Tag: manufacturers

What Digital Advertisers and Influencers Need to Know About the FTC Final Rule Banning Fake Consumer Reviews and Testimonials

As previously blogged about here, following notices of proposed rulemaking in 2022 and 2023, on August 22, 2024 the Federal Trade Commission finalized a rule that will impose monetary civil penalties false and misleading consumer reviews and testimonials.  Those covered by the Final Rule, including, but not limited to, advertisers, marketers, manufacturers, brands and various intermediaries, and businesses that promote and assist such entities, should consult with an experienced FTC compliance lawyer and begin to prepare for its enforcement, immediately.

What Does the FTC Final Rule Banning Fake Consumer Reviews and Testimonials Cover?

The FTC Final Rule Banning Fake Consumer Reviews and Testimonials formalizes the prohibition of various practices relating to the use of consumer reviews and testimonials and sets forth which practices may be considered unfair or deceptive pursuant to the FTC Act.

In short, the Final Rule is intended to foster fair competition and protect consumers’ purchasing decisions.  In general, the Final Rule covers: (i) the purchase, sale or procuring of fake reviews or testimonials (for example and without limitation, a reviewer that does not exist, a reviewer that did not actually use or possess experience with the product or service, or a review that misrepresents actual experience); (ii) providing compensation or other incentives in exchange for reviews that express a particular sentiment; (iii) facilitating “insider” consumer reviews and testimonials that do not contain a clear and conspicuous disclosure of the relationship; (iv) utilizing websites that appear to be independent review websites when, in fact, they are controlled by the business whose products or services are reviewed; (v) suppressing reviews, either by intimidation or by merely publishing certain reviews or ratings (for example and without limitation, only positive reviews or ratings); and (vi) misusing fake indicators of social media influence.

The Final Rule also includes some important definitions.  For example, the Final Rule defines “consumer reviews” as reviews published to a website or platform dedicated (in whole or in part) to receiving and displaying consumer evaluations, including, for example, via reviews or  ratings.

The Final Rule defines “consumer review hosting” as “providing the technological means by which a website or platform enables consumers to see or hear the consumer reviews that consumers have submitted to the website or platform.”  In simple terms, this means that if an employee posts an unsolicited review on a corporate website concerning a product/service that they have experience using, it may not necessarily be considered deceptive as long as the material connection is disclosed.

“Clear and conspicuous” disclosures (such as, for example and without limitation, those pertaining to material relationships between a manager or officer to a brand), must be unavoidable, and easy to notice and understand for ordinary, reasonable consumers.  Note, for  audiovisual content, disclosures must be presented in “at least the same means as the representations requiring the disclosure.”

The Final Rule follows the FTC’s Updated Endorsement Guidelines (2023).  The FTC Endorsement Guides address a much broader range of conduct than the Final Rule, and provide best practice recommendations regarding the use of product endorsements and reviews in advertising.

What are the Requirements of the FTC Final Rule on Reviews and Testimonials?

The Final Rule largely codifies existing FTC policy related to reviews and testimonials and sets forth limitations for a handful of categories of conduct that the FTC will consider deceptive.  In part, the Final Rule prevents covered entities and their agents from using fake reviews and deceptive testimonials, suppressing honest negative reviews and paying for positive reviews.

In pertinent part and without limitation:

  1. 16 CFR § 465.2: Fake or false consumer reviews, consumer testimonials, or celebrity testimonials

Business and brands are prohibited from creating, buying, selling or disseminating fake or false reviews or testimonials, including, but not limited to, those that expressly or impliedly misrepresent they are by someone that does not exist (for example and without limitation, AI-generated reviews), by someone that does not have experience with the product/service, those that misrepresent experience with a product or service, and negative reviews intended to damage competitors.

Businesses and brands are prohibited from creating, purchasing, procuring or disseminating such reviews (and/or facilitating dissemination) when the business knew or should have known that the reviews or testimonials were not bona fide.

