The Federal Trade Commission released a final rule prohibiting companies from manipulating reviews and testimonials and other online indicators of how popular a product or service is.
“Businesses that unlawfully game the system [are being put] on notice,” FTC Chair Lina Khan said on Aug. 14 in announcing the rule.
The agency has been struggling to hold companies to account for using fake or misleading testimonial-type ads to amplify the popularity of their products or services since the U.S. Supreme Court in 2021 dealt a blow to its enforcement efforts.
In AMG Capital v. FTC, the court said the agency had been incorrectly seeking equitable monetary relief as part of its effort to enjoin companies in federal court for making unsubstantiated claims. It didn’t have that authority under the FTC Act, the court ruled.
Up until that point, the agency was routinely winning big fines from companies — some $11 billion over the years, which it used to pay back misled consumers. But the court said that nothing in Sec. 13(b) of the FTC Act, which allowed the agency to seek injunctions, allowed it to seek monetary penalties from companies.
In its announcement this week, the agency said having the rule will make it easier for it to pursue enforcement administratively rather than through the courts.
“The Supreme Court’s decision in AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act,” the agency said. “This rule will enhance deterrence and strengthen FTC enforcement actions.”
The rule focuses enforcement on six types of violations: 1) Fake or false consumer reviews and testimonials, including those generated by AI, 2) buying positive or negative reviews, 3) allowing reviews and testimonials to be provided by insiders, 4) maintaining company-controlled review websites, 5) suppressing negative reviews, including by issuing threats, and 6) misusing fake social media Indicators.
An earlier version of the piece said the FTC can pursue fines administratively but the agency says it can’t.
