Trade Regulation Rule on the Use of Consumer Reviews and Testimonials

Federal RegisterAug 22, 2024

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FEDERAL TRADE COMMISSION

16 CFR Part 465

RIN 3084-AB76

Trade Regulation Rule on the Use of Consumer Reviews and Testimonials

AGENCY:

Federal Trade Commission.

ACTION:

Final rule.

SUMMARY:

The Federal Trade Commission (“FTC” or “Commission”) is issuing this final rule and Statement of Basis and Purpose (“SBP”) relating to certain specified unfair or deceptive acts or practices involving consumer reviews or testimonials. This final rule, among other things, prohibits selling or purchasing fake consumer reviews or testimonials, buying positive or negative consumer reviews, certain insiders creating consumer reviews or testimonials without clearly disclosing their relationships, creating a company-controlled review website that falsely purports to provide independent reviews, certain review suppression practices, and selling or purchasing fake indicators of social media influence.

DATES:

This rule is effective October 21, 2024.

FOR FURTHER INFORMATION CONTACT:

Michael Ostheimer, (202) 326-2699, Attorney, Division of Advertising Practices, Bureau of Consumer Protection, Federal Trade Commission, Room CC-6316, 600 Pennsylvania Avenue NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Advance Notice of Proposed Rulemaking

B. Notice of Proposed Rulemaking

C. Notice of Informal Public Hearing

II. The Legal Standard for Promulgating the Rule

A. Prevalence of Acts or Practices Addressed by the Rule

B. Manner and Context in Which the Acts or Practices Are Deceptive or Unfair

C. The Economic Effect of the Rule

III. Overview of the Comments

A. Furthering the Commission's Goal

B. Adoption of the Proposed Rule as a Final Rule

IV. Section-by-Section Analysis

A. § 465.1—Definitions

1. Overview

2. Definition-by-Definition Analysis

a. Business

b. Celebrity Testimonial

c. Clear and Conspicuous

d. Consumer Review

e. Consumer Testimonial

f. Indicators of Social Media Influence

g. Officers

h. Purchase a Consumer Review

i. Reviewer

j. Substantially Different Product

k. Testimonialist

l. Unjustified Legal Threat

3. Proposed Additional Definitions

a. Dissemination

b. Manager

c. Relative

d. Purchase or Procure Fake Indicators

e. Review Hosting

B. § 465.2—Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials

1. Common Language in § 465.2(a), (b), and (c)

2. § 465.2(a)

3. § 465.2(b)

4. § 465.2(c)

5. § 465.2(d)

6. Knowledge Standard

7. Other Proposals

C. § 465.3—Consumer Review or Testimonial Reuse or Repurposing

D. § 465.4—Buying Positive or Negative Consumer Reviews

E. § 465.5—Insider Consumer Reviews and Consumer Testimonials

1. Material Connections

2. Relatives

3. Agents

4. Scope

5. Knowledge Standard

6. Other Suggestions

F. § 465.6—Company-Controlled Review Websites or Entities

G. § 465.7—Review Suppression

1. § 465.7(a)

2. § 465.7(b)

H. § 465.8—Misuse of Fake Indicators of Social Media Influence

I. § 465.9—Severability

V. Final Rule

VI. Final Regulatory Analysis Under Section 22 of the FTC Act

A. Need for, and Objectives of the Final Rule

B. Anticipated Costs and Benefits of the Final Rule

1. Estimated Benefits of the Final Rule

a. Consumer Welfare Benefits From Better-Informed Purchase Decisions

b. Consumer Time Savings From Increased Reliability of Summary Ratings

c. Benefits Related to Competition

2. Estimated Costs of the Final Rule

a. Compliance Costs

b. Other Impacts of the Final Rule

C. Reasonable Alternatives and Explanation of Why Particular Alternative Chosen

VII. Paperwork Reduction Act

VIII. Regulatory Flexibility Act—Final Regulatory Flexibility Analysis

A. Reasons for the Rule

B. Issues Raised by Comments, the Commission's Assessment and Response, and Any Changes Made as a Result

C. Comments by the Chief Counsel for Advocacy of the SBA, the Commission's Assessment and Response, and Any Changes Made as a Result

D. Description and Estimate of the Number of Small Entities to Which the Rule Will Apply

E. Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements

F. Description of Steps Taken To Minimize Impact of the Rule on Small Entities

IX. Congressional Review Act

I. Background

A. Advance Notice of Proposed Rulemaking

On November 8, 2022, the Federal Trade Commission (“Commission” or “FTC”) published an advance notice of proposed rulemaking (“ANPR”) to address certain deceptive or unfair acts or practices involving consumer reviews or testimonials.

Specifically, the ANPR discussed: (1) reviews or endorsements by people who do not exist, who did not actually use or test the product or service, or who were misrepresenting their experience with it; (2) review hijacking, where a seller steals or repurposes reviews of another product; (3) marketers offering compensation or other incentives in exchange for, or conditioned on, the writing of positive or negative consumer reviews; (4) owners, officers, or managers of a company (a) writing reviews or testimonials of their own products or services, or publishing testimonials by their employees or family members, which fail to provide clear and conspicuous disclosures of those relationships, or (b) soliciting reviews from employees or relatives without instructing them to disclose their relationships; (5) the creation or operation of websites, organizations, or entities 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; (6) misrepresenting that the consumer reviews displayed represent most or all of the reviews submitted when, in fact, reviews are being suppressed based upon their negativity; (7) the suppression of customer reviews by physical threat or unjustified legal threat; and (8) selling, distributing, or buying followers, subscribers, views, and other indicators of social media influence. As part of the ANPR, the Commission solicited public comment on, among other things, whether such practices are prevalent and, if so, whether and how to proceed with a notice of proposed rulemaking

(“NPRM”).

The ANPR provided for a 60-day comment period, and the Commission received 42 responsive comments

from review platforms and other businesses, trade associations, consumer advocacy organizations, entities dedicated to fighting fake reviews, a public interest research center, a think tank, academic researchers, and individual consumers.

Most commenters expressed support for the Commission proceeding with the rulemaking. Five comments expressed the view that a rulemaking was unnecessary, was premature, or should not apply to the commenter's constituents, or expressed skepticism about the utility of a rulemaking.

Fed. Trade Comm'n, Trade Regulation Rule on the Use of Reviews and Endorsements, 87 FR 67424 (Nov. 8, 2022) [hereinafter “ANPR”],

https://www.federalregister.gov/documents/2022/11/08/2022-24139/trade-regulation-rule-on-the-use-of-reviews-and-endorsements.

The ANPR was entitled “Trade Regulation Rule Concerning Reviews and Endorsements.” In order to better reflect its content, the Commission subsequently decided to change the name of the proposed rule to “Trade Regulation Rule on the Use of Consumer Reviews and Testimonials.”

See

ANPR, 87 FR 67427.

The Commission also received six unresponsive comments.

The comments are publicly available on this rulemaking's docket at

https://www.regulations.gov/docket/FTC-2022-0070/comments.

B. Notice of Proposed Rulemaking

Based on an extensive review of the comments received in response to the ANPR, the Commission's own history of enforcement, and other sources of information, the Commission published the NPRM on July 31, 2023.

In the NPRM, the Commission stated that it has reason to believe that certain unfair or deceptive acts or practices involving consumer reviews or testimonials are prevalent, including: (1) fake consumer reviews and testimonials, as well as reviews and testimonials that otherwise misrepresent the experiences of the reviewers and testimonialists; (2) the unfair or deceptive reuse or repurposing of consumer reviews; (3) the giving of incentives for reviews conditioned on the sentiment of the reviews; (4) the use of consumer reviews and testimonials written by company insiders without disclosure of their relationships to the company; (5) marketers setting up purportedly independent websites, organizations, or entities to review or endorse their own products; (6) seller websites representing that the consumer reviews displayed represent most or all of the reviews submitted when, in fact, reviews are being suppressed based upon their negativity; (7) review suppression by unjustified legal threat or physical threat; and (8) the sale and misuse of fake indicators of social media influence for commercial purposes.

The Commission identified no disputed issues of material fact; explained its considerations in developing the proposed rule; solicited additional public comment thereon, including specific questions designed to assist the public in submitting comments; and provided interested parties the opportunity to request to present their position orally at an informal hearing.

Finally, the NPRM set out the Commission's proposed regulatory text.

See

Fed. Trade Comm'n, Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, 88 FR 49364 (July 31, 2023) [hereinafter “NPRM”],

https://www.federalregister.gov/documents/2023/07/31/2023-15581/trade-regulation-rule-on-the-use-of-consumer-reviews-and-testimonials.

See id.

at 49370-77.

Id.

at 49377-81, 49389-90.

Id.

at 49390-92.

In response to the NPRM, the Commission received 100 responsive and non-duplicative comments

from entities and individuals interested in the proposed rule,

which are discussed in sections III and IV. Although some commenters raised concerns and recommended specific modifications or additions to the Commission's proposal, the majority of commenters generally supported the Commission's proposal. Three commenters submitted timely requests to make oral statements at an informal hearing (“the hearing requesters”).

The Commission also received sixteen comments that were non-responsive and two that were duplicates.

The comments are publicly available on this rulemaking's docket at

https://www.regulations.gov/document/FTC-2023-0047-0001/comment.

Fake Review Watch, Cmt. on NPRM at 4-5 (Aug. 8, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0015

(“Fake Review Watch Cmt.”); Interactive Advertising Bureau, Cmt. on NPRM at 14-15 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0101

(“IAB Cmt.”); Researchers at Brigham Young University, Pennsylvania State University, and Emory University, Cmt. on NPRM at 4 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0060

(“The Researcher Cmt.”).

C. Notice of Informal Public Hearing

On January 16, 2024, the Commission published an Initial Notice of Informal Hearing, which also served as the Final Notice of Informal Hearing.

The Notice designated the Honorable Carol Fox Foelak, an Administrative Law Judge for the Securities and Exchange Commission, to serve as the presiding officer for the informal hearing and stated that the hearing requesters could speak at the informal hearing, make documentary submissions to be placed on the public rulemaking record, or both. Written submissions were due on or before January 30, 2024. In response to the Notice of Informal Hearing, the Commission received seven comments.

The Notice also stated that the Commission had decided not to proceed with proposed § 465.3,

which pertained to the unfair or deceptive reuse or repurposing of a consumer review written or created for one product so that it appears to have been written or created for a substantially different product.

Fed. Trade Comm'n, Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, 89 FR 2526 (Jan. 16, 2024) [hereinafter “Hearing Notice”],

https://www.federalregister.gov/documents/2024/01/16/2024-00678/rule-on-the-use-of-consumer-reviews-and-testimonials.

The comments are publicly available on this rulemaking's docket at

https://www.regulations.gov/docket/FTC-2024-0004/comments.

Hearing Notice, 89 FR 2528.

As announced in the Notice of Informal Hearing, the informal hearing began as scheduled on February 13, 2024.

Because the Commission had not designated disputed issues of material fact, the February 13 hearing session included no cross-examination or rebuttal submissions but did include oral statements from the three hearing requesters.

One of the hearing requesters, the Interactive Advertising Bureau (“IAB”), a trade association, argued that there were two disputed issues of material fact.

The other two hearing requesters discussed their comments submitted pursuant to the NPRM. At the conclusion of this hearing session, the presiding officer issued an order inviting further submissions, including specific evidence, concerning whether there were disputed issues of material fact.

IAB submitted a letter that described the results from a survey directed to its members—to which eighteen unidentified members responded

—regarding the impact of the proposed rule, including their estimated compliance costs.

Members of the public were able to watch the informal hearing live on the Commission's website,

https://www.ftc.gov.

A transcript of the February 13 hearing session is available at

https://www.ftc.gov/system/files/ftc_gov/pdf/transcript-consumer-reviews-and-testimonials-rule-informal-hearing-feb-13-2024.pdf

[hereinafter “February 13 Hearing Transcript”].

IAB's proposed disputed issues of material fact were “whether the compliance costs for businesses will be minimal, particularly if the `knew or should have known' standard is finalized” and “whether the Commission finding that unattended consequences from the NPRM are unlikely is accurate.” February 13 Hearing Transcript at 9.

Order by Presiding Officer Foelak at 2 (Feb. 13, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240213.pdf.

IAB “represents over 700 leading media companies, brand marketers, agencies and technology companies.” February 13 Hearing Transcript at 6.

Letter Brief from Interactive Advertising Bureau to Presiding Officer Foelak (Feb. 20, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmission20240220.pdf.

On February 23, 2024, the presiding officer issued an order finding one disputed issue of material fact, namely, “[w]hether the compliance costs for businesses will be minimal.”

However, the February 23 order stated that “[i]t can be argued that . . . even

if the actual costs are more than double what the FTC assumed, it would not change the outcome of the rule, and therefore, it is not a `disputed issue[ ] of

material

fact necessary to be resolved.' ”

The order provided that the presiding officer was nevertheless scheduling an additional hearing session for March 5, 2024, because “an expert witness or proposed testimony from affected firms' compliance officers or legal counsel” might “shed light on what would be involved with compliance review and implementation” and “could give the FTC a way of better quantifying cost.”

The March 5 hearing session was subsequently moved to March 6, 2024 at the trade association's request.

Order by Presiding Officer Foelak (Feb. 23, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/p311003aljorder20240226.pdf.

Id.

Order by Presiding Officer Foelak (Feb. 28, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003_alj_order_3_2024.02.28.pdf.

At the March 6 hearing session, the trade association put on one witness: its Executive Vice President for Public Policy, an attorney, who testified about the results of two limited surveys of its members.

FTC staff conducted cross examination. The attorney's testimony about the surveys

did not call the Commission's cost estimates into legitimate question. Only a small number of unidentified trade association members completed the surveys, and no evidence was submitted to indicate that they were representative of any group, much less all affected businesses.

Further, only a few of the survey respondents gave compliance cost estimates, none of which were accompanied by explanation or evidence of their factual bases, and all of which could have been influenced by the trade association's misconceptions about the law and the proposed rule.

A transcript of the March 6 hearing session is available at

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf. See also,

Interactive Advertising Bureau's Submission of Exhibits (Mar. 5, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabsubmissionexhibits20240305.pdf.

The presiding officer stated that testimony by the trade association's “attorney about survey responses is hearsay and will be weighed accordingly.” Order by Presiding Officer Foelak (Mar. 4. 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljorder20240304-1.pdf.

IAB received eighteen responses to the first survey and nineteen to the second.

See

Post-Hearing Letter Brief from Interactive Advertising Bureau to Presiding Officer Foelak (Mar. 13, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003iabposthearingbrief20240313.pdf.

