393\ Hammacher Schlemmer Cmt. at 6-7 (proposing that the
Commission adopt Sec. 465.6 with the addition of the following
clause: ``unless the business discloses that there is a relationship
or affiliation between the business and the website, organization,
or entity that it controls, owns, or operates and why the reviews or
opinions are `independent', including the steps that the business
takes to ensure objectivity or independence in obtaining such
reviews or opinions.'' (emphasis omitted)); Frieling Cmt. at 4.
---------------------------------------------------------------------------
A trade association commented that ``[i]t would be helpful to make
it clear that . . . Sec. 465.6 only applies to websites or entities
whose core service is providing reviews or opinions.'' \394\ The term
``core service'' is ambiguous, and it is not clear how one would
determine whether it applies to reviews or opinions provided by a given
website or other entity. False material claims that a website or entity
provides independent reviews or opinions would still be deceptive even
if such reviews or opinions are not the website's or entity's core
service. The NPRM cited a number of cases in which businesses created
purportedly independent seals or badges that they then awarded to their
own products; the awarding of such seals or badges was clearly not
their core business.\395\ The NPRM also cited cases involving
purportedly independent review websites, and, although such review
websites might have appeared to be a ``core service,'' the true core
business was selling the respondent's or defendant's own products.\396\
Focusing on the ambiguous term ``core services'' would likely open the
door to manipulation and evasion of the prohibition. The commenter
further noted that it would also be ``useful to clarify what
`independent reviews or opinions' means.'' \397\ In this context, the
term ``independent'' merely refers to explicit or implicit claims that
reviews or opinions are not coming from a business that offers any of
the products or services being reviewed or evaluated.
---------------------------------------------------------------------------
\394\ CCIA Cmt. at 3.
\395\ NPRM, 88 FR 49375.
\396\ Id.
\397\ CCIA Cmt. at 3.
---------------------------------------------------------------------------
A business organization commenter suggested that the Commission not
finalize Sec. 465.6 because ``the fraudulent nature of reviews on
purportedly independent websites would likely be covered by . . .
[Sec. Sec. ] 465.2 and 465.5 of the . . . Rule.'' \398\ Those sections
are limited to consumer reviews and consumer or celebrity testimonials
and do not apply to reviews, seals, or other opinions by purportedly
independent experts, organizations \399\ or other entities. Therefore,
Sec. 465.6 is not duplicative of either Sec. 465.2 or Sec. 465.5.
---------------------------------------------------------------------------
\398\ Chamber of Commerce Cmt. at 6.
\399\ ``Endorsements by organizations, especially expert ones,
are viewed as representing the judgment of a group whose collective
experience exceeds that of any individual member.'' Endorsement
Guides, 16 CFR 255.4(a).
---------------------------------------------------------------------------
G. Sec. 465.7--Review Suppression
Proposed Sec. 465.7 sought to prohibit two different types of
consumer review suppression.
1. Sec. 465.7(a)
Proposed Sec. 465.7(a) sought to prohibit anyone from 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 to cause a consumer review or
any portion thereof to be removed. Based on the following, the
Commission is finalizing Sec. 465.7(a) with several revisions for the
purpose of clarity.\400\
---------------------------------------------------------------------------
\400\ One modification is changing ``Rule'' to ``part.''
---------------------------------------------------------------------------
A number of commenters supported the provision.\401\ The NPRM asked
whether it is ``appropriate that . . . Sec. 465.7(a) focuses on the
specific types of listed threats or activities,'' and two
[[Page 68063]]
business commenters responded that it is.\402\ One of the commenters
said that ``[t]his narrow approach protects consumers, all while
ensuring clarity for businesses and avoiding the pitfall of ambiguity
in the . . . Rule.'' \403\ However, as already noted above, based on
the comments and on the proposed definition for the phrase
``unjustified legal threat,'' the Commission is adopting a definition
for the phrase ``unfounded or groundless legal threat,'' instead of a
definition of the phrase ``unjustified legal threat,'' as originally
proposed.\404\
---------------------------------------------------------------------------
\401\ Anonymous 10, Cmt. on NPRM (Aug. 3, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0009; TT in PA, Cmt. on
NPRM (Aug. 9, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0016 (``TT in PA Cmt.''); Kurt Braun, Cmt. on NPRM (Aug. 17,
2023), https://www.regulations.gov/comment/FTC-2023-0047-0026;
Superguest Cmt.; Tripadvisor Cmt. at 5-6; Consumer Reports Cmt. at
9-10; State AGs Cmt. at 2.
\402\ Transparency Company Cmt. at 14; Family First Life Cmt. at
15.
\403\ Family First Life Cmt. at 15.
\404\ See supra section IV.A.2.l of this document.
---------------------------------------------------------------------------
A trade association commenter noted that `` `intimidation' means
threat of the use of force'' so it ``duplicates `physical threat' ''
and should be deleted.\405\ A review platform commenter questioned why
the ``proposed text is limited to `physical threats' '' and said that
non-physical threats, such as verbal threats in the form of abusive or
coercive language, should not be tolerated and should be acted
against.'' \406\ A consumer group's comment said that ``[t]he term
`intimidation' seems sufficiently broad to cover most types of threats
not otherwise covered by `legal' or `physical' threats.'' \407\ The
Commission disagrees with the first commenter because, in this context,
``intimidation'' means things other than legal or physical threats.
Intimidation can include abusive communications, stalking, character
assassination, and sexual harassment when those things are used to
intimidate, that is to force someone into or deter someone from taking
some action by inducing fear.\408\
---------------------------------------------------------------------------
\405\ NFIB Cmt. at 4.
\406\ Trustpilot Cmt. at 17.
\407\ Consumer Reports Cmt. at 10.
\408\ See Intimidate (def. 3), Dictionary.com, LLC, https://www.dictionary.com/browse/intimidate (last visited July 5, 2024)
(establishing that the word ``intimidate'' means, among other
things, ``to force into or deter from some action by inducing
fear'').
---------------------------------------------------------------------------
Three commenters voiced concerns about the fact that proposed Sec.
465.7(a) included ``false accusation[s]'' as a type of conduct that
could amount to review suppression. A review platform noted that the
determination of whether an accusation is false ``introduces an element
of subjectivity,'' and that it would ``be preferable to ground this in
a legal basis, such as defamation.'' \409\ A trade association wrote
that ``a statement by a business about a consumer review or the
consumer making a review may sometimes be in order,'' and a prohibition
on false accusations should ``allow breathing room for First Amendment
free speech concerns, such as requiring a guilty mental state from the
maker of an accusation before culpability attaches.'' \410\ It
recommended adding ``knowing that it is false or with reckless
disregard as to its truth or falsity.'' \411\ A second trade
association asserted that proposed Sec. 465.7(a) was ``not narrowly
tailored to serve a compelling state interest because it applies
regardless of the magnitude of the alleged error or intent or state of
mind of the business that makes the false statement.'' \412\ In order
to illustrate its point, the second trade association also posited a
scenario involving false accusations by a restaurant owner in a private
conversation with a disgruntled patron.\413\ The owner in the
hypothetical did not know the accusations were false and did not act
recklessly. In response to these comments, final Sec. 465.7(a) adopts
the phrase ``a public false accusation in response to a consumer review
that is made with the knowledge that the accusation was false or made
with reckless disregard as to its truth or falsity,'' rather than the
phrase ``false accusation,'' as originally proposed. This change
resolves the commenters' concerns regarding the accuser's state of
mind, clarifies the Commission's intent that the provision applies only
to public accusations, and provides greater clarity, thereby making
compliance less burdensome. In response to the concern about
subjectivity, the Commission notes that courts can make objective
determinations of whether a given accusation is false. One of these
commenters also asserted broadly that Sec. 465.7(a) ``regulates `pure
speech,' not conduct, because it applies to the use of words to convey
a message'' and that speech is not commercial speech if it does not
propose a commercial transaction.\414\ This assertion has no basis in
First Amendment law and is an overly limited articulation of what
counts as commercial speech. When a business makes a public false
accusation in response to a consumer review in an attempt to cause the
review to be removed, the speech at issue is clearly commercial speech
because it is intended to promote the product, service, or business
that was the subject of the negative consumer review.
---------------------------------------------------------------------------
\409\ Trustpilot Cmt. at 17.
\410\ NFIB Cmt. at 4.
\411\ Id. at 5.
\412\ ANA Cmt. at 10.
\413\ Id. at 9-10.
\414\ Id.
---------------------------------------------------------------------------
Two commenters, a review platform and a trade association, said
that the provision should be strengthened by also covering attempts to
force a consumer review or a portion thereof to be changed or
edited.\415\ Proposed Sec. 465.7(a) would have prohibited certain acts
made in an attempt to, among other things, ``cause a consumer review or
any portion thereof to be removed.'' The Commission believes that, in
most cases, changing or editing a review would necessarily require
removing a portion of it. Accordingly, the Commission is clarifying
that final Sec. 465.7 applies to such modifications of reviews by
adding ``whether or not that review or a portion thereof is replaced
with other content,'' immediately after ``cause a consumer review or
any portion thereof to be removed.''
---------------------------------------------------------------------------
\415\ Yelp Cmt. at 7; CCIA Cmt. at 4.
---------------------------------------------------------------------------
A trade association's comment asked that the ``Rule be clarified to
emphasize that it does not prohibit companies from contacting customers
who post negative reviews to resolve the reported issues.'' \416\ The
commenter was concerned that ``sensitive customers could argue that
such communication from the Company (no matter how innocuous) amounts
to intimidation.'' \417\ The Commission does not believe that a company
engages in intimidation by merely contacting customers to resolve
reported issues or simply asking satisfied customers to update their
reviews. Specifying that a consumer's concerns will be addressed only
if the consumer changes or removes a truthful negative review may be an
unfair or deceptive act or practice that has the effect of distorting
or otherwise misrepresenting what consumers think of a marketer's
products,\418\ but that issue is beyond the scope of this rulemaking.
---------------------------------------------------------------------------
\416\ NRF Cmt. at 12.
\417\ Id.
\418\ See Endorsement Guides, 16 CFR 255.2(d).
---------------------------------------------------------------------------
A consumer organization's comment said that, ``[j]ust as businesses
may use threats or intimidation to prevent a consumer from leaving a
negative review, they may use similar tactics to ensure receipt of a
positive review,'' thus concluding that Sec. 465.7(a)'s ``prohibitions
. . . should also apply to compelled creation of positive reviews.''
\419\ Although compelling the creation of positive reviews through
threats or intimidation may be an unfair or deceptive act or practice,
the
[[Page 68064]]
Commission declines to address that practice in this rulemaking at this
time.
---------------------------------------------------------------------------
\419\ Consumer Reports Cmt. at 9. Although it does not involve
Sec. 465.7(a), a business urged the Commission to ``deter meritless
legal threats by platforms against providers and users of pro-
consumer tools.'' Mozilla Cmt. at 6. Such threats are beyond the
scope of this rulemaking.
---------------------------------------------------------------------------
A dental trade association expressed that, because Federal and
State privacy laws prohibit dentists and other health care providers
from disclosing patient information, their ability to correct the
record when they are themselves a target of deceptive or unfair reviews
is limited.\420\ The commenter asked the Commission to permit dentists
and other health care providers to disclose patient information in
response to a review (limited to the scope of the topics addressed in
the review) without violating any FTC privacy-based prohibitions.\421\
This request is beyond the scope of this rulemaking.
---------------------------------------------------------------------------
\420\ ADA Cmt. at 1.
\421\ Id. at 1-2.
---------------------------------------------------------------------------
2. Sec. 465.7(b)
Proposed Sec. 465.7(b) sought to prohibit a business from
misrepresenting, ``expressly or by implication, that the consumer
reviews of one or more of its products or services displayed on its
website or platform represent most or all the reviews submitted to the
website or platform when reviews are being suppressed (i.e., not
displayed) based upon their ratings or their negativity.'' Proposed
Sec. 465.7(b) enumerated reasons for suppressing reviews that would
not be considered suppression based upon their ratings or their
negativity, so long as the criteria for withholding reviews are applied
to all reviews submitted without regard to the favorability of the
review. Proposed Sec. 465.7(b) listed the following valid reasons for
review suppression: (1) ``the review contain[ed] . . . [(a)] trade
secrets or privileged or confidential commercial or financial
information, . . . [(b)] libelous, harassing, abusive, obscene, vulgar,
or sexually explicit content, . . . [(c)] the personal information or
likeness of another person, . . . [(d)] content that is discriminatory
with respect to race, gender, sexuality, ethnicity, or another
protected class, or . . . [(e)] content that is clearly false or
misleading;'' (2) ``the seller reasonably believe[d] the review is
fake;'' or (3) ``the review is wholly unrelated to the products or
services offered by or available at the website or platform.'' Based on
the following, the Commission has determined to finalize this
prohibition with some modifications.\422\
---------------------------------------------------------------------------
\422\ One modification, discussed above, is changing ``its
products or services'' to ``the products and services it sells.''
See supra section IV.B.4. of this document. Another modification
discussed above is changing ``person'' to ``individual.'' See supra
section IV.A.2.b of this document. As it has done elsewhere in the
rule, the Commission is limiting the misrepresentations prohibited
to ``material'' misrepresentations. Nonetheless, in the context of
Sec. 465.7(b), the Commission believes that all such
misrepresentations would likely always be material.