  1. 16 CFR § 465.4: Buying positive or negative consumer reviews

Business and brands are prohibited from incentivizing a consumer to write a review when the incentive is conditioned – expressly or implicitly – on the review expressing a particular sentiment (whether positive or negative) about a business or brand, or related products or services.  It is not unlawful for a company to offer incentives for consumers to write reviews, however, it is unlawful, for example, to condition the incentive upon, for example, a 5-star review.  While the FTC Endorsement Guides separately mandate a clear and conspicuous disclosure when a review is incentivized by monetary payment or another incentive/relationship, a disclosure of the incentive is not a defense when the incentive is conditioned on the review expressing a particular sentiment.

  1. 16 CFR § 465.5: Insider consumer reviews and consumer testimonials

Section 465.5 of the Final Rule prohibits businesses and brands from creating, soliciting or posting reviews or testimonials by officers, managers, employees or agents thereof without clearly and conspicuously disclosing their relationship, or “material connection.”  There are limited exceptions.  First, the prohibition does not apply to unsolicited social media posts by employees or social media posts that result from generalized solicitations (e.g., non-employee specific).  Second, the prohibition does not apply to unsolicited employee reviews that merely appear on a business’s website because of its “consumer review hosting” function.

Additionally, reviews solicited from immediate relatives (e.g., spouse, parent, child or sibling), employees or agents of officers, managers, employees or agents of a business or brand require that latter ensure that the immediate relative clearly, conspicuously and transparently disclose the material connection to the business.  The foregoing also applies, for example and without limitation, to requests that employees or agents solicit reviews from relatives.  Covered “insiders” are required to instruct such reviewers to clearly and conspicuously disclose their relationships to the business or brand and, if they knew or should have known that a related review appears without a disclosure, take remedial steps to address the disclosure.

The Final Rule states that if the business or brand knew or should have known of a material relationship between a testimonialist and the business, it is a violation for the business or brand to disseminate or cause the dissemination of a consumer testimonial from its officer, manager, employee, or agent without a clear and conspicuous disclosure of such relationship.

  1. 16 CFR § 465.6: Company-controlled review websites or entities

Companies and brands are prohibited from creating or controlling review websites or platforms that appear independent when they are, in fact, operated by the company itself.  For example, companies may not expressly or by implication falsely represent that a website they control provides independent reviews or opinions.  Section 456.6 is intended to prevent the creation of illegitimate independent review websites, organizations or entities to review products and services.  It does not apply to general consumer reviews on a brand’s website, for example, so long as those reviews comply with applicable legal regulations.

  1. 16 CFR § 465.7: Review suppression

Pursuant to Section 465.7 of the Final Rule, businesses and brands may not suppress, manipulated or attempt to suppress or manipulate negative reviews (or otherwise manipulate or attempt to manipulate overall perception) by solely displaying positive feedback, with limited exceptions such as when a review contains confidential or personal information, or is false or fake, and/or wholly unrelated to the products/services offered.  The criteria for doing so must be “applied equally to all reviews submitted without regard to sentiment.”

Businesses and brands are also prohibited from suppressing negative reviews or ratings, and misrepresenting (expressly or implicitly) that the selected consumer reviews or ratings represent most or all reviews or ratings.  The Final Rule does not prohibit sorting or organizing reviews – per se – however doing so in a manner that makes it more difficult for consumers to view/learn of negative reviews may be considered an unfair or deceptive act or practice.

All reviews must be treated fairly so that consumers are provided with a true an accurate representation of consumer experiences.

Additionally, the Final Rule prohibits the use of “unfounded or groundless legal threat” or other physical threat, intimidation or false accusation to prevent a review from being written or created or to cause the review to be removed.

