FTC Proposes Making Rules Affecting Endorsements and Testimonials

By Alvin Lorman, AAHP Counsel

Calling fake and deceptive product reviews and endorsements “problematic” and its remedial authority “limited,” the Federal Trade Commission (FTC) has taken the first step toward adopting a Trade Regulation Rule that “would be designed to deter bad actors, simplify [its] enforcement burdens by spelling out prohibitions plainly, and subject violators to civil penalties.” This was spelled out in an advance notice of proposed rulemaking published (ANPR) in the Federal Register of Nov. 8, 2022, 87 Fed. Reg. 674524, available here. The main driver for the proposal appears to be a recent Supreme Court decision that limited FTC’s ability to obtain civil penalties, an issue that would be addressed by the adoption of a Trade Regulation Rule.

Because this is an ANPR, FTC is calling for comments on the need for such a rulemaking to prevent unfair or deceptive marketing using reviews and endorsements as well as how FTC can ensure the broadest possible participation by affected parties. At the same time, FTC said it would conduct several public workshop conferences to discuss the issues it wishes to address at times and places to be announced after the close of the initial comment period on Jan. 9, 2023.

FTC noted that it currently has an enforcement guideline on endorsements, but the guideline goes beyond the scope of the proposed rule, and its ability to obtain financial redress for consumers is difficult. The issues FTC is seeking comment on are:

1. How widespread is the marketing of products or services using:
2. reviews or other endorsements by nonexistent individuals or by those who did not actually use or test the product or service;
3. reviews or other endorsements by individuals who are misrepresenting their experiences with a product or service;
4. review hijacking (where a seller steals or repurposes reviews from another product);
5. paid or incentivized consumer reviews that were required to be positive or required to be negative (if of a competitor’s product);
6. consumer reviews written by the owners, officers, or employees of the company offering the product or service, or their family members; or
7. Websites or other organizations or devices that purportedly provide independent reviews or opinions of products or services but are in fact created and controlled by the companies offering the products or services?
8. How widespread is the suppression of negative consumer reviews:
   1. on retailer websites because the retailers filter out and do not publish negative reviews; or
   2. by marketers threatening the authors of the reviews (other than through the form contract provisions prohibited by the Consumer Review Fairness Act)?
9. How widespread is:
   1. the sale of followers, subscribers, views, and other indicators of social media influence;
   2. the purchase and use for commercial purposes of followers, subscribers, views, and other indicators of social media influence?
10. For each of the practices described in Questions 1 through 3 above, does the practice cause consumer injury? If so, what evidence demonstrates such practices cause consumer injury?
11. For each of the practices described in Questions 1 through 3 above, does the practice cause injury to the competition? If so, what evidence demonstrates such practices cause injury to the competition?
12. For each of the practices described in Questions 1 through 3 above, are there circumstances in which such practices would not be deceptive or unfair? If so, what are those circumstances, and could and should the Commission exclude such circumstances from the scope of any rulemaking? Why or why not?
13. Please provide any evidence concerning consumer perception of, or experience with, consumer reviews or other endorsements relevant to the practices described in Questions 1 through 3 above.
14. What existing laws and regulations, other than the FTC Act, if any, cover the practices described in Questions 1 through 3 above? How do those laws affect consumers? How do those laws affect businesses, particularly small businesses?
15. What actions, if any, have platforms taken to address the practices described in Questions 1 through 3 above? Have those actions been effective in reducing consumer harm associated with the practices described in Questions 1 through 3 above? Why or why not?
16. What actions have others taken to facilitate or enable the practices described in Questions 1 through 3 above? For example, what types of services specifically allow marketers to engage in these practices, and who is providing these services?
17. Is there a need for new regulatory provisions to prevent the practices described in Questions 1 through 3 above? If yes, why? If no, why not? What evidence supports your answer?
18. How should a rule addressing the practices described in Questions 1 through 3 above be crafted to maximize the benefits to consumers while minimizing the costs to businesses under either approach? What evidence supports your answer?
19. Do current or impending changes in technology or market practices affect whether and how a rulemaking should proceed? If so, what are such changes, and how do they affect whether and how a rulemaking should proceed?
20. Are there foreign or international laws, regulations, or standards addressing reviews or endorsements the Commission should consider as to whether and how a rulemaking should proceed? If so, what are they? Should the Commission consider adopting or avoiding any of these? If so, why? If not, why not?
21. Should the Commission consider additional consumer and business education to reduce consumer harm associated with the practices described in Questions 1 through 3 above? If so, what should such education materials include, and how should the Commission communicate that information to consumers and businesses?
22. What alternatives to regulations should the Commission consider when addressing the practices described in Questions 1 through 3 above? Would those alternatives obviate the need for regulation? If so, why? If not, why not? What evidence supports your answer?
23. Are there other commercial acts or practices involving reviews or other endorsements that are inarguably deceptive or unfair that should be addressed in the proposed rulemaking? If so, describe the practices. How widespread are the practices? Please answer Questions 4 through 8, 10, 11, 14, and 15 with respect to the practices.

Clearly, FTC is embarking on what is likely to be a lengthy and complicated process. The Association does not plan to comment at this stage, but it will carefully monitor the proceedings for the benefit of its members.