---------------------------------------------------------------------------
Multiple commenters said that the practice of product sellers
suppressing less favorable reviews was problematic. One individual
commenter said they were ``[d]isgusted by businesses who[ ] filter/have
control over their . . . reviews.'' \423\ Another individual commenter
stated that ``[t]he removal of reviews that are critical, but accurate
of the service or good creates an illusion and ultimately, defrauds the
consumer of their choice,'' but also worried about how ``the FTC [will]
catch companies that delete negative reviews.'' \424\ A third
individual commenter said that the ``Rule should prohibit businesses
from suppressing . . . honest negative reviews.'' \425\ A fourth
individual commenter wrote that ``[b]usiness should be barred from
misrepresenting reviews on their websites and from suppressing negative
reviews.'' \426\ The State Attorneys General said that, when ``a
merchant . . . only posts positive consumer reviews on its website,
instead of both favorable and negative reviews, [it] can potentially
mislead consumers into believing that such reviews represent most or
all of the reviews submitted to the merchant's website.'' \427\ A
retailer wrote that it ``support[s] the goals of section 465.7[(b)],
which prohibits sellers from suppressing customer reviews based on
their negativity'' and ``believe[s] that it is critically important
that customers not be deprived of useful, negative feedback when
deciding whether to purchase a product.'' \428\
---------------------------------------------------------------------------
\423\ Hippensteel Cmt.
\424\ Superguest Cmt.
\425\ Ravnitzky Cmt. at 2.
\426\ TT in PA Cmt.
\427\ State AGs Cmt. at 3.
\428\ Amazon Cmt. at 12.
---------------------------------------------------------------------------
The NPRM asked whether ``it [is] appropriate that proposed Sec.
465.7(b) is limited to circumstances in which reviews are being
suppressed based on rating or negativity,'' and a business commenter
agreed that it was.\429\
---------------------------------------------------------------------------
\429\ Transparency Company Cmt. at 14.
---------------------------------------------------------------------------
A trade association commenter said ``that the Commission has . . .
failed to satisfy the requirement that the specific unfair or deceptive
acts or practices identified in the rule be prevalent.'' \430\
According to the commenter, ``The rulemaking record cites only one
case, one closing letter, and one comment in support of the
Commission's conclusion that review suppression is prevalent.'' \431\
The commenter understates the significance of the evidence that the
Commission considered in finding that the suppression of reviews based
upon their rating or sentiment is prevalent. The closing letter to
Yotpo, a company that provided review management services, is
significant because the investigation revealed that more than 4,500
Yotpo merchant clients were automatically publishing only 4- or 5-star
reviews and that most 1-star reviews and 2-star reviews submitted to
those merchants were suppressed.\432\ The investigation of Yotpo shows
that there was widespread suppression of negative reviews. The
Commission thus has a strong basis for its conclusion that the
suppression of negative reviews on retailer or business websites is
prevalent.
---------------------------------------------------------------------------
\430\ IAB Cmt. at 11.
\431\ Id.
\432\ NPRM, 88 FR 49376.
---------------------------------------------------------------------------
A review platform's comment suggested changing ``based upon their
ratings or their negativity'' to ``based upon their ratings or their
sentiment'' because ``reviews can be difficult to categorize as wholly
`negative' or `positive.' '' \433\ The Commission intended for the
phrase ``based upon their ratings or their negativity'' to refer to the
suppression of reviews based on their ratings or their sentiment.
However, in light of the comment, the Commission now realizes that the
use of the word ``negativity'' in this context could be subject to
misinterpretation and be construed to imply that a review must be
wholly negative for its suppression to be problematic. Accordingly, the
Commission is clarifying its original intent by changing ``their
negativity'' to ``their negative sentiment.'' The commenter also said
that ``consumer harm may result if someone suppresses a review,
regardless of the sentiment expressed in the review.'' \434\ The
Commission is not expanding the rule to address other types of review
suppression not based on ratings or negative sentiment. There are
numerous legitimate reasons for suppressing consumer reviews, including
those listed in Sec. 465.7(b)(1), (2), and (3). Furthermore, such an
expansion would be beyond the scope of the rulemaking.
---------------------------------------------------------------------------
\433\ Yelp Cmt. at 7-8.
\434\ Id.
---------------------------------------------------------------------------
A trade association's comment requested that the Commission ``carve
out the use of reviews in marketing materials'' because the provision
``could effectively prohibit retailers from highlighting any customer
reviews in advertising--even though customers understand that
advertising normally highlights particularly positive
[[Page 68065]]
reviews.'' \435\ The Commission did not intend for proposed Sec.
465.7(b) to cover the use of consumer reviews in marketing materials.
Specifically, proposed Sec. 465.7(b) was only intended to cover
misrepresentations about the body of reviews in a ``reviews'' section
of a website or platform--that is, a portion of a website or platform
dedicated in whole or in part to receiving and displaying consumer
reviews--and not misrepresentations about whether a highlighted review
is ``representative.'' The Commission is clarifying this by changing
``displayed on its website or platform'' to ``displayed in a portion of
its website or platform dedicated in whole or in part to receiving and
displaying consumer reviews.'' The Commission notes however, that the
use of non-representative consumer reviews in marketing could be
deceptive in violation of section 5 of the FTC Act.\436\
---------------------------------------------------------------------------
\435\ NRF Cmt. at 12.
\436\ An individual commenter said it would be helpful to have
rule language ``around a business being allowed to highlight
specific testimonial reviews on their website as long as there is a
disclaimer or prominent indication that the page does not represent
all reviews for the business.'' Anonymous 3 Cmt. The rule does not
prohibit such ``highlighting'' of specific reviews or testimonials,
but the creation of a safe harbor for such highlighting is beyond
the scope of the rule. In addition, the Commission believes that the
wording of the proposed disclosure is likely inadequate.
---------------------------------------------------------------------------
A trade association asked that the Commission ``clarify what it
means for a review to be ``suppressed (i.e., not displayed).'' \437\
The trade association said that ``[m]any businesses that operate
websites that display consumer reviews will organize those reviews in
reasonable ways to help consumers navigate what might be a large corpus
of varying consumer commentary'' and that, ``[i]f a business takes
reasonable steps to organize their reviews, those reviews should not be
considered `suppressed.' '' \438\ The Commission agrees that organizing
reviews does not qualify as suppressing reviews. The Commission notes,
however, that organizing reviews in a way that makes it difficult for
consumers to know about or find negative reviews could be an unfair or
deceptive act or practice in violation of section 5 of the FTC Act. The
commenter also asked that the Commission change ``not displayed'' to
``not displayed or accessible.'' \439\ The Commission is instead
clarifying its original intent by changing ``not displayed'' to ``not
displayable,'' so that the provision only covers reviews that consumers
will be unable to view even if they were to sort or filter the reviews
differently. Another trade association's comment said that ``the Rule
should explicitly allow retailers to sort reviews by objective measures
unrelated to the positivity of the review, where the sorting method is
disclosed.'' \440\ As modified, Sec. 465.7(b) does not prohibit the
sorting or organization of reviews, so the proposed modification is
unnecessary.
---------------------------------------------------------------------------
\437\ IAB Cmt. at 11.
\438\ Id. at 11-12.
\439\ Id. at 12.
\440\ NRF Cmt. at 13.
---------------------------------------------------------------------------
Four industry commenters argued that there are legitimate reasons
for suppressing consumer reviews beyond those listed in proposed Sec.
465.7(b).\441\ One of these commenters, a retailer, gave examples of
other legitimate reasons for suppressing a review: ``describing
violence, encouraging illegal activities or misuse of the product,
incorporating hyperlinks that could jeopardize customer online safety,
or using a language not supported by the website.'' \442\ Three of the
industry commenters said that, by limiting review suppression to the
listed reasons, the provision violated the First Amendment and section
230 of the Communications Decency Act,\443\ and all four asked the
Commission to clarify that the listed reasons are not exhaustive.\444\
The Commission agrees that there are legitimate reasons for suppressing
reviews beyond those listed and is clarifying that the listed criteria
for review suppression are non-exhaustive examples.
---------------------------------------------------------------------------
\441\ IAB Cmt. at 11; Technet Cmt. at 3; Amazon Cmt. at 12; NRF
Cmt. at 13.
\442\ Amazon Cmt. at 12. A different commenter gave the example
of a snowstorm ``obstruct[ing] the delivery of a package to a buyer
who could claim failure to deliver on time.'' TechNet Cmt. at 3. The
Commission does not agree that this is a legitimate reason for
suppressing consumer reviews.
\443\ IAB Cmt. at 12; Amazon Cmt. at 12; NRF Cmt. at 13.
\444\ IAB Cmt. at 11; TechNet Cmt. at 3; Amazon Cmt. at 12; NRF
Cmt. at 12-13.
---------------------------------------------------------------------------
Proposed Sec. 465.7(b) provided that suppression was not violative
``so long as the criteria for withholding reviews are applied to all
reviews submitted without regard to the favorability of the review.''
The Commission is clarifying that the criteria must be applied to all
reviews equally. Additionally, to be consistent with the above
clarification regarding sentiment, the Commission is changing ``without
regard to the favorability of the review'' to ``without regard to
sentiment.''
An individual commenter asked whether a company could ``have a
policy of not posting reviews that mention other products'' or suppress
a review that is ``patently false (wrong company, wrong product, wrong
location, etc.).'' \445\ As long as the policy is applied to all
reviews equally, those could be legitimate reasons for suppressing
reviews.
---------------------------------------------------------------------------
\445\ Anonymous 4 Cmt.
---------------------------------------------------------------------------
A trade association commented that one of the listed, acceptable
reasons for suppressing reviews is too limited. Specifically, it said
that ``libelous'' reviews would not cover reviews with an oral
component that were ``slanderous,'' and it thus recommended using the
word ``defamatory.'' \446\ The Commission intended to cover all
defamatory consumer reviews, not just written ones, and the Commission
is making that clarification.
---------------------------------------------------------------------------
\446\ NFIB Cmt. at 5.
---------------------------------------------------------------------------
Another one of the listed, acceptable reasons for suppressing
reviews was that ``the seller reasonably believes the review is fake.''
A review platform commented that it is important that this criteria
``cannot be used by a business to seek to censor consumer reviews based
on a valid experience'' and said that, without information about the
reviewer, the reviewer's location, and the reviewer's other reviews,
``it can be difficult to accurately identify fake reviews.'' \447\ One
individual commenter wrote that this ``is overbroad and gives sellers
leeway to suppress reviews at their discretion so long as they claim a
belief that said reviews were fake.'' \448\ The commenter recommended
``revising this provision to add specificity and identify the
parameters of what a fake review looks like.'' \449\ A seller does not
risk liability if the suppression occurs for a reason other than the
review's rating or negative sentiment. The provision's phrase ``such
as'' recognizes that it is proper to suppress reviews for legitimate
reasons. For this specific enumerated exception, ``the seller [only
needs to] reasonabl[y] believe[ ] the review . . . [to be] fake.''
Thus, if there are indicia that would lead a reasonable person to
believe that the review is fake, the seller would meet this exception.
---------------------------------------------------------------------------
\447\ Trustpilot Cmt. at 18.
\448\ Madeline D'Entrmont, Cmt. on NPRM at 1 (Sept. 22, 2023),
https://www.regulations.gov/comment/FTC-2023-0047-0064.
\449\ Id.
---------------------------------------------------------------------------
A different, listed acceptable reason for suppressing reviews was
``content that is discriminatory with respect to race, gender,
sexuality, ethnicity, or another protected class.'' The Commission is
changing ``protected class'' to ``intrinsic characteristic'' in order
to more closely echo the language in the CRFA on which the reason is
based.\450\
---------------------------------------------------------------------------
\450\ See Consumer Review Fairness Act of 2016 Sec.
2(b)(2)(C)(i), 15 U.S.C. 45b(b)(2)(C)(i).
---------------------------------------------------------------------------
[[Page 68066]]
A trade association noted that the ``FTC should not prohibit
sellers from excluding reviews that solely discuss service experience
and do not include comments on the product.'' \451\ The rule as
clarified does not prohibit suppressing reviews that solely discuss
customer service as long as the criteria is applied equally to all
reviews. The Commission notes, however, that it has expressed the view
that suppressing customer reviews about a ``particular seller's
customer service, delivery, returns, and exchanges'' can be deceptive
in violation of section 5 of the FTC Act.\452\
---------------------------------------------------------------------------
\451\ RILA Cmt. at 4.
\452\ Endorsement Guides, 16 CFR 255.2(e)(8)(ii).
---------------------------------------------------------------------------
A consumer organization expressed concern that proposed Sec.
465.7(b) ``allows businesses to suppress reviews when they contain
`harassing,' `abusive,' or `obscene' content, which are highly
subjective terms likely to be interpreted broadly by businesses that
have a clear interest in suppressing reviews that may harm their public
perception.'' \453\ The commenter suggested that, ``to preserve the
public benefit of reviews that contain instances of objectionable
content,'' the Commission could ``allow businesses to redact such
content but require them to leave the remainder of the review along
with any corresponding score or numerical rating available for public
consumption.'' \454\ Appropriate redaction of portions of consumer
reviews may be difficult or infeasible in some instances. The
Commission declines to impose such a requirement at this time.
---------------------------------------------------------------------------
\453\ Consumer Reports Cmt. at 10.
\454\ Id.
---------------------------------------------------------------------------
The State Attorneys General asked in their comment that the
Commission ``delete[ ] the phrase `based upon their ratings or their
negativity' at the end of the first sentence.'' \455\ The State
Attorneys General's reasoning for this request was that the language is
unnecessarily limiting and superfluous'' because ``a company seeking to
suppress negative reviews could potentially succeed by offering reasons
that are proxies for negativity'' and ``any legitimate suppression
should already be sufficiently covered by the robust carve-outs set
forth in Sec. 465.7(b)(1).'' \456\ The Commission declines to make
that change, as the enumerated ``carve-outs'' do not exhaustively
identify every legitimate reason for suppressing reviews.