See

Transcript of Informal Hearing on Proposed Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (Mar. 6, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003informalhearing03062024.pdf.

The presiding officer issued a recommended decision on May 8, 2024, stating that based on the evidence, “it cannot be found whether or not the proposed rule will have compliance costs that will be minimal.”

Later in the decision, the presiding officer explained that the evidence “falls short as the basis for a finding that compliance costs would not be minimal” because “a minute sample of businesses that would be affected by the proposed rule responded to the surveys, and there is insufficient information about the nature of those businesses, how they calculated potential compliance costs, and the methodology of the surveys.”

Order by Presiding Officer Foelak at 5 (May 8, 2024),

https://www.ftc.gov/system/files/ftc_gov/pdf/r311003aljdecision20240508.pdf.

The presiding officer added that, “[u]nquestionably, there is insufficient evidence in the record to make a specific finding as to the size of the compliance costs associated with the proposed rule.”

Id.

at 5 n.9.

Id.

at 6.

In crafting the final rule, the Commission has carefully considered the comments received and the rulemaking record as a whole, which includes the oral statements made at and documents submitted for the informal hearing. As a result, the final rule contains some changes from the proposed rule. These modifications, mostly clarifications and limitations, discussed in detail in section IV of this document, are based upon input from commenters and careful consideration of relevant law. Section IV also discusses commenters' recommendations that the Commission declined to adopt, along with the Commission's reasons for rejecting them. Accordingly, the Commission adopts the proposed rule with limited modifications as discussed below. The rule will take effect October 21, 2024.

II. The Legal Standard for Promulgating the Rule

The Commission is promulgating 16 CFR part 465 pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, which authorizes the Commission to promulgate, modify, and repeal trade regulation rules that define with specificity acts or practices in or affecting commerce that are unfair or deceptive within the meaning of section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).

See

15 U.S.C. 57a(a)(1)(B).

Whenever the Commission promulgates a rule under section 18(a)(1)(B), the rule must also include a Statement of Basis and Purpose (“SBP”) that addresses: (1) the prevalence of the acts or practices addressed by the rule; (2) the manner and context in which the acts or practices are unfair or deceptive; and (3) the economic effect of the rule, taking into account the effect on small businesses and consumers.

In this section of the preamble, the Commission summarizes its findings regarding each of these requirements.

15 U.S.C. 57a(d)(1). In addition, section 22(b)(2) of the FTC Act requires the Commission to prepare a final regulatory analysis. 15 U.S.C. 57b-3(b)(2). The final regulatory analysis is in section VI of this document.

A. Prevalence of Acts or Practices Addressed by the Rule

In its ANPR, the Commission described its enforcement record, demonstrating the pervasiveness of the deceptive or unfair commercial acts or practices involving reviews or other endorsements it was examining.

In the NPRM, the Commission cited additional enforcement evidence, including actions brought by State Attorneys General (“AGs”) and private lawsuits, as well as international evidence, and also took notice of additional indications of prevalence that came from commenters.

ANPR, 87 FR 67425-26.

NPRM, 88 FR 49370-77.

In support of the finding that fake reviews are prevalent, the NPRM cited to (1) FTC, State, and private cases; (2) statistics from review platforms, a platform insider, academic and other researchers, consumer surveys, investigative journalists, and others about the incidence of fake reviews; (3) information about the pervasiveness of consumer review rings that facilitate the buying, selling, or exchange of fake reviews; (4) the experiences of regulators in other countries and of international bodies; and (5) reporting regarding the use of generative artificial intelligence (“AI”) tools that make it easier for bad actors to write fake reviews.

In support of the finding that fake testimonials are prevalent, the NPRM discussed relevant FTC cases, an in-depth Better Business Bureau investigative study that examined fake celebrity endorsements, a celebrity lawsuit involving the fraudulent use of the celebrities' names, and an FTC consumer alert about fake Shark Tank celebrity testimonials.

In support of the finding that misrepresentations of endorsers' experiences are prevalent, the NPRM cited to FTC cases and a

comment by the North American Insulation Manufacturers Association (“NAIMA”) asserting that testimonials by those misrepresenting their experiences with insulation products are plentiful.

The Commission concluded that the unfair or deceptive reuse or repurposing of consumer reviews is prevalent, relying upon a prior Commission case and numerous news articles.

To show how commonly incentives are given in exchange for reviews with the incentives conditioned on the sentiment of the reviews, the NPRM pointed to FTC and private cases, analyses by researchers of markets for procuring reviews, and the experience of a small business employee commenter who said a competitor was providing incentives for 5-star reviews.

The Commission found prevalence of unfair or deceptive insider reviews and testimonials based on its prior cases; a State AG action; statistics from a review platform commenter about how many reviews of businesses were written by their owners, officers, or employees, or their family members; and an individual commenter who relied upon insider reviews in selecting an auto repair shop.

The NPRM cited prior cases regarding the prevalent practice of marketers setting up purportedly independent websites, organizations, or entities to review or endorse their own products.

The Commission found prevalence of suppression of negative reviews on retailer or business websites based on a platform's comment, a recent FTC case, and what it learned in another investigation about more than 4,500 merchants that were automatically publishing only 4- or 5-star consumer reviews.

The NPRM relied upon reports by platform and other commenters, as well as FTC and State AG cases, regarding review suppression by unjustified legal threat or physical threat.

Finally, with respect to the prevalence of sales and misuse of fake indicators of social media influence for commercial purposes, the NPRM discussed cases brought by the FTC, a State AG, and private parties, and published reports on social media bots and fake social media accounts.

Id.

at 49370-72. AI tools make it easier for bad actors to pollute the review ecosystem by generating, quickly and cheaply, large numbers of realistic but fake reviews that can then be distributed widely across multiple platforms. AI-generated reviews are covered by the final rule, which the Commission hopes will deter the use of AI for that illicit purpose.

NPRM, 88 FR 493720-73.

Id.

at 49373.

Id.

at 49373-74.

Id.

at 49374.

Id.

at 49374-75.

Id.

at 49375

Id.

at 49376.

Id.

at 49376-77.

B. Manner and Context in Which the Acts or Practices Are Deceptive or Unfair

The rule is intended to curb certain unfair or deceptive uses of consumer reviews and testimonials. It contains several provisions to promote accuracy and truthfulness in reviews and testimonials and, thus, will allow American consumers to make better-informed purchase decisions. The key provisions of the rule prohibit conduct that is inherently deceptive or unfair, including creating, selling, and buying fake or false reviews or testimonials; buying reviews in exchange for, or conditioned on, their sentiment; and using reviews and testimonials from company insiders that hide their relationships to the company. The rule also includes prohibitions against misleading, company-controlled review websites or entities; unfair or deceptive review suppression practices; and the misuse of fake indicators of social media influence.

C. The Economic Effect of the Rule

As part of the rulemaking proceeding, the Commission solicited public comment and data (both qualitative and quantitative) on the economic impact of the proposed rule and its costs and benefits.

In issuing the final rule, the Commission has carefully considered the comments received and the costs and benefits of each provision, taking into account the effect on small businesses and consumers, as discussed in more detail in sections VI and VIII of this document. The record demonstrates that the most significant anticipated benefit of the final rule is increased deterrence of clearly unfair or deceptive acts or practices involving consumer reviews or testimonials. Another significant benefit is the expansion of the remedies available to the Commission, including the ability to more effectively obtain monetary relief. This is particularly critical given the U.S. Supreme Court's decision in

AMG Capital Management, LLC

FTC,

which held that equitable monetary relief, including consumer redress, is not available under section 13(b) of the FTC Act.

Post-

AMG,

the Commission's primary means for obtaining redress is section 19 of the FTC Act. By issuing the final rule, the Commission can obtain such redress based on violations of the rule in one proceeding under section 19(a)(1), which will be significantly faster than the two-step process for obtaining redress under section 19(a)(2).

By allowing the Commission to secure redress more quickly and efficiently, this rule will also allow the Commission to preserve enforcement resources for other mission priorities.

As an additional benefit, the rule will enable the Commission to seek civil penalties against violators.

Without an efficient way to seek civil penalties, bad actors have little fear of being penalized for using fraud and deception in connection with reviews and endorsements. Increased deterrence will have consumer welfare benefits and will benefit honest competition.

Moreover, the final rule is likely to impose relatively small compliance costs on honest businesses.

ANPR, 87 FR 67426-27; NPRM, 88 FR 49387-88.

See AMG Cap. Mgmt., LLC

FTC,

593 U.S. 67, 82 (2021).

See

15 U.S.C. 57b(a)(1), (2);

see also

NPRM, 88 FR 49377-78 (discussing impact of

AMG Cap. Mgmt.

When the rule has been violated, the Commission can commence a Federal court action and seek to recover money for consumers or obtain an order imposing civil penalties.

See

15 U.S.C. 57b(a)(1), 15 U.S.C. 45(m)(1)(A). Without the rule, the path to monetary relief is longer and requires the Commission to first conduct an administrative proceeding to determine whether the respondent violated the FTC Act; if the Commission finds that the respondent did so, the Commission issues a cease-and-desist order, which might not become final until after the resolution of any resulting appeal. Then, to recover money for consumers, the Commission must prove in a separate Federal court action that the violator engaged in fraudulent or dishonest conduct.

See

15 U.S.C. 57b(a)(2).

See

section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A) (providing that violators of a trade regulation rule “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule” are liable for civil penalties for each violation). In addition, any entity or person who violates such a rule (irrespective of the state of knowledge) is liable for any injury caused to consumers by the rule violation. The Commission may pursue such recovery in a suit under section 19(a)(1) of the FTC Act, 15 U.S.C. 57b(a)(1).

NPRM, 88 FR 49382-85.

Id.

at 49385-87;

see infra

sections VI and VIII of this document.

III. Overview of the Comments

Minor changes to formatting, grammar, and punctuation have been made to some of the comments quoted in this document. These changes do not entail any substantive changes.

The Commission received 100 responsive and non-duplicative comments in response to the NPRM from a diverse group of individuals (including consumers and law students), industry groups and trade associations, review platforms, retailers, and other businesses, consumer advocacy organizations, and government entities.

In the NPRM, the Commission invited the public to comment on any issues or concerns the public believed were relevant or appropriate to the Commission's consideration of the

proposed rule.

The NPRM also posed twenty-three specific questions for the public.

The first two are broad questions addressed in this section III, which also discusses several issues or concerns that commenters raised generally without reference to particular sections of the rule. Responses to the more specific questions in the NPRM are discussed in section IV of this document, a section-by-section analysis of the final rule. Questions relating to the Paperwork Reduction Act (“PRA”) and Regulatory Flexibility Act (“RFA”) and are addressed in sections VII and VIII of this document, respectively.

NPRM, 88 FR 49388.

Id.

at 49388-89.

Id.

at 49388. In addition to soliciting public comment on the NPRM's PRA and RFA analyses in the PRA and RFA sections, the NPRM also posed two specific questions related to the PRA and RFA analyses. Question 4 inquired whether “the proposed rule contains a collection of information,” and Question 5 asked, “Would the proposed rule, if promulgated, have a significant economic impact on a substantial number of small entities? If so, how could it be modified to avoid a significant economic impact on a substantial number of small entities?”

Id.

at 49381-86, 49388.

A. Furthering the Commission's Goal

In Question 1 of the NPRM, the Commission asked whether its proposal would further the Commission's goal of protecting consumers from clearly unfair or deceptive acts or practices involving consumer reviews and testimonials.

NPRM, 88 FR 49388.

Several commenters expressly addressed this question. A review platform and a business that specializes in identifying fake online reviews submitted comments stating that the proposed rule would further the Commission's goal of protecting consumers from clearly unfair or deceptive acts or practices involving consumer reviews.

Another review platform commenter answered that there are “numerous advantages of the FTC's proposed new Rule,” that it is “generally supportive of this intervention overall,” and that the proposed rule “will be helpful to set out clear rules that expressly prohibit practices like writing or purchasing fake reviews, providing compensation or incentives in exchange for reviews, and certain acts of unfair review suppression.”

A business commenter similarly answered that the “Proposed Rule addresses many concerns about unfair or deceptive acts or practices involving consumer reviews and testimonials, such as false and biased reviews.”

Both of these commenters also noted areas in which they thought certain provisions of the proposed rule should be adjusted or clarified; those issues are addressed below.

A consumer organization said that “[i]n general, . . . the proposed Rule will reduce the incentives for businesses to purchase, disseminate, or sell fake consumer reviews or testimonials,” but thought that the proposed rule should have placed explicit restrictions on third-party review platforms.

The Commission notes that this topic is beyond the scope of the rulemaking, which focuses instead on those responsible for inarguably unfair or deceptive acts or practices regarding reviews and testimonials.

Yelp Inc., Cmt. on NPRM at 3 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0088

(“Yelp Cmt.”); The Transparency Company, Cmt. on NPRM at 1, 5 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0107

(“Transparency Company Cmt.”).

Trustpilot, Cmt. on NPRM at 2 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0084

(“Trustpilot Cmt.”).

Family First Life, LLC, Cmt. on NPRM at 2 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0104

(“Family First Life Cmt.”).

Trustpilot Cmt. at 2-3; Family First Life Cmt. at 2-3.

Consumer Reports, Cmt. on NPRM at 2-3 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0099

(“Consumer Reports Cmt.”).

B. Adoption of the Proposed Rule as a Final Rule

In Question 2 of the NPRM, the Commission inquired whether it should finalize the proposed rule, the reasons for why commenters were in favor of or against the finalization of the proposed rule, and whether the Commission should make any changes to its original proposal.

NPRM, 88 FR 49388.

Only two commenters directly addressed this question. A business commenter agreed that the Commission should finalize the proposed rule.

A review platform commenter said it “supports this Rule and would support the Commission finalizing the Rule.

It also suggested adjustments to the Commission's proposal, which are addressed below in this document.

Transparency Company Cmt. at 6.

Trustpilot Cmt. at 3.

Numerous individual commenters,

trade associations,

and consumer organizations

expressed general support for the proposed rule. For example, an individual commenter wrote, “I completely agree with the proposal. . . . Because review sections have become so untrustworthy (being impossible to tell whether a company has paid for positive reviews of its own product, or for negative reviews on a rival's product), review sections have become functionally useless for me. This makes it difficult to purchase any products online, since real consumer feedback is one of the few ways to determine whether I should buy the product or service without first examining it in person.”

Another individual stated, “I support the rules as specified, and applaud the FTC's action in this regard. It is extremely difficult for the consumer to determine the validity of online reviews—even within specific retailers such as amazon. There is little benefit for large online retailers to ensure that reviews are accurate, and this fact is evident in the large number of bogus reviews found on amazon, newegg, youtube and other sites.”