Section 465.7, in pertinent part, is consistent with various portions of the January 2022 agency guidance entitled Featuring Online Customer Reviews: A Guide for Platforms.  The foregoing guidance recommends that businesses and brands: (i) that operate a website or platform that features reviews, have processes in place to ensure those reviews truly reflect the feedback received from legitimate customers about their real experiences; (ii) be transparent about your review-related practices; (ii) do not ask for reviews only from people you think will leave positive ones; (iii) that offer an incentive to consumers for leaving a review, not condition it, explicitly or implicitly, on the review being positive (even without that condition, offering an incentive to write a review may introduce bias or change the weight and credibility that readers give that review); (iv) do not prevent or discourage people from submitting negative reviews; (v) have a reasonable processes in place to verify that reviews are genuine and not fake, deceptive, or otherwise manipulated (be proactive in modifying and upgrading your processes); (vi) do not  edit reviews to alter the message (e.g., do not change words to make a negative review sound more positive); (vii) treat positive and negative reviews equally (do not subject negative reviews to greater scrutiny); (viii) publish all genuine reviews and do not exclude negative ones; (ix) do not display reviews in a misleading way (e.g., it could be deceptive to feature the positive ones more prominently or require a click through to view negative reviews); (x) that display reviews when the reviewer has a material connection to the company or brand offering the product or service (e.g., when the reviewer has received compensation or a free product in exchange for their review), clearly and conspicuously disclose such relationships; (xi) clearly and conspicuously disclose how they collect, process and display reviews, and how they determine overall ratings, to the extent necessary to avoid misleading consumers; and (xii) have a reasonable procedure to identify fake or suspicious reviews after publication (if a consumer or business tells a business or brand that a review may be fake, investigation and appropriate action are necessary – that may include taking down suspicious or phony reviews or leaving them up with appropriate labels).

  1. 16 CFR § 465.8: Misuse of fake indicators of social media influence

Section 465.7 prohibits selling, distributing, purchasing or procuring “fake indicators of social media influence” (for example and without limitation, likes, saves, shares, subscribers, followers or views generated by a bot or fake account) that are actually known to be or should be known to be fake, and that could potentially be used or are actually used to misrepresent or artificially inflate individual or business importance for a commercial purpose.  Thus, liability will not attach to a business or brand that engages an influencer using fake indicators of social media influence if the business or brand neither knew nor should have known thereof.

How is the FTC Final Rule Different from the Proposed Rule?

Notably, the Final Rule does not include a provision from the proposed rule that would have precluded advertisers from using consumer reviews that were created for a different product.  Known as “review hijacking,” the FTC was unable to resolve various concerns about the meaning of “substantially different product.”  The FTC reserved the right to revisit this issue, going forward via further rulemaking.

What are the Consequences for Violating the FTC Final Rule on Reviews and Testimonials?

The concepts, prohibitions and obligations included in the Final Rule are not entirely new.  However, the Final Rule does significantly enhance the FTC’s ability to pursue civil monetary damages in the form of penalties in the amount of up to $51,744, per violation or per day for ongoing violations.  The Final Rule also will permit the FTC to seek judicial orders that require violators to compensate consumers for the consequences of their unlawful conduct.

Takeaway:

The Final Rule banning fake consumer reviews and testimonials generally prohibits specific  practices that the FTC has determined are deceptive or misleading, including: (i) fake or false consumer reviews, consumer testimonials or celebrity testimonials; (ii) purchasing positive or negative consumer reviews; (iii) insider consumer reviews and consumer testimonials; (iv) company-controlled review websites or entities; (v) review suppression; and (vi) misuse of fake indicators of social media influence.  The Final rule will be effective October 21, 2024.  Violations of the Final Rule can result in significant financial and reputational consequences.  Companies that utilize consumer reviews, consumer testimonials or celebrity endorsements should consult with an experienced eCommerce attorney to discuss proactively implementing responsible written policies and contracts that ensure compliance with the Final Rule and other applicable legal regulations (for example and without limitation, ensure the clear and conspicuous disclosure of material connections), educating employees and agents, reviewing marketing strategies, auditing first and third-party (for example and without limitation, lead generators) promotional materials and activities for non-compliance (for example and without limitation, ensuring that reviews  provide an accurate representation of consumer experiences), and developing and implementing appropriate compliance plans and written policies that include required remedial actions.

© 2024 Hinch Newman LLP
For more on the FTC Fake Consumer Reviews rule, visit the NLR Communications Media Internet section

Lemon Laws: Potentially a Sour Future for Manufacturers of Autonomous Vehicles

lemon lawsLemon laws have existed for several decades to protect consumers from permanently defected vehicles. Though they may vary state to state, lemon laws generally require manufacturers to replace or reimburse consumers for vehicles that have either undergone three to four unsuccessful repairs within two to four years or were out of use due to repairs for more than 30 days within the shorter of one year or warranty. Additionally, courts have generally required that the defect under repair is the same defect each time. In other words, repairs for a transmission, power steering, brakes, and suspension cannot be grouped together to satisfy the limit.