---------------------------------------------------------------------------
\455\ State AGs Cmt. at 4.
\456\ Id.
---------------------------------------------------------------------------
A business organization asserted that proposed Sec. 465.7(b)
``implies a `gross feedback score' must be disclosed along with the
`net feedback score,' which is the actual number of reviews viewable to
a user.'' \457\ The commenter is incorrect, as Sec. 465.7(b) contains
no such disclosure requirements.
---------------------------------------------------------------------------
\457\ TechNet Cmt. at 3.
---------------------------------------------------------------------------
An individual commenter expressed concern as to how the FTC will
``catch companies that delete negative reviews'' and suggested offering
rewards ``for individuals or organizations to help address'' the
problem.\458\ The Commission will use the investigative and law
enforcement tools at its disposal to identify bad actors who suppress
reviews.
---------------------------------------------------------------------------
\458\ Superguest Cmt.
---------------------------------------------------------------------------
In connection with proposed Sec. 465.7(b), several commenters
recommended that the Commission impose additional consumer review-
related requirements. An individual commenter asked the Commission to
``require businesses to display consumer reviews in a fair and
transparent manner, such as by allowing consumers to choose how they
want to sort or filter reviews, and by disclosing any criteria or
algorithm that they use to rank or highlight reviews.'' \459\ Another
individual commenter said that ``companies . . . should be required to
maintain and periodically disclose records of review suppression,''
which would, at a minimum, ``contain the number of reviews suppressed
at each rating level and an associated justification.'' \460\ A review
platform recommended the Commission expand the scope of the rule to (1)
prevent reviews from ``being misquoted and manipulated via quoting
select parts of reviews,'' and (2) require that the criteria on which
consumer reviews are selected for showcasing (e.g., on a website
carousel) be made clear.\461\ A consumer organization commented that
consumers should be able to assume that the reviews that they see on a
business's website are representative of the reviews the business
receives, and if ``a business wishes to curate reviews, the business
should have the burden to transparently communicate the fact and nature
of the curation to consumers.'' \462\ One individual commenter asked
that the proposed rule be ``extended to include penalties for Pay-to-
Play platforms that engage in practices such as manipulating ratings
and suppressing negative reviews for businesses that advertise on their
websites,'' \463\ and another commenter thought the rule should cover
``companies that profit from shaming businesses by posting negative
reviews while unilaterally determining positive reviews are
`unverified'--effectively holding any positive sentiment back until the
business subscribes to the platform.'' \464\ Some of these proposed
requirements are beyond the scope of this rulemaking, although some of
the acts and practices described may be deceptive or unfair in
violation of section 5 of the FTC Act. For example, misquoting reviews
can be deceptive \465\ and showcasing or curating reviews might
deceptively represent that the reviews presented are representative or
typical of the reviews received. Based on its policy expertise, the
Commission declines to address any of these practices in this
rulemaking at this time.
---------------------------------------------------------------------------
\459\ Ravnitzky Cmt. at 2.
\460\ Rob Levy, Cmt. on NPRM at 2 (Sept. 22, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0057.
\461\ Trustpilot Cmt. at 18.
\462\ Consumer Reports Cmt. at 11.
\463\ Anonymous 11, Cmt. on NPRM (Aug. 16, 2023), https://www.regulations.gov/comment/FTC-2023-0047-0022.
\464\ Anonymous 4 Cmt.
\465\ Endorsement Guides, 16 CFR 255.0(g)(1) and 255.1(b).
---------------------------------------------------------------------------
H. Sec. 465.8--Misuse of Fake Indicators of Social Media Influence
Proposed Sec. 465.8(a) sought to prohibit anyone from selling or
distributing fake indicators of social media influence that can be used
by persons or businesses to misrepresent their influence or importance
for a commercial purpose. Proposed Sec. 465.8(b) sought to prohibit
anyone from purchasing or procuring fake indicators of social media
influence to misrepresent their influence or importance for a
commercial purpose. Based on the following, the Commission has
determined to finalize these prohibitions with certain
modifications.\466\
---------------------------------------------------------------------------
\466\ One modification is changing ``Rule'' to ``part.'' Another
modification, discussed above, is changing ``persons'' to
``individuals.'' See supra section IV.A.2.b of this document.
---------------------------------------------------------------------------
Several commenters raised concerns about the meaning of the term
``fake'' in the context of indicators of social media influence. A
trade association asked, ``Does `fake' only mean that the likes and
followers were created by bots or through fake accounts? If a social
media influencer were to recommend that their followers also follow
another business' social media account, would that also be `procuring'
of `fake' indicators of social media influence? . . . If the FTC means
to capture a specific category of `likes,' `follows,' or other metrics
that do not reflect any real opinions, findings, or experiences with
the marketer or its products or services, it should make that
[[Page 68067]]
intention more clear.'' \467\ A retailer asked for ``confirmation . . .
that this provision would not apply where companies award legitimate
indicators of influence to certain users upon satisfaction of objective
criteria, even if those individuals are later discovered to have
circumvented or abused those criteria.'' \468\ A second trade
association said that, ``[w]hen . . . indicators are awarded based on
legitimate criteria, they serve this informative and non-deceptive
purpose'' and the ``innovative companies that develop these indicators
of influence should not be punished if bad actors try to abuse the
processes,'' so the Commission ``should . . . clarify that this section
applies to true `fake' indicators of social media influence.'' \469\ In
response to these comments, the Commission is clarifying what it
intended as ``fake indicators of social media influence.'' For this
purpose, the final rule includes a definition of the phrase ``fake
indicators of social media influence'' in Sec. 465.1(h), which defines
the phrase as indicators of social media influence derived from bots,
purported individual accounts not associated with a real individual,
accounts created with a real individual's personal information without
their consent, hijacked accounts, or that otherwise do not reflect a
real individual's or entity's activities, opinions, findings, or
experiences. If a social media influencer were to recommend that their
followers also follow another social media account, any resulting
followers of the second account would not be ``fake.'' If a company
awards legitimate indicators of influence to certain users upon
satisfaction of objective criteria reflecting the influence of the
users, the company would not be selling ``fake'' indicators, even if
bad actors were able to deceive the company.
---------------------------------------------------------------------------
\467\ ANA Cmt. at 17-18.
\468\ Amazon Cmt. at 13.
\469\ IAB Cmt. at 13.
---------------------------------------------------------------------------
Three commenters addressed the section's lack of a knowledge
requirement. A retailer commenter wrote that ``a business could be in
violation of this provision even if it innocently sold or procured a
fake indicator, without knowledge or any indication that the indicator
was fake,'' which it said ``is patently unreasonable.'' \470\ A second
retailer similarly ``recommend[ed] that the rule be revised so that it
only applies when the seller/buyer knows the indicators are fake.''
\471\ A trade association suggested ``revising this section to
additionally require that the seller or purchaser act `with knowledge
that the indicators of influence are fake.' '' \472\ The Commission
recognizes that someone could think that they were paying for a
promotional campaign to increase their followers but, unbeknownst to
the purchaser, the entity offering the campaign was lying and just
providing fake followers. It is also possible that a company might
bestow a legitimate indicator of social media influence, like a seal,
that the company does not know is based upon or derived from fake
indicators of social media influence. The Commission is therefore
narrowing the provision by adding ``that they knew or should have known
to be fake'' to both Sec. 465.8(a) and (b).
---------------------------------------------------------------------------
\470\ Hammacher and Schlemmer Cmt. at 7.
\471\ Amazon Cmt. at 13.
\472\ IAB Cmt. at 13.
---------------------------------------------------------------------------
A trade association's comment asserted that ``the Commission failed
to meet the prevalence requirement'' because ``the evidence the
Commission . . . cited in the NPRM . . . all relate[s] to the use of
actual `fake' indicators of influence that the seller or purchaser knew
were fake.'' \473\ The Commission believes that, with the addition of
the definition of ``fake indicators'' and the knowledge requirement, it
has sufficiently addressed the commenter's concerns.
---------------------------------------------------------------------------
\473\ Id. at 12.
---------------------------------------------------------------------------
A trade association expressed concern that the provision would
``hold[ ] retailers vicariously liable for the actions of independent
endorsers,'' that is, the influencers and other endorsers that they
hire.\474\ That was not the Commission's intention. The distribution of
fake indicators of social media influence was intended to mean the
distribution to individuals or businesses who could use the indicators
to misrepresent their influence, not causing the dissemination of
social media by users of such fake indicators, e.g., by hiring
influencers who happen to have fake followers. The Commission is
clarifying this intent by adding a definition of ``distribute fake
indicators of social media influence'' in Sec. 465.1(g).
---------------------------------------------------------------------------
\474\ NRF Cmt. at 13.
---------------------------------------------------------------------------
Although no commenter specifically raised the issue in the context
of Sec. 465.8, the Commission is adding the concept of materiality to
both Sec. 465.8(a) and (b) in terms of the scope of misrepresentations
covered therein, so as to be consistent with other parts of the rule.
A consumer organization said in its comment that the Commission
``should clarify that `procure' '' in Sec. 465.8(b) ``includes the
creation of automated bot or other fake accounts that `follow' or
`subscribe' to an account, artificially inflating the popularity of
that account.'' \475\ The Commission declines to make this change. It
is not the creation of the bot or fake account, itself, that the rule
makes illegal, but the use of the bot or fake account to follow another
user, watch another user's videos, or create other fake indicia of
social media influence. The same commenter said the Commission should
``remove the word `fake' from the Rule to clarify that it covers the
purchase or procurement of any social media engagement . . . from both
real and fake accounts unless those incentives can be disclosed to
people who can view the engagement.'' \476\ The use of incentivized
indicia of social media influence is not necessarily deceptive in all
cases, and it is beyond the scope of this rulemaking.
---------------------------------------------------------------------------
\475\ Consumer Reports Cmt. at 11.
\476\ Id.
---------------------------------------------------------------------------
Finally, a trade association and a retailer suggested changing the
prohibition in Sec. 465.8(a) from selling or distributing fake
indicators that ``can be used'' by persons to misrepresent their
influence to those that ``are used'' by persons to misrepresent their
influence.\477\ The trade association said that ``[a]pplying this
section to indicators of social media influence that `can be' used for
this purpose, but are not, would mean that the rule prohibits conduct
that is not deceptive.'' \478\ Such fake indicators are not physical
products that people collect and then use later as desired. Instead,
their existence is premised on and limited to situations in which they
appear deceptively on a social media site. Therefore, any person or
business that obtains fake indicators of social media influence is
misrepresenting their social media influence. While some individuals
may not be doing so for a commercial purpose, those individuals are
excluded from the rule's scope. Further, a person or entity that is in
the business of selling or distributing fake indicia of social media
influence is engaging in commerce, and it is unreasonable to posit that
no buyers would use such indicia to misrepresent their social media
influence for a commercial purpose. The Commission therefore declines
to make the suggested modification.
---------------------------------------------------------------------------
\477\ IAB Cmt. at 13; Amazon Cmt. at 13.
\478\ IAB Cmt. at 13.
---------------------------------------------------------------------------
I. Sec. 465.9--Severability
Proposed Sec. 465.9 provided that the provisions of the rule are
separate and severable from one another and that, if any provision is
stayed or determined to
[[Page 68068]]
be invalid, the remaining provisions shall continue in effect. The
Commission did not receive any comments regarding proposed Sec. 465.9.
The Commission is changing ``shall continue in effect'' to ``will
continue in effect'' which is more precise. With that clarification,
the Commission is finalizing Sec. 465.9.
V. Final Rule
For the reasons described above, the Commission has determined to
adopt the provisions of Sec. Sec. 465.1, 465.2, and 465.4 through
465.9 with clarifying or limiting modifications. The Commission
declines to finalize proposed Sec. 465.3 regarding consumer review or
testimonial reuse or repurposing.
VI. Final Regulatory Analysis Under Section 22 of the FTC Act
Under section 22 of the FTC Act, the Commission, when it
promulgates any final rule for a ``rule'' as defined in section
22(a)(1), must include a ``final regulatory analysis.'' 15 U.S.C. 57b-
3(b)(2). The final regulatory analysis must contain (1) a concise
statement of the need for, and objectives of, the final rule; (2) a
description of any alternatives to the final rule which were considered
by the Commission; (3) an analysis of the projected benefits, any
adverse economic effects, and any other effects of the final rule; (4)
an explanation of the reasons for the determination of the Commission
that the final rule will attain its objectives in a manner consistent
with applicable law and the reasons the particular alternative was
chosen; and (5) a summary of any significant issues raised by the
comments submitted during the public comment period in response to the
preliminary regulatory analysis, and a summary of the assessment by the
Commission of such issues. 15 U.S.C. 57b-3(b)(2)(A)-(E).
The Commission received several comments that included elements
that the Commission identified as specifically in response to the
preliminary regulatory analysis. Two trade associations asserted that
compliance costs would be higher than estimated by the Commission.
These associations stated that the risk of statutory penalties would
lead many of their members to engage in compliance activities beyond
those assumed for the high-cost compliance scenario in the NPRM.\479\
In the preliminary regulatory analysis, the high-cost compliance
scenario assumed an average compliance burden of 8 hours of attorney
time for firms with greater than 500 employees. This average is
consistent with some firms, especially the largest ones in industries
more reliant on reviews and testimonials, choosing to make more
extensive improvements to their compliance programs. In addition, the
Commission has narrowed the rule and clarified the rule requirements as
described in section IV of this document. For these reasons, the
Commission continues to believe the high-cost scenario likely
overestimates compliance costs, and chooses to not modify its estimate
of possible compliance costs for that scenario, but it does present a
sensitivity analysis below that assesses what effect systematic
underestimation of compliance costs would have on the rule's net
benefits to the public.
