January 25, 2022: FTC Announces Fashion Nova Settlement

The FTC broke new ground by announcing a settlement with Fashion Nova LLC based on Section 5(a) if the FTC Act which prohibits “unfair or deceptive acts or practices in or affecting commerce”.

The new ground was that for the first time, the FTC brought an enforcement for suppression of negative product reviews. eCommerce companies that post customer reviews online should take notice.Fashion Nova had engaged an online product review platform to post customer reviews to Fashion Nova's website. The reviews were star-based, with five stars being the highest rated review. Fashion Nova requested only reviews that were four or five-star reviews, with the one to three-star reviews to be held back.

The key fact with the FTC administrative complaint is that Fashion Nova never approved or published the one to three-star reviews, despite encouraging customers to submit reviews on its website and in follow-up emails to customers after a purchase.

The FTC relied on the “unfair” prong (not the “deceptive” prong) of the two-prong approach afforded by Section 5(a) of the FTC Act. Specifically, the FTC alleged that Fashion Nova used unfair acts or practices by making false or misleading representations on its website regarding its products. These unfair acts or practices resulted in the suppression of customer reviews.

The key terms of the settlement require Fashion Nova to: (i) to pay a $4.2 million fine, (ii) cease and desist from making review-related misrepresentations, and (iii) display all product reviews, including reviews that were previously withheld from public view unless the review contains obscene, sexually explicit, racist or unlawful content, or is unrelated to the product or customer services, such as comments regarding shipping or returns.

FTC Sends 10 Notice Letters to Review Management Platforms and Publishes Guides for Customer Reviews

The FTC promptly followed up the Fashion Nova Settlement by sending 10 Notice Letters to review management platforms placing them on notice that suppression or otherwise censoring negative reviews is a violation of the FTC Act.

FTC Guides for eCommerce Retailers

In addition, the FTC published guides for eCommerce retailers regarding the collection, moderation, and publishing of customer reviews.
Regarding the collection of customer reviews, these are the specific “rules of thumb”.

• Avoid asking for reviews from people who haven't used or experienced the product.
• Avoid asking staff to write reviews, unless the request is clearly disclosed in the review.
• Avoid asking for reviews only from customers likely to leave positive ones.
• Avoid asking family and friends for reviews unless they disclose the relationship in the review.
• If offering an incentive for a review, avoid conditioning it on being positive, and provide a disclosure of the incentive in the review. Regarding working with other companies for reviews, the FTC provided guidance based on the type of review platform.
• Comparison websites – don't participate in pay-to-play schemes, where ratings are dependent on the payment of a feel
• Review platforms – do disclose any commercial relationship with the platform if it's used to improve your reputation and visibility.
• Reporting Mechanisms – don't use a platform's mechanism for flagging fake or defamatory reviews to suppress honest, negative reviews.
• SEO and reputation management companies – “… YOU CAN BE HELD RESPONSIBLE FOR WHAT THEY DO ON YOUR BEHALF… .” So, make sure you know what they're doing.

The Consumer Review Fairness Act

These new guides aren't the only restrictions regarding the suppression of customer reviews.
The Consumer Review Fairness Act of 2017 bans “gag” clauses in form contracts that:

• prohibit or restrict the ability of an individual who is a party to that contract, to review or assess a company's goods, services, or conduct;
• impose a penalty or fee against a party to the contract who gives an unfavorable review or assessment; or
• require people to give up their intellectual property rights in the content of their reviews.

Takeaway

The FTC has a long history of regulating endorsements and testimonials. Endorsement Guides from the FTC originated in 1980 and were amended in 2009.

More recently in 2017, the FTC issued an updated “The FTC's Endorsement Guides: What People are Asking”. In 2019, the FTC issued “Disclosures 101 for Social Media Influencers”.

Now the FTC is drilling down further on how some online marketers have been gaming the system, including are using the Internet, third parties, and software automation in connection with the collection, moderation, and publication of customer reviews.

The Fashion Nova Settlement and new guides should be a wake-up call for eCommerce retailers and digital marketing entrepreneurs regarding any act or practice that may be construed as manipulating customer reviews. In addition, relationships with third-party review management platforms may result in the risk of an FTC enforcement action.

For eCommerce companies and digital marketing entrepreneurs, a review and audit of the entire process for handling customer reviews is now highly recommended.

In addition, terms and conditions with third-party review management platforms should be reviewed for any provision that could enable liability for unfair practices. eCommerce companies and digital marketing entrepreneurs could be held legally responsible for customer review suppression on their platforms. An amendment may be required to tighten up these terms and conditions.

Blog Post Update: Dec 7, 2023

FTC Proposes Fines for Fake Reviews and Testimonials

On June 30, 2023, the FTC released a notice of proposed rulemaking for fake reviews and testimonials.

FTC enforcement actions for deceptive reviews is not new; they are already unlawful under Section 5 of the FTC Act.

What's relatively new is the FTC's aggressive rulemaking process that has a single goal: the imposition of civil penalties (fines exceeding $50K per violation).

This is a partial checklist for the proposed Rule.

    *  “Fake” means means written by a person who doesn't exist, doesn't have experience with a product, or is misrepresenting their experience with a product.

    *  It's deceptive “to provide 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.”

It's deceptive to write or disseminate customer testimonials/reviews by officers, managers, employees, agents, or any of their relatives, without a clear disclosure identifying the reviewer's “material connection” to the business, or to someone at the business.

    *  It's deceptive to use a written review previously written for one product and apply subsequently to a different product (“review hijacking”).

    *  It's deceptive to create or to control a website that claims to provide independent opinions about a category of products/services that includes its own products/servcies.

Takeaway

FTC Rules differ significantly from FTC Guides.

The FTC has fine authority for violating a Rule, plus the FTC does not have the burden of proving deception.

All that's required is violation of the Rule (deception is presumed).

Author Bio

Chip Cooper is an eCommerce Attorney and Digital Marketing Compliance Attorney practicing as Of Counsel to the Atlanta, Georgia law firm of Jones & Haley, PC. For more information, visit eCommerceAttorney.io

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