Fake Online Reviews Draw Fines in New York8 Oct, 2013 By: Stacey M. Meyer, Linda A. Goldstein
The Attorney General of New York is the latest regulator to weigh in on fake online reviews. Companies in the DR industry that utilize consumer reviews or testimonials should review their practices to ensure they are complying with all applicable laws and guidelines, including New York state laws, the Federal Trade Commission’s (FTC) Endorsements And Testimonials Guides, policies of the websites or apps where reviews appear, and industry rules for promoting products.
On Sept. 23, the New York Attorney General’s office (OAG) announced agreements with 19 companies to cease their practice of writing fake online reviews for businesses, requiring the companies to pay more than $350,000 in civil penalties. The OAG made clear that “astroturfing” – preparing or disseminating a false or deceptive review that a reasonable consumer would believe to be a neutral, third-party review – is a form of false advertising that violates New York law.
In addition to violating New York state laws, astroturfing violates the FTC Guides, which require the disclosure of any “material connection” with an advertiser. Although the FTC Guides do not have the force of law, recently, the FTC and self-regulating bodies have closely scrutinized companies’ social media campaigns and opened investigations into companies whose practices run afoul of the Guides.
These investigations demonstrate that the net of liability is expanding to capture not only marketers, but ad networks and affiliates. Recently, the FTC has settled charges with a PR firm hired by video game developers over allegations that employees posed as ordinary consumers and posted game reviews at the iTunes store, without disclosing the reviews were from paid employees working on behalf of the developers. The Commission has entered into similar settlements with an affiliate network that hired marketers to make deceptive claims on fake news sites to promote weight-loss products, and a company that used affiliate marketers to advertise guitar lesson DVDs online through editorial material without disclosing the connection.
Astroturfing can also violate the FTC Guides if a review is false or misleading, as the Guides require advertisers to substantiate any claims made in testimonials. The FTC has aggressively enforced this principle, noting that a “results not typical” disclosures are no longer sufficient. Advertisers are required to clearly and conspicuously disclose the generally expected performance in the depicted circumstances.
This practice has recently played out in cases at the National Advertising Division (NAD), an investigative unit of the advertising industry’s system of self-regulation administered by the Better Business Bureau (BBB). The NAD opened an inquiry into a Pinterest board maintained by Nutrisystem that featured photos of “real” Nutrisystem customers and highlighted their weight-loss success stories. The NAD determined that these pins constituted consumer testimonials, which required the necessary disclosures.
The New York settlements are the most recent reminder that online consumer reviews and testimonials are a hot button. The area could be ripe for copycat actions by other state AGs. Another area that may attract regulatory scrutiny – in light of the growing use of native advertising – is the question of what constitutes a review or testimonial, especially when ordinary consumers, as opposed to bad actors, are involved. For example, if a company pays an ordinary consumer a nominal amount to post or link to products that it likes to a social network, does that constitute an endorsement? What if a consumer writes a review on his or her own and a company wants to reuse that content on a social media page?
It will also be interesting to see the consequence of paid fake reviews outside the regulatory context. Writing fake reviews violates the policies of many websites, such as Amazon and Yelp. Marketers may face more than a simple takedown notice for failing to comply with this policy. Some companies have developed algorithms to locate fake reviews, and Yelp has also launched some sting operations to determine whether companies are hiring people to write fake reviews, flagging those businesses’ pages with a consumer alert. Yelp has also taken more draconian measures, suing two businesses for posting deceptive reviews on its site.
In sum, regulators and websites that offer consumer reviews are aware of the importance of these reviews and are policing the marketplace to ensure that they are truthful and not misleading. Anyone in the advertising stream must ensure their reviews and testimonials comply with all applicable laws and regulations, or risk an investigation, civil penalties or lawsuit.
Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips LLP, based in the firm’s New York office. She can be reached at [email protected]. Stacey M. Meyer is an associate at Manatt and can be reached at [email protected].