Rule2024-18519
Trade Regulation Rule on the Use of Consumer Reviews and Testimonials
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 22, 2024
Effective
October 21, 2024
Issuing agencies
Federal Trade Commission
Abstract
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.
Full Text
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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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
[[Page 68035]]
(``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''], <a href="https://www.federalregister.gov/documents/2022/11/08/2022-24139/trade-regulation-rule-on-the-use-of-reviews-and-endorsements">https://www.federalregister.gov/documents/2022/11/08/2022-24139/trade-regulation-rule-on-the-use-of-reviews-and-endorsements</a>. 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 <a href="https://www.regulations.gov/docket/FTC-2022-0070/comments">https://www.regulations.gov/docket/FTC-2022-0070/comments</a>.
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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''], <a href="https://www.federalregister.gov/documents/2023/07/31/2023-15581/trade-regulation-rule-on-the-use-of-consumer-reviews-and-testimonials">https://www.federalregister.gov/documents/2023/07/31/2023-15581/trade-regulation-rule-on-the-use-of-consumer-reviews-and-testimonials</a>.
\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 <a href="https://www.regulations.gov/document/FTC-2023-0047-0001/comment">https://www.regulations.gov/document/FTC-2023-0047-0001/comment</a>.
\11\ Fake Review Watch, Cmt. on NPRM at 4-5 (Aug. 8, 2023),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0015">https://www.regulations.gov/comment/FTC-2023-0047-0015</a> (``Fake
Review Watch Cmt.''); Interactive Advertising Bureau, Cmt. on NPRM
at 14-15 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0101">https://www.regulations.gov/comment/FTC-2023-0047-0101</a> (``IAB Cmt.''); Researchers at Brigham Young
University, Pennsylvania State University, and Emory University,
Cmt. on NPRM at 4 (Sept. 22, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0060">https://www.regulations.gov/comment/FTC-2023-0047-0060</a> (``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''], <a href="https://www.federalregister.gov/documents/2024/01/16/2024-00678/rule-on-the-use-of-consumer-reviews-and-testimonials">https://www.federalregister.gov/documents/2024/01/16/2024-00678/rule-on-the-use-of-consumer-reviews-and-testimonials</a>.
\13\ The comments are publicly available on this rulemaking's
docket at <a href="https://www.regulations.gov/docket/FTC-2024-0004/comments">https://www.regulations.gov/docket/FTC-2024-0004/comments</a>.
\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, <a href="https://www.ftc.gov">https://www.ftc.gov</a>.
\16\ A transcript of the February 13 hearing session is
available at <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/transcript-consumer-reviews-and-testimonials-rule-informal-hearing-feb-13-2024.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/transcript-consumer-reviews-and-testimonials-rule-informal-hearing-feb-13-2024.pdf</a> [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),
<a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240213.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240213.pdf</a>.
\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), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmission20240220.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmission20240220.pdf</a>.
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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), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/p311003aljorder20240226.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/p311003aljorder20240226.pdf</a>.
\22\ Id.
\23\ Id.
\24\ Order by Presiding Officer Foelak (Feb. 28, 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003_alj_order_3_2024.02.28.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003_alj_order_3_2024.02.28.pdf</a>.
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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
<a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf</a>. See also, Interactive
Advertising Bureau's Submission of Exhibits (Mar. 5, 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmissionexhibits20240305.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmissionexhibits20240305.pdf</a>.
\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), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240304-1.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240304-1.pdf</a>.
\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), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabposthearingbrief20240313.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabposthearingbrief20240313.pdf</a>.
\28\ See Transcript of Informal Hearing on Proposed Trade
Regulation Rule on the Use of Consumer Reviews and Testimonials
(Mar. 6, 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf</a>.
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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),
<a href="https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljdecision20240508.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljdecision20240508.pdf</a>. 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
[[Page 68037]]
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\
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\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.
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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\
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\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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0088">https://www.regulations.gov/comment/FTC-2023-0047-0088</a> (``Yelp Cmt.''); The
Transparency Company, Cmt. on NPRM at 1, 5 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0107">https://www.regulations.gov/comment/FTC-2023-0047-0107</a> (``Transparency
Company Cmt.'').
\58\ Trustpilot, Cmt. on NPRM at 2 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0084">https://www.regulations.gov/comment/FTC-2023-0047-0084</a> (``Trustpilot
Cmt.'').
