Company Draws FTC Enforcement Action for Deceptive Online Reviews

Money RainOver the past few years, social media has completely overhauled how businesses market their wares.  As a result, the importance of online customer reviews has increased to the point at which long term business success often hinges upon a record of positive comments.   Although this transformation is not without its dark side, it has largely improved customer service across the board.  In an effort to increase positive reviews, however, one company crossed the line and became the subject of the first FTC enforcement action aimed at curbing deceptive solicitations of positive online reviews.

The target company offered varied pricing based upon whether the customer would agree to provide a positive review, and even went so far as to offer  cash rewards for the “Best Monthly Review.”   The problem was that the company failed to disclose that the reviewers had been offered discounts and incentives, and instead held out the reviews as the unbiased views of customers, stating: “You don’t have to believe us, our customers say it all.”

The Commission sued for violations of Section 5 of the FTC Act (15 USC § 45) which prohibits ”unfair or deceptive acts or practices in or affecting commerce.”  As with nearly all such actions, the company agreed to a settlement that imposed stringent restrictions on its online marketing, and onerous reporting obligations relating to its advertising and promotional activities.   In announcing the settlement, the Commission pronounced that companies must make it clear when they have offered compensation to any customer for their online review, or they will be deemed to be in violation of Section 5.

The FTC offers guidance to consumer on how to detect and report deceptive advertising techniques such as failure to disclose the fact that reviewers are being compensated, so we can be certain that we will see more enforcement actions in this area.

Offering some form of reward to consumers for engaging with your company is by no means a bad idea, but be certain to talk to your attorney to ensure that any program that invites customers to post reviews complies with the FTC Act.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.
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