Photo of Gonzalo E. Mon

Email
(202) 342-8576
Bio

This week, the FTC announced its first case involving fake reviews on an independent website.

Cure Encapsulations sells a weight-loss product exclusively on Amazon. When the company wanted to boost its sales, its owner turned to Amazon Verified Reviews (or “AVR,” for short), a website that offers Amazon sellers services designed to “push your product towards the top” using “verified” product reviews that will “help your product rank better in the internal search engine.”Garcinia Cambogia Bottle

In an e-mail exchange, the owner of the company told AVR that he needed “real positive reviews from real aged accounts” to boost the product’s ratings to a 4.3. AVR responded by posting a series of five-star reviews with weight loss claims. Although the reviews appeared to come from consumers, they were actually “fabricated by one or more third parties who were paid to generate reviews.”

The proposed order prohibits the defendants from mispresenting that an endorsement is from an actual consumer, when it’s not. The order also addresses the substantiation required for various types of claims. Lastly, the order imposes a judgment of $12.8 million, which will be suspended upon payment of $50,000 and the payment of certain income tax obligations.

Although this is the first FTC case involving fake reviews on an independent site, this isn’t the first case dealing with this issue. For example, the New York Attorney General has entered settlements with companies in the “reputation management” industry who have used fake reviews to enhance their client’s sales. So both buyers and sellers of fake reviews can face scrutiny.

Update

After we published this post, an Amazon spokesperson contacted us with the following statement: “We welcome the FTC’s work in this area. Amazon invests significant resources to protect the integrity of reviews in our store because we know customers value the insights and experiences shared by fellow shoppers. Even one inauthentic review is one too many. We have clear participation guidelines for both reviewers and selling partners and we suspend, ban, and take legal action on those who violate our policies.”

Last week, the California Assembly’s Standing Committee on Privacy and Consumer Protection held a hearing to discuss the California Consumer Privacy Act. While many panelists from the private sector pointed out problems with the law, a few panelists defended the law, and some suggested that it didn’t go far enough. For example, Stacey Schesser, the Supervising Deputy Attorney General for the Privacy Unit in the Consumer Law Section of the Office of the California Attorney General, stated that the current law presents “unworkable obligations and operational challenges” for the AG’s office and suggested several significant changes. This week, California AG Becerra and state Senator Hannah-Beth Jackson announced a bill that would seek to implement the changes Ms. Schesser described into law.

The bill includes two proposals that could materially affect potential exposure for businesses under the CCPA:

  • Private Right of Action:  The current law allows any consumer whose unencrypted or unredacted personal information is breached “as a result of a violation of the duty to implement and maintain reasonable security procedures and practices” to recover statutory damages of up to $750 per incident. The private right of action is likely to be used in litigation, particularly over what constitutes “reasonable” practices, but at least it is limited to breaches. The new bill, however, would expand the private right of action to cover violations of any other section of the law, as well.
  • Right to Cure:  The current law requires the AG to give businesses notice and 30 days to cure alleged violations before the AG can seek an injunction and civil penalties. This 30-day cure period can provide a warning to businesses that are trying to comply with a confusing law, if their efforts fall short. The proposed bill, however, would remove the right to cure, leaving businesses immediately exposed for any violations.

In addition to these changes, the bill proposes to remove a provision that would allow businesses to seek guidance from the AG on how to comply withCA Flag the law.

If the bill is enacted into law, these changes would be a boon to plaintiffs’ attorneys and privacy litigators. However, to use Ms. Schesser’s words, the changes would result in even more “unworkable obligations and operational challenges” for businesses. We will continue to closely track these developments, and keep you posted.

We frequently get questions about whether companies can be held liable for claims that appear in consumer reviews. Although it’s clear that there are instances in which a company can be held liable if it has a connection to the person who wrote the review, it has been less clear to what extent a company can be held liable for content in independent reviews. A new NAD decision sheds some light on where the line might be drawn.

APEC makes water filtration systems that it previously advertised as being “Made in the USA.” After an FTC inquiry, the company removed those claims from its ads, Reviewsupdated claims that appeared on third-party platforms, and made efforts to correct claims that were made by third-party marketers. That didn’t stop consumers from echoing the previous “Made in USA” claims in reviews, though. One of APEC’s competitors argued that APEC continues to benefit from those inaccurate reviews, and that the company should be required to take steps to correct them. This is especially true, the competitor argued, because APEC routinely responds to negative reviews from consumers.

NAD started by noting that an advertiser cannot make claims through consumer reviews that the advertiser can’t substantiate itself. Moreover, if an advertiser learns about inaccurate claims in third-party ads, the advertiser is responsible for taking steps to ensure that those claims are corrected. In this case, NAD determined that that responsibility did not extend to the challenged consumer reviews, though. Where do you draw the line?

According to NAD, the “critical question” is “whether the advertiser exercises control over the messages conveyed through customer reviews.” Although the lines can get blurry, “NAD determined that APEC did not exercise sufficient control over the messages conveyed by the product reviews at issue and that it is not responsible for the truthfulness of reviews . . . .” Notably, APEC did not respond to these reviews. The company’s “silence and decision to refrain from responding to reviews does not convey a message that the domestic origin claims are accurate.” And the company’s practice of responding to some reviews did not give rise to an obligation to correct unsupported claims in other reviews.