New technology often brings new challenges to the legal arena, and autonomous vehicles are taking center stage. Autonomous vehicles present a unique scenario regarding the applicability of lemon laws. Unlike hardware, software updates are frequent, and even major software updates can occur several times a year. Current semi-autonomous vehicles, like Tesla’s, have received updates that have significantly affected vehicle functionality. When first released, Tesla vehicles were traditional, albeit all-electric, cars, but after an over-the-air update (OTA), Tesla has given certain vehicle models the ability to utilize an “autopilot” feature. The autopilot feature allows the driver to release control of the vehicle in certain conditions, and the vehicle can, among other things, switch lanes, brake, and change speeds. Consumer demand and a shifting automotive landscape indicate that autonomous vehicle technology will continue to gain traction.

It would not be surprising if the lemon laws of the future hold manufacturers of semi-autonomous and autonomous vehicles to more stringent standards.

Automotive repair has traditionally involved taking a vehicle to a mechanic for issues with “hardware.” Yet, unsurprisingly, the laws have not anticipated the impact software has upon the functionality of such vehicles. Say, for example, a Tesla or other similarly-equipped vehicle with similar semi-autonomous or autonomous features, has a consistent and specific software bug that requires more than four updates to fix in over a two-year period. There is a line-drawing problem, which forces the industry and legislators to grapple with several questions. What constitutes a repair? Is the vehicle subject to replacement or reimbursement from the manufacturer? If the software bugs exist on the entire platform of vehicles, are all of the vehicles subject to recall, or is the public expected to wait for a software fix to come in an OTA update?

Recently, in late June, Tesla seemed to answer such a question. The company settled a claim with an individual over issues he had with his newly purchased Model X SUV. At the beginning of the Model X’s rollout, it was plagued with several issues involving its falcon-winged doors and auto-parking software features. Given his frustration, the individual filed a lemon law claim against Tesla, after which Tesla agreed to repurchase his $160,000 vehicle. Yet, around the same time the company settled the lemon law claims, it rolled out an OTA software update that fixed the issues. So, it might be the case that companies are not expecting consumers to wait for an OTA software update if they are willing to repurchase vehicles, even with a remedy via update in the works.

While the recently-settled Tesla claim involved luxury features, the company has been subject to investigations involving at least two fatalities in connection with its autopilot feature. These circumstances are clearly far more troubling, and they help illustrate the importance of ensuring that autonomous vehicles are performing safely.

Autonomous and semi-autonomous vehicle manufactures are taking control away from drivers, and it is currently unclear what role lemon laws should play in the presence of such circumstances. It may be necessary for legislatures to revisit existing lemon laws to include non-traditional repairs such as OTA software updates to incentivize better care on the part of manufacturers. Ultimately, it would not be surprising if the lemon laws of the future hold manufacturers of semi-autonomous and autonomous vehicles to more stringent standards.

ARTICLE BY Fermin M. Mendez of Varnum LLP
This article was co-written by Paul Albarran, a summer associate at Varnum in 2016. Paul is currently a student at University of Notre Dame Law School.
© 2016 Varnum LLP

New Updated FTC Care Labeling Rules: “Do’s and Don’ts”

Sheppard Mullin 2012

The Federal Trade Commission (“FTC”) enforces federal labeling requirements that require manufacturers, importers, sellers and distributors of certain textile and wool clothing  to accurately label their products. For example, FTC rules require that manufacturers indicate the country of origin and fiber content in their clothing. In addition, the Care Labeling Rule requires that manufacturers and importers attach “care labels” to garments and certain piece goods.

Navigating these various labeling requirements can be tricky. On May 5, 2014, the FTC amendment of the labeling rules, known as the Textile Rules, became effective.

Care labels, which can influence consumers’ purchasing decisions more than labels indicating fiber content or country of origin or manufacture, are important to carefully consider.