---------------------------------------------------------------------------
\479\ NRF Cmt. at 2-3, 13-14; IAB Cmt. at 5, 15. IAB also raised
this issue in the context of the informal hearing discussed above in
section I of this document. See, e.g., Petition by Interactive
Advertising Bureau to Designate Disputed Issues of Material Fact
(Feb. 12, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabpetition20240212.pdf. As noted above, the presiding
officer at that hearing found that IAB had not shown that compliance
costs would be more than minimal.
---------------------------------------------------------------------------
One individual commenter asserted that the benefits the Commission
estimated in the NPRM did not justify the estimated compliance costs
because the same results could be obtained using the FTC's existing
section 5 authority.\480\ As explained in detail in this final
regulatory analysis, the Commission believes that the final rule will
increase deterrence of unfair or deceptive acts or practices involving
consumer reviews and testimonials relative to relying on its existing
authority and that the net benefits of the rule justify its
promulgation.
---------------------------------------------------------------------------
\480\ Camp-Martin Cmt. at 2-3.
---------------------------------------------------------------------------
A second individual commenter claimed that it was unreasonable to
assume that the rule would eliminate the entire loss to consumers, in
terms of choosing products optimally, from the impact of bad
information in false reviews. The commenter asserted that deterrence
would be only partial because some circumstances would make it
difficult to identify such reviews.\481\ The Commission believes that
its estimate of the benefits of reducing manipulated reviews is
appropriate, as discussed further below. However, the Commission
presents additional sensitivity analysis below that assesses the effect
of systematic overestimation of the degree to which the rule would fix
review manipulation, and determines that, even conceding that point,
the quantified net benefits are highly positive.
---------------------------------------------------------------------------
\481\ Slezak Cmt. at 3.
---------------------------------------------------------------------------
Finally, a business offering third-party review fraud detection
tools offered research that it claimed showed that the rule would
generate benefits of $180.83 billion and that the benefits would
outweigh the costs 100:1.\482\ These estimates are similar to those of
the Commission.
---------------------------------------------------------------------------
\482\ Transparency Company Cmt. at 6-9.
---------------------------------------------------------------------------
A. Need for, and Objectives of the Final Rule
The Commission believes that the final rule will substantially
improve its ability to combat certain specified, clearly unfair or
deceptive acts or practices involving consumer reviews or testimonials.
Although such unfair or deceptive acts or practices are already
unlawful under section 5 of the FTC Act, the rule will increase
deterrence of such conduct by allowing courts to impose civil penalties
against the violators. In addition, the final rule will allow the
Commission to seek court orders requiring violators to compensate
consumers for the harms caused by their unlawful conduct. The
Commission believes that the rule will accomplish these goals without
significantly burdening honest businesses and that the rule will
provide significant benefits to consumers and honest competitors.
The final rule will allow courts to impose civil penalties under
section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A), against those
who engage in the deceptive or unfair conduct that the final rule
prohibits. The ability to obtain civil penalties is important because
it can be difficult to quantify consumer losses that stem from the use
of unfair or deceptive consumer reviews and testimonials. Without civil
penalties, persons who engage in such conduct might avoid monetary
consequences for their unlawful conduct simply because there is
insufficient evidence to link their unlawful conduct to quantifiable
losses suffered by consumers. And if there are no monetary
consequences, potential wrongdoers have little incentive to refrain
from engaging in unlawful practices. Because the final rule will allow
courts to impose civil penalties for violations, it provides the
deterrence necessary to incentivize compliance with the law, even in
cases where it is difficult to quantify consumer harm.
In addition, the final rule is necessary to allow the Commission to
recover redress more efficiently to redress consumer harm resulting
from the unfair or deceptive use of reviews or testimonials. In 2021,
the U.S. Supreme Court in AMG Capital Management, LLC
[[Page 68069]]
v. FTC \483\ ruled that section 13(b) of the FTC Act \484\ did not
authorize the Commission to seek court orders requiring wrongdoers to
return money unlawfully taken from consumers through unfair or
deceptive acts or practices or give up the unjust gains they earned
from engaging in such unlawful conduct. The AMG ruling has made it
significantly more difficult for the Commission to return money to
injured consumers, particularly in cases that do not involve rule
violations.\485\
---------------------------------------------------------------------------
\483\ 141 S. Ct. at 1352.
\484\ 15 U.S.C. 53(b).
\485\ See ANPR, 87 FR at 67425, 67425 n.1 (discussing AMG Cap.
Mgmt.).
---------------------------------------------------------------------------
Since AMG, the primary means for the Commission to return money
unlawfully taken from consumers is section 19 of the FTC Act, 15 U.S.C.
57b, which provides two paths for consumer redress. The longer path,
under section 19(a)(2), typically requires the Commission to first
conduct an administrative proceeding to determine whether the
respondent violated the FTC Act; if the Commission finds that the
respondent did so, the Commission issues a cease-and-desist order,
which might not become final until after the resolution of any
resulting appeal to a Federal court of appeals. After the conclusion of
the administrative proceeding (and any appeal), the Commission must
initiate an action in Federal court to obtain monetary relief under
section 19 and, in that action, the Commission must prove that the
violator engaged in objectively fraudulent or dishonest conduct.\486\
In effect, the section 19(a)(2) pathway requires the Commission to file
two separate actions to obtain monetary relief.
---------------------------------------------------------------------------
\486\ See 15 U.S.C. 57b(a)(2) (``If the Commission satisfies the
court that the act or practice to which the cease-and-desist order
relates is one which a reasonable man would have known under the
circumstances was dishonest or fraudulent, the court may grant
relief.'').
---------------------------------------------------------------------------
The more efficient path to monetary relief is under section
19(a)(1), which allows the Commission to recover redress in one Federal
court action for violations of a Commission rule relating to unfair or
deceptive acts or practices.\487\ Only a small portion of the
Commission's past cases challenging unfair or deceptive consumer
reviews or testimonials involved rule violations that would allow the
Commission to seek monetary relief under section 19(a)(1). With the
final rule, however, the Commission will be able to use section
19(a)(1) to obtain redress for consumer losses attributable to
violations of the rule.
---------------------------------------------------------------------------
\487\ Certain statutes, such as the Restore Online Shoppers'
Confidence Act, 15 U.S.C. 8401-05, include provisions that treat
violations of the statute as a violation of a rule for purposes of
section 19(a)(1). See 15 U.S.C. 8404(a).
---------------------------------------------------------------------------
Overall, outlawing egregious review and testimonial practices in
the final rule expands the Commission's enforcement toolkit and allows
it to deliver on its mission by stopping and deterring harmful conduct
and, in some cases, making American consumers whole when they have been
harmed. The unfair or deceptive acts or practices involving reviews and
testimonials encompassed by this final rule are prevalent and harmful
to consumers and honest businesses. Thus, the unlocking of additional
remedies through this rulemaking--particularly, the ability to obtain
civil penalties against violators and redress for consumers or others
injured by the conduct--will allow the Commission to more effectively
police and deter harmful review and testimonial practices that plague
consumers and honest businesses.
B. Anticipated Costs and Benefits of the Final Rule
As discussed below, the Commission has determined that the rule's
benefits greatly outweigh its costs. The rule promotes accuracy in
reviews and testimonials by prohibiting certain unfair or deceptive
acts or practices involving reviews and testimonials. Thus, this rule
will help the vast majority of American consumers who rely on such
reviews and testimonials to make better-informed purchase decisions.
The rule prohibits (1) the creation, sale, purchasing, or procurement
from insiders of fake or false reviews, and (2) buying of reviews
conditioned on the reviews expressing particular sentiments. It also
includes prohibitions on fake or false consumer or celebrity
testimonials, certain insider reviews without adequate disclosures,
misleading company-controlled review websites or entities, certain
review suppression practices, and the misuse of fake indicators of
social media influence.
In the analysis below, the Commission describes the anticipated
impact of the rule. Where possible, the Commission quantifies the
benefits and costs. If a benefit or cost is quantified, the Commission
indicates the sources of the data relied upon. If an assumption is
needed, the analysis makes clear which quantities are being assumed.
The Commission measures the benefits and costs of the rule against a
baseline in which no rule has been promulgated by the Commission. For
the remainder of section VI, and in the interest of brevity, the term
``reviews'' collectively refers to both reviews and testimonials.
Quantifiable benefits stem from consumer welfare improvements and
consumer time savings. With the rule, reviews will be more accurate
overall, leading consumers to purchase higher-quality products or
products that are better-matched to their preferences. The rule will
also lead to more trustworthy aggregate review ratings (e.g., star
ratings), leading some consumers to spend less time scrutinizing
reviews to determine their validity. Quantifiable costs primarily
reflect the resources spent by businesses to review the rule and to
take any preemptive or remedial steps to comply with its provisions.
Because the rule is an application of preexisting law under section 5
of the FTC Act, the Commission expects these compliance costs to be
minimal.
A period of ten years is used in the baseline scenario because FTC
rules are subject to review every ten years.\488\ Quantifiable
aggregate benefits and costs are summarized as the net present value
over this ten-year period in Table 1.1. The discount rate reflects
society's preference for receiving benefits earlier rather than later;
a higher discount rate is associated with a greater preference for
benefits in the present. The present value is obtained by multiplying
each year's net benefit by a discount factor raised to the power of the
number of years in the future the net benefit accrues.
---------------------------------------------------------------------------
\488\ Fed. Trade Comm'n, Notice Announcing Ten-Year Regulatory
Review Schedule and Request for Public Comment on the Federal Trade
Commission's Regulatory Review Program, 76 FR 41150, 41150 (July 13,
2011), https://www.govinfo.gov/content/pkg/FR-2011-07-13/pdf/2011-17513.pdf (``all rules and guides are scheduled to be reviewed ten
years after implementation and ten years after completion of a
regulatory review.'')
[[Page 68070]]
Table 1.1--Present Value of Net Benefits
[2024-2033 (in billions)]
------------------------------------------------------------------------
Present value: Present value:
low-end estimate high-end estimate
------------------------------------------------------------------------
Total Benefits:
3% Discount Rate.............. $67.40 $269.55
7% Discount Rate.............. 57.03 230.44
Total One-Time Costs.............. 0.87 0.00
Net Benefits:
3% Discount Rate.............. 66.53 269.55
7% Discount Rate.............. 56.16 230.44
------------------------------------------------------------------------
1. Estimated Benefits of the Final Rule
This section describes the beneficial impact of the rule, provides
quantitative estimates where possible, and describes benefits that are
only assessed qualitatively. The quantifiable estimates reflect
benefits stemming from the decrease in online review manipulation on
third-party platforms or company websites, which covers most of the
prohibitions contained in the rule. This analysis does not calculate
benefits from the other aspects of the rule--that is, the prohibitions
on fake or false celebrity testimonials, company-controlled entities
that deceptively purported to provide independent opinions, review
suppression, and the misuse of fake indicators of social media
influence--because of the limited quantitative research in these areas.
Some of these benefits are likely to be substantial. The quantified
benefits are presented by benefit category, rather than stemming from a
specific provision of the rule, because the relevant provisions have
the same end goal--that is, to improve the information available to
consumers by reducing the level of review manipulation. Therefore, it
is difficult to disentangle the benefits stemming from each provision.
Existing academic literature in economics, marketing, computer
science, and other fields documents the importance of online reviews;
specifically that the number of online reviews and aggregate ratings
are extremely important for consumer purchase decisions. It is widely
documented that the presence of online reviews improves consumer
welfare via reductions in both search costs and the level of
information asymmetry that exists prior to purchase.\489\
---------------------------------------------------------------------------
\489\ See, e.g., Dina Mayzlin, Promotional Chat on the Internet,
25(2) Mktg. Sci., 155-63 (2006).
---------------------------------------------------------------------------
When making purchase decisions, consumers typically have incomplete
information on product quality and attributes. Searching for additional
information is costly. Consumers incur costs--including time and effort
costs--to seek, evaluate, and integrate incoming information. Online
platforms where past users share information about their experiences
can significantly lower search costs.
Researchers have also demonstrated that consumer reviews create
value for consumers beyond a reduction in search costs. Consumers are
better able to learn of a product's quality and attributes when there
is free-flowing, non-manipulated commentary from past consumers.
Consumer reviews lead to ``better'' decisions by increasing the level
of information available prior to purchase and reducing uncertainty. By
the same token, the academic literature also documents that manipulated
or fake reviews lead to reductions in consumer welfare by leading
consumers to buy low-quality products or otherwise make suboptimal
purchase decisions.\490\
---------------------------------------------------------------------------
\490\ See, e.g., Chrysanthos Dellarocas, Strategic Manipulation
of Internet Opinion Forums: Implications for Consumers and Firms,
52(10) Mgmt. Sci., 1577-93 (2006), https://www.jstor.org/stable/pdf/20110630.pdf; Michael Anderson & Jeremy Magruder, Learning from the
Crowd: Regression Discontinuity Estimates of the Effects of an
Online Review Database, 122(563) Econ. J., 957-89 (2012); Michael
Luca & Georgios Zervas, Fake It Till You Make It: Reputation,
Competition, and Yelp Review Fraud, 62(12) Mgmt. Sci., 3412-27
(2016), https://dash.harvard.edu/handle/1/22836596; Jonathan Zinman
& Eric Zitzewitz, Wintertime for Deceptive Advertising?, 8(1) Am.
Econ. J. Applied, 177-92 (2016), https://www.aeaweb.org/articles?id=10.1257/app.20130346; Imke Reiners & Joel Waldfogel,
Digitization and Pre-purchase Information: The Causal and Welfare
Impacts of Reviews and Crowd Ratings, 111(6) Am. Econ. Rev., 1944-71
(2021), https://www.aeaweb.org/articles?id=10.1257/aer.20200153.
