Federal Trade Commission (FTC)
On October 20, 2022, the Federal Trade Commisison announced that the agency is exploring a potential rule to combat deceptive or unfair review and endorsement practices, such as using fake reviews, suppressing negative reviews, and paying for positive reviews.
The FTC’s Advance Notice of Proposed Rulemaking public comment on potential consumer harms arising from deceptive or unfair review and endorsement practices.
“Companies should know by now that fake reviews are illegal, but this scourge persists,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We’re exploring whether a rule that would trigger stiff civil penalties for violators would make the market fairer for consumers and honest businesses.”
According to the FTC, research shows that consumers rely on reviews when shopping for a product or service, and that bogus reviews drive sales and tend to be associated with low-quality products. The rapid growth of online marketplaces and platforms has made it easier than ever for some companies to create and use fake reviews or endorsements to make themselves look better or their competitors look worse, the FTC states in its recent announcement.
The Advance Notice of Proposed Rulemaking seeks comment on the costs and benefits of a potential rule, as well as the potential harms to consumers and competition from deceptive or unfair reviews and endorsement advertising practices, including:
- Fake reviews: Reviews and endorsements by people that do not exist, have not used the product or service,
The Federal Trade Commission has a long-standing practice of issuing policy statements and reports in an effort to put digital marketers on notice of CID investigation and enforcement priorities.
For example, in 2021, FTC attorneys warned marketers about the utilization of deceptive tactics in conjunction with automatically renewing subscription services. The agency policy statement, designed to place marketers on notice that sign-ups must be clear and fully consensual, material terms conspicuous presented, and cancellation mechanisms simple to effectuate, calls attention to a newly issued enforcement policy statement regarding negative option marketing that prohibits illegal “dark patterns” that trick consumers into subscription services.
“Today’s enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Firms that deploy dark patterns and other dirty tricks should take notice.”
The FTC approved the issuance of the enforcement policy statement with a 3-1 vote, with Commissioner Christine S. Wilson voting no and issuing a dissenting statement. Commissioner Noah Joshua Phillips also issued a separate concurring statement.
The FTC will continue to take aggressive investigative and civil penalty enforcement action against marketers that utilize deceptive automatic renewal subscriptions, continuity plans and free-trial conversion plans.
Without limitation, all material terms of the product or service, including how much it costs,
The Federal Trade Commission aggressively enforces the Restore Online Shoppers’ Confidence Act (“ROSCA”) against online marketers that offer Internet-based automatic renewals and subscriptions. Basically, ROSCA requires the clear and conspicuous disclosure of material terms, affirmative consent to certain cancellation requirements in online transactions.
The FTC has the ability to seek monetary relief, in addition to injunctive relief, for ROSCA violations. A violation of ROSCA is considered an unfair deceptive act or practice which subjects sellers to civil monetary penalties. State attorneys general may also have a cause of action.
What are the Bascis of a ROSCA Violation?
Some rather obvious components of a ROSCA violation include, but not are not limited to, a misleading “risk-free” trial offer, an undisclosed charge if consumers do not quickly cancel the “risk-free” trial, an undisclosed automatic shipment program that sends consumers unordered merchandise, difficult to follow upsells that add another layer of confusion, unlawful charges to consumers’ credit or debit cards, difficult cancellation procedures, straw owners that conceal operators’ activities and/or conceal operations from payment processing entities and banks.
Do Individual States Have Their own Automatic Renewal Laws?
Automatic renewal and subscription laws (ARLs) are in place in a number of states. Many have even recently amended and bolstered their ARLs. Failure to comply can result in private plaintiff actions, class action lawsuits and regulatory action.
At the state level, approximately two-dozen states have implemented ARL legislation. Some states impose additional consent and disclosure requirements if the subscription begins with a free trial.
The Federal Trade Commission (FTC) recently requested comments on potential updates to its 2013 FTC Dot Com Disclosure Guidance: How to Make Effective Disclosures in Digital Advertising. Generally speaking, the purposes of the Guidance is to provide information to digital advertisers in order to comply with the law.
The FTC Act’s prohibition on “unfair or deceptive acts or practices” encompasses online advertising, marketing, and sales. In addition, many FTC rules and Guides are not limited to any particular medium used to disseminate claims or advertising, and therefore.
The Guidance sets forth instructions on avoiding express and implied deceptive statements. It also provides guidance regarding disclosures, including what to incorporate into the underlying claim, ensuring that disclosures are “clear and conspicuous,” what to consider with video and audio disclosures, taking account of the various devices and platforms consumers may use to view advertising, how to approach space-constrained ads, what constitutes permissible use of hyperlinks, evaluating technological limitations or unique characteristics of communications methods,
The FTC plans to increase investigation and enforcement within the digital marketing industry. The agency is also seeking input on “dark pattern” tactics and advertising used to deceive consumers, as well as automatic renewal subscriptions and free trials, social media advertising, online marketplaces and lead generation referrals.
