FTC Penalties for Misleading Customer Reviews on Company Websites

In a widely distributed infringement notice sent to more than 700 companies last year, the Federal Trade Commission (“FTC”) warned companies against using false consumer claims and reviews. Forewarned must be forewarned. This is an ongoing reminder to businesses to put systems in place to ensure that approvals and reviews comply with FTC guidelines. Companies found guilty of violations after receiving a “we’re watching you” letter can face civil penalties of up to $46,517 per violation.

Recipients of the FTC letter included major consumer products companies, retailers and advertising agencies. Recipients were not charged with any wrongdoing, but were warned of their responsibilities under FTC law and the Commission’s increased emphasis on specific advertising practices, particularly endorsements.

Since the notice was distributed, the FTC has reached a $3.5 million settlement with Hubble, a New York-based contact lens subscription service that offered existing customers free contacts in exchange for positive reviews on third-party websites. Hubble reportedly failed to disclose this material connection with many of its endorsers – that it offered compensation for many positive product reviews.

The FTC also found fast fashion company Fashion Nova, LLC in violation of product review and approval rules. In March 2022, the Commission ordered Fashion Nova to pay $4.2 million in damages for its practice of blocking or removing negative product reviews shoppers submitted on its website. The Commission also ordered Fashion Nova to submit compliance reports and notices to ensure the company changes its advertising practices to comply with the FTC Act.

Although criminal offense notices are initially distributed as informational warnings, they serve as key indicators that the FTC is interested in controlling certain types of advertising. Companies should take steps to review and verify their use of product endorsements, testimonials and reviews in their marketing practices. Suggested actions include, but are not limited to:

  • Confirm that all endorsements and testimonials are true and substantiated

  • Disclose ties between endorsers and businesses, including situations where the business provides compensation other than monetary payment – for example, free product samples or the endorser’s participation in a sweepstakes or a raffle – in exchange for a merchandise promotion

  • Confirm that endorser testimonials do not purport to represent typical or ordinary experiences of all consumers of the company’s product or service

  • Monitor regularly to remove fake reviews

Quick reminders to advertising and marketing teams that the following acts and practices are deceptive or unfair under FTC law:

  • Falsely claiming endorsement from a third party (directly or indirectly)

  • Falsely state that a recommendation reflects the experiences, views or opinions of users or suspected users

  • Misrepresent an endorser as a real, current, or recent user of a product

  • Continue to announce a recommendation if the company has reason to believe that the endorser no longer subscribes to the views expressed in the recommendation

  • Falsely insinuating that the endorser’s experience represents the typical and ordinary consumer experience

  • Use of recommendation to make false or misleading claims of product performance

  • Failure to Disclose a Material Connection to an Endorser.

Kristin Wells also contributed to this article.

Copyright 2022 K&L GatesNational Law Review, Volume XII, Number 144

Joseph P. Harris