Although NAD did not hold APEC responsible for the consumer reviews that had been flagged by its competitor, “it cautioned APEC against interacting with any such reviews in any manner which may seem to validate an unsupported domestic origin claim.” This suggests that companies should exercise caution when responding, liking, or otherwise interacting with reviews that include claims that a company can’t support. A favorable interaction could be read as validation for those claims.

In the world of social media, a person’s power is often measured in terms of followers. Because more followers generally means more reach, companies who engage influencers often base their compensation on this metric. But follower counts may not always be what they seem. According to a New York Times report last year, influencers can buy fake followers (who are often bots) from companies like Devumi.

Robot HandsThis week, the New York Attorney General announced a settlement with Devumi over its practices. Among other things, the company is prohibited from selling fake followers, likes, and other types of social media interactions. And to the extent Devumi works with real influencers, it must take steps to ensure they clearly disclose any connections they have to the companies they endorse. The AG said that this settlement sends “a clear message that anyone profiting off of deception and impersonation is breaking the law and will be held accountable.”

Although this may be the first case that addresses the sale of fake followers, it’s not the first case that addresses companies using shady techniques to boost their reputations online. For example, in 2013, the New York AG announced settlements with 19 companies after a year-long undercover investigation into the reputation management industry. During the investigation, the AG learned that some agencies that promised to boost companies’ presence online did to so posting fake reviews.

What you should take away from these cases depends on your place in the industry. If you help companies boost their social media presence, take a close look at these settlements and make sure you’re not engaging in the practices that were challenged. If you’re hiring a company to boost your presence, ask that company some questions about how they plan to achieve results. And if you pay influencers based on the number of followers they have, investigate whether those followers are real people. Bots can lead to all sorts of trouble.

The recent Netflix and Hulu documentaries about the Fyre Festival have thrust the failed event back into the spotlight. That was a few scandals ago, so for those of you who don’t remember it, here’s a short recap.

Billy MacFarland and Ja Rule wanted to host a luxury festival on a deserted island. They found an island that belonged to Pablo Escobar, and secured a lease on the condition that they wouldn’t mention the drug lord’s name. Not long after that, Fyre used Escobar’s name in a social media post. And not long after that, the company was forced to find a new deserted island – or find a way to make an inhabited one look deserted. (They chose option B.)

Meanwhile, a group of over 60 influencers – including Kendall Jenner and Emily Ratajkowski – got to work promoting the festival on Instagram, without disclosing that Fyre Logothey had been paid to do so. (According to some reports, the initial group of influencers were paid between $20,000 and $250,000 each.) This resulted in over 300 million impressions in 24 hours. The hype worked, and people started paying up to $12,000 for tickets.

Things on the ground were going less smoothly. When guests arrived, instead of finding the luxury accommodations, gourmet food, and big-name bands they were promised, they found FEMA tents, a food shortage, and none of those bands. If you’re wondering whether any of this is fraud, Ja Rule directly addressed that question in the Netflix documentary. During a phone call, he assured his colleagues that it’s not fraud – it’s just “false advertising.” (Note to Mr. Rule’s lawyer: maybe keep him off the witness stand.)

As MacFarland sits in jail and Ja Rule and his colleagues fight lawsuits, a federal judge gave a bankruptcy trustee permission to subpoena Kendall Jenner’s company, some of the agencies that represented other influencers, and other vendors who were paid to organize or promote the festival. It’s too early to tell what will happen next, but these developments are likely to lead to more scrutiny about how companies advertise on social media and use influencers.

We’ve posted about these issues many times before. To summarize:

  1. Social media posts are subject to advertising laws, so those posts must be truthful and not misleading;
  2. Influencers need to disclose their connections to the companies they are promoting; and
  3. Companies need to take steps to manage their influencers.

But if you don’t have time to read those posts, watch one of the documentaries, see what the Fyre organizers did, and do the opposite.

Subscription plans that automatically renew at the end of a term are becoming more popular with companies. They’re also getting more scrutiny from regulators. As we’ve posted before, some states regulate how these plans can be structured, and there have been both lawsuits and regulatory investigations targeting companies that have failed to comply. This week, Washington, DC joined the crowd by enacting a new law governing automatic renewals.

The law requires businesses that sell goods and services on a recurring basis to clearly and conspicuously disclose their automatic renewal provisions and cancelation procedures in their contracts. In addition, if a contract has an initial term of at least 12 months and will automatically renew for a term of at least one month, a business must take steps to notify consumers before renewal. This must be done by mail, e-mail, text message, or in-app notification. (For text messages, don’t forget the TCPA.) The reminder must be sent at least 30 – but no more than 60 – days before the deadline to cancel.

Businesses that offer free trials of at least one month that automatically renew must receive a consumer’s affirmative consent to sign up for the automatic renewal program one to seven days before the expiration of the free trial term.

Subject to narrow exceptions, violations of the law will constitute violations of the DC Consumer Protection Procedures Act and render the automatic renewal provision void.