\59\ Family First Life, LLC, Cmt. on NPRM at 2 (Sept. 29, 2023),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0104">https://www.regulations.gov/comment/FTC-2023-0047-0104</a> (``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),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0099">https://www.regulations.gov/comment/FTC-2023-0047-0099</a> (``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.
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\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\
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\65\ Amelia Markey, Cmt. on NPRM (July 31, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0003">https://www.regulations.gov/comment/FTC-2023-0047-0003</a> (``Markey Cmt.'');
Chris Hippensteel, Cmt. on NPRM (Aug. 1, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0006">https://www.regulations.gov/comment/FTC-2023-0047-0006</a> (``Hippensteel
Cmt.''); Jeremy Anderson, Cmt. on NPRM (Aug. 1, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0007">https://www.regulations.gov/comment/FTC-2023-0047-0007</a> (``Anderson Cmt.'');
Caroline Fribance, Cmt. on NPRM (Aug. 11, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0017">https://www.regulations.gov/comment/FTC-2023-0047-0017</a> (``Fribance Cmt.'');
Pia Edborg, Cmt. on NPRM (Aug. 17, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0027">https://www.regulations.gov/comment/FTC-2023-0047-0027</a> (``Edborg Cmt.'');
Anonymous 1, Cmt. on NPRM (Aug. 20, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0031">https://www.regulations.gov/comment/FTC-2023-0047-0031</a> (``Anonymous 1
Cmt.''); Jessica Ludlam, Cmt. on NPRM (Aug. 24, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0036">https://www.regulations.gov/comment/FTC-2023-0047-0036</a> (``Ludlam Cmt.'');
SUPERGUEST, Cmt. on NPRM (Sept. 8, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0046">https://www.regulations.gov/comment/FTC-2023-0047-0046</a> (``Superguest
Cmt.''); Sean Poole, Cmt. on NPRM at 1-2 (Sept. 22, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0063">https://www.regulations.gov/comment/FTC-2023-0047-0063</a> (``Poole Cmt.'');
Artemio Magana, Cmt. on NPRM (Sept. 28, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0079">https://www.regulations.gov/comment/FTC-2023-0047-0079</a> (``Magana Cmt.'').
\66\ American Dental Association, Cmt. on NPRM at 1 (Sept. 28,
2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0078">https://www.regulations.gov/comment/FTC-2023-0047-0078</a> (``ADA
Cmt.''); Travel Technology Association, Cmt. on NPRM at 1, 4-5
(Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0097">https://www.regulations.gov/comment/FTC-2023-0047-0097</a> (``Travel Tech. Cmt.'').
\67\ Coalition of Civil Society Organizations, Cmt. on NPRM at
1-3 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0108">https://www.regulations.gov/comment/FTC-2023-0047-0108</a>; U.S. Public Interest Research Group Education Fund, Cmt.
on NPRM at 2 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0109">https://www.regulations.gov/comment/FTC-2023-0047-0109</a> (``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.
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\73\ Michael Ravnitzky, Cmt. on NPRM at 1-2 (Aug. 6, 2023),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0013">https://www.regulations.gov/comment/FTC-2023-0047-0013</a> (``Ravnitzky
Cmt.''); Adam Foster, Cmt. on NPRM at 1-2 (Sept. 21, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0052">https://www.regulations.gov/comment/FTC-2023-0047-0052</a> (``Foster Cmt.'');
Anonymous 2, Cmt. on NPRM at 1, 4 (Sept. 22, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0065">https://www.regulations.gov/comment/FTC-2023-0047-0065</a> (``Anonymous 2
Cmt.''); Anonymous 3, Cmt. on NPRM (Sept. 27, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0069">https://www.regulations.gov/comment/FTC-2023-0047-0069</a> (``Anonymous 3
Cmt.'').
\74\ Yelp Cmt. at 1, 5-8.
\75\ Strategic Marketing, Cmt. on NPRM (Aug. 7, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0014">https://www.regulations.gov/comment/FTC-2023-0047-0014</a>; PerfectRec Inc.,
Cmt. on NPRM at 1-3 (Aug. 23, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0035">https://www.regulations.gov/comment/FTC-2023-0047-0035</a>; Mozilla, Cmt. on NPRM at 5-7 (Sept. 28,
2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0076">https://www.regulations.gov/comment/FTC-2023-0047-0076</a>
(``Mozilla Cmt.''); The Responsible Online Commerce Coalition, Cmt.
on NPRM at 2, 4-6 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0086">https://www.regulations.gov/comment/FTC-2023-0047-0086</a>.