---------------------------------------------------------------------------
A secondary benefit is deterrence of the specified review
practices. The rule is essentially the only means for imposing civil
penalties in most cases involving such practices. Civil penalties are
not available for conduct that violates section 5(a)'s prohibition on
unfair or deceptive acts or practices--rather, a violation of an FTC
rule is necessary to impose civil penalties under section 5(m)(1)(a).
Civil penalties act as a deterrent to fraud and deception in connection
with reviews.\491\
---------------------------------------------------------------------------
\491\ In October 2021, the Commission authorized a Notice of
Penalty Offenses concerning endorsement practices that the FTC
determined to be unfair or deceptive in prior administrative cases,
including falsely claiming an endorsement by a third party;
misrepresenting whether an endorser is an actual, current, or recent
user; and failing to disclose an unexpected material connection with
an endorser. See, e.g., Press Release, Fed. Trade Comm'n, FTC Puts
Hundreds of Businesses on Notice about Fake Reviews and Other
Misleading Endorsements (Oct. 13, 2021), https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-puts-hundreds-businesses-notice-about-fake-reviews-other-misleading-endorsements. The notice
allows the agency to seek civil penalties pursuant to section
5(m)(1)(B) of the FTC Act against a company that received the notice
and then engages in conduct that the Commission previously
determined to be unfair or deceptive. 15 U.S.C. 45(m)(1)(B).
---------------------------------------------------------------------------
To obtain redress without alleging a rule violation, the Commission
must typically first determine in an administrative proceeding that the
respondent violated the FTC Act, successfully defend that determination
in any appeal to a Federal court of appeals, and then initiate a second
action in Federal district court under section 19(a)(2) in which the
Commission must prove that the conduct at issue is ``one which a
reasonable man would have known under the circumstances was dishonest
or fraudulent.'' \492\ Although these requirements are likely to be
satisfied in cases involving the conduct covered by
---------------------------------------------------------------------------
\492\ 15 U.S.C. 57b(a)(2). Depending on the egregiousness of the
misconduct and the harm it is causing, the Commission also may seek
preliminary injunctive relief in Federal court. 15 U.S.C. 53(b).
---------------------------------------------------------------------------
[[Page 68071]]
the rule, it would take substantially more time and resources, and
would significantly delay any redress to consumers, compared to a
single Federal court action alleging a rule violation, in which the
court adjudicates both whether the defendant violated the rule and, if
so, the appropriate amount of monetary relief to award.\493\
---------------------------------------------------------------------------
\493\ See, e.g., Press Release, Fed. Trade Comm'n, Marketers of
Ab Force Weight Loss Device Agree to Pay $7 Million for Consumer
Redress (Jan. 14, 2009), https://www.ftc.gov/news-events/news/press-releases/2009/01/marketers-ab-force-weight-loss-device-agree-pay-7-million-consumer-redress (describing a 2009 settlement of a follow-
on section 19(a)(2) action against Telebrands Corp. that was brought
after the conclusion of litigation over a 2003 administrative
complaint alleging violations of section 5).
---------------------------------------------------------------------------
Given the prevalence of unfair or deceptive conduct involving
reviews and testimonials, the Commission will have no shortage of bad
actors to investigate; it can invest the extra resources freed up by
the final rule into more investigations and actions with respect to
consumer reviews or testimonials. In sum, the potential consumer-
redress benefits of the rule are significant: the Commission can put a
stop to more inarguably unfair or deceptive consumer reviews, return
more money to consumers, and obtain that redress more quickly.
a. Consumer Welfare Benefits From Better-Informed Purchase Decisions
The study containing the most direct estimate of welfare losses
from review manipulation finds that the presence of fake reviews leads
consumers to lose $0.12 for every dollar spent in an experimental
setting.\494\ The study considers a limited number of kinds of review
manipulation, which notably does not include suppression of negative
reviews or misrepresenting the independence of reviews, which might
mean that $0.12 is an underestimate of the effect of the rule. However,
the study also measures the effect of complete elimination of inflated
star ratings and false written narratives, which might mean that $0.12
is an overestimate of the effect of the rule. Thus, the Commission
believes that a reasonable proxy for the effect of the rule's
elimination of much review manipulation is that consumers will gain an
estimated $0.12 for every dollar spent on goods whose online reviews
included fake or false ones.
---------------------------------------------------------------------------
\494\ See Jesper Akesson et al., The Impact of Fake Reviews on
Demand and Welfare, National Bureau of Economic Research Working
Paper 31836, Nov. 2023, https://www.nber.org/papers/w31836.
---------------------------------------------------------------------------
To estimate consumer welfare benefits from better-informed purchase
decisions, the Commission first estimates the total amount of sales for
which consumers consult online reviews. U.S. e-commerce sales by retail
firms totaled $1.119 trillion in 2023.\495\ The Commission assumes that
all online retail sales had some form of user-generated commentary
(e.g., on third-party review platforms or on company websites), and
that this commentary factored into consumers' purchase decisions for
these goods.
---------------------------------------------------------------------------
\495\ See U.S. Census Bureau, Quarterly Retail E-Commerce Sales
4th Quarter 2023, Feb. 20, 2024, https://www2.census.gov/retail/releases/historical/ecomm/23q4.pdf.
---------------------------------------------------------------------------
Online reviews are also important for commerce that is not
conducted online, including for revenues earned by the hospitality
industry and by other services. Sales for businesses classified as
``Food Services and Drinking Places'' by the U.S. Census totaled
$980.15 billion in 2022, which includes revenue from restaurants and
bars.\496\ The Commission assumes that consumers rely on reviews for
only a portion of these sales. Some consumers--particularly those
living in rural parts of the country and in smaller cities--may have a
small set of familiar food and drink establishments available to them,
making online reviews less influential to their decision to patronize a
particular one. Moreover, prior research has found that online reviews
do not impact revenues of chain restaurants.\497\ Accordingly, the
Commission assumes that consumers rely on reviews for twenty-five
percent of the total revenue generated in the food services and
drinking places sector (twenty-five percent of $980.15 billion, or
$245.04 billion).\498\
---------------------------------------------------------------------------
\496\ U.S. Census Bureau, Service Annual Survey (SAS), Jan. 30,
2024, https://www.census.gov/programs-surveys/sas.html (listing
total revenue of $980,153,000,000 for NAICS Code 722 in 2022, the
most recent year with data).
\497\ See Michael Luca, Reviews, Reputation, and Revenue: The
Case of Yelp.com, Harvard Bus. Sch. Working Paper 12-016 (2016).
\498\ Twenty-five percent is likely a reasonable estimate based
on the difference in revenues for new restaurants and established
restaurants. A study conducted by Toast, Inc., found that new
restaurants earn approximately $112,000 in average revenue per year.
Justin Guinn, What is the Average Restaurant Revenue for a New
Restaurant?, https://pos.toasttab.com/blog/on-the-line/average-restaurant-revenue (last visited July 5, 2024). This is
approximately twenty-five percent of average revenue for restaurants
overall ($486,000, according to the website Eat Pallet, see Shari
Mason, How Much Do Restaurants Make in a Day? Solved, May 24, 2024,
https://eatpallet.com/how-much-do-restaurants-make-in-a-day).
---------------------------------------------------------------------------
Online reviews are also important for sales in other service
sectors. In 2022, total revenue was $316.35 billion for the
accommodations sector (which includes hotels and vacation rentals), and
total revenue was $67.70 billion for personal services (including
beauty salons, barber shops, health clubs, and non-veterinary pet
care), totaling $384.05 billion for both sectors.\499\ About half of
hotel revenue is generated by business travelers, who might rely less
on online reviews than leisure travelers do.\500\ In addition, pre-paid
hotel bookings and vacation rentals booked online are already accounted
for in the e-commerce sales figure described above. Furthermore, some
consumers may be loyal customers of local salons and other personal
services, regardless of these businesses' online reputations. For these
reasons, the Commission assumes that a subset of accommodation and
personal services revenues is affected by consumer reviews. Similar to
the calculation for the food and drinking places industry, the
Commission assumes that twenty-five percent of total accommodation and
personal care services revenue is impacted by consumer reviews (twenty-
five percent of $384.05 billion, or $96.01 billion). The total
estimated revenue for services impacted by consumer reviews is $341.05
billion (the sum of $245.04 billion and $96.01 billion). Combining the
revenue estimates described above yields $1.461 trillion in estimated
sales of goods or services for which consumers incorporate reviews into
their decision-making.
---------------------------------------------------------------------------
\499\ See U.S. Census Bureau, Service Annual Survey (SAS), supra
note 496 (listing total 2022 revenue of $316,350,000,000 for NAICS
Code 721 and listing total 2022 revenue of $67,698,000,000 for NAICS
Codes 812111 through 812199 and NAICS Code 81291.
\500\ See Linchi Kwok, Will Business Travel Spending Return to
the Pre-Pandemic Level Soon?, Hospitality Net, Sept. 22, 2022,
https://www.hospitalitynet.org/opinion/4112075.html.
---------------------------------------------------------------------------
Quantitative estimates of the incidence of fake or false reviews
vary by source.\501\ Nevertheless, at least three prior studies
examining the degree of review manipulation as a proportion of
businesses or products (rather than as a proportion of reviews) contain
similar findings. According to these studies, approximately ten percent
of products or businesses have some manipulated
[[Page 68072]]
consumer reviews.\502\ Thus, a basic approximation of total e-commerce
sales involving some review manipulation is ten percent of $1.119
trillion, or $111.9 billion. Similarly, a basic approximation of
review-dependent service industry sales involving some review
manipulation is ten percent of $341.05 billion, or $34.1 billion.
---------------------------------------------------------------------------
\501\ These estimates range from the single digits to over
twenty percent. See Tripadvisor, 2023 Review Transparency Report,
https://www.tripadvisor.com/TransparencyReport2023 (last visited
July 5, 2024) (finding that 4.4 percent of review submissions were
fraudulent); Trustpilot, Transparency Report 2024, https://assets.ctfassets.net/b7g9mrbfayuu/7p63VLqZ9vmU2TB65dVdnF/6e47d9ee81c145b5e3d1e16f81bba89a/Trustpilot_Transparency_Report_2024.pdf (last visited July 5, 2024)
(stating that its software removed 6 percent of reviews due to being
fake); Yelp, 2023 Yelp Trust & Safety Report (Feb 28, 2024), https://trust.yelp.com/trust-and-safety-report/2023-report (stating that 16
percent of submitted reviews were marked as ``not recommended'' by
Yelp's software); Devesh Raval, Do Gatekeepers Develop Worse
Products? Evidence from Online Review Platforms, (Feb. 27, 2023),
https://deveshraval.github.io/reviews.pdf (Working Paper) (finding
that the share of hidden (likely fake) Yelp reviews is as high as 47
percent).
\502\ See Nan Hu et al., Manipulation of Online Reviews: An
Analysis of Ratings, Readability, and Sentiments, 52(3) Decision
Support Systems 674-84 (Feb. 2012) (finding that 10.3 percent of
books sold on Amazon had manipulated reviews); Luca, Fake It Till
You Make It: Reputation, Competition, and Yelp Review Fraud, supra
note 490 (finding that ten percent of Boston restaurants had
filtered 5-star reviews on Yelp) (Table 3, row 4); Raval, Do
Gatekeepers Develop Worse Products? Evidence from Online Review
Platforms, supra note 501 (finding that 9.7 percent of businesses
with reviews or complaints with the Better Business Bureau are of
low quality, where fake reviews inflate ratings) (Table III, column
3, row 1).
---------------------------------------------------------------------------
Importantly, online businesses that engage in review manipulation
are likely to earn less revenue than other e-commerce companies. For
example, prior research has found that independent firms and sellers
offering lower-quality products are more likely to engage in review
manipulation.\503\ Therefore, e-commerce sales affected by review
manipulation are likely to be lower than the $111.9 billion in sales
described above. A more conservative estimate of e-commerce sales
involving review manipulation can be obtained by using price
differentials of review-manipulated products versus others. Because
products with online review manipulation have price points that are
approximately 19 percent of the average price of goods sold online
(according to research using data from Amazon),\504\ a more
conservative estimate of review-manipulated products' revenue is 1.9
percent (19 percent x 10 percent) of all $1.119 trillion in e-commerce
sales, or $21.26 billion. Because the Commission does not have data on
the revenue or quantities sold of review-manipulated products, it
assumes that revenue is constant across price points and relies solely
on the price differential to approximate revenue. The Commission does
not similarly adjust revenues for non-e-commerce firms (e.g.,
restaurant and hotels) because there is less variation in prices in
those industries.
---------------------------------------------------------------------------
\503\ See, e.g., Sherry He et al., The Market for Fake Reviews,
41(5) Mktg. Sci. 896 (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3664992; Dina Mayzlin et al., Promotional
Reviews: An Empirical Investigation of Online Review Manipulation,
104(8) Am. Econ. Rev. 2421-55 (2014).
\504\ See Davide Proserpio et al., How Fake Customer Reviews
Do--and Don't--Work, Harvard Bus. Rev., Nov. 24, 2020, https://hbr.org/2020/11/how-fake-customer-reviews-do-and-dont-work. The
authors find that products sold on Amazon with manipulated reviews
are typically in the $15 to $40 price range. The midpoint of this
range ($27.50) represents 19 percent of the average product's price
($142.74, according to one study see Semrush Inc., Amazon Pricing
Study: The Most Expensive Products, Category Volatility, and
Seasonal Price Shifts, Mar. 22, 2022, https://www.semrush.com/blog/amazon-pricing-study).