A third individual wrote, “I strongly support the rules against fake review

and testimonials and fines for businesses and people who write them. As a consumer, I often use reviews to help determine whether a product or service is reliable; the prevalence of fake reviews makes this impossible.”

A trade association commented, “The NPRM proposes rules that are appropriately scoped to target the bad actors [who are] intent on committing fraud through fake or deceptive reviews. . . . The NPRM strikes the appropriate balance between enhancing the Commission's tools to target bad actors and preserving industry flexibility to develop innovative and effective solutions to maintain consumer confidence in reviews.”

A consumer organization stated, “The Commission absolutely should finalize the proposed rule to better protect shoppers and hold businesses accountable.”

Amelia Markey, Cmt. on NPRM (July 31, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0003

(“Markey Cmt.”); Chris Hippensteel, Cmt. on NPRM (Aug. 1, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0006

(“Hippensteel Cmt.”); Jeremy Anderson, Cmt. on NPRM (Aug. 1, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0007

(“Anderson Cmt.”); Caroline Fribance, Cmt. on NPRM (Aug. 11, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0017

(“Fribance Cmt.”); Pia Edborg, Cmt. on NPRM (Aug. 17, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0027

(“Edborg Cmt.”); Anonymous 1, Cmt. on NPRM (Aug. 20, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0031

(“Anonymous 1 Cmt.”); Jessica Ludlam, Cmt. on NPRM (Aug. 24, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0036

(“Ludlam Cmt.”); SUPERGUEST, Cmt. on NPRM (Sept. 8, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0046

(“Superguest Cmt.”); Sean Poole, Cmt. on NPRM at 1-2 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0063

(“Poole Cmt.”); Artemio Magana, Cmt. on NPRM (Sept. 28, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0079

(“Magana Cmt.”).

American Dental Association, Cmt. on NPRM at 1 (Sept. 28, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0078

(“ADA Cmt.”); Travel Technology Association, Cmt. on NPRM at 1, 4-5 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0097

(“Travel Tech. Cmt.”).

Coalition of Civil Society Organizations, Cmt. on NPRM at 1-3 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0108;

U.S. Public Interest Research Group Education Fund, Cmt. on NPRM at 2 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0109

(“US PIRG Cmt.”).

Markey Cmt.

Anderson Cmt.

Anonymous 1 Cmt.

Travel Tech. Cmt. at 1, 4.

US PIRG Cmt. at 2.

A number of individual consumers,

a review platform,

other industry members,

and consumer organizations

supported the Commission's proposal, but urged the Commission to go further and impose additional requirements, such as by adding provisions that would apply to third-party review platforms. As noted above, such provisions would be beyond the scope of the rulemaking. Similarly beyond the scope of the rulemaking is an individual's suggestion that the Commission should restrict the highlighting of testimonials on websites and prohibit payments for reviews.”

A review platform's comment “applaud[ed] . . . the Commission . . . for its extensive efforts to address the problem of deceptive review practices, as reflected in the Commission's notice of proposed rulemaking, and . . . fully support[ed] and endorse[d] the Commission's proposed Rule.”

Its suggestions for several provisions are discussed below. A consumer group stated that the proposed rule “is needed” and “addresses an urgent problem: fabricated and otherwise deceptive reviews and ratings of products and services,” but asked for numerous modifications to strengthen it.

These proposals are discussed below.

Michael Ravnitzky, Cmt. on NPRM at 1-2 (Aug. 6, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0013

(“Ravnitzky Cmt.”); Adam Foster, Cmt. on NPRM at 1-2 (Sept. 21, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0052

(“Foster Cmt.”); Anonymous 2, Cmt. on NPRM at 1, 4 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0065

(“Anonymous 2 Cmt.”); Anonymous 3, Cmt. on NPRM (Sept. 27, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0069

(“Anonymous 3 Cmt.”).

Yelp Cmt. at 1, 5-8.

Strategic Marketing, Cmt. on NPRM (Aug. 7, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0014;

PerfectRec Inc., Cmt. on NPRM at 1-3 (Aug. 23, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0035;

Mozilla, Cmt. on NPRM at 5-7 (Sept. 28, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0076

(“Mozilla Cmt.”); The Responsible Online Commerce Coalition, Cmt. on NPRM at 2, 4-6 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0086.

Fake Review Watch Cmt. at 1-4; Truth in Advertising, Inc., Cmt. on NPRM at 2, 4-11 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0083

(“TINA Cmt.”); National Consumers League, Cmt. on NPRM at 2-9 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0096

(“NCL Cmt.”); Consumer Reports Cmt. at 2-11.

Anonymous 3 Cmt.

Yelp Cmt. at 1, 4-8.

TINA Cmt. at 4, 6.

A few individual commenters

and industry commenters

were supportive of a rule but expressed the need for clarifications or modifications. An individual commenter wrote that “[a]ll of the rules proposed . . . make (common) sense” but identified “a few scenarios that highlight that the language in the proposed rules is a bit ambiguous” and that with “steep penalties like this, guidelines need to be clear, concrete, AND simple so businesses can understand.”

Another individual commenter said that the proposed rule “takes great strides,” but that two proposed sections, 465.4 and 465.6, are too restrictive.

A retailer wrote, “On the whole, . . . the Proposed Rule contains provisions that are reasonable and would provide additional protection to consumers” but “there are a few provisions . . . that are not well drafted or that need additional language.”

Another retailer said that it “supports a tailored rule that focuses on the bad actors that harm consumers,” but that the proposed rule “sweeps more broadly, extending to the activities of legitimate businesses that do not uncover abuses that they `should have' identified, regardless of their good faith efforts” and that “[s]uch an overbroad rule would have significant unintended negative consequences on legitimate conduct.”

An industry organization commented that the proposed rule “is an important step, and we share the Commission's goal of improving consumer confidence in reviews and testimonials” but “strongly urge[d] the Commission to reexamine . . . [four] provisions” to address what it viewed as First Amendment concerns and for other reasons.

The specific suggestions or concerns raised by these and other commenters are addressed below. In particular, whether in the text of the final rule or in the discussion below, the Commission is clarifying the scope or meaning of various rule provisions to cover the specific activities or conduct that harm consumers and avoid ambiguity or overbreadth.

Anonymous 4, Cmt. on NPRM (Sept. 1, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0040

(“Anonymous 4 Cmt.”); Riley Albert, Cmt. on NPRM at 3 (Sept. 21, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0053

(“Albert Cmt.”); Alyssa Frieling, Cmt. on NPRM at 1-4 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0059

(“Frieling Cmt.”).

Hammacher, Schlemmer and Co., Inc., Cmt. on NPRM at 1-7 (Aug. 21, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0032

(“Hammacher Schlemmer Cmt.”);

Amazon.com,

Inc., Cmt. on NPRM at 5-13 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0085

(“Amazon Cmt.”); TechNet Cmt. on NPRM at 2-4 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0089

(TechNet Cmt.”); Family First Life Cmt. at 2-16.

Anonymous 4 Cmt.

Frieling Cmt. at 1-4.

Hammacher Schlemmer Cmt. at 1.

Amazon Cmt. at 5.

TechNet Cmt. at 2-4.

Only four commenters, two individual commenters

and two trade associations,

said that the proposed rule was unnecessary or unwarranted. One of the individuals, wrote that “the rule seems to be unnecessary as it is unlikely to actually provide the benefit to consumers of removing falsified reviews” because it is difficult to identify and trace fake reviews and “punish[ ] an offender” and that the proposed rule “also has potential to penalize non-offenders” when competitors purchase “review bombs.”

The commenter asserted that the FTC's estimated benefits are based on faulty assumptions such as that “the entirety of the loss” from false reviews “would be eliminated simply because the rule is enacted.

The commenter said that the FTC should either maintain the status quo or require websites with consumer reviews to include a disclosure that “some reviews may have not been made by genuine customers, may potentially have been paid

testimonials, etc.”

The other individual commenter said that the “proposed rule is unnecessary because all of the practices considered by the rule `are already unlawful under Section 5 of the FTC Act,' it has potentially massive compliance costs for American businesses” (citing the FTC's estimated cost), “and the better salutation [sic] is to work with States and review platforms to resolve the issue.”

One of the trade associations stated that the “Proposed Rule is [u]nnecessary,” that “current FTC enforcement authority has been effective in addressing such clearly deceptive practices, and there is no indication how or why a trade regulation rule is needed, or how such a rule would more effectively address concerns about such deceptive practices,” and that “a need to alleviate the `difficulty' of obtaining monetary relief under the FTC Act where such authority has never existed, does not provide an adequate basis for the issuance of a Magnuson-Moss rulemaking.”

The other trade association asserted that (1) it “does not believe that rulemaking is warranted, wise, or a balanced approach, in part because it raises serious First Amendment concerns;” (2) “a well-designed rule would focus on a defined trade” but the “record to date does not establish that customer reviews, the use of those reviews, or the dissemination of those reviews by commercial platforms is itself a defined trade;” (3) the “FTC should not promulgate a rule solely because the augmented penalties attendant to a rule violation could ostensibly advance a Commission goal generally;” and (4) “the FTC fail[ed] to show how enforcement actions, many of which were settled by consent order, translate into `prevalence.' ”

Marc Slezak, Cmt. on NPRM at 1-5 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0054

(“Slezak Cmt.”); Sumner Camp-Martin, Cmt. on NPRM at 1-5 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0056

(“Camp-Martin Cmt.”).

National Automobile Dealers Association, Cmt. on NPRM at 1-2 (Sept. 28, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0077

(NADA Cmt.”); Association of National Advertisers, Cmt. on NPRM at 3-7 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0105

(“ANA Cmt.”).

Slezak Cmt. at 1-4.

Id.

Camp-Martin Cmt. at 1-2. The commenter said, “In the alternative to the complete abandonment of the proposed rule, Section 465.4 should be amended” and broadened.

Id.

at 1.

NADA Cmt. at 1-2.

ANA Cmt. at 3-7.

The Commission disagrees with the four commenters who said that the proposed rule was unnecessary or unwarranted. The Commission believes that the status quo is inadequate to address consumer harm and that the rule will add deterrence and aid enforcement even though the practices covered by the rule are already unlawful under section 5 of the FTC Act. Greater deterrence and more effective enforcement are legitimate reasons to engage in a rulemaking, whereas difficulties in enforcing a rule against some violators are no reason to eschew it.

Further, the compliance costs estimated by the Commission are greatly outweighed by the estimated benefits to consumers and honest competition. The Commission notes that the harm caused by the acts and practices addressed cut across multiple trades. The Commission addresses potential First Amendment concerns and arguments regarding prevalence below.

The Commission is aware that a business could attempt to damage a competitor's reputation by purchasing fake positive reviews for that competitor and then reporting those reviews to the platform on which they appear. In investigating a fake review matter, FTC staff would take such a possibility into account.

IV. Section-by-Section Analysis

The following discussion provides a section-by-section analysis of the provisions proposed in the NPRM, and discusses the comments received, the Commission's responses to the comments, and the provisions adopted in the final rule.

The Commission notes that many commenters raised similar concerns or addressed overlapping issues. To avoid repetition, the Commission has endeavored to respond to issues raised in similar comments together. Responses provided in any given section apply equally to comments addressing the same subject in the context of other sections. Moreover, throughout the SBP, the Commission discusses justifications for the final rule that are informed by its careful consideration of all comments received, even where that discussion is not linked to a particular comment.

A. § 465.1—Definitions

1. Overview

The proposed rule included definitions for the following terms: “business”; “celebrity testimonial”; “clear and conspicuous”; “consumer review”; “consumer testimonial”; “indicators of social media influence”; “officers”; “purchase a consumer review”; “reviewer”; “substantially different product”; “testimonialist”; and “unjustified legal threat.” In Question 6 of the NPRM, the Commission asked whether the proposed definitions are clear and what changes should be made to any definitions. In Questions 11 and 21 of the NPRM, the Commission asked specifically about the definitions of “substantially different product” and “unjustified legal threat,” respectively. In the following definition-by-definition analysis, the Commission discusses each definition proposed in the NPRM, relevant comments not otherwise addressed in the discussion of the corresponding substantive provisions of the final rule, and the definitions that the Commission is finalizing.

Because the Commission is adding additional definitions and not including one proposed definition, the definitions are renumbered in the final rule.

2. Definition-by-Definition Analysis

a. Business

The proposed rule defined “business” as “an individual, partnership, corporation, or any other commercial entity that sells products or services.” This term appeared in the proposed definitions of “celebrity testimonial,” “consumer review,” “consumer testimonial,” and “officers,” and in every substantive section of the proposed rule. For the following reasons, the Commission adopts the definition of “business” largely as proposed, with a minor, non-substantive clarification as described below.

A trade association commenter noted correctly that the Commission's rulemaking authority is limited to acts or practices “in or affecting commerce.”

It recommended that the Commission insert “in or affecting commerce as defined in section 4 of the Federal Trade Commission Act (15 U.S.C. 44)” in the definition of a “business.”

The Commission declines to make this modification. An entity that is selling products or services is engaging in commerce and, even without the commenter's proposed addition, the acts and practices covered by the final rule are limited to commercial practices.

National Federation of Independent Businesses, Cmt. on NPRM at 2 (Sept. 12, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0047

(“NFIB Cmt.”).

Id.

A consumer advocacy organization commenter argued that the definition of a business potentially liable under the proposed rule was unduly narrow and should be expanded to include “advertisers,” “endorsers,” and “[a]dvertising agencies, public relations firms, review brokers, reputation management companies, and other similar intermediaries.”

100

However, advertisers, advertising agencies, public relations firms, review brokers, reputation management companies, and other similar intermediaries all sell products or services and are covered by the Commission's definition of “business.” To the extent that an endorser is in the business of selling reviews or testimonials, the endorser is covered by the definition. The Commission is therefore not making the proposed change.

100

TINA Cmt. at 6-7.

A review platform commenter suggested that, to avoid ambiguity, the Commission clarify that “sells products or services” in the definition of “business” applies to each of the types of entities listed in the definition, not just to “any other commercial

entity.”

101

The Commission is adopting this recommendation to clarify the intended scope of the definition.

101

Yelp Cmt. at 3.

For the reasons explained in this section, the Commission is finalizing the definition of “business” to mean an individual who sells products or services, a partnership that sells products or services, a corporation that sells products or services, or any other commercial entity that sells products or services.

b. Celebrity Testimonial

The proposed rule defined “celebrity testimonial” as “an advertising or promotional message (including verbal statements, demonstrations, or depictions of the name, signature, likeness, or other identifying personal characteristics of an individual) that consumers are likely to believe reflects the opinions, beliefs, or experiences of a well-known person who purchased, used, or otherwise had experience with a product, service, or business.” The Commission is finalizing the definition of this term—which is used in § 465.2, Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials—with one modification.