\76\ Fake Review Watch Cmt. at 1-4; Truth in Advertising, Inc.,
Cmt. on NPRM at 2, 4-11 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0083">https://www.regulations.gov/comment/FTC-2023-0047-0083</a> (``TINA Cmt.'');
National Consumers League, Cmt. on NPRM at 2-9 (Sept. 29, 2023),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0096">https://www.regulations.gov/comment/FTC-2023-0047-0096</a> (``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.
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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.
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\80\ Anonymous 4, Cmt. on NPRM (Sept. 1, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0040">https://www.regulations.gov/comment/FTC-2023-0047-0040</a> (``Anonymous 4
Cmt.''); Riley Albert, Cmt. on NPRM at 3 (Sept. 21, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0053">https://www.regulations.gov/comment/FTC-2023-0047-0053</a> (``Albert Cmt.'');
Alyssa Frieling, Cmt. on NPRM at 1-4 (Sept. 22, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0059">https://www.regulations.gov/comment/FTC-2023-0047-0059</a> (``Frieling Cmt.'').
\81\ Hammacher, Schlemmer and Co., Inc., Cmt. on NPRM at 1-7
(Aug. 21, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0032">https://www.regulations.gov/comment/FTC-2023-0047-0032</a> (``Hammacher Schlemmer Cmt.''); <a href="http://Amazon.com">Amazon.com</a>, Inc., Cmt. on NPRM
at 5-13 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0085">https://www.regulations.gov/comment/FTC-2023-0047-0085</a> (``Amazon Cmt.''); TechNet Cmt. on NPRM at 2-4 (Sept.
29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0089">https://www.regulations.gov/comment/FTC-2023-0047-0089</a>
(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\
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\87\ Marc Slezak, Cmt. on NPRM at 1-5 (Sept. 22, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0054">https://www.regulations.gov/comment/FTC-2023-0047-0054</a> (``Slezak Cmt.'');
Sumner Camp-Martin, Cmt. on NPRM at 1-5 (Sept. 22, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0056">https://www.regulations.gov/comment/FTC-2023-0047-0056</a> (``Camp-Martin
Cmt.'').
\88\ National Automobile Dealers Association, Cmt. on NPRM at 1-
2 (Sept. 28, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0077">https://www.regulations.gov/comment/FTC-2023-0047-0077</a> (NADA Cmt.''); Association of National Advertisers, Cmt.
on NPRM at 3-7 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0105">https://www.regulations.gov/comment/FTC-2023-0047-0105</a> (``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\
---------------------------------------------------------------------------
\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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0047">https://www.regulations.gov/comment/FTC-2023-0047-0047</a> (``NFIB Cmt.'').
\99\ Id.
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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.
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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.
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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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0111">https://www.regulations.gov/comment/FTC-2023-0047-0111</a> (``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), <a href="http://Dictionary.com">Dictionary.com</a>, LLC, <a href="https://www.dictionary.com/browse/individual">https://www.dictionary.com/browse/individual</a> (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).
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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), <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> Dictionary,
<a href="https://www.merriam-webster.com/dictionary/diction">https://www.merriam-webster.com/dictionary/diction</a> (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), <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> Dictionary,
<a href="https://www.merriam-webster.com/dictionary/syntax">https://www.merriam-webster.com/dictionary/syntax</a> (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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0087">https://www.regulations.gov/comment/FTC-2023-0047-0087</a> (``Chamber of Commerce Cmt.''); National Retail
Federation, Cmt. on NPRM at 10 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0090">https://www.regulations.gov/comment/FTC-2023-0047-0090</a> (``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), <a href="https://www.ftc.gov/system/files/documents/plain-language/bus41-dot-com-disclosures-information-about-online-advertising.pdf">https://www.ftc.gov/system/files/documents/plain-language/bus41-dot-com-disclosures-information-about-online-advertising.pdf</a>.
\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), <a href="https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-looks-modernize-its-guidance-preventing-digital-deception">https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-looks-modernize-its-guidance-preventing-digital-deception</a>.
---------------------------------------------------------------------------
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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0094">https://www.regulations.gov/comment/FTC-2023-0047-0094</a> (``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 <a href="https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf">https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf</a>.
---------------------------------------------------------------------------
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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0025">https://www.regulations.gov/comment/FTC-2023-0047-0025</a>.
\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.