---------------------------------------------------------------------------
The Commission estimates annual welfare gains by applying the $0.12
estimate, described above, to the estimated amount of U.S. sales that
are likely to have some manipulated consumer reviews, yielding an
annual estimate of welfare gains in the range of $6.64 billion (12
percent of $55.36 billion, the sum of $21.26 billion and $34.1 billion)
and $17.52 billion (12 percent of $146.0 billion, the sum of $111.9
billion and $34.1 billion). Assuming that e-commerce sales increase
linearly over the next ten years at the same rate as they did in the
past year,\505\ the present value of consumer welfare improvements from
better-informed purchasing decisions is estimated to be between $57.03
and $230.36 billion as described in Table 2.1.
---------------------------------------------------------------------------
\505\ E-commerce sales increased by 7.6 percent from 2022 to
2023. See U.S. Census Bureau, Quarterly Retail E-Commerce Sales 4th
Quarter 2023, supra note 495. Using growth in the past year to
predict future e-commerce sales results in a more conservative
estimate than using a longer time frame. E-commerce sales
experienced higher annual growth rates prior to 2021 (14 percent
from 2018 to 2019, 43 percent from 2019 to 2020, and 14 percent from
2020 to 2021) and grew 7.7 percent from 2021 to 2022. This analysis
does not project revenues for non-e-commerce industries because
linear trends during recent years are unique to the pandemic and are
unlikely to be accurate for future years.
Table 2.1--Estimated Benefits From Consumer Welfare Improvements From Purchase Decisions
[2024-2033]
----------------------------------------------------------------------------------------------------------------
Total annual welfare Total 10-year (2024- Total 10-year (2024-
improvements from 2033) welfare 2033) welfare
Percent of e-commerce revenue better-informed improvement, 3% improvement, 7%
impacted by review manipulation purchase decisions (in discount rate (in discount rate (in
billions) billions) billions)
----------------------------------------------------------------------------------------------------------------
10................................... $17.52 $230.36 $196.91
1.9.................................. 6.64 67.40 57.03
----------------------------------------------------------------------------------------------------------------
b. Consumer Time Savings From Increased Reliability of Summary Ratings
The rule's prohibitions against deceptive and unfair consumer
review acts and practices would increase the reliability of consumer
reviews. The Commission assumes that this improvement in the
dependability of reviews will lead consumers to place more trust in
aggregate measures (e.g., aggregate star ratings), which many review
settings use to summarize consumer reviews. This in turn will lead some
consumers to spend less time scrutinizing individual reviews to detect
red flags commonly found in manipulated reviews (e.g., spelling and
grammar mistakes, generic highly positive or negative statements, and
lack of detail). Therefore, the rule is likely to result in some amount
of time savings for consumers who consult online reviews before making
purchases.
Approximately eighty percent of Americans are online shoppers.\506\
Of those who shop online, fourteen percent shop online more than once a
week, twenty percent shop online once a week, twenty-three percent shop
online once every two weeks, twenty-five percent shop online once a
month, and the remainder do so every few months.\507\ Different age
groups of online shoppers spend various amounts of time reading reviews
before making a purchase decision. On average, younger consumers spend
more time reading reviews than older consumers.\508\ This analysis does
not incorporate time spent by consumers researching reviews of
[[Page 68073]]
restaurants, hotels, and other goods and services that are not
purchased online because of the limited amount of information available
regarding consumers' total time spent on such activities.
---------------------------------------------------------------------------
\506\ See Pew Research Center, Online Shopping and E-Commerce,
Dec. 19, 2016, https://www.pewresearch.org/internet/2016/12/19/online-shopping-and-e-commerce.
\507\ See Int'l Post Corp., Cross-Border E-Commerce Shopper
Survey 2022, Jan. 2023, https://www.ipc.be/-/media/documents/public/publications/ipc-shoppers-survey/onlineshoppersurvey2022.pdf.
\508\ See BrightLocal, Local Consumer Review Survey 2019, Dec.
11, 2019, https://www.brightlocal.com/research/local-consumer-review-survey-2019.
---------------------------------------------------------------------------
According to the Bureau of Labor Statistics, the average hourly
wage in 2023 was $31.48.\509\ Recent research suggests that individuals
living in the United States value their non-work time at eighty-two
percent of average hourly earnings.\510\ Thus, Americans overall value
their non-work time at $25.81 per hour on average.
---------------------------------------------------------------------------
\509\ Bureau of Labor Statistics, May 2023 National Occupational
and Wage Estimates, Unites States, https://www.bls.gov/oes/current/oes_nat.htm (listing mean hourly wage of $31.48 for all
occupations).
\510\ See Daniel S. Hamermesh, What's to Know About Time Use?,
30 J. of Econ. Survs. 198-203 (2016), https://doi.org/10.1111/joes.12107.
---------------------------------------------------------------------------
The survey data does not specify whether consumers were surveyed
regarding the time spent reading reviews before the purchase of a
single product or whether the question concerned the purchase of
multiple products. This analysis assumes that the time listed in the
survey results pertains to the purchase of a single product. It also
assumes that the implementation of the rule will reduce the time spent
reading reviews by ten percent. Combining the above figures results in
$2.49 billion in consumer time savings per year, or a present value of
$33.53 billion to $39.19 billion over a 10-year period, as described in
Table 2.2.
In addition, there are likely to be other utility-related benefits
consumers receive when reading nonmanipulated online reviews or
consulting more accurate aggregate summary measures, such as increased
satisfaction (apart from purchasing decisions) and decreased
frustration. The Commission is not able to quantify these benefits.
Finally, some consumers may spend more time reading reviews if
reviews are less likely to be fake or otherwise manipulated. This
increase in time spent reading reviews may offset any time savings from
the increased reliability of summary ratings. Therefore, the Commission
presents another scenario in Table 2.2 where consumers do not gain any
benefits from time savings. However, as before, there are likely to be
additional benefits that are difficult to quantify (e.g., decreased
frustration) that result from reading more accurate reviews, likely
yielding positive net benefits related to reading reviews even when
consumers spend more time doing so.
Table 2.2--Estimated Benefits From Time Savings
[2024-2033]
------------------------------------------------------------------------
------------------------------------------------------------------------
Scenario 1--Improved Reliability of Aggregate Measures Reduces Overall
Time Spent Reading Reviews
------------------------------------------------------------------------
Number of online shoppers, age 18-34 \a\.......... 60,467,204
Average amount of time spent reading online 0.336
reviews before making a purchase decision (in
hours), age 18-34................................
Number of online shoppers, age 35-54 \a\.......... 67,273,832
Average amount of time spent reading online 0.231
reviews before making a purchase decision (in
hours), age 35-54................................
Number of online shoppers, age 55+ \a\............ 78,920,814
Average amount of time spent reading online 0.167
reviews before making a purchase decision (in
hours), age 55+..................................
---------------------
Total amount of time all online shoppers spend 48,991,116
reading online reviews before making a
purchase decision (in hours).................
Total amount of time U.S. online shoppers 1,728,406,578
spend reading online reviews per year (in
hours) \b\...................................
Value of time for online shoppers (per hour).. $25.81
Percentage of time saved...................... 10%
Total annual time savings..................... $4,461,017,378
Total 10-year (2024-2033) time savings, 3% $39.19
discount rate (in billions)..................
Total 10-year (2024-2033) time savings, 7% $33.53
discount rate (in billions)..................
------------------------------------------------------------------------
Scenario 2--Increase in Time Spent Reading Reviews Offsets Time Savings
from Improved Reliability of Summary Measures
------------------------------------------------------------------------
No quantifiable benefit........................... $0
------------------------------------------------------------------------
\a\ 80% of age-specific total U.S. population (Source: Pew Research
Center, U.S. Census).
\b\ Adjusting for online shopping frequency (Source: International Post
Corporation).
c. Benefits Related to Competition
Accurate online reviews have been shown to improve competition.
Several studies have found that online reviews are particularly
important for independent and newer firms.\511\ Ratings are more
influential for these firms because consumers do not have strong prior
beliefs as to their quality. New entrants whose sales benefit from
online reviews typically offer higher quality goods and services. On
the other hand, lower-quality firms often experience revenue losses
with more online review activity.\512\
---------------------------------------------------------------------------
\511\ See Luca, Reviews, Reputation, and Revenue: The Case of
Yelp.com, supra note 497 (finding that chain restaurants have
declined in market share as Yelp penetration has increased); Gregory
Lewis and Georgios Zervas, The Welfare Impact of Consumer Reviews: A
Case Study of the Hotel Industry, https://economics.sas.upenn.edu/sites/default/files/filevault/u475/tawelfare.pdf (Working Paper)
(finding that demand for independent hotels is more sensitive to
reviews on Tripadvisor); Brett Hollenbeck, Online Reputation
Mechanisms and the Decreasing Value of Chain Affiliation, 55(5) J.
of Mktg. Resch. 636-54 (2018), https://www.jstor.org/stable/26966532
(finding that branded, chain-affiliated hotels' premiums over
independent hotels have declined substantially largely due to online
reputation mechanisms).
\512\ See Limin Fang, ``The Effects of Online Review Platforms
on Restaurant Revenue, Consumer Learning, and Welfare'' 68(11) Mgmt.
Sci. 7793-8514 (2022).
---------------------------------------------------------------------------
Relatedly, fake, false, and manipulated online reviews allow
companies to surpass competitors. One study found that it only takes 50
fake reviews for a seller to pass any of its competitors in terms of
visibility (e.g., via rankings or search results).\513\ It follows that
by curbing the number of fake, false, or manipulated reviews, the rule
would benefit consumers by improving the competitive environment for
legitimate firms selling higher-quality products (i.e., those who do
not rely on review manipulation to sell their goods). While the
benefits resulting
[[Page 68074]]
from improvements in the competitive environment are difficult to
quantify, the Commission believes they are likely to be substantial.
---------------------------------------------------------------------------
\513\ See Theodoros Lappas et al., The Impact of Fake Reviews on
Online Visibility: A Vulnerability Assessment of the Hotel Industry,
27(4) Inf. Sys. Research 940-961 (2016), https://pubsonline.informs.org/doi/abs/10.1287/isre.2016.0674.
---------------------------------------------------------------------------
2. Estimated Costs of the Final Rule
This section describes the costs associated with the rule, provides
quantitative estimates where possible, and describes costs that are
only assessed qualitatively. While the Commission only quantifies
benefits from reduced review manipulation and not the other rule
provisions above, the Commission quantifies compliance costs for all
aspects of the rule.
a. Compliance Costs
The acts and practices prohibited by the rule are unfair or
deceptive under section 5 of the FTC Act. The rule targets acts or
practices that are clear violations of section 5, and businesses that
are already compliant will not experience any additional compliance
costs as a result of the rule. Moreover, the FTC routinely provides
guidance to businesses on complying with FTC law, which will make the
implications of the rule easy to understand for a wide range of
businesses. Finally, in response to the comments, the Commission has
both narrowed and clarified the rule requirements relative to the
proposed rule (see section IV of this document). Accordingly, one of
the scenarios reflected in Table 3.1 assumes that businesses will spend
a de minimis amount of time interpreting the rule and make no changes
to their current policies.
However, because businesses now face the potential for civil
penalties if they engage in conduct that violates the final rule,
businesses may choose to incur additional administrative burdens to
ensure compliance. The Commission presents another scenario in Table
3.1 where businesses notify their employees of the rule, conduct a
review of their processes, and take any steps they deem important to
ensure compliance. For firms that already comply with section 5 of the
FTC Act, these steps might be out of caution so as not to risk the
possibility of violating the rule. For example, some sellers may
currently flag and remove reviews on their websites that they
reasonably believe are fake. While this practice would not amount to a
violation of the relevant rule provision (Sec. 465.7(b)), the rule may
lead some businesses to choose to take extra steps to verify the
inauthenticity of such reviews before suppressing them. A business may
also decide to notify its employees of the rule. For example, if
certain employees are responsible for posting new product pages or
managing the company's social media presence, business owners may wish
to notify these employees to ensure compliance. Although cautious firms
may elect to conduct additional compliance review, the rule would not
require any additional recordkeeping or notices beyond what is required
by section 5 of the FTC Act.
For the heightened compliance review scenario in Table 3.1, the
Commission makes assumptions about the number of businesses impacted
and the number of person-hours involved in compliance activities. In
2021, there were approximately 34.77 million total firms in the United
States. Of these firms, 19,688 had 500 or more employees (``large
companies''), and the remaining 34.75 million had fewer than 500
employees (``small companies'').\514\ The Commission assumes that all
19,688 large companies had some form of online consumer review presence
(e.g., on third-party business platforms such as Yelp or Google
Reviews, or on their own websites). It assumes that 74 percent of the
34.75 million small companies (25.71 million companies) had an online
consumer review presence.\515\
---------------------------------------------------------------------------
\514\ See U.S. Census Bureau, 2021 SUSB Annual Data Tables by
Establishment Industry, https://www.census.gov/data/tables/2021/econ/susb/2021-susb-annual.html (last visited July 5, 2024) (listing
6.29 million total firms with at least one paid employee) and U.S.
Census Bureau, Nonemployer Statistics, https://www.census.gov/programs-surveys/nonemployer-statistics.html (listing 28.48 million
firms with no paid employees) (last visited July 5, 2024).
\515\ Seventy-four percent of small businesses have at least one
Google review. See BrightLocal, Google Reviews Study: How Many
Reviews Do Local Businesses Need?, Oct. 31, 2018, https://www.brightlocal.com/research/google-reviews-study/.