A trade association commenter said that the definition of a celebrity endorsement should be clarified to exclude “a situation where a celebrity or celebrity likeness appears or is used by a business as a promotion, without any specific advertising or opinions presented.”

102

The commenter gave the example of an athlete who appears at a business to sign autographs or simply appears, without making any statements or representations about the business.

103

Such situations should not be excluded from the scope of the definition because a business's use in advertising or promotion of a celebrity or a celebrity's image can, even without any additional statements, imply that the celebrity has a positive opinion of the business or its products or services and therefore constitute a celebrity testimonial. However, if consumers would not interpret the celebrity's appearance to reflect the celebrity's opinions of, beliefs about, or experiences with, a business or its products or services, then the appearance is not a testimonial. That issue is thus highly dependent on specific facts. Further, to take the commenter's example, it is highly unlikely that a celebrity who does nothing more than sign autographs or appear at a business could violate § 465.2, because such signings or appearances alone would likely not communicate anything to consumers about the celebrity's use or experience with a product, service, or business.

102

NADA Cmt. at 5.

103

Id.

A second trade association asserted that the definition of a “celebrity testimonial” does not give advertisers adequate notice as to when a testimonial is a “celebrity” testimonial or a “consumer” testimonial.

104

The commenter requested that the Commission provide further guidance on what constitutes a “well-known” individual.

105

Based upon common usage, well-known individuals include those famous in the areas of entertainment, such as film, music, writing, or sport, and those known to the public for their positions or successes in business, government, politics, or religion. Individuals who earn money through their work as “influencers” are also well known, as are those who have been featured in the news or media. More important, whether someone is well known does not matter for purposes of rule interpretation and enforcement because any provisions that apply to celebrity testimonials also apply to consumer testimonials.

104

IAB Cmt. at 14.

105

Id.

A business commenter suggested replacing “a well-known person” in the definition with a “widely known all-purpose public figure” or “widely known public figure” for the purpose of “clarity.”

106

It said that Black's Law Dictionary defines the term “all-purpose public figure” to mean “[s]omeone who achieves such pervasive fame or notoriety that he or she becomes a public figure for all purposes and in all contexts.”

107

To be “well known,” one need not have such pervasive fame as to be a public figure for all purposes and in all contexts. For example, an influencer may be well known to a subset of individuals interested in a particular subject. The commenter gave no justification for narrowing the definition of a “celebrity testimonial,” and the Commission declines to do so.

106

Family First Life Cmt. at 4-5.

107

Id.

at 5.

See

Black's Law Dictionary (11th ed. 2019).

A public interest research center commenter said that the definitions of “celebrity testimonials” and “consumer testimonials” should “be broadened to explicitly include non-natural persons, such as businesses and public sector entities.”

108

Although endorsements by such organizations are addressed in the Commission's Endorsement Guides,

109

the Commission did not intend for any provision using the term “testimonials” to apply to endorsements by entities. To clarify that the Commission does not intend for any provision using the term “testimonials” to apply to endorsements by entities, the Commission is substituting the word “individual” for the word “person” wherever the word appeared in the Commission's original proposal.

110

The only section of the rule that applies to endorsements by entities or purported entities is § 465.6, which addresses company-controlled review websites or entities. However, § 465.6 does not apply to consumer or celebrity testimonials.

108

Electronic Privacy Information Center, Cmt. on NPRM at 3 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0111

(“EPIC Cmt.”).

109

See

Fed. Trade Comm'n, Guides Concerning Use of Endorsements and Testimonials in Advertising (“Endorsement Guides”), 16 CFR 255.4.

110

The Commission is using the term “individual” in the context of this rule to mean a single human being.

See Individual

(def. 1),

Dictionary.com,

LLC,

https://www.dictionary.com/browse/individual

(last visited July 5, 2024) (defining “individual” as “a single human being, as distinguished from a group”). The Commission notes that, in the context of a different rulemaking, it has proposed defining “individual” to mean “a person, entity, or party, whether real or fictitious, other than those that constitute a business or government” under 16 CFR 461.

See

Fed. Trade Comm'n, Trade Regulation Rule on Impersonation of Government and Businesses, 89 FR 15072, 15083 (Mar. 1, 2024).

c. Clear and Conspicuous

The proposed rule defined “clear and conspicuous” to mean “that a required disclosure is easily noticeable (

i.e.,

difficult to miss) and easily understandable,” including in eight enumerated ways, listing proposed requirements for “any communication that is solely visual or solely audible,” “[a] visual disclosure,” “[a]n audible disclosure,” and “any communication using an interactive electronic medium,” and providing, inter alia, that such disclosures “must use diction and syntax understandable to ordinary consumers,” “must appear in each language in which the representation that requires the disclosure appears,” and “must not be contradicted or mitigated by, or inconsistent with, anything else in the communication.” Based on the following, the Commission is finalizing the definition of this term—which is used in § 465.5, Insider Consumer Reviews and Consumer Testimonials—with one modification.

A trade association commenter suggested not using the terms “diction” and “syntax” in the definition because many of those subject to the rule “may not know the meaning of th[os]e words.”

111

The commenter suggested replacing them with “words” and

“grammar.”

112

“Diction” means the choice and use of words.

113

“Syntax” involves the arrangement of words and phrases and is a subset of grammar.

114

The Commission believes that the meaning of “diction” and “syntax” are sufficiently clear.

111

NFIB Cmt. at 2.

112

Id.

113

See Diction

(def. 2),

Merriam-Webster.com

Dictionary,

https://www.merriam-webster.com/dictionary/diction

(last visited July 5, 2024) (defining “diction” as the “choice of words especially with regard to correctness, clearness, or effectiveness”).

114

See Syntax

(defs. 1a, 1b),

Merriam-Webster.com

Dictionary,

https://www.merriam-webster.com/dictionary/syntax

(last visited July 5, 2024) (defining “syntax” as the “the way in which linguistic elements (such as words) are put together to form constituents (such as phrases or clauses)” and as “the part of grammar dealing with this”).

One trade association commenter asserted that it is unnecessary to have a definition of “clear and conspicuous” because the “phrase . . . has a meaning under FTC jurisprudence.”

115

The definition is based on that jurisprudence and decades of Commission experience policing deceptive and unfair conduct. The Commission believes it is both helpful and necessary that the rule provides more explicit guidance on what does and does not constitute a clear and conspicuous disclosure.

115

ANA Cmt. at 11.

Several commenters asserted that the proposed definition was overly prescriptive and not sufficiently flexible.

116

The Commission disagrees and reiterates that the definition contains basic, common-sense principles, such as requiring visual disclosures in a size consumers can see and audible disclosures at a volume they can hear. The definition merely provides a baseline and provides a great deal of flexibility in what a disclosure should say and how it appears. The basic, enumerated requirements are necessary for a disclosure to be effective.

116

IAB Cmt. at 14; U.S. Chamber of Commerce, Cmt. on NPRM at 7-8 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0087

(“Chamber of Commerce Cmt.”); National Retail Federation, Cmt. on NPRM at 10 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0090

(“NRF Cmt.”).

Two commenters objected to the requirement that internet disclosures be “unavoidable,” an objective standard that depends on whether consumers could have avoided the disclosure, which, per the definition is the case when “a consumer must take any action, such as clicking on a hyperlink or hovering over an icon, to see” the disclosure.

117

The commenters do not believe that a disclosure has to be unavoidable for it to be effective; they noted that a staff business guidance document, issued in 2000 and updated in 2013, allowed for the possibility that avoidable disclosures,

e.g.,

those available through a hyperlink, could be clear and conspicuous.

118

The Commission believes that a disclosure is not effective when it is not seen or heard, including when the reason for it not being seen or heard is its avoidability. The staff guidance said that “[d]isclosures that are an integral part of a claim or inseparable from it should not be communicated through a hyperlink,” and the purported independence and objectivity of a reviewer or testimonialist is often integral.

119

Further, some readers misunderstood the staff guidance about the necessity of properly labeling hyperlinks to convey the “importance, nature, and relevance of the information” to which the hyperlinks lead. The staff guidance said that, to be effective, the label of the hyperlink might need to give the essence of the disclosure, with the hyperlink leading to the details.

120

Even had these qualifications been absent, the Commission is not bound by the 2013 staff business guidance, which is currently under review in light of an evolution of views over time regarding online disclosures and avoidability.

121

117

IAB Cmt. at 14; Chamber of Commerce Cmt. at 8.

118

Id.

119

Fed. Trade Comm'n,

.com Disclosures: How to Make Effective Disclosures in Digital Advertising

at 10 (Mar. 2013),

https://www.ftc.gov/system/files/documents/plain-language/bus41-dot-com-disclosures-information-about-online-advertising.pdf.

120

Id.

at 11. (“Although the label itself does not need to contain the complete disclosure, it may be necessary to incorporate part of the disclosure to indicate the type and importance of the information to which the link leads.”)

121

See

Press Release, Fed. Trade Comm'n,

FTC Looks to Modernize Its Guidance on Preventing Digital Deception

(June 3, 2022),

https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-looks-modernize-its-guidance-preventing-digital-deception.

One commenter asked whether a disclosure in the first line of a product review would be considered unavoidable.

122

For the purposes of this rule, the Commission would consider such a disclosure to be unavoidable. A different commenter expressed concern that the requirement that a disclosure “stand out” would require new formatting techniques for companies hosting reviews and preclude a disclosure from being in the review itself.

123

For the purposes of this rule, the Commission would consider a disclosure at the beginning of a text-only consumer review to “stand out.”

122

Trustpilot Cmt. at 14. The same commenter also raised concerns about the applicability of the definition to ratings and aggregate ratings.

Id.

That is issue is discussed below in the discussion of the corresponding substantive rule provision.

See infra

section IV.E.6 of this document.

123

NRF Cmt. at 10.

A trade association said that “the average social media user is familiar with where text is found in any given social media post, and social media platforms already make text visible against a variety of backgrounds” so “[r]equiring the endorsement-disclosure text to differ from other text is not only impractical, but it could actually create confusion for social media users who have grown accustomed to viewing all text related to a post in a certain manner.”

124

The Commission recognizes that, on a social media platform that allows only uniform text, it is not possible to have the text of a disclosure appear in different text. As with a text-only consumer review, the Commission would consider a disclosure at the beginning of such a text-only testimonial to “stand out.” On visual platforms with superimposed text, it is quite possible and reasonable to require that the text of a disclosure “stand out.”

124

Id.

at 11.

One commenter asserted that being “unavoidable” and being “easily noticed” are ambiguous concepts.

125

The Commission disagrees. “Unavoidable” means that a consumer cannot avoid a disclosure such as by failing to click on a link or by failing to scroll. “Easily noticeable” is a simple and objective standard evaluated from the perspective of a reasonable consumer.

125

ANA Cmt. at 11.

Two commenters asserted that it would be difficult to make clear and conspicuous disclosures required by the proposed rule on a small screen.

126

They did not explain why that would be the case, and the Commission does not believe that compliance with the rule's disclosure requirement should be difficult on handheld devices.

126

IAB Cmt. at 14; NRF Cmt. at 11.

One commenter asserted that, because of the proposed definition of clear and conspicuous, “[t]here is no need for the FTC to determine whether the resulting speech is rendered deceptive, untrue, or inaccurate.”

127

The Commission disagrees. The only substantive provision for which the definition is relevant is § 465.5. A business would not violate that provision merely by having a disclosure that is not clear and conspicuous. Rather, the business would have to engage in conduct that would be unfair or deceptive in the absence of a clear and conspicuous disclosure (

e.g.,

a corporate officer

giving a consumer endorsement without disclosing that they are an insider). As discussed below, the Commission is finalizing proposed § 465.5 with a modification to clarify to clarify that the provision is limited to conduct that would violate section 5 of the FTC Act.

128

The same commenter also surmised, based on the similarity of the definition of “clear and conspicuous” to the definition of the same phrase in the Endorsement Guides, that the Commission intends that the examples used in the Endorsement Guides would also be examples of violative behavior under the rule.

129

That is not the case. The Endorsement Guides address a broader range of conduct than the rule. Of the three examples in the Endorsement Guides that illustrate whether disclosures are clear and conspicuous, two of them address issues—the payment of influencers and implied typicality—not covered by the rule.

130

The third example involves a disclosure that individuals appearing in a television ad and giving testimonials are paid actors.

131

Such conduct would not be covered by the rule unless the underlying testimonials were fake or false.

127

ANA Cmt. at 11.

128

See infra

section IV.E.1 of this document.

129

Id.

130

16 CFR 255.0(g)(9) and (11).

131

16 CFR 255.0(g)(10).

One commenter, a trade association, stated that it was “unclear if the Commission has considered any social media platform constraints with respect to the length of posts (

e.g.,

character and time limits),” and asked (1) whether and how hashtags can meet the “clear and conspicuous” requirement, (2) whether “`#Ad' is a sufficient visual disclosure of a material relationship,” and (3) that the Commission “provide more examples, including appropriate use of hashtags in disclosures, in its final rule.”

132

Another trade association requested in its comment that the Commission provide “visual examples of `insider' endorsement disclosures that the Commission finds acceptable.”

133

The Commission believes it is not difficult to comply with the rule's disclosure requirements in the social media context. Depending upon their wording and appearance, hashtags can be clear and conspicuous for purposes of the rule. In a social media post promoting a brand, it might be sufficient to prominently disclose an employee relationship via a hashtag beginning with the brand name and followed by the word “employee.” Whether “#ad” would be an adequate disclosure would depend on the specific context. It could be adequate at the beginning of a social media post by the testimonialist, but it would likely be inadequate in a television ad or magazine ad featuring the testimonialist. Because the only provision for which the definition is relevant is § 465.5, which addresses the failure to disclose insider relationships, the disclosure could be as simple as the testimonialist describing a product as “my company's” or “my wife's company's.”

132

Retail Industry Leaders Association, Cmt. on NPRM at 5 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0094

(“RILA Cmt.”).

133

NRF Cmt. at 10.

A commenter asserted that disclosures “utilizing a social media platform's built-in disclosure tool should be . . . at least sufficient enough to avoid the risk of penalties under the FTC's rulemaking authority.”

134

As it has previously said, the Commission supports development of effective, built-in disclosure tools but is concerned that some of the existing tools lead to inadequate disclosures that are too poorly contrasting, fleeting, or small, or may be placed in locations where they do not catch the user's attention.