---------------------------------------------------------------------------
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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0100">https://www.regulations.gov/comment/FTC-2023-0047-0100</a>
(``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, <a href="http://Dictionary.com">Dictionary.com</a>, LLC, <a href="https://www.dictionary.com/browse/disseminate">https://www.dictionary.com/browse/disseminate</a> (last visited July 5, 2024)
(defining ``disseminate'' as ``to scatter or spread widely, as
though sowing seed; promulgate extensively; broadcast; disperse'');
Disseminate, <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> Dictionary, <a href="https://www.merriam-webster.com/dictionary/disseminate">https://www.merriam-webster.com/dictionary/disseminate</a> (last visited July 5, 2024)
(defining ``disseminate'' as ``to spread abroad as though sowing
seed'' or ``to disperse throughout''); Disseminate, Cambridge
Dictionary, <a href="https://dictionary.cambridge.org/us/dictionary/english/disseminate">https://dictionary.cambridge.org/us/dictionary/english/disseminate</a> (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), <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> Dictionary,
<a href="https://www.merriam-webster.com/dictionary/procure">https://www.merriam-webster.com/dictionary/procure</a> (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),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0002">https://www.regulations.gov/comment/FTC-2023-0047-0002</a>; Eric Beback,
Cmt. on NPRM (Aug. 1, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0005">https://www.regulations.gov/comment/FTC-2023-0047-0005</a> (``Beback Cmt.''); Hippensteel Cmt.; Anderson
Cmt.; Nathan Wilson, Cmt. on NPRM (Aug. 2, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0008">https://www.regulations.gov/comment/FTC-2023-0047-0008</a>; fred foreman, Cmt.
on NPRM (Aug. 6, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0012">https://www.regulations.gov/comment/FTC-2023-0047-0012</a>; Ravnitzky Cmt. at 1; Fribance Cmt.; Ian wolk, Cmt.
on NPRM (Aug. 15, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0020">https://www.regulations.gov/comment/FTC-2023-0047-0020</a>; Edborg Cmt.; Anonymous 5, Cmt. on NPRM (Aug. 18,
2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0030">https://www.regulations.gov/comment/FTC-2023-0047-0030</a>;
Anonymous 1 Cmt.; Steven Osburn, Cmt. on NPRM (Aug. 22, 2023),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0033">https://www.regulations.gov/comment/FTC-2023-0047-0033</a> (``Osburn
Cmt.''); Ludlam Cmt.; Janette Ponticello, Cmt. on NPRM (Sept. 5,
2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0042">https://www.regulations.gov/comment/FTC-2023-0047-0042</a>;
Hannah Abbott, Cmt. on NPRM at 1 (Sept. 20, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0051">https://www.regulations.gov/comment/FTC-2023-0047-0051</a> (Abbott Cmt.).
\210\ Pasabi, Cmt. on NPRM at 2 (Sept. 29, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0103">https://www.regulations.gov/comment/FTC-2023-0047-0103</a>.
---------------------------------------------------------------------------
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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0066">https://www.regulations.gov/comment/FTC-2023-0047-0066</a>.
---------------------------------------------------------------------------
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), <a href="https://influencermarketinghub.com/virtual-influencers/">https://influencermarketinghub.com/virtual-influencers/</a>.
---------------------------------------------------------------------------
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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0110">https://www.regulations.gov/comment/FTC-2023-0047-0110</a> (``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),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0058">https://www.regulations.gov/comment/FTC-2023-0047-0058</a>.
\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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0062">https://www.regulations.gov/comment/FTC-2023-0047-0062</a> (``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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0082">https://www.regulations.gov/comment/FTC-2023-0047-0082</a>.
\290\ Wilhelmina Randtke, Cmt. on NPRM at 1 (Sept. 26, 2023),
<a href="https://www.regulations.gov/comment/FTC-2023-0047-0068">https://www.regulations.gov/comment/FTC-2023-0047-0068</a>.
\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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0055">https://www.regulations.gov/comment/FTC-2023-0047-0055</a>. 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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0092">https://www.regulations.gov/comment/FTC-2023-0047-0092</a> (``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), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0019">https://www.regulations.gov/comment/FTC-2023-0047-0019</a>.
\306\ Frieling Cmt. at 2.
\307\ Anonymous 7, Cmt. on NPRM (Aug. 15, 2023), <a href="https://www.regulations.gov/comment/FTC-2023-0047-0021">https://www.regulations.gov/comment/FTC-2023-0047-0021</a>.
---------------------------------------------------------------------------
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 foll
[…truncated; see source link]Indexed from Federal Register on August 22, 2024.
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