In August, the FTC released a new rule that changes how endorsements and testimonials may be bought, sold, created, and used by businesses in the sale of goods and services. The new rule goes into effect on October 21, 2024, and, among other things, allows the FTC to go after businesses that use fake consumer reviews, suppress reviews, buy positive reviews, fake “likes,” and give insider reviews without disclosing the relationship.
What the Rule Does
The new rule will prohibit businesses from engaging in the following testimonial-related practices:
- Writing, creating, selling, purchasing, or disseminating a fake consumer review;
- Providing compensation (such as money, gift certificates, products, services, discounts, coupons, contest entries, or another review) in exchange for the writing or creation of a specifically positive or negative consumer review;
- Soliciting or demanding a consumer review from officers, managers, employees, or agents, or any of their immediate relatives, unless they “clearly and conspicuously” disclose the reviewer’s relationship to the business;
- Representing that a review website or entity also owned by the business provides independent reviews about a product sold by the business;
- Suppressing negative reviews (with exceptions); and
- Buying or selling fake indicators of social media influence (followers, “likes,” etc.).
What the Rule Doesn’t Do
Though the rule certainly covers a lot of ground, there are still a variety of practices that it allows.
First, a business may continue to solicit and offer incentives for consumer reviews or celebrity testimonials but must be careful not to condition it on the consumer or celebrity giving a positive review.
Second, an employee or relative can always give an unsolicited review—but the rule prevents a business owner from requesting one.
Third, business owners are still allowed to suppress reviews for the following reasons:
- He or she reasonably believes the review is fake;
- The review is wholly unrelated to his or her business;
- The review discloses trade secrets or privileged or confidential commercial or financial information;
- The review is defamatory, harassing, abusive, obscene, vulgar, or sexually explicit;
- The review contains the personal information or likeness of another individual,
- The review is discriminatory with respect to race, gender, sexuality, ethnicity, or another intrinsic characteristic; or
- The review is clearly false or misleading.
NFIB Helped Improve the Rule
NFIB filed comments requesting that the FTC include safeguards in the rule to protect free speech. The proposed rule provided no protections for businesses’ free speech rights in cases where a business owner suppresses a review that is reasonably believed to be false or defamatory, but later, he or she turns out to be mistaken.
The final rule incorporated several of NFIB’s suggestions to fix this, including changing the definition of “review suppression” so that a false accusation is not punishable under the Rule unless it is “made with the knowledge that the accusation was false or . . . with reckless disregard as to its truth or falsity.” Further, the final rule only considers a legal threat to be “groundless” when it is “unwarranted by existing law” or has “no evidentiary support.” This was a significant improvement from the proposed rule and will ensure that businesses are not punished for an honest mistake.
More information, including the FTC Rule is available on the Commission’s website.
NFIB will continue to file comments advising federal agencies to consider the needs of small businesses as they formulate rules. For more information, reach out to the NFIB Small Business Legal Center at [email protected].