135

Whether a business could be subject to civil penalties for social media posts by insiders who utilized a social media platform's built-in disclosure tool would depend on whether a court would find that the business met the knowledge standard of section 5(m)(1)(A) of the FTC Act.

134

Id.

135

Fed. Trade Comm'n, Guides Concerning the Use of Endorsements and Testimonials in Advertising, 87 FR 44288, 44290 (July 26, 2022) (proposing changes to guides and soliciting public comment).

A trade association's comment expressed concerns about the proposed requirement that “[i]n any communication made through both visual and audible means, such as a television advertisement, the disclosure must be presented simultaneously in both the visual and audible portions of the communication even if the representation requiring the disclosure is made in only one means.”

136

The commenter said that “it is unnecessary and duplicative to require video endorsements that include visual and audio components to include both visual and audio disclaimers,” and “requiring an additional visual disclaimer, on top of a disclaimer that an endorser may easily include via audio, is cumbersome, and restricts companies' marketing capabilities.”

137

On reflection, in the context of this rulemaking and as to the relationships of company insiders, if a communication makes an endorsement in only its visual or audio portion, then it should be sufficient for a disclosure to appear in the same format as the claim that requires the disclosure. On the other hand, if an endorsement is conveyed in both the audio and visual portions of a communication, then the disclosure should be made in both the audio and visual portions. Consumers can watch a video with the sound off or listen to it without looking at the screen. The Commission is changing the relevant language to, “[i]n any communication made through both visual and audible means, such as a television advertisement, the disclosure must be presented in at least the same means as the representation(s) requiring the disclosure.” This change makes the rule less restrictive while still accomplishing the Commission's goal of ensuring that consumers are fully informed. A different trade association noted that the “simultaneous disclosure requirement is confusing and would benefit from examples of sufficient simultaneous disclosure.”

138

Because the Commission is not finalizing the simultaneous disclosure requirement contained in the proposed rule, it is not providing further guidance on the meaning of simultaneous.

136

NRF Cmt. at 11.

137

Id.

138

RILA Cmt. at 5.

The second trade association also asked “if a social media influencer posts a video and discloses verbally in the video that they have a brand ambassador relationship with the retailer/brand, is it sufficient to display in the text accompanying the posted video some written disclosure” or would the disclosure “need to be embedded or flash across the video itself.”

139

The rule does not address or apply to an influencer's disclosure of a brand ambassador relationship. The rule's only disclosure requirements are in § 465.5 and apply to company insiders. Whether a testimonial in a social media post by a company insider requires a superimposed textual disclosure depends on whether there is an endorsement communicated by the visual portion of the post. If there is an endorsement in the visual portion, there would need to be a disclosure in the visual portion. If the endorsement is communicated only in the audio portion of the post, there would not need to be a disclosure in the visual portion.

139

Id.

d. Consumer Review

The proposed rule defined “consumer review” as “a consumer's evaluation, or a purported consumer's evaluation, of a product, service, or business that is

submitted by the consumer or purported consumer and that is published to a website or platform dedicated in whole or in part to receiving and displaying such evaluations.” The proposed definition also noted that, for the purposes of the rule, consumer reviews include consumer ratings regardless of whether they include any text or narrative. The Commission has determined to finalize the definition of this term—which is used in §§ 465.2 through 465.6—with a minor, technical change.

A comment from a review platform supported the proposed definition, calling it “particularly clear and holistic.”

140

Trustpilot Cmt. at 8.

A comment from an individual asserted that the “definition of `consumer' implies an individual who purchased the product for their own use” and that when a “product is provided by the company seeking a review, for the purposes of it being reviewed, the reviewer is arguably not a consumer.”

141

The Commission disagrees that a “consumer” is necessarily a purchaser. For purposes of the rule, a consumer is a person who purchased, used, or otherwise had experience with a product, service, or business.

141

Anonymous 2 Cmt. at 1.

A trade association commenter suggested deleting the definition's element that a consumer review be “published.”

142

It said that a “consumer review should still be considered a `review' before it is publicly displayed by a website or platform.”

143

Although that may be true for some purposes, the Commission declines to make that change. A consumer review that is submitted to a website or platform but never published does not in and of itself deceive consumers, although the failure to publish a review may be deceptive pursuant to paragraphs (a)(1) and (b) of § 465.7. Paragraphs (a)(1) and (b) of § 465.7 are worded in a way that does not limit their application to published reviews, because they relate to suppressed reviews.

142

IAB Cmt. at 13-14.

143

Id.

A comment from a consumer advocacy organization suggested deleting the portion of the definition that refers to publication to a website or platform “dedicated in whole or in part to receiving and displaying such evaluations.”

144

It asked whether the definition would “only apply to reviews on a website `dedicated' to posting reviews, such as Yelp” and whether “it include[s] any website where reviews are possibly posted, like Reddit?”

145

The commenter continued, “Would a website be excluded if only a very small portion of the website contained consumer evaluations?”

146

The commenter asserted that “[a]ll fake reviews and ratings that are used to market a product or service should be captured in the . . . Rule—no matter where they are posted.”

147

The definition is not limited to consumer reviews on websites that are dedicated entirely to posting such reviews. It would also cover reviews on a portion of a website, no matter how small a portion, that is dedicated to receiving and displaying such reviews, such as a reviews page or the review sections of product pages on a retailer's website. The definition would not, however, cover consumer statements about products or services on a website or portion of a website, such as Reddit, that is not dedicated to receiving and displaying reviews. Such free-floating consumer statements are outside of the generally understood context in which content is submitted and published as reviews. Under some circumstances, such statements might be considered “consumer testimonials,” such as when an advertiser has paid for them.

144

TINA Cmt. at 7.

145

Id.

146

Id.

147

Id.

A comment from a review platform raised two issues with the “consumer review” definition.

148

It said that “[b]are ratings provide no context, making them virtually useless for other consumers or to businesses that might use consumer feedback to improve their services” and suggested that “the Commission differentiate between reviews and ratings.”

149

The fact that bare ratings do not provide context does not mean that consumers do not rely on them or on aggregate ratings that include bare ratings. The Commission does not see a reason to distinguish between reviews and ratings for the purposes of the rule, and the commenter did not provide such a reason. The same commenter also expressed “concern[ ] with the definition's use of the word `purported[,]' . . . which has a negative connotation that feeds into the false narrative that consumer reviews are inherently unreliable” and suggested replacing “purported” with different language.

150

The definition simply recognizes and accounts for the undisputed fact that some reviews are fake. Just because some reviews are unreliable does not suggest that reviews are generally unreliable. The Commission declines to adopt this recommendation.

148

Yelp Cmt. at 3-4.

149

Id.

150

Id.

at 4.

To conform with the Office of the Federal Register's drafting requirements, the Commission is changing a reference to “this Rule” to “this part.”

151

The Commission is making this change throughout the rule, including in §§ 465.2(a), (b), and (c), 465.4, 465.5(a), 465.6, 465.7, 465.8, and 465.9.

e. Consumer Testimonial

The proposed rule defined “consumer testimonial” as “an advertising or promotional message (including verbal statements, demonstrations, or depictions of the name, signature, likeness, or other identifying personal characteristics of an individual) that consumers are likely to believe reflects the opinions, beliefs, or experiences of a consumer who has purchased, used, or otherwise had experience with a product, service, or business.” The Commission is finalizing the definition of the term—which is used in §§ 465.2 and 465.5—as originally proposed.

A trade association commenter expressed concern that consumers seeing a clearly dramatized television commercial might unreasonably believe that the actors' scripted lines actually reflected their opinions, beliefs, or experiences and could therefore be considered consumer testimonials.

152

It suggested clarifying the definition by inserting “reasonably in the circumstances” after “that consumers are likely to believe.”

153

The Commission agrees that it would not be reasonable for viewers to consider “an obviously fictional dramatization” to be an endorsement.

154

The Commission does not, however, believe it is necessary to modify the definition. The concept of “reasonable consumers” from FTC jurisprudence

155

is incorporated into the concept of consumers being likely to believe something.

152

NFIB Cmt. at 2-3.

153

Id.

at 4.

154

See

Endorsement Guides, 16 CFR 255.0(g)(2).

155

See, e.g.,

Fed. Trade Comm'n,

FTC Policy Statement on Deception,

103 F.T.C. 174, 176-77 (1984) [hereinafter FTC Policy Statement on Deception] (appended to

In re Cliffdale Assocs., Inc.,

103 F.T.C. 110 (1984)),

available at https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.

The same public interest research center that commented, as discussed above, that the Commission should broaden the definition of “celebrity testimonials” to explicitly include non-natural persons (such as businesses and

public sector entities)

156

made the same comment with respect to the definition of “consumer testimonials.”

157

The Commission declines to make that change in the latter definition for the same reason it declined to make it in the former definition.

156

See supra

Section IV.A.2.b of this document.

157

EPIC Cmt. at 3.

f. Indicators of Social Media Influence

The proposed rule defined “indicators of social media influence” as “any metrics used by the public to make assessments of an individual's or entity's social media influence, such as followers, friends, connections, subscribers, views, plays, likes, reposts, and comments.” For the following reasons, the Commission adopts the definition of “indicators of social media influence”—a term which is used in § 465.8, Misuse of Fake Indicators of Social Media Influence—largely as proposed, with one modification described below.

A comment from a consumer advocacy organization suggested explicitly including “Saves” and “Shares” within the definition of indicators of social media influence.”

158

The commenter explained that the number of times that social media posts are saved or shared serves as indicators of social media influence and that both “Saves” and “Shares” are offered for sale on the internet.

159

Because the NPRM proposed to define the term as “any metrics used by the public to make assessments of an individual's or entity's social media influence,” “Saves” and “Shares” were already covered by the definition as originally proposed. However, merely for the purpose of clarification, the Commission is adding them to the listed examples of indicators. The same commenter also suggested that the Commission expand the definition to include engagement metrics that are not publicly visible but that are used to gain an algorithmic advantage.

160

Such non-visible indicators are outside the scope of this rulemaking, and the Commission chooses not to address them at this time.

158

NCL Cmt. at 3.

159

Id.

at 3-6.

160

Id.

at 6-8.

One review platform commenter suggested that the Commission “simplify the definition to exhaustively list the current metrics that are such indicators.”

161

The commenter continued that “whether a given metric is `used by the public to make assessments of an individual's or entity's social media influence' may become the subject of substantial dispute in future cases . . . in the absence of an exhaustive, disjunctive list of indicators.”

162

The Commission intends the listed indicators to be examples and non-exhaustive, a flexible and efficient approach that avoids having to modify the rule when such metrics change. The Commission has no reason to believe that its approach will result in substantial disputes in its cases.

161

Yelp Cmt. at 4-5.

162

Id.

at 5.

For the reasons explained in this section, the Commission is finalizing the definition of “indicators of social media influence” to mean any metrics used by the public to make assessments of an individual's or entity's social media influence, such as followers, friends, connections, subscribers, views, plays, likes, saves, shares, reposts, and comments.

g. Officers

The proposed rule defined “officers” as “including owners, executives, and managing members of a business.” The Commission is finalizing the definition of this term—which is used in §§ 465.2 and 465.5.

A review platform commenter said that including “managing members” in the definition of “officers” “could suggest that managers are officers.”

163

The commenter also suggested that the definition of “officers” “should be refined to only include `senior management members' of a business,” thereby creating “a clearer distinction between those in a position of leadership versus lower-level employees, or staff that may have the title `manager' without any practical level of control and power to exert influence over others.”

164

163

Trustpilot Cmt. at 12.

164

Id.

Because a “managing member” is a commonly understood term referring to an owner and senior manager of a limited liability company, and because the term does not refer to all “managers” of a business, the Commission declines to remove “managing members” from the definition of “officer.” As discussed below, the Commission continues to believe it appropriate that §§ 465.2 and 465.5 apply to both officers and managers and is therefore not limiting the definition of “officers” to “senior management members.” A new definition of “managers” is discussed below.

165

See infra

Section IV.A.3.b of this document.

h. Purchase a Consumer Review

The proposed rule defined “purchase a consumer review” as “provid[ing] something of value, such as money, goods, or another review, in exchange for a consumer review.” For the following reasons, the Commission adopts the definition of “purchase a consumer review”—a term which is used in § 465.2, Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials—largely as proposed, with two modifications described below.

An individual commenter wrote, “[r]egarding payment for reviews, the use of . . . discounts on future purchases from the business should be specifically prohibited as well.”

166

A review platform commenter suggested “that the Commission list additional examples of . . . what the Commission considers `value.' ”

167

Specifically, it suggested adding “gift certificates,” “services,” “discounts,” “coupons,” and “contest entries.”

168

Such examples of value were covered by the proposed definition, which applies to “something of value” provided in exchange for a consumer review” but, for purposes of clarification, the Commission is adding these examples of value in the final definition. The review platform commenter also suggested adding “other incentives,”

169

which the Commission thinks is unnecessary, given that the list is only exemplary and preceded by the words “such as.”

166

John Christofferson, Cmt. on NPRM (Aug. 16, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0025.

167

Yelp Cmt. at 5.

168

Id.

169

Id.

Another review platform commenter suggested using language explicitly stating that the listed examples of “value” are not exhaustive.

170

The Commission believes that, because the phrase “such as” precedes the list of examples, this is already sufficiently clear from the language of the definition.

170

Trustpilot Cmt. at 8.

The proposed definition used the term “goods.” To ensure that terminology is used consistently throughout the rule, the Commission is replacing the term “goods” with the synonymous word “products” in the final definition.

171

The Commission is also replacing the term “goods” with the word “products” in the final definition of the phrase “purchase a consumer review” (final § 465.1(m)).

For the reasons explained in this section, the Commission is finalizing the definition of “purchase a consumer review” to mean to provide something

of value, such as money, gift certificates, products, services, discounts, coupons, contest entries, or another review, in exchange for a consumer review.

i. Reviewer

The proposed rule defined “reviewer” as “the author or purported author of a consumer review.” The Commission is finalizing the definition of the term—which is used in §§ 465.2 and 465.5—as originally proposed.

One review platform commenter objected to the use of the word “purported” in the definition of “reviewer,” just as it objected to that word's inclusion in the definition of “consumer review.”

172

The commenter asserted that “purported” feeds into the false narrative that consumer reviews are inherently unreliable. As discussed above, the use of the word “purported” simply recognizes and accounts for the undisputed fact that some reviews are fake.

173

The Commission declines to modify the definition of “reviewer.”

172

Yelp Cmt. at 4.