“Do’s” for Clothing Manufacturers and Importers:

Place all care labels permanently, securely and visibly, so that consumers can easily see or locate them prior to purchase. Ensure that labels will remain legible not just at the point of sale, but throughout the lifecycle of the product.

Include a washing or drycleaning instruction (or both) if either method is safe for the product. If a product can be neither washed nor drycleaned, the label must state “Do not wash – Do not dry clean.” A simple “dryclean” instruction is acceptable in most cases, unless “any part of the drycleaning process would harm the product.” In that case, more specificity is required (e.g., “Professionally Dryclean” or “Dryclean. No Steam.”).

Indicate whether the product is to be washed by machine or by hand. The FTC has stated that water temperature settings must be indicated if “regular use of hot water will harm the product.” Similarly, if using chlorine bleach will harm the product, whereas other bleaches will not, the label must state “Only non-chlorine bleach, when needed.” The appropriate label in the event that no bleach is safe to use is “Do not bleach.”

State how to dry the product and how to iron it, if the product requires regular ironing. Temperature settings for drying and ironing are not needed unless the “regular use of high temperature will harm the product.”

If selling a garment with multiple pieces, only one label is required if the same instructions apply to all parts of the garment, and if the garment is sold as a single unit. The label should be attached to the “major piece” of the garment. In the event that the garment is not sold as a single unit, or if the instructions differ from one part of the garment to the next, then each separate piece of the garment needs its own care label.

If the garment cannot be cleaned without damaging the garment, potential customers must be warned on the label. It is imperative that following the care labeling instructions does not ordinarily lead to product damage. Along these lines, labels must inform consumers not to engage in certain procedures that they may erroneously but reasonably assume are acceptable, given the instructions of the label. For example, if a label indicates that clothes can be washed, a reasonable consumer might infer that the product can also be safely ironed. If these understandable assumption is incorrect, the FTC has stated that the label must indicate the risks involved.

One should always have a “reasonable basis” for everything written on a care labeling instruction. If a piece of clothing indicates that it cannot safely be ironed, there must be some proof (based upon experience, industry expertise or testing) known to the manufacturer or importer that ironing the clothing would cause damage. The FTC has alternatively stated that the manufacturer or importer must have “reliable evidence” to support all warnings or instructions on product labels. Guesswork is insufficient. However, what constitutes “reliable evidence” or a “reasonable basis” does depend on the circumstances. It is incumbent on manufacturers conducting tests to ensure that the results of any tests conducted on only one portion of multi-part garments do, in fact, have applicability to the entire garment.

Importers must ensure that these labels are placed on products before they sell them in the United States. It is not necessary for the labels to be attached as the products enter the country, however. Domestic manufacturers similarly must ensure that care labels are placed on finished products prior to sale.

“Don’ts” for Clothing Manufacturers and Importers:

Certain kinds of exempt apparel, including gloves, hats, and shoes, do not require care labels. Many items are also excluded from the care labeling requirements, including handkerchiefs, belts, suspenders, neckties, or non-woven garments made for one-time use. For piece goods sold for making apparel at home, it is not necessary to include care labeling instructions for any “marked manufacturers’ remnants of up to 10 yards when the fiber content is not known and cannot be determined easily.” These items are exempted from the Care Labeling Rule.

Garments custom-made from fabrics provided by consumers, or products sold directly to institutional buyers for commercial use (e.g., uniforms sold to Office Depot for use by clerks during business hours, and not purchased directly by the clerks), do not require care labels. This also includes items that the consumer may ask to be added to the garment (e.g. lining or buttons).

Use non-standard terms on labels. The FTC recommends, but does not expressly require, that manufacturers ensure that any terms they use on labels are in accord with the definitions in the Rule’s Appendix A glossary, where applicable. For example, the term “Warm” applies to initial water temperature ranging from 87 to 111 degrees F [31 to 44 degrees C]; “Hot” is from 112 to 145 degrees F [45 to 63 degrees C]; and “Cold” is up to 86 degrees F [30 degrees C].

*Gregg Re Summer Associate contributed to this article.

Article By:

Theodore C. Max
Of:
Sheppard, Mullin, Richter & Hampton LLP