While some praised the new rule, some said that it doesn’t do enough to also put responsibilities on third-party review hosting sites.
Federal Trade Commission (FTC) Chair Lina Khan announced on Oct. 21 that the agency’s prohibition on fake online reviews was taking effect, imposing fines as high as $50,000 for violations.
On social media platform
X, Khan encouraged followers to report the proscribed practices at
ReportFraud.FTC.gov. In announcing the rule this August, she said that fake reviews “not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors.”
The Public Interest Research Group (PIRG) has
said that research points to as many as 30 to 40 percent of online reviews being dishonest in some way, while online reviews inform the basis for 90 percent of online shoppers’ decisions.
In its
final rule, the FTC states that the maximum penalty per violation is $51,744, but courts must consider factors under the FTC Act when determining penalties.
Among other things, the final rule prohibits false consumer reviews, buying positive or negative reviews, and suppressing negative reviews.
Another provision bans the selling or buying of followers and views from a bot or hijacked account.
“This prohibition is limited to situations in which the buyer knew or should have known that the indicators were fake and misrepresent the buyer’s influence or importance for a commercial purpose,” the FTC
said.
Yelp, one of the most prominent online review hosting platforms, welcomed the rule with a statement in August. “We believe the enforcement of this new rule will improve the review landscape for consumers and help level the playing field for businesses,” Yelp general counsel Aaron Schur said.
While some praised the new rule, some said that it doesn’t do enough and that it exempts third-party review hosting sites, such as Yelp, from liabilities.
Fake Review Watch creator Kathryn Dean wrote in
The Hill that “while the rule addresses the culprits who both buy and sell fake reviews, it gives a pass to those most responsible for the whole system and who do far too little to clean up the fraud.”
The agency’s rule states that certain provisions, such as those prohibiting the dissemination of false reviews, “do not apply to reviews that appear on a website or platform as a result of the business merely engaging in consumer review hosting.”
In its final rule, the FTC cautioned that its decision not to focus on review hosting platforms “should not be taken to signal that third-party platforms do not bear significant responsibility for combatting fake reviews.”
Amazon
said earlier this month that it “invests significant resources to proactively stop fake reviews before being seen by a customer.” It said that “[i]n 2023, Amazon pursued legal action against more than 150 bad actors attempting to engage in review abuse across the U.S., China, and Europe.”
Yelp
said last year that its automated recommendation software “helps surface the most helpful and reliable content to consumers.”
Google similarly
said this year that its “reviews undergo rigorous scrutiny by our moderation systems before they’re published” and that its evolving machine learning algorithms led to it blocking or removing “over 170 million policy-violating reviews from 2023.”
It’s unclear how much other businesses will have to change their practices in order to comply with the FTC’s new rule.
Holland and Knight, one of the country’s
largest law firms by revenue, said in August that the FTC’s rule meant “[b]usinesses must now develop and enforce stringent policies for handling consumer reviews, while also ensuring that third-party advertising and marketing partners are well-trained and monitored under the new FTC regulations.”
The FTC, meanwhile,
assumed the cost of compliance as minimal but said that if businesses engaged in a more complicated attempt to ensure compliance, costs in the United States could reach $871.98 million for 2024.
Some critics took issue with phrasing in FTC’s rule that companies will be held accountable for the dissemination of false reviews if they “should have known” it was a misrepresentation of the truth.
Ryan Young, a senior economist at the Competitive Enterprise Institute, a libertarian think tank, told The Epoch Times that the “should have known” standard was vague and could be “weaponized as an alternate way to punish companies it has lost against in court or other matters.”
Young added that the rule “could have a chilling effect on reviewing, which means consumers get less good information.”
In its final ruling, the FTC stood by its “should have known” phrasing while responding to commenters’ criticisms.
It argued that the “knew or should have known' standard—which the Commission has used in other rules -- ... best achieves the appropriate, equitable balance between protecting consumers and holding marketers accountable for deceptive conduct while not overly burdening marketers that engage in the responsible use of reviews and testimonials.”
Reuters contributed to this report.
This article was updated to include a comment from an economist at the Competitive Enterprise Institute.