173

See supra

Section IV.A.2.d of this document.

j. Substantially Different Product

The proposed rule defined “substantially different product” as a product that differs from another product in one or more material attributes other than color, size, count, or flavor. The defined term appeared in proposed § 465.3, Consumer Review or Testimonial Reuse or Repurposing, which the Commission is no longer planning on finalizing.

174

Given that the Commission has decided not to proceed with proposed § 465.3 at this time, it is not including a definition of “substantially different product” in the final rule.

174

Some commenters suggested edits to the definition, such as removing “flavor” from the list of attributes that might not be material, adding other product attributes to that list, or adding flexibility by removing the listed attributes altogether. TINA Cmt. at 6; Amazon Cmt. at 9-10; Chamber of Commerce Cmt. at 6-7; RILA Cmt. at 3; NRF Cmt. at 7-8; IAB Cmt. at 8.; ANA Cmt. at 15-16; NRF Cmt. at 8. Other commenters asked questions about how the definition would apply to an updated version of a product or to different scenarios. Magana Cmt.; NADA Cmt. at 5.

k. Testimonialist

The proposed rule defined “testimonialist” as “the person giving or purportedly giving a consumer testimonial or celebrity testimonial.” None of the comments received addressed the definition of testimonialist. As already discussed in section IV.A.2.b of this document, the Commission is substituting the word “individual” for the word “person” wherever the word appeared in the Commission's original proposal. Aside from this minor, clarifying modification, the Commission has determined that it will finalize the definition of the term—which is used in §§ 465.2 and 465.5—as originally proposed.

l. Unjustified Legal Threat

The proposed rule defined “unjustified legal threat” as “a threat to initiate or file a baseless legal action, such as an action for defamation that challenges truthful speech or matters of opinion.” For the following reasons, the Commission adopts the definition—a term which is used in § 465.7, Review Suppression—largely as proposed, with two modifications described below.

The NPRM asked whether “the definition of `unjustified legal threat' is sufficiently clear.” One company's comment said that the proposed definition was clear.

175

A trade association said “the term `unjustified' is a vague standard that leaves unclear what legal support a business must have for its legal position before it warns the creator of a review of possible legal proceedings.”

176

A comment from State Attorneys General suggested changing “unjustified” to “unfounded, groundless, or unreasonable” in order to provide a more objective legal standard for evaluating the types of legal threats that are not permitted.

177

The Commission agrees in part with this recommendation. As a clarification of what it intended, the Commission is changing “unjustified” to “unfounded or groundless.” Specifically, this change avoids the unintended, potentially broader scope of the term “unjustified,” which is also freighted with subjective considerations, in favor of terms that reflect objective legal standards. For similar reasons, the Commission is not adding “unreasonable,” a term which is unnecessary and not as precise in this particular situation as “unfounded or groundless.”

175

Transparency Company Cmt. at 14.

176

NFIB Cmt. at 4.

177

State Attorneys General, Cmt. on NPRM at 2-3 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0100

(“State AGs Cmt.”).

The State Attorneys General comment also recommended that the definition include “a threat to enforce an agreement that is void, voidable, or unenforceable.”

178

It said that the word “unjustified” may be insufficient to address merchants arguing that their legal threats were justified by their non-disclosure agreements that limit consumer reviews.

179

The change from “unjustified” to “unfounded or groundless” addresses this concern. A comment from a review platform suggested that the Commission expand the definition to include threats based on form contracts that violate the Consumer Review Fairness Act (“CRFA”).

180

Given that such form contracts are already prohibited by the CRFA,

181

the Commission declines to address them in this rulemaking.

178

Id.

at 2.

179

Id.

at 3.

180

Yelp Cmt. at 5.

181

Consumer Review Fairness Act of 2016 § 2(b)(1), 15 U.S.C. 45b(b)(1).

A consumer group's comment disagreed with the definition's use of the phrase “baseless legal action” on the basis that it “open[s] just as many questions as the underlying term it attempts to define.”

182

A company's comment noted that the phrase “a baseless legal action” is vague, and recommend that the Commission instead adopt language that is based upon Rule 11(b)(2) of the Federal Rules of Civil Procedure.

183

Specifically, the commenter recommended changing “a baseless legal action” to “a legal action that is not warranted by existing law or a nonfrivolous argument for extending, modifying, or reversing existing law or establishing new law.”

184

182

Consumer Reports Cmt. at 10.

183

Family First Life Cmt. at 16.

184

Id.

The Commission is partially adopting the commenter's suggestion by adopting language that is loosely based upon Federal Rule of Civil Procedure 11(b)(2) and (3).

185

However, the Commission is not adopting the phrase “extending, modifying, or reversing existing law or establishing new law” because it is highly doubtful that companies would threaten consumers by asserting that, while no lawsuit is warranted under existing law, they will bring a lawsuit anyway and try to change existing law. Instead, the Commission chooses to clarify the definition by changing “threat to file a baseless legal action” to “legal threat based on claims, defenses, or other legal contentions unwarranted by existing law or based on factual contentions that have no evidentiary support or will likely have no evidentiary support after a reasonable opportunity for further investigation or discovery.”

185

See

Fed. R. Civ. P. 11(b)(2) and (3).

A review platform commenter was concerned that the proposed definition's “wording opens the door to bad actors being able to claim defamation on weakly justified grounds and to seek to game the system by deliberately constructing legal terms which can then be deployed to suppress reviews.”

186

The Commission believes that the revised definition addresses this

concern, especially given its inclusion of language from Federal Rule of Civil Procedure 11(b)(2) and (3), which is intended to avoid such misuse of the court system. In any event, the Commission is deleting “such as an action for defamation that challenges truthful speech or matters of opinion” because this example is unnecessary and possibly confusing in this context.

186

Trustpilot Cmt. at 17-18.

For the reasons explained in this section, the Commission is adopting the proposed definition of an “unfounded or groundless legal threat” with clarifying changes. The final definition provides that an “unfounded or groundless legal threat” is a legal threat based on claims, defenses, or other legal contentions unwarranted by existing law or based on factual contentions that have no evidentiary support or will likely have no evidentiary support after a reasonable opportunity for further investigation or discovery.

3. Proposed Additional Definitions

In Question 7 of the NPRM, the Commission asked what additional definitions, if any, are needed. In Questions 14 and 18 of the NPRM, the Commission asked whether it should define the terms “managers” and “relatives,” respectively. As discussed below, various commenters suggested that the Commission define the following terms and phrases that appear in the proposed rule: “dissemination,” “manager,” “relative,” and “purchase or procure fake indicators.” One commenter suggested that the Commission define “review hosting” and exclude it from the scope of § 465.2.

187

As discussed below in Section IV.H. of this document, the Commission is adding definitions of two phrases in response to concerns raised by commenters: “fake indicators of social media influence” and “distribute fake indicators of social media influence.”

a. Dissemination

The term “disseminate” appears in both proposed and final §§ 465.2 and 465.5. A comment from a trade association stated that the Commission should define “disseminate” “within Proposed § 465.2(b) to include only the affirmative posting or intentional distribution of reviews, where a company has actual knowledge that the reviews are false or fraudulent in nature.”

188

The commenter continued by saying that “disseminate” should “not include passive actions such as allowing a review to be posted or published on a company's web page, unless the company has actual knowledge that the review is false or fraudulent in nature” or “retailers sharing reviews with third-party platforms such as Google.”

189

Within both §§ 465.2 and 465.5, however, “disseminate” applies only to testimonials, not to consumer reviews. One of the basic canons of statutory and regulatory construction is that words are to be understood in their ordinary, everyday meanings—unless the context indicates that they bear a technical sense.

190

In §§ 465.2 and 465.5, the Commission intended for the term to have its ordinary, everyday meaning—that is, to spread or to convey something, rather than the proposed definition.

191

Accordingly, the Commission declines to add the proposed definition.

188

NRF Cmt. at 3.

189

Id.

at 3-4. The Commission elsewhere addresses whether § 465.2 applies to a business allowing reviews to be posted or published on its web page or to retailers sharing reviews with third-party platforms.

See infra

Section IV.B.5 of this document.

190

See, e.g., Kouichi Taniguchi

Kan Pac. Saipan, Ltd.,

566 U.S. 560, 566 (2012);

Tanzin

Tanvir,

592 U.S. 43, 48 (2020) (“Without a statutory definition, we turn to the phrase's plain meaning at the time of enactment.”);

Lamar, Archer & Cofrin, LLP

Appling,

584 U.S. 709, 715 (2018) (“Because the Bankruptcy Code does not define the words `statement,' `financial condition,' or `respecting,' we look to their ordinary meanings.”).

191

Disseminate, Dictionary.com

, LLC,

https://www.dictionary.com/browse/disseminate

(last visited July 5, 2024) (defining “disseminate” as “to scatter or spread widely, as though sowing seed; promulgate extensively; broadcast; disperse”);

Disseminate,

Merriam-Webster.com

Dictionary,

https://www.merriam-webster.com/dictionary/disseminate

(last visited July 5, 2024) (defining “disseminate” as “to spread abroad as though sowing seed” or “to disperse throughout”);

Disseminate,

Cambridge Dictionary,

https://dictionary.cambridge.org/us/dictionary/english/disseminate

(last visited July 5, 2024) (defining “disseminate” as “to spread or give out something, especially news, information, ideas, etc., to a lot of people”).

b. Manager

The term “manager” appeared in proposed § 465.5, Insider Consumer Reviews and Consumer Testimonials, and was undefined. Due to the clarifying changes to § 465.2 that are discussed in further detail below, the term is now included in both final § 465.5 and final § 465.2, Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials.

One business commenter noted that it is unnecessary to define “manager.”

192

An industry organization wrote in its comment that the failure to define the term “manager” “raises concerns about the number of a firm's employees impacted.”

193

A review platform commenter said that using the term “manager” without any definition is particularly problematic,

194

noting that someone “may have the title `manager' without any practical level of control and power to exert influence over others. For example, it is possible in a business for a person to have the title `manager' while holding a relatively junior position and without having any employees that directly report to them.”

195

Proposed and final § 465.5(c) address “managers” soliciting or demanding consumer reviews from employees or agents. In this context, the Commission's intent was for the term “manager” to be limited to those who supervise others. Thus, the Commission is adopting a definition for the term “manager” to make this clarification, which will ensure that § 465.5(c) is not interpreted as more restrictive than the Commission intended.

196

192

Transparency Company Cmt. at 13.

193

TechNet Cmt. at 3.

194

Trustpilot Cmt. at 9.

195

Id.

at 12.

196

If the term were only to appear in § 465.2(c), such a clarification would not be needed. This is because § 465.2(c) also covers employees and agents.

A business commenter that operates in the insurance-marketing space explained that independent-contractor insurance agents who build their own agencies are referred to as “managers” and asked that the definition of “managers” expressly carve out “managers in the insurance marketing space” or at least clarify that managers are those “who are employed by the company.”

197

As similar situations may arise in other contexts, the Commission is adopting the commenter's latter recommendation, and clarifying that managers are employees of the businesses.

197

Family First Life Cmt. at 13.

For the reasons explained in this section, the final rule adopts a definition for the term “manager.” The final rule defines the term “manager” as an employee of a business who supervises other employees or agents and who either holds the title of a “manager” or otherwise serves in a managerial role.

c. Relative

The term “relative” appeared in proposed § 465.5, Insider Consumer Reviews and Consumer Testimonials. It was undefined in the proposed rule.

Two commenters suggested that the Commission define the term “relative.” A comment from a review platform said that a plain reading of “relative” could cover “an extremely broad range of people” and “is likely to extend to persons who may not be biased since they are in reality not close to the

business.”

198

The commenter suggested that the prohibition in § 465.5(c) be limited to close relatives such as immediate family members.

199

A comment from a business organization said that the term “relative” is too vague and that “[i]t is unclear whether the rule applies to third cousins, the spouses of a stepbrother's child from a previous marriage, or friends that are considered family.”

200

The commenter continued that “[l]arge companies creating monitoring programs for testimonials need some clarity about what relatives will be captured under the Rule.”

201

198

Trustpilot Cmt. at 12.

199

Id.

200

Chamber of Commerce Cmt. at 7.

201

Id.

As discussed below, the Commission believes that some rule provisions should be limited to “immediate relatives.”

202

The Commission is adding a definition of an “immediate relative,” which clarifies that the term refers to a spouse, parent, child, or sibling. In the final rule, the term “immediate relative” is used in §§ 465.2(c) and 465.5(c).

202

See infra

Section IV.E.2 of this document.

d. Purchase or Procure Fake Indicators

The phrase “purchase or procure fake indicators of social media influence” is used in proposed and final § 465.8, Misuse of Fake Indicators of Social Media Influence. The phrase was undefined in the proposed rule.

A consumer advocacy commenter stated that leaving the terms “purchase” and “procure” undefined “leaves ambiguity regarding which types of incentives are restricted,” and suggested defining the phrase “purchase or procure fake indicators of social media influence” to mean “to provide something of value, such as money, goods, or another indicator of social media influence (

i.e.

[,] a `like'), in exchange for a fake indicator of social media influence.”

203

The Commission declines to adopt the commenter's suggestion.

204

The definition proposed by the commenter would unnecessarily narrow the types of actions that would be covered by the rule to an exchange. In the final rule, the Commission intends for the term “procure” to bear its ordinary, everyday meaning—that is, to obtain something.

205

Even if there is any ambiguity in the term “purchase,” any exchange of value in order to obtain fake indicators of social media influence would be “procuring” the fake indicators.

203

Consumer Reports Cmt. at 4.

204

Commenters also expressed concern about or sought guidance on the meaning of the term “procure” as used in proposed § 465.2(c), but they did not expressly suggest that the Commission define the term. The use of the term “procure” in § 465.2 is discussed below in the context of that substantive provision.

See infra

Section IV.B.4 of this document.

205

See Procure

(def. 1),

Merriam-Webster.com

Dictionary,

https://www.merriam-webster.com/dictionary/procure

(last visited July 5, 2024) (establishing that the word “procure” means, among other things, “to get possession of (something)” or “to obtain (something) by particular care and effort”).

e. Review Hosting

A retailer submitted a comment suggesting that “review hosting” be defined and excluded from the scope of § 465.2.

206

The commenter suggested the following definition:

206

Amazon Cmt. at 7. As discussed below, other commenters also argued that § 465.2 should not apply to merely hosting reviews.

See infra

section IV.B.5 of this document.

Review hosting

includes but is not limited to activity associated with maintaining a repository of consumer reviews and testimonials for display such as: offering review submission functionality, collecting and moderating reviews, organizing and displaying reviews, aggregating reviews into star ratings, and providing guidance to consumers about how to leave reviews where no incentive is offered.

207

Id.

at 7.