---------------------------------------------------------------------------
With heightened compliance review, the Commission assumes that
lawyers at large companies, whose time is valued at $70.08 per
hour,\516\ will spend eight hours conducting a one-time review of the
rule and notifying employees whose role involves creating new product
pages, managing the company's social media presence, and any other
relevant practices covered by the rule. It assumes that small company
owners, whose time is valued at $33.48,\517\ and are less likely have
formal compliance programs, spend one hour doing the same.
---------------------------------------------------------------------------
\516\ See Bureau of Labor Statistics, Occupational Outlook
Handbook: Lawyers, https://www.bls.gov/ooh/legal/lawyers.htm (last
visited July 5, 2024).
\517\ See Payscale, Average Small Business Owner Salary, https://www.payscale.com/research/US/Job=Small_Business_Owner/Salary (last
visited July 5, 2024) (reporting median base salary of $69,648 for
small business owners). We assume small business owners work 2,080
hours per year.
---------------------------------------------------------------------------
In addition, some companies may spend time reviewing their
automated processes to ensure that they comply with the rule. These
costs, which companies might incur just once or on a recurring basis,
are likely to be minimal. The Commission does not quantify these
process-related costs because, among other things, the Commission does
not know the number of firms that might undertake such a review.
The total estimated costs are tabulated in Table 3.1.
Table 3.1--Estimated Compliance Costs
------------------------------------------------------------------------
2024 Only
------------------------------------------------------------------------
Scenario 1--No Review
------------------------------------------------------------------------
No cost.............................................. $0
------------------
Total cost....................................... $0
------------------------------------------------------------------------
Scenario 2--Heightened Compliance Review
------------------------------------------------------------------------
Number of large companies (in thousands)............. 19.69
Cost per hour of rule review and related activities.. $70.08
Number of hours of rule review and related activities 8
Subtotal (in millions)............................... $11.04
Number of small companies with online reviews (in 25,715.23
thousands)..........................................
Cost per hour of rule review and related activities.. $33.48
[[Page 68075]]
Number of hours of rule review and related activities 1
Subtotal (in millions)............................... $860.95
------------------
Total cost (in millions)......................... $871.98
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b. Other Impacts of the Rule
There are several other potential effects from the rule. While the
proposed requirements are far from onerous, there is the possibility
that some sellers may ``overcorrect'' in response to the penalties
available for rule violations. For example, a firm may encounter an
excess of fake, negative reviews from a competitor. While Sec.
465.7(b) permits the suppression of reviews that the seller reasonably
believes are fake, an overcautious seller seeking to suppress fake
reviews from competitors may choose to display no reviews whatsoever so
as not to risk violating the rule. Alternatively, such a firm may take
no action towards suspected fake reviews to avoid a possible rule
violation. Both of these hypothetical scenarios would likely hurt the
information environment for consumers. The Commission believes that
such unintended consequences of the rule are very unlikely, especially
in light of how the rule has been clarified and narrowed in response to
the comments.
C. Reasonable Alternatives and Explanation of Why Particular
Alternative Chosen
The Commission has attempted to catalog and quantify the
incremental benefits and costs of the provisions included in the final
rule. Extrapolating these benefits over the 10-year assessment period
and discounting to the present provides an estimate of the present
value for total benefits and costs of the rule, with the difference--
net benefits--providing one measure of the value of regulation.
Using our low-end estimate above, the present value of quantified
benefits for consumers from the rule's requirements over a 10-year
period using a 7% discount rate is estimated at $57.03 billion. The
present value of quantified costs for covered firms of complying with
the rule's requirements over a 10-year period using a 7% discount rate
is estimated at $0.83 billion. This generates an estimate of the
present value of quantified net benefits equal to $56.16 billion using
a discount rate of 7%. Using the upper-end assumptions discussed in the
preceding analysis results in net benefits of $230.44 billion using a
discount rate of 7%.
To examine the sensitivity of the net benefits conclusions to the
possibility of systematic underestimating of compliance costs, the
Commission calculates costs and benefits in a scenario where all labor
costs turn out to be ten times larger than the parameter values in the
heightened compliance review scenario. For both small and large
companies, the number of hours of rule review and related activities
are increased by a factor of ten. All benefits and other cost
parameters are unchanged in this analysis. With these new parameters,
compliance review will cost $8.72 billion in 2024, and the present
value of quantified net benefits will be equal to $48.31 billion using
a discount rate of 7%. Thus, while the Commission believes compliance
costs in the heightened compliance scenario are likely overestimates,
even if they are instead severe underestimates, the quantified net
benefits are highly positive.
To examine the sensitivity of the net benefits conclusions to the
possibility of systematic overestimating of the effectiveness of
deterrence, the Commission calculates costs and benefits in a scenario
in which the rule only partially eliminates the welfare losses to
consumers caused by the various types of review manipulation covered by
the rule. For this scenario, the Commission instead assumes that
consumers will gain an estimated $0.04, rather than $0.12, for every
dollar spent on goods whose online reviews included fake or false ones,
the minimum welfare improvement reported for partial elimination of
review manipulation in the study on which these estimates are
based.\518\ Under this scenario, the present value of quantified net
benefits under a 7% discount rate is $18.14 billion instead of $56.16
billion. Combining the two scenarios, if the Commission both
systematically underestimates compliance costs and systematically
overestimates the effectiveness of the rule in preventing review
manipulation, the present value of quantified net benefits under a 7%
discount rate is $10.29 billion. Thus, even if the main compliance cost
estimates above are underestimates and the main welfare benefits above
are overestimates, the quantified net benefits are highly positive.
---------------------------------------------------------------------------
\518\ See Akesson, The Impact of Fake Reviews on Demand and
Welfare, supra note 494 (reviews for inferior products that had
inflated star ratings but accurate written narratives caused
consumers to lose $0.04 in welfare for every dollar spent).
---------------------------------------------------------------------------
One alternative to the final rule would be to terminate the
rulemaking and rely instead on the existing tools that the Commission
currently possesses to combat the specified review and testimonial
practices, such as consumer education and enforcement actions brought
under sections 5 and 19 of the FTC Act. Failing to strengthen the set
of tools available in support of the Commission's enforcement program
against unfair or deceptive consumer reviews or testimonials would
deprive it of the net benefits outlined above.
The Commission expects unquantified benefits to outweigh
unquantified costs for this rule. As noted above, the benefits from
several rule provisions are unquantified, while the compliance costs of
all rule provisions are quantified. Thus, the quantified net benefits
of $56.16 billion above likely underestimate the benefits to the
public. Furthermore, these estimates are robust to uncertainty. Even
assuming systematic underestimation of compliance costs and systematic
overestimation of the rule effectiveness, the quantified net benefits
are large and positive. Therefore, this regulatory analysis indicates
that adoption of the rule will result in benefits to the public that
outweigh the costs.
VII. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501 et seq.,
requires Federal agencies to seek and obtain Office of Management and
Budget (``OMB'') approval before undertaking a collection of
information directed to ten or more persons. As part of the NPRM, the
Commission noted that the proposed rule did not contain an information
collection requirement. However, for the purpose of confirmation, in
Question 4 of the NPRM, the Commission nonetheless asked commenters
whether the proposed rule contained a collection
[[Page 68076]]
of information.\519\ One commenter responded, ``Yes, it does. It
contains our research and others' research, as well as valuable
estimates to harm/costs for all 3 parties: consumers, businesses, and
government.'' \520\ The Commission believes that this commenter was
addressing whether the NPRM was collecting information, as opposed to
whether the proposed rule would contain a collection of information
within the meaning of the PRA. No other comments responding to the NPRM
or Notice of Hearing addressed this question. While the Commission
finalizes the proposed rule with some limiting modifications and
clarifications based on the comments it received, it has not added any
new requirements that would collect information from the public.
Accordingly, the Commission has determined that the final rule neither
includes a new collection of information, nor modifies an existing
collection of information.
---------------------------------------------------------------------------
\519\ NPRM, 88 FR 49388.
\520\ Transparency Company Cmt. at 10.
---------------------------------------------------------------------------
VIII. Regulatory Flexibility Act--Final Regulatory Flexibility Analysis
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires an agency to provide an Initial Regulatory Flexibility
Analysis (``IRFA'') with a proposed rule and a Final Regulatory
Flexibility Analysis (``FRFA'') with a final rule, if any, unless the
Commission certifies that the rule will not have a significant economic
impact on a substantial number of small entities.\521\ The purpose of a
regulatory flexibility analysis is to ensure that an agency considers
potential impacts on small entities and examines regulatory
alternatives that could achieve the regulatory purpose while minimizing
burdens on small entities.
---------------------------------------------------------------------------
\521\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------
In the NPRM, the Commission provided an IRFA, stating its belief
that the proposal will not have a significant economic impact on small
entities, and soliciting comments on its burden estimate. In addition
to publishing the NPRM in the Federal Register, the Commission
announced the proposed rule through press and other releases. The
Commission received comments from small businesses and associations
that represent small businesses. In order to reduce compliance burdens
on small businesses and other small entities, the Commission finalizes
the proposed rule with some limiting modifications and clarifications
as described in section IV of this document.
The Commission believes that the rule will not have a significant
economic impact upon small entities, although it may affect a
substantial number of small businesses. The rule primarily prohibits
certain unfair or deceptive acts or practices involving consumer
reviews or testimonials and does not impose a reporting or
recordkeeping requirement upon businesses. In addition, the Commission
does not anticipate these changes will impose any additional
significant additional costs upon small businesses. Specifically, as
discussed in further detail below, the Commission anticipates than an
average small business will spend, at most, one hour on compliance
review, incurring a cost of $33.48.\522\ Therefore, the rule imposes no
new significant burdens on law-abiding small businesses. The Commission
has determined, nonetheless, that it is appropriate to publish an FRFA
to identify the impact of the rule on small entities. Therefore, the
Commission has prepared the following analysis:
---------------------------------------------------------------------------
\522\ See infra section VIII.F of this document.
---------------------------------------------------------------------------
A. Reasons for the Rule
The Commission describes the reasons for the rule in section VI.A.
of this document. The FTC's law enforcement, outreach, and other
engagement in this area indicate that certain unfair or deceptive acts
or practices involving consumer reviews or testimonials are prevalent.
The rule will benefit consumers and legitimate businesses without
imposing significant burdens.
B. Statement of the Objectives of, and Legal Basis for, the Rule
The Commission describes the objectives for the rule in section
VI.A of this document. The legal basis for the rule is section 18 of
the FTC Act, 15 U.S.C. 57a, which authorizes the Commission to
promulgate, modify, and repeal trade regulation rules that define with
specificity acts or practices in or affecting commerce that are unfair
or deceptive within the meaning of section 5(a)(1) of the FTC Act, 15
U.S.C. 45(a)(1).
C. Issues Raised by Comments, the Commission's Assessment and Response,
and Any Changes Made as a Result
One individual commenter accepted the Commission's estimated
compliance costs on small businesses but said it was unfair that
``small companies with online reviews would bear almost all of the
[rule's] estimated compliance costs.'' \523\ As the Commission stated
in the NPRM, it is likely that only a minority of small businesses
would elect to conduct optional compliance review and the total
compliance costs for small businesses is likely to be significantly
lower than the Commission's estimate.\524\
---------------------------------------------------------------------------
\523\ Camp-Martin Cmt. at 2-3.
\524\ NPRM, 88 FR 49388.
---------------------------------------------------------------------------
One trade association simply asserted that certain provisions of
the proposed rule could be detrimental to small businesses but did not
specifically address the IRFA.\525\ This commenter expressed concern
about: (1) civil penalty exposure for failing to stop the actions of
undiscovered third parties providing reviews and testimonials appearing
on a business's website; (2) a subsequent broadening of the proposed
rule to prohibit incentivized reviews other than those required to
express a particular sentiment; and (3) potential liability when an
agent's review or testimonial appears without a disclosure.\526\ The
Commission addresses these specific concerns in section IV of this
document and has narrowed the rule or provided clarification as
appropriate.
---------------------------------------------------------------------------
\525\ IAB Cmt. at 1-15.
\526\ Id. at 2, 5-6, 8-9, 10.
---------------------------------------------------------------------------
The Commission does not believe that it needs to make any changes
to its IRFA in response to these comments.
Section IV provides a section-by-section analysis that discusses
the provisions proposed in the NPRM, the comments received, the
Commission's responses to the comments, and any changes made by the
Commission as a result.
D. Comments by the Chief Counsel for Advocacy of the SBA, the
Commission's Assessment and Response, and Any Changes Made as a Result
The Commission did not receive any comments from the Chief Counsel
for Advocacy of the SBA.
E. Description and Estimate of the Number of Small Entities to Which
the Rule Will Apply
The final rule could impact small entities that currently have, or
might potentially, solicit consumer reviews or disseminate consumer
testimonials. It could also impact small entities that use celebrity
testimonials or have a social media presence. It is likely that the
rule will primarily affect businesses that sell products or services
directly to consumers. For example, the rule is less likely to impact
small entities that manufacture niche raw materials for other
businesses or small agricultural
[[Page 68077]]
firms that do not sell directly to consumers. Nevertheless, for a
conservative estimate of total costs, the Commission assumes that the
rule will impact all industry classes of small entities.
As described in section VI.B.2 of this document, there are
approximately 34.75 million small businesses in the United States.
Prior research has found that 74 percent of small businesses have at
least one Google review.\527\ On the one hand, it is possible that,
across all platforms (beyond Google reviews), a higher percentage of
small businesses have consumer reviews or testimonials, celebrity
testimonials, or a social media presence. On the other hand, it is
likely that many of these firms do not interact with reviews and such
passive firms would not be affected by the rule. The Commission does
not have the appropriate data to refine this estimate. Therefore, its
best estimate is that no more than 25.71 million (74 percent x 34.75
million) small businesses will be impacted by the rule.
