For many businesses, it is critical to have solid reviews on internet platforms such as Yelp, Facebook, and Google. This also means that businesses are exposed to reviews that are false or potentially defamatory. If a business is the subject of a false and defamatory review, there are potential legal remedies to have the false information taken down.
Online reviews can also create a temptation for businesses to take shortcuts to try to artificially boost their reviews and ratings. According to the New York Times, the business of providing fake consumer reviews, likes, and testimonials online has become a billion-dollar industry. The Federal Trade Commission (FTC) is ready to crack down on this practice, and it has recently issued new rules addressing false reviews or testimonials.
Businesses need to be aware of and monitor their online presence, reviews, and ratings, but they also need to proceed with caution in this space. This article will analyze the legal framework for online customer reviews and help businesses navigate this complex area.
New FTC Rules
On August 14, 2024, the FTC announced new rules to prevent false consumer reviews and testimonials. The FTC justified the new rules as follows: “Fake reviews and testimonials have polluted the marketplace. They harm the many consumers relying on them to pick products and providers, subverting people’s ability to make informed decisions. They also hurt competitors who work hard to comply with the law.”
The new rule prohibits the following practices, which the FTC now considers as deceptive or unfair trade practices under Section 5 of the FTC Act:
- Writing, selling, or buying fake or false consumer reviews;
- Writing, selling, or disseminating fake or false testimonials;
- Buying positive or negative reviews;
- Failing to make disclosures about insider reviews and testimonials;
- Deceptively claiming that company-controlled review websites are independent;
- Illegally suppressing negative reviews; and
- Selling and buying fake social media indicators.
These rules take effect on October 13, 2024, and they will be codified at 16 C.F.R. Part 465. Companies that violate the rules are subject to civil penalties of up to $51,744 for each violation. As such, companies that have been purchasing or posting fake positive reviews should strongly consider discontinuing the practice.
Responding to Negative Reviews and False Statements
A negative customer review that expresses an opinion such as “this product stinks” or “this is a lousy company” is not defamation. If a person posts a provably false statement online about a company, however, the traditional remedy is to assert a defamation claim against the person who made the post, usually in hopes of convincing them to take it down. (Requests to remove can also be made directly to the platform, but these efforts tend to have mixed results.) If the person who posted false statements is anonymous, a company can start a “John Doe” lawsuit in order to subpoena the platform or other third-parties to determine the identity of the poster. All of this can take time and cost money, but a single false statement can be devastating to the online reputation of a business.
Do the New FTC Rules Prevent Defamation Lawsuits?
Section 465.7 of the new rules states as follows:
Review Suppression.
It is an unfair or deceptive act or practice and a violation of this part:
- for anyone to use an unfounded or groundless legal threat, a physical threat, intimidation, or a public false accusation in response to a consumer review that is made with the knowledge that the accusation was false or made with reckless disregard as to its truth or falsity, in an attempt to:
- prevent a review or any portion thereof from being written or created, or
- cause a review or any portion thereof to be removed, whether or not that review or a portion thereof is replaced with other content, or
- for a business to materially misrepresent, expressly or by implication, that the consumer reviews of one or more of the products or services it sells displayed in a portion of its website or platform dedicated in whole or in part to receiving and displaying consumer reviews represent most or all the reviews submitted to the website or platform when reviews are being suppressed (i.e., not displayable) based upon their ratings or their negative sentiment.
For purposes of this paragraph, a review is not considered suppressed based upon rating or negative sentiment if the suppression occurs based on criteria for withholding reviews that are applied equally to all reviews submitted without regard to sentiment, such as when:
- the review contains:
- trade secrets or privileged or confidential commercial or financial information,
- defamatory, harassing, abusive, obscene, vulgar, or sexually explicit content,
- the personal information or likeness of another individual,
- content that is discriminatory with respect to race, gender, sexuality, ethnicity, or another intrinsic characteristic, or
- content that is clearly false or misleading;
- the seller reasonably believes the review is fake; or
- the review is wholly unrelated to the products or services offered by or available at the website or platform.
(emphasis and formatting added.)
Thus, the rules do not prevent defamation actions, so long as they are made in good faith and grounded on evidence. In other words, before commencing a defamation action, it is important for a business to make sure it is able to show that it is acting in good faith on an honest belief, and the business will need to be prepared to present evidence and factual support for its claims. From a practical standpoint, defamation claims can be difficult and complicated, and the business needs to be prepared to articulate and support its position.
Preventing Negative Reviews
Businesses in the U.S. cannot require customers to agree, in a contract, that they will not post negative reviews on the internet. In 2016, Congress passed, and President Obama signed, a law prohibiting the use of consumer contracts that prevent customers from posting negative reviews. This little-known law, the Consumer Review Protection Act, 15 U.S.C. Section 45b, (“CRPA”) went into full effect as of December 14, 2017. The CRPA states that any provision of a “form contract” that prohibits or restricts the ability of an individual to communicate a “written, oral, or pictorial review, performance assessment of, or other similar analysis of, including by electronic means, the goods, services, or conduct” of a business, or imposes a penalty or fee against a party for engaging such a communication, is void from the inception. A “form contract” is a contract with standardized terms used by a person or business in the course of selling or leasing goods or services if it is imposed on an individual without a meaningful opportunity to negotiate the terms.
The CRPA contains a number of important exceptions. Among other things, it does not apply to employment agreements or independent contactor agreements. It does not apply to the right to protect or remove trade secrets or confidential commercial or financial information. And it does not affect any common law cause of action for defamation, libel, or slander. The Federal Trade Commission and state attorneys general have authority to enforce the CRPA.
Conclusion
Online reviews can be incredibly important for businesses. The new FTC rules provide some recourse for addressing false and defamatory online reviews, but the rules also largely prohibit businesses from attempting to influence, produce, or fabricate online reviews. So, it is important for businesses to revisit their online review practices and ensure that they are in compliance. If you have questions about your business’s compliance with the new FTC rules, or if you think your business may have been defamed online, contact John Ella, Shannon McDonough, and the litigation attorneys at FMJ.
Related Attorneys