As discussed below, the Commission did not intend for its proposal to apply to simply hosting consumer reviews.

208

The Commission is therefore, for the purpose of clarification, adopting a definition of the term “consumer review hosting” in order to exclude mere review hosting from certain provisions of the rule. The Commission is not adopting the commenter's proposed definition because it included activities that go beyond the core of mere review hosting and because it begins with the phrase “include but is not limited to,” which would allow it to include an unknown, larger category of activities. The final rule defines “consumer review hosting” as providing the technological means by which a website or platform allows consumers to see or hear the consumer reviews that consumers have submitted to the website or platform. The exclusion of “consumer review hosting” from certain sections of the rule is discussed below.

208

See infra

section IV.B.5 of this document.

B. § 465.2—Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials

Proposed § 465.2 addressed fake or false consumer reviews, consumer testimonials, and celebrity testimonials. Based on the following, the Commission has determined to finalize these prohibitions, with a number of revisions. The following paragraphs discuss comments relating to (1) proposed § 465.2 generally, (2) common language in all three paragraphs, (3) the individual paragraphs, 4) the knowledge standard, and (5) other potential requirements.

Numerous individual commenters wrote about the importance of authentic reviews or testimonials and that fake or false ones should be prohibited.

209

A technology company commenter wrote that it “would welcome rules to prohibit fake reviews and place stronger obligations on businesses who host them to better protect consumers.”

210

209

See, e.g.,

William Hardy, Cmt. on NPRM (July 31, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0002;

Eric Beback, Cmt. on NPRM (Aug. 1, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0005

(“Beback Cmt.”); Hippensteel Cmt.; Anderson Cmt.; Nathan Wilson, Cmt. on NPRM (Aug. 2, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0008;

fred foreman, Cmt. on NPRM (Aug. 6, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0012;

Ravnitzky Cmt. at 1; Fribance Cmt.; Ian wolk, Cmt. on NPRM (Aug. 15, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0020;

Edborg Cmt.; Anonymous 5, Cmt. on NPRM (Aug. 18, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0030;

Anonymous 1 Cmt.; Steven Osburn, Cmt. on NPRM (Aug. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0033

(“Osburn Cmt.”); Ludlam Cmt.; Janette Ponticello, Cmt. on NPRM (Sept. 5, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0042;

Hannah Abbott, Cmt. on NPRM at 1 (Sept. 20, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0051

(Abbott Cmt.).

210

Pasabi, Cmt. on NPRM at 2 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0103.

A celebrity commenter wrote that he had “received more than 100 emails from consumers who have been induced to purchase fake products through the mis-use of . . . [his] image and the images of other Shark Tank `sharks.' ”

211

Mark Cuban, Cmt. on NPRM (Sept. 25, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0066.

A business commenter suggested explaining the “financial consequence of fake reviews,” such as whether it is “~$50,000 per fake review.”

212

The maximum civil penalty is currently $51,744 per violation, but courts must take into account the statutory factors set forth in section 5(m)(1)(C) of the FTC Act and may impose much lower per-violation penalties.

213

Ultimately, courts will also decide how to calculate the number of violations in a given case.

212

Transparency Company Cmt. at 9.

213

See

15 U.S.C. 45(m)(1)(C).

1. Common Language in § 465.2(a), (b), and (c)

Proposed § 465.2 consisted of three paragraphs, each of which sought to address unfair or deceptive conduct by

prohibiting specified types of reviews or testimonials: (1) by someone who “does not exist,” (2) by someone “who did not use or otherwise have experience with the product, service, or business that is the subject” of it, or (3) “that materially misrepresents, expressly or by implication, the [person's] . . . experience with the product, service, or business.” For the purpose of the following discussion, references to “fake or false” reviews or testimonials cover these three types of reviews or testimonials.

A trade association asserted that the Commission lacked sufficient evidence of prevalence of reviews and testimonials that “materially misrepresent[ ] . . . the reviewer's or testimonialist's experience.”

214

The trade association asserted that some of the cases cited by the Commission also involved “actual fake reviews” and therefore should not count as evidence of prevalence.

215

The Commission disagrees: a fake or fabricated review misrepresents the purported reviewer's experience (

e.g.,

that the reviewer used the product and what their experience was). The commenter also asserted that five of the cases cited by the Commission to establish prevalence “provide no additional details about the unfair or deceptive act or practice at issue aside from bare allegations that the consumer testimonials in the case involved misrepresentations of the consumer's experience,” and therefore are insufficient to establish prevalence.

216

However, the quoted representations in each of the Commission's complaints makes clear the nature of the misrepresentations.

217

Furthermore, even if a Commission complaint does not provide all details about a specific misrepresentation, that does not mean that it cannot serve as evidence of prevalence. The Commission thus has a strong basis for its conclusion that reviews and testimonials misrepresenting the experiences of the reviewers and testimonialists are prevalent.

214

IAB Cmt. at 3.

215

Id.

216

Id.

at 4 & n.12.

217

Complaint at 8-11, 17-18,

FTC

NextGen Nutritionals, LLC,

No. 8:17-cv-2807 (M.D. Fla. filed Nov. 20, 2017) (testimonials in ads made specific quantified claims of weight loss and blood pressure reduction);

In re Esrim Ve Sheva Holding Corp.,

132 F.T.C. 736, 737 (2001) (testimonial made specific quantified claims about increased mileage and decreased harmful pollutants);

In re Computer Bus. Servs., Inc.,

123 F.T.C. 75, 78 (1997) (endorsers made specific quantified earnings claims);

In re Twin Star Prods., Inc.,

113 F.T.C. 847, 849-51, 853-54 (1990) (endorsements made regarding a weight-loss product, a baldness treatment, and an impotency treatment);

In re National Sys. Corp.,

93 F.T.C. 58, 61-62 (1979) (testimonials about jobs obtained by graduates of respondents' schools).

The same trade association and another one expressed concern that the “prohibition on

all

reviews that are authored by individuals that [sic] `do not exist' or have not used the product would prohibit a wide swath of non-deceptive speech, including for example, any satirical reviews that a business authors, creates, sells, purchases, disseminates, or procures.”

218

As discussed in the NPRM, the Commission's intent was to prohibit misrepresentations resulting from reviews or testimonials by someone who does not exist or who did not use or otherwise have experience with the product, service, or business.

219

The Commission is unsure of the extent to which there are satirical reviews that could run afoul of the provision as proposed. Nonetheless, upon a review of the comments, the Commission now recognizes that absent an express reference to material misrepresentations, the provision could be interpreted to prohibit other potentially non-deceptive speech, such as the use of virtual influencers.

220

To avoid this unintended consequence, the Commission is clarifying that § 465.2 is limited to prohibiting material misrepresentations. As finalized, the prohibitions in § 465.2 are expressly limited to reviews and testimonials “materially misrepresent[ing], expressly or by implication . . . that the reviewer or testimonialist exists; . . . that the reviewer or testimonialist used or had experience with the product, service, or business that is the subject of the review or testimonial; or . . . the reviewer's or testimonialist's experience with the product, service, or business that is the subject of the review or testimonial.”

218

IAB Cmt. at 6; NRF Cmt. at 6.

219

NPRM, 88 FR 49373.

220

A virtual influencer is a computer-generated fictional character that can be used for a variety of marketing-related purposes, but most frequently for social media marketing, in lieu of human influencers.

See, e.g.,

Koba Molenaar,

Discover the Top 12 Virtual Influencers for 2024—Listed and Ranked!,

Influencer MarketingHub (Mar. 29, 2024),

https://influencermarketinghub.com/virtual-influencers/.

A different trade association raised several concerns about the common language of proposed § 465.2. It asserted that the provision “would prohibit the use of a dead person's endorsement because arguably that person does not exist.”

221

The Commission does not interpret a person who “does not exist” to include a person who died after making an endorsement, but that concern should be resolved by the new language regarding material misrepresentations. The commenter went on to question “what constitutes an `actual experience,' ” asking whether a person who saw a label had actual experience with it and whether a person who tasted an item purchased at a restaurant but did not visit the restaurant had actual experience.

222

The proposed provision did not use the term “actual experience,” and the persons in the commenter's posited hypotheticals did have legitimate experience with the product or service but should not misrepresent that experience as more than it was. The commenter also said that “it is unclear if the . . . element—materially misrepresenting the experience with the product or service—relates to the experience or an opinion about the product or service.”

223

It relates to the person's “experience” with the product or service, that is, what actually happened when they used or otherwise experienced it and not simply their “opinion” of it. The same commenter asked whether “an actor portraying an actual reviewer” is misrepresenting their experience as long as it is “clear that it is an actor portrayal.”

224

The provision does not prohibit using an actor to portray a real testimonialist.

221

ANA Cmt. at 12.

222

Id.

223

Id.

224

Id.

An individual commenter who raised the same concern about whether actors could portray real testimonialists

225

went on to express concerns that the actor “shouldn't misrepresent who the original person was,” such as by misrepresenting “the effectiveness/health benefits of [a] product by hiring a very fit in shape person.”

226

The Commission has issued guidance stating that “use of an endorsement with the image or likeness of a person other than the actual endorser is deceptive if it misrepresents a material attribute of the endorser.”

227

Nevertheless, the Commission does not intend for § 465.2 to address such misrepresentations.

225

Beback Cmt.

226

Id.

227

See

Endorsement Guides, 16 CFR 255.1(g).

A consumer organization's comment requested that the Commission “explicitly indicate that fake . . . ratings are an independent and separate violation from deceptive narrative reviews.”

228

The Commission believes that making this distinction is unnecessary and declines to make this change.

228

TINA Cmt. at 8.

2. § 465.2(a)

Proposed § 465.2(a) would have made it a violation for a “business to write, create, or sell a consumer review, consumer testimonial, or celebrity testimonial” that is fake or false.

An individual commenter noted that the prohibition “is too specific and it would be easy for a business to find an alternative method not prohibited by the rule.”

229

The commenter posited an example: “a business could have someone next to them tell them their review and someone could transcribe it, technically the business did not create, make, or sell anything and thus would not be in violation.”

230

If a business is paying an individual to transcribe a fake or false review, it is creating or making the review, and would therefore have violated § 465.2(a). Accordingly, the Commission declines to modify the prohibition in response to the commenter's concern.

229

Albert Cmt. at 3.

230

Id.

A trade association submitted a comment asking the Commission to “confirm that when a real consumer authors the review, the business cannot be said to have written or created it, and thus . . . section [465.2(a)] could not apply.”

231

The Commission is unsure what the commenter means by a “real consumer authors the review.” The provision would apply if, for example, a business employs a “real consumer” to write fifty reviews of a product under different names.

231

IAB Cmt. at 6.

A comment from a retailer that publishes reviews said that “review brokers and other bad actors . . . coordinate the high-volume writing, buying, and selling of fake reviews” and that the rule should apply to those “approaching customers, instructing them on how to create fake reviews and avoid detection, and connecting them with bad actors operating [fake] accounts.”

232

Brokers of fake reviews would generally fall under the provision's prohibition against selling a consumer review, given that such brokers are generally being paid to provide fake reviews.

232

Amazon Cmt. at 6.

A trade association commenter suggested clarifying that “business” in § 465.2(a) “refers to a business that helps to create or sell reviews or testimonials.”

233

Although the paragraph does apply to such businesses, it also applies to a business that writes or creates fake reviews or testimonials for its own products or services. For this reason, the Commission declines to adopt the commenter's suggestion.

233

Computer & Communications Industry Association, Cmt. on NPRM at 3 (Sept. 29, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0110

(“CCIA Cmt.”).

An individual commenter asked whether the prohibition covers “people who leave reviews in good faith” if “they were getting paid for it.”

234

Neither § 465.2(a) nor any section of the rule imposes liability on individual consumers who write honest reviews, even if they are paid for doing so.

234

Wilson Cmt.

Another individual commenter requested that civil penalties be imposed “on the company for soliciting the reviews, rather than on the reviewer, unless the reviewer knowingly is leaving fake reviews.”

235

Under § 465.2(a), an individual who is in the business of writing, creating, selling, or brokering reviews could be liable for creating consumer reviews that are fake or false. That individual could only be subject to civil penalties if they did so with actual knowledge or knowledge fairly implied on the basis of objective circumstances that they were engaging in an act or practice that is unfair or deceptive and is prohibited by the rule.

236

235

Osburn Cmt.

236

See

15 U.S.C. 45(m)(1)(A) (establishing that the recovery of civil penalties requires a showing of “actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule”).

An individual commenter expressed concern that “competing parties could potentially create fake reviews on another party in order to give the impression that the party is in violation of the” rule.

237

Although such misconduct is possible, the target of such misconduct would not be liable under § 465.2(a), based on how it is worded. For example, the target would not have been the one who created, wrote, or sold the review, nor would the target have purchased the review. The competitor who engaged in such misconduct might be liable for deceptive or unfair conduct under the FTC Act.

237

Slezak Cmt. at 1.

3. § 465.2(b)

Proposed § 465.2(b) would have made it a violation for a business to “purchase a consumer review” or “disseminate or cause the dissemination of a consumer testimonial or celebrity testimonial” about “the business or one of its products or services” which “the business knew or should have known” was fake or false.

A consumer organization commented that, by limiting § 465.2(b) to a business posting reviews or disseminating or causing the dissemination of testimonials about “the business or one of its products or services,” the Commission's proposal limits liability to the business itself “instead of including other . . . creators or disseminators of deceptive reviews and testimonials.”

238

In response to the commenter's concern, the Commission notes that those creating or disseminating deceptive reviews and testimonials could be liable under § 465.2(a).

238

TINA Cmt. at 6 n.23.

A trade association asked whether a business “ `disseminates' reviews for its products merely by . . . placing them in advertising/marketing materials.”

239

Section 465.2(b) applies only to the dissemination of testimonials, but if a business includes consumer reviews in its advertising or marketing materials, those reviews become “testimonials” and are covered.

239

NRF Cmt. at 5.

Another commenter requested that the Commission “clarify the limited applicability of `to disseminate or cause the dissemination' in proposed § 465.2(b) so the definition does not wrongly apply to third parties that host or license reviews.”

240

The phrase “to disseminate or cause the dissemination” applies only to testimonials and not to consumer reviews, so it could not apply to third parties that host or license reviews. The only situation in which § 465.2(b) applies to consumer reviews is when a business purchases a consumer review.

240

CCIA Cmt. at 3.

4. § 465.2(c)

Proposed § 465.2(c) would have made it a violation for a business to “procure a consumer review for posting on a third-party platform or website, about the business or one of its products or services,” which “the business knew or should have known” was fake or false.