---------------------------------------------------------------------------
\527\ See supra note 515.
---------------------------------------------------------------------------
F. Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements
The rule contains no reporting or recordkeeping requirements.
Therefore, many law-abiding businesses are likely to incur no
additional compliance costs with the rule.
As described in section VI.B.2 of this document, a cautious firm
may elect to undertake additional compliance review due to the
potential for civil penalties for rule violations. If every small
business impacted by the rule conducts one hour of compliance review,
each firm would incur $33.48 of compliance costs, which reflects the
estimated hourly earnings of a small business owner.\528\ Therefore,
under the conservative estimate of heightened compliance review for all
small businesses, costs to small businesses would total $860.95 million
(25.71 million x $33.48). Because it is likely that only a minority of
small businesses will elect to conduct optional compliance review,
total compliance costs for these entities are likely to be
significantly lower than this estimate.
---------------------------------------------------------------------------
\528\ See Payscale, Average Small Business Owner Salary, supra
note 517.
---------------------------------------------------------------------------
G. Description of Steps Taken To Minimize Impact of the Rule on Small
Entities
In response to comments, the Commission has narrowed the rule and
clarified the rule requirements as described in section IV of this
document, which should minimize further any economic impact on small
entities. In its IRFA, the Commission described an alternative to the
proposed rule, namely, to rely on the Commission's previously existing
tools, such as consumer education and enforcement actions brought under
sections 5 and 19 of the FTC Act, to combat the specified review and
testimonial practices. The Commission believes that promulgation of the
rule will result in greater net benefits to the marketplace while
imposing no additional burdens beyond what is required by the FTC Act.
As described in further detail in section VI.B.1.c of this document,
the rule will not only result in significant benefits to consumers but
also improve the competitive environment, particularly for small,
independent, or new firms. Therefore, the rule appears to be superior
to this alternative for small entities.
IX. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs has designated this
rule as a ``major rule,'' as defined by 5 U.S.C. 804(2).
List of Subjects in 16 CFR Part 465
Advertising.
0
For the reasons set forth above, the Federal Trade Commission amends 16
CFR Chapter I by adding part 465 to read as follows:
PART 465--RULE ON THE USE OF CONSUMER REVIEWS AND TESTIMONIALS
Sec.
465.1 Definitions.
465.2 Fake or false consumer reviews, consumer testimonials, or
celebrity testimonials.
465.3 [Reserved]
465.4 Buying positive or negative consumer reviews.
465.5 Insider consumer reviews and consumer testimonials.
465.6 Company-controlled review websites or entities.
465.7 Review suppression.
465.8 Misuse of fake indicators of social media influence.
465.9 Severability
Authority: 15 U.S.C. 57a.
Sec. 465.1 Definitions.
(a) Business means an individual who sells products or services, a
partnership that sells products or services, a corporation that sells
products or services, or any other commercial entity that sells
products or services.
(b) Celebrity testimonial means an advertising or promotional
message (including verbal statements, demonstrations, or depictions of
the name, signature, likeness, or other identifying personal
characteristics of an individual) that consumers are likely to believe
reflects the opinions, beliefs, or experiences of a well-known
individual who purchased, used, or otherwise had experience with a
product, service, or business.
(c) Clear and conspicuous means that a required disclosure is
easily noticeable (i.e., difficult to miss) and easily understandable
by ordinary consumers, including in all of the following ways:
(1) In any communication that is solely visual or solely audible,
the disclosure must be made through the same means through which the
communication is presented. In any communication made through both
visual and audible means, such as a television advertisement, the
disclosure must be presented in at least the same means as the
representation(s) requiring the disclosure.
(2) A visual disclosure, by its size, contrast, location, the
length of time it appears, and other characteristics, must stand out
from any accompanying text or other visual elements so that it is
easily noticed, read, and understood.
(3) An audible disclosure, including by telephone or streaming
video, must be delivered in a volume, speed, and cadence sufficient for
ordinary consumers to easily hear and understand it.
(4) In any communication using an interactive electronic medium,
such as social media or the internet, the disclosure must be
unavoidable. A disclosure is not clear and conspicuous if a consumer
must take any action, such as clicking on a hyperlink or hovering over
an icon, to see it.
(5) The disclosure must use diction and syntax understandable to
ordinary consumers and must appear in each language in which the
representation that requires the disclosure appears.
(6) The disclosure must comply with these requirements in each
medium through which it is received, including all electronic devices
and face-to-face communications.
(7) The disclosure must not be contradicted or mitigated by, or
inconsistent with, anything else in the communication.
(8) When the representation or sales practice targets a specific
audience, such as children, the elderly, or the terminally ill,
``ordinary consumers'' includes members of that group.
(d) Consumer review means a consumer's evaluation, or a purported
consumer's evaluation, of a product, service, or business that is
submitted by
[[Page 68078]]
the consumer or purported consumer and that is published to a website
or platform dedicated in whole or in part to receiving and displaying
such evaluations. For the purposes of this part, consumer reviews
include consumer ratings regardless of whether they include any text or
narrative.
(e) Consumer review hosting means providing the technological means
by which a website or platform enables consumers to see or hear the
consumer reviews that consumers have submitted to the website or
platform.
(f) Consumer testimonial means an advertising or promotional
message (including verbal statements, demonstrations, or depictions of
the name, signature, likeness, or other identifying personal
characteristics of an individual) that consumers are likely to believe
reflects the opinions, beliefs, or experiences of a consumer who has
purchased, used, or otherwise had experience with a product, service,
or business.
(g) Distribute fake indicators of social media influence means the
distribution of fake indicators of social media influence to
individuals or businesses who could use the indicators to misrepresent
their influence.
(h) Fake indicators of social media influence means indicators of
social media influence generated by bots, purported individual accounts
not associated with a real individual, accounts created with a real
individual's personal information without their consent, or hijacked
accounts, or that otherwise do not reflect a real individual's or
entity's activities, opinions, findings, or experiences.
(i) Immediate Relative means a spouse, parent, child, or sibling.
(j) Indicators of social media influence means 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, saves, shares, reposts, and comments.
(k) Manager means an employee of a business who supervises other
employees or agents and who either holds the title of a ``manager'' or
otherwise serves in a managerial role.
(l) Officers include owners, executives, and managing members of a
business.
(m) Purchase a consumer review means to provide something of value,
such as money, gift certificates, products, services, discounts,
coupons, contest entries, or another review, in exchange for a consumer
review.
(n) Reviewer means the author or purported author of a consumer
review.
(o) Testimonialist means the individual giving or purportedly
giving a consumer testimonial or celebrity testimonial.
(p) An unfounded or groundless legal threat is a legal threat based
on claims, defenses, or other legal contentions unwarranted by existing
law or based on factual contentions that have no evidentiary support or
will likely have no evidentiary support after a reasonable opportunity
for further investigation or discovery.
Sec. 465.2 Fake or false consumer reviews, consumer testimonials, or
celebrity testimonials.
(a) It is an unfair or deceptive act or practice and a violation of
this part for a business to write, create, or sell a consumer review,
consumer testimonial, or celebrity testimonial that materially
misrepresents, expressly or by implication:
(1) That the reviewer or testimonialist exists;
(2) That the reviewer or testimonialist used or otherwise had
experience with the product, service, or business that is the subject
of the review or testimonial; or
(3) The reviewer's or testimonialist's experience with the product,
service, or business that is the subject of the review or testimonial.
(b) It is an unfair or deceptive act or practice and a violation of
this part for a business to purchase a consumer review, or to
disseminate or cause the dissemination of a consumer testimonial or
celebrity testimonial, about the business or one of the products or
services it sells, which the business knew or should have known
materially misrepresented, expressly or by implication:
(1) That the reviewer or testimonialist exists;
(2) That the reviewer or testimonialist used or otherwise had
experience with the product, service, or business that is the subject
of the review or testimonial; or
(3) The reviewer's or testimonialist's experience with the product,
service, or business that is the subject of the review or testimonial.
(c) It is an unfair or deceptive act or practice and a violation of
this part for a business to procure a consumer review from its
officers, managers, employees, or agents, or any of their immediate
relatives, for posting on a third-party platform or website, when the
review is about the business or one of the products or services it
sells, and when the business knew or should have known that the review
materially misrepresented, expressly or by implication:
(1) That the reviewer exists;
(2) That the reviewer used or otherwise had experience with the
product, service, or business that is the subject of the review; or
(3) The reviewer's experience with the product, service, or
business that is the subject of the review.
(d) However, paragraphs (b) and (c) of this section do not apply
to:
(1) Reviews or testimonials that resulted from a business making
generalized solicitations to purchasers to post reviews or testimonials
about their experiences with the product, service, or business; or
(2) Reviews that appear on a website or platform as a result of the
business merely engaging in consumer review hosting.
Sec. 465.3 [Reserved]
Sec. 465.4 Buying positive or negative consumer reviews.
It is an unfair or deceptive act or practice and a violation of
this part for a business to provide compensation or other incentives in
exchange for, or conditioned expressly or by implication 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.
Sec. 465.5 Insider consumer reviews and consumer testimonials.
(a) It is an unfair or deceptive act or practice and a violation of
this part for an officer or manager of a business to write or create a
consumer review or consumer testimonial about the business or one of
the products or services it sells that fails to have a clear and
conspicuous disclosure of the officer's or manager's material
relationship to the business, unless, in the case of a consumer
testimonial, the relationship is otherwise clear to the audience.
(b)(1) It is an unfair or deceptive act or practice and a violation
of this part for a business to disseminate or cause the dissemination
of a consumer testimonial about the business or one of the products or
services it sells by one of its officers, managers, employees, or
agents, which fails to have a clear and conspicuous disclosure of the
testimonialist's material relationship to the business, when the
relationship is not otherwise clear to the audience and the business
knew or should have known the testimonialist's relationship to the
business.
[[Page 68079]]
(2) However, paragraph (b)(1) of this section does not apply to:
(i) Generalized solicitations to purchasers for them to post
testimonials about their experiences with the product, service, or
business, or
(ii) Merely engaging in consumer review hosting.
(c)(1) It is an unfair or deceptive act or practice and a violation
of this part for an officer or manager of a business to solicit or
demand a consumer review about the business or one of the products or
services it sells from any of their immediate relatives or from any
employee or agent of the business, or to solicit or demand that such
employees or agents seek such reviews from their relatives, when:
(i) The solicitation or demand results in an officer's or manager's
immediate relatives, an employee or agent, or the immediate relatives
of an employee or agent writing or creating such a review without a
disclosure of the reviewer's material relationship to the business, and
(ii) The officer or manager:
(A) Encouraged the prospective reviewer not to make such a
disclosure,
(B) Did not instruct that prospective reviewers disclose clearly
and conspicuously their relationship to the business, or
(C) knew or should have known that such a review appeared without
such a disclosure and failed to take remedial steps.
(2) However, paragraph (c)(1) of this section does not apply to
generalized solicitations to purchasers for them to post reviews about
their experiences with the product, service, or business.
Sec. 465.6 Company-controlled review websites or entities.
It is an unfair or deceptive act or practice and a violation of
this part for a business to materially misrepresent, expressly or by
implication, that a website, organization, or entity that it controls,
owns, or operates provides independent reviews or opinions, other than
consumer reviews, about a category of businesses, products, or services
including the business or one or more of the products or services it
sells.
Sec. 465.7 Review suppression.
It is an unfair or deceptive act or practice and a violation of
this part:
(a) For anyone to use an unfounded or groundless legal threat, a
physical threat, intimidation, or a public false accusation in response
to a consumer review that is made with the knowledge that the
accusation was false or made with reckless disregard as to its truth or
falsity, in an attempt to:
(1) Prevent a review or any portion thereof from being written or
created, or
(2) Cause a review or any portion thereof to be removed, whether or
not that review or a portion thereof is replaced with other content, or
(b) For a business to materially misrepresent, expressly or by
implication, that the consumer reviews of one or more of the products
or services it sells displayed in a portion of its website or platform
dedicated in whole or in part to receiving and displaying consumer
reviews represent most or all the reviews submitted to the website or
platform when reviews are being suppressed (i.e., not displayable)
based upon their ratings or their negative sentiment. For purposes of
this paragraph, a review is not considered suppressed based upon rating
or negative sentiment if the suppression occurs based on criteria for
withholding reviews that are applied equally to all reviews submitted
without regard to sentiment, such as when:
(1) The review contains:
(i) Trade secrets or privileged or confidential commercial or
financial information,
(ii) Defamatory, harassing, abusive, obscene, vulgar, or sexually
explicit content,
(iii) The personal information or likeness of another individual,
(iv) Content that is discriminatory with respect to race, gender,
sexuality, ethnicity, or another intrinsic characteristic, or
(v) Content that is clearly false or misleading;
(2) The seller reasonably believes the review is fake; or
(3) The review is wholly unrelated to the products or services
offered by or available at the website or platform.
Sec. 465.8 Misuse of fake indicators of social media influence.
It is an unfair or deceptive act or practice and a violation of
this part for anyone to:
(a) Sell or distribute fake indicators of social media influence
that they knew or should have known to be fake and that can be used by
individuals or businesses to materially misrepresent their influence or
importance for a commercial purpose; or
(b) Purchase or procure fake indicators of social media influence
that they knew or should have known to be fake and that materially
misrepresent their influence or importance for a commercial purpose.
Sec. 465.9 Severability.
The provisions of this part are separate and severable from one
another. If any provision is stayed or determined to be invalid, the
remaining provisions will continue in effect.
By direction of the Commission.
April J. Tabor,
Secretary.
[FR Doc. 2024-18519 Filed 8-21-24; 8:45 am]
BILLING CODE 6750-01-P