“We know that some companies are wrongly citing our current guides to justify dark patterns and other forms of digital deception,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.
“Up to” representations in promotional materials often draw regulatory and private plaintiff scrutiny insofar as whether such claims are truthful and can be properly substantiated. Which begs the question … how can an advertiser lawfully substantiate “up to” claims?
It may depend upon various factors, including, but not limited to, the context in which the “up to” claim is made, whether the claim is unqualified, and whether applicable conditions, limitations, exclusions and restrictions have been appropriately disclosed. It may also depend upon whether the matter involves the Federal Trade Commission, state attorneys general or a private plaintiff false advertising lawsuit. And/or, upon the forum in which the legal or regulatory matter has been initiated, such as state court, federal court or the National Advertising Division. Consumer perception testing prior to disseminating such claims can also be a useful tool when combating false advertising claims.
For example, at least one federal court has appeared to apply a “ceiling” test. Would reasonable consumers understand such language to be a floor rather than a ceiling that can be achieved under limited circumstances? Do the claims expressly or implied promise the best, maximum result? Is it implausible that reasonable consumers would be deceived? Would reasonable consumers understand such language to be a guarantee? Would reasonable consumers understand such language to be a promise?
Now, consider the National Advertising Division.
The NAD often considers whether an “appreciable number” of consumers actually achieve the top range of the claimed benefit under circumstances normally and expectably encountered by consumers.
In 2019 and in response to a competitor challenge, the National Advertising Division ruled on the “#1 Rated” claim made by TaxSlayer LLC in its promotional messages. In doing so, the NAD recommended that TaxSlayer discontinue the unsubstantiated representation.
More specifically, the claims at issue included “Slay your taxes. So you can enjoy your refund. Maximize your refund with TaxSlayer. #1 rated on Trustpilot” and “#1 Rated in the Tax Prep Software Category on Trustpilot. Start free today!”
Theer was a disclosure that stated that the foregoing claims were “based on more than 2300 verified customer reviews on Trustpilot. TaxSlayer has 1500+ 5-star reviews, and 84% of TaxSlayer customers rate TaxSlayer Great or Excellent on Trustpilot. Learn more at trustpilot.com/review/taxslayer.”
The NAD opined that for “#1 Rated” claims, advertisers should compare themselves with at least 85% of the applicable marketplace, and the consumers surveyed should represent a broad base of customers that used the product.
According to the NAD, TaxSlayer did not satisfy such requirements because the population of online reviews that created the basis for Trustpilot’s score allegedly failed to represent the general opinion of tax preparation software consumers across the United States. The NAD also rejected TaxSlayer’s argument that a consumer could simply visit the Trustpilot website to clarify any confusion about its ranking.
“Consumers should not have to search to learn more about the limitations on an advertising claim,” said the NAD. “Here, while the claim informs consumers that it is limited to companies in the tax prep software category on a certain website,
Federal Trade Commision (FTC) investigation and litigation defense attorney Richard B. Newman has written an authoritative article on JD Supra for digital marketers and FTC practice counsel. JD Supra is a need-to-know news, insights and intelligence source that publishes and distributes valuable content produced by thought leading experts on myriad topics across numerous industries and fields, including advertising legal regulatory matters.
The article examines, in depth, the purpose of FTC civil investigative demands (CIDs), considerations relating to the nature substance of the initial response and subsequent responses, defense strategies, how to evaluate whether the recipient is a “target,” the importance of the “meet and confer” process, liability exposure and business disruption minimization tactics, persuasive written advocacy submissions, lodging objections to a CID, petitions to limit or quash, enforcement action avoidance and monetary fine minimization, how to avoid negative publicity, investigation closure and how to achieve an optimal resolution.
The article covers numerous steps that CID recipients should consider prior to, during and after learning that they are the subject of an FTC investigation.
You can read the article titled The Art of Responding to an FTC CID by an FTC CID Lawyer on JD Supra, here. An article authored by FTC lawyer Richard B. Newman titled Considerations for Digital Marketers When Selecting Regulatory Investigation Defense Counsel is also available on JD Supra, here.
About This Blog and Hinch Newman’s Advertising + Marketing Practice
Hinch Newman LLP’s advertising and marketing practice includes successfully resolving some of the highest-profile Federal Trade Commission (FTC) and state attorneys general digital advertising and telemarketing investigations and enforcement actions. The firm possesses superior knowledge and deep legal experience in the areas of advertising, marketing, lead generation, promotions, e-commerce, privacy and intellectual property law. Through these advertising and marketing law updates, Hinch Newman provides commentary, news and analysis on issues and trends concerning developments of interest to digital marketers, including FTC and state attorneys general advertising compliance, civil investigative demands (CIDs), and administrative/judicial process. This blog is sponsored by Hinch Newman LLP.