Several commenters questioned the scope and “vagueness” of the undefined term “procure” in proposed § 465.2(c).

241

A trade association wrote that “the Commission should explain that a retailer does not `procure a consumer review for posting on a third-party platform or website' simply by requesting that previous customers submit reviews, and then allowing submitted reviews to be posted on the retailer's own website or sharing customer reviews with Google.”

242

The

Commission did not intend to cover such activities. Instead, the Commission intended to cover a much more limited set of activities: the procurement of fake and false reviews from company insiders. The Commission is therefore revising § 465.2(c) by limiting it to a business procuring consumer reviews “from its officers, managers, employees, or agents, or any of their immediate relatives.”

241

NRF Cmt. at 4; ANA Cmt. at 12; IAB Cmt. at 4; Amazon Cmt. at 7.

242

NRF Cmt. at 4.

A trade association's comment questioned the phrase “its products or services” in the context of what was proposed § 465.2(c).

243

It asked whether the term would apply to all of the products sold by a department store, an online marketplace, or a consignment business.

244

The Commission recognizes that the phrase “its products or services” was ambiguous. In order to address this inadvertent ambiguity, the Commission is making clarifying changes by replacing the phrase “its products or services” with the phrase “the products or services it sells” in § 465.2(b) and (c), as well as in other places where it appears in the rule.

245

The revised language captures what the Commission originally intended and would apply to products sold by a department store, an online marketplace, or a consignment business.

243

Id.

at 5.

244

Id.

at 5-6.

245

See §§ 465.5(a), (b), and (c), 465.6, and 465.7(b) of the rule.

5. § 465.2(d)

Upon consideration of the comments received, the Commission is adding paragraph (d) in § 465.2 to clarify the scope of § 465.2(b) and (c). The Commission recognizes that, when a business sends a broad solicitation to customers to post customer reviews, one or more recipients might also be employees of the business. If any such employee then posts reviews, one might consider those reviews to have been “procured” from the employee. Similarly, the Commission recognizes that broad, incentivized solicitations to the general public or past customers to post about a product on social media could be considered “causing the dissemination” of testimonials. It would not be reasonable to expect a business to know whether such resulting reviews or testimonials were fake or false, and the Commission did not intend to cover those reviews in this section of the proposed rule. Therefore, the Commission is adding § 465.2(d)(1), which clarifies that § 465.2(b) and (c) do not apply to “generalized solicitations to purchasers to post reviews or post testimonials about their experiences with the product, service, or business that is the subject of the review or testimonial.” By “generalized solicitations,” the Commission means to exempt from § 465.2(b) and (c) solicitations sent to large groups of customers, such as those who purchased a particular item or who became customers during a given time period, where specific customers are not chosen based on the likelihood that they will express a particular sentiment. In contrast, solicitations made only to customers whom the business believes to be happy customers would not be “generalized solicitations” and would therefore be subject to § 465.2(b) and (c).

As the Commission said in the NPRM, § 465.2 does not “apply to any reviews that a platform simply publishes and that it did not purchase.” In other words, the Commission did not intend for § 465.2 to apply to platforms that simply host third-party content and does not believe that the section can be interpreted otherwise. Nonetheless, numerous commenters expressed concern over whether the section covered the mere hosting of third-party content.

246

A number of industry commenters and an individual commenter asked the Commission to expressly exempt those who host consumer reviews created by a third party.

247

Three industry comments asked the Commission to create a safe harbor for review hosting when the company has reasonable processes in place to identify and remove fake reviews.

248

Consistent with its statement in the NPRM, the Commission is adding § 465.2(d)(2) to provide an explicit exemption for “merely engaging in consumer review hosting” from the scope of § 465.2(b) and (c).

246

One industry commenter expressed a general concern that was not tied to a specific provision “that the Proposed Rule imposes liability on companies for the dissemination and/or display of fake reviews that clashes with Section 230 of the

Communications Decency Act.

” TechNet Cmt. at 3. As discussed below, the Commission is including exemptions for mere consumer review hosting in §§ 465.2 and 465.5.

See infra

section IV.B.5 of this document.

247

See, e.g.,

NRF Cmt. at 5-6; IAB Cmt. at 6; Amazon Cmt. at 7-9; CCIA Cmt. at 3; Abbott Cmt.

248

TechNet Cmt. at 2; IAB Cmt. at 5; NRF Cmt. at 7. A trade association also requested a “safe harbor” but did not tie it to any specific provision of the proposed rule. NADA Cmt. at 4.

A trade association noted that, in the “case of reviews being shared between retailers and third-party platforms,” “it would be unfair to immunize the search platform from liability for the review shared by the retailer, but not to immunize the retailer for the review created by the potential bad actor.”

249

However, a retailer or other entity will not be liable for sharing consumer reviews unless it would have been liable for displaying those same reviews on its own website.

249

NRF Cmt. at 6.

Two comments raised the issue of hosting both reviews and testimonials. A trade association commenter expressed concern that the Commission should “avoid sweeping in companies such as online retailers that host consumer reviews and testimonials and engage in activities such as organizing, moderating, aggregating, and prompting the submission of reviews and testimonials.”

250

Another trade association made a very similar comment and “urge[d] the FTC to confirm that liability under this section would require the company to do more than host reviews/testimonials.”

251

As for reviews, § 465.2 will not prohibit an online business that hosts reviews from prompting the submission of reviews from the general public or from organizing, moderating, or aggregating them. Nonetheless, certain unfair or deceptive conduct that involves prompting the submission of reviews or moderation could violate § 465.4 or § 465.7(b), respectively.

252

As for testimonials, it is unclear what hosting scenarios the commenters are contemplating. The Commission is not adding an exemption for “merely hosting testimonials” because there is no provision in the rule that applies to testimonial hosting because testimonials are, by definition, advertising or promotional messages. A business that puts testimonials on its own website is “disseminating” them and is not merely “hosting” them. When such testimonials are fake or false, the business should face potential liability under this paragraph. On the other hand, a business that has on its website a community forum in which consumers can comment about the business and the products or services it sells could be merely hosting the community forum. A comment in the community forum touting one of the business's products, which was posted by a consumer who was not incentivized to do so and who has no other connection to the company, is not a testimonial in the first place, so it would not fall under § 465.2(b). The same analysis would apply to a business that hosted a section on its website

where consumers could answer questions posed by other consumers.

250

IAB Cmt. at 4.

251

ANA Cmt. at 12-13.

252

Prompting the submission of consumer reviews that must be positive in order to obtain an incentive could violate § 465.4. Moderation of consumer reviews that results in the suppression of some of them based upon their ratings or their negative sentiment could violate § 465.7(b).

A business organization commenter said the Commission should “make clear [that] Section 465.2 does not apply to platforms or retailers that display ratings even if they prompt review submissions or aggregate star ratings of submitted reviews.”

253

Paragraphs (b) and (c) of § 465.2 do not apply to mere consumer review hosting, even if the business prompts review submissions or aggregates star ratings.

253

Chamber of Commerce Cmt. at 4.

The commenter continued by saying that “the Commission must clearly indicate that the Rule provision would not apply to any website displaying a consumer review or testimonial that they did not purchase or procure,” arguing that “Section 230 [of the Communications Decency Act] . . . broadly immunizes providers of an interactive computer service from liability for presenting third party content.”

254

If a business creates fake or false reviews or testimonials and displays them on its website, it is not presenting third-party content. It could be liable for such reviews or testimonials under § 465.2(a). The commenter made a similar argument with respect to the applicability of § 465.2(b) to a website that displays a fake or false testimonial and thus causes its dissemination.

255

Section 465.2(b) does apply if such testimonials are about the business or one of the products or services it sells. Such testimonials are advertising, not third-party content covered by section 230 of the Communications Decency Act (47 U.S.C. 230).

254

Id.

255

Id.

6. Knowledge Standard

Like proposed § 465.2(b) and (c), final § 465.2(b) and (c) are limited to situations in which businesses “knew or should have known” that they were engaging in the conduct that was prohibited. Commenters had varied reactions to this standard, with some finding it appropriate, others finding it too high, and others finding it too low.

A corporate commenter noted that, for the purpose of § 465.2(b) and (c), “`[s]hould have known' needs to be the standard.”

256

Similarly, an individual commenter recommended that the FTC adopt the “knew or should have known” standard for purposes of § 465.2(b) and (c):

256

Transparency Company Cmt. at 11.

because it: (1) sufficiently effectuates consumers' shared interest in reducing the prevalence of unfair or deceptive online consumer reviews and testimonials, (2) avoids unfairly imposing liability on unwitting, blameless business transgressors, and (3) conveniently aligns with the FTC's existing “has good reason to believe” standard for similar purpose of application of FTC Act Section 5 to the use of endorsements and testimonials in advertising.

257

Poole Cmt. at 2.

However, several commenters objected to the imposition of civil penalties based upon a “should have known” standard, believing that standard would be too onerous.

258

For example, an industry organization said that proposed § 465.2(b) and (c) are “problematic because [they] place[ ] the onus on the business to have knowledge of the author's state of mind as to whether their actual experience was expressed. . . , an impossible task for anyone but the” author.

259

The industry organization also claimed that the risk of a civil penalty will “likely . . . compel businesses to drastically limit the consumer reviews or testimonials they seek out or even allow on their websites.”

260

Under section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A), however, the Commission can seek civil penalties for a rule violation only by showing that a defendant had “actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule” (hereinafter shortened to “actual knowledge or knowledge fairly implied”). A lower knowledge standard in a Commission rule—such as the “knew or should have known” standard found within certain sections of the proposed rule—does not override the higher standard found in section 5(m)(1)(A) of the FTC Act. The Commission has not suggested otherwise in the course of this rulemaking.

258

IAB Cmt. at 5-6; NRF Cmt. at 2-5; NADA Cmt. at 3-4; Chamber of Commerce Cmt. at 2-3; TechNet Cmt. at 2.

259

TechNet Cmt. at 2.

260

Id.

Other commenters objected similarly, saying that “knew or should have known” is too low as a knowledge threshold and that the standard should be actual knowledge, but did not tie their concerns to the imposition of civil penalties.

261

For example, some of the comments expressing concern about a “knew or should have known” standard appeared to focus primarily on the standard's supposed applicability to, and harsh impact on, websites hosting reviews.

262

As another example, a trade association commenter recommended “that the Commission define `knew,' as used in . . . § 465.2, as `having actual knowledge,' and remove the `should have known' language.”

263

261

Amazon Cmt. at 8; ANA Cmt. at 13; Trustpilot Cmt. at 5, 8; NRF Cmt at 3; Family First Life Cmt. at 5-8.

262

Amazon Cmt. at 7-8; ANA Cmt. at 12-13; NRF Cmt. at 2-5. One trade association commenter disagreed, asserting that the “knew or should have known” standard the Commission proposed for § 465.2 will “not unduly burden review platforms.” Travel Tech Cmt. at 4.

263

NRF Cmt. at 3.

Additionally, two commenters advocated for a standard higher than “should have known” but lower than actual knowledge. With respect to activities such as “purchasing” a review, they said that businesses should be held responsible for ensuring the reviews are authentic but recommended a “knew or consciously avoided” standard.

264

One of the commenters asserted that the proposed “should have known” standard “is vague and does not provide adequate specificity about the sorts of actions businesses should take to ensure that they will not be held liable for not detecting that a review they purchased was fake.”

265

The commenter said a “consciously avoided” knowing standard would allow for liability when a business takes no steps to respond to receiving repeated complaints raising red flags about the authenticity of a particular purchased review.

266

264

Amazon Cmt. at 9; IAB Cmt. at 5.

265

Amazon Cmt. at 9.

266

Id.

As part of the NPRM, the Commission also inquired whether, instead of the “should have known” standard, the Commission should adopt a “knew or could have known” standard. Only two commenters addressed that proposed standard. An individual commenter said that such a standard would “ambiguously expand the proposed Rule's prosecutorial scope and possibly open unsuspecting businesses to financial penalties for violations they had no inkling of having committed in the moment.”

267

Another individual commenter, who incorrectly thought the proposed rule provided a private right of action, said that such a standard “provides scienter never used in consumer law” and the “courts could potentially become overwhelmed with an influx of claims.”

268

267

Poole Cmt. on at 1.

268

Albert Cmt. at 3.

Other commenters advocated for a lower standard than “knew or should have known.” An individual commenter did not think that “knew or should have known” was appropriate because it would make it “very difficult to prove” violations and recommended that the Commission require “businesses to be able to show they used reasonable

diligence through policies and procedures to prove that the[ ] reviews are legitimate.”

269

A consumer organization said in its comment that “there is no need for a knowledge or intent requirement under this Rule” as “Section 5 of the FTC Act does not otherwise require the Commission to prove knowledge or intent when enforcing against entities engaging in deceptive practices.”

270

It continued that “the Commission can and should consider knowledge and intent in deciding the equities of bringing any enforcement action.”

271

269

Annie Horgan, Cmt. on NPRM at 1-2 (Sept. 22, 2023),

https://www.regulations.gov/comment/FTC-2023-0047-0058.

270

Consumer Reports Cmt. at 4.

271

Id.

at 4-5. An individual commenter disagreed, stating that “the complete removal of a knowledge requirement in favor of a strict liability approach would almost guarantee situations of unwarranted punishment under the proposed rule.” Poole Cmt. at 3.

After reviewing and considering the comments received, the Commission believes that the most appropriate standard for imposing liability under § 465.2(b) and (c) is the “knew or should have known standard.” As discussed above,

272

those paragraphs were not intended to apply to consumer review hosting and § 465.2(d)(2) now contains an explicit exemption for consumer review hosting.

273

Thus, the “knew or should have known” language in § 465.2(b) and (c) will not have a harsh impact on review platforms, as some of the commenters suggested. Eliminating the knowledge standard altogether, however, may indeed have an overly harsh impact on businesses in some circumstances, and the idea garnered almost no public support. For example, it would be unreasonable to hold a company liable for publishing a testimonial when it had no reason to know that the testimonial misrepresented the testimonialist's experience. The Commission sees no reason why the standard should be higher than “knew or should have known.” The “knew or should have known” standard—which the Commission has used in other rules

274

—thus 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.

272

See supra

section IV.B.5. of this document.

273

The final rule would therefore not require a business that is merely hosting consumer reviews on its platform to prove that the reviews it is hosting are legitimate.

274

Other Commission rule provisions with a “knew or had reason to know” requirement include § 460.8 of Labeling and Advertising of Home Insulation (commonly known as the R-Value Rule), which prohibits non-manufacturers of home insulation from relying on R-value data provided by the manufacturer if they “know or should know” the data is false or not based on proper tests. 16 CFR 460.8;