Earlier this week, Truth in Advertising (or “TINA.org”) sent a letter to the FTC urging the Commission to investigate Diageo’s use of influencers to market Ciroc vodka on Instagram. According to the letter, TINA.org collected more than 1,700 Instagram posts across 50 different influencers — including Ciroc brand manager and CMO Sean “Diddy” Combs — in which the influencers allegedly failed to disclose their connection to the company in a clear and conspicuous manner.

This is not the first time that consumer groups have pushed the FTC to investigate influencer campaigns. And if this is like any of the previous pushes, it’s likely that some of the posts don’t actually violate the law. For example, some groups have misstated the legal requirements in this area and have identified posts that didn’t violate the law. That led the FTC to send warning letters to individuals who actually had no connections to the brands mentioned in their posts. Nevertheless, there are various examples in this letter that may be Ciroc Postproblematic and potential targets for enforcement.

Apart from the endorsement issues, the letter goes on to describe other problems with the content of the posts, including “kids in Ciroc ads, Ciroc-fueled misogynistic ads, a recipe for cannabis-infused strawberry lemonade with Ciroc, and even a booze-drinking Santa who needs to spread the ‘liquid love.’” (There is also an image of a toddler holding a baby bottle of Ciroc.) To make matters worse, the influencers did not use age-gating features, so that minors were able to view the ads. As TINA.org points out, these practices are likely to violate the Distilled Spirits Council’s Code of Responsible Practices for alcohol ads.

TINA.org has asked the FTC to investigate Diageo and to take appropriate enforcement action.

It’s too early to tell what will happen here, but it will be interesting to see how the FTC reacts. Although companies that market age-restricted items should pay particular attention, this action holds lessons for any company that works with influencers. If you haven’t evaluated how your company manages influencer campaigns recently, now may be a good time to do that.

One of the issues that frequently comes up in NAD cases is “line claims.” Does an ad convey a claim about a specific product? Or does it convey a claim about an entire line of products? This week, NAD released a decision that explores that issue in the context of a funny commercial by Charter in which a DIRECTV salesman shows up at a homeowner’s door and tries to pitch an offer.

The salesman starts his pitch by offering the “DIRECTV Select Double Play package with no ESPN.” When the homeowner declines, the salesman “sweetens the deal” by offering “no CBS Sports Network, no NBC Sports Network.” From there, the deals get progressively worse until the salesman’s final offer: “What I see is someone who wants to play hardball. OK, batter up! I’ll give you no popular sports channels, the early termination fees, AND I’ll add deeply disappointing AT&T Internet . . . .” The homeowner shuts the door on the salesman mid-pitch.

Although it’s true that DIRECTV’s Select Double Play package does not include any of the popular sports channels mentioned in the spot, DIRECTV argued that the commercial conveys a misleading line claim – in other words, the commercial suggests that no DIRECTV package offers those channels, something which isn’t true. Charter disagreed, and offered a survey in support of its argument that consumers weren’t confused. NAD found that the survey was flawed for a number of reasons, including problems with the survey universe, the control, and some of the questions. Therefore, NAD ignored the survey and stepped into the shoes of a reasonable consumer to determine how they would view the commercial.

One of the factors in determining whether an ad conveys a line claim is whether the ad mentions specific products or whether it refers to the brands as a whole. Here, the commercial started with a specific reference to the DIRECTV Select Double Play package. Although that’s usually helpful, NAD determined that the initial reference was not enough to avoid a line claim. Among other things, NAD focused on the manner in which subsequent “deals” were pitched, and determined that a consumer could “reasonably take away the message that the starting offer is as good as it gets, as DIRECTV has nothing better to offer – indeed, that it has nothing in the way of sports channels to offer the homeowner.” Because Charter couldn’t support that message, NAD recommended that they either modify or stop running the commercial.

If you make a claim that applies only to some products – whether they are a competitor’s products or yours – you need to be careful not to suggest that the claim applies to an entire line of products. There are certain things you can do to help avoid conveying a line claim. For example, it usually helps to focus on specific products, rather than making general brand references. But as this case demonstrates, it’s not always easy to distinguish between line claims and narrower claims. NAD frequently errs on the side of finding a line claim, so it pays to be careful.

In July, a DC District Court ruled that eBay could not compel a user of its services to arbitrate a dispute, even though the user had agreed to by bound by eBay’s User Agreement. That Agreement stated that the company had a right to modify the terms, and eBay had later modified those terms to include an arbitration clause for purposes of dispute resolution. Specifically, the Court held that eBay’s act of posting the updated terms did not constitute sufficient notice, and that the company had not presented proof sufficient to show that it had notified the user via email. Although the result is troubling for many companies who approach changes to website terms in the same manner that eBay did, the decision does provide some hints for what companies can do to provide support for arguments that their changes are enforceable.

Read our article in Digital Business Lawyer to learn more about the case and what you can do to help ensure that your website terms will be deemed enforceable.

Two companies and their principals have agreed to settle FTC allegations that they misled consumers by presenting paid endorsements as independent consumer reviews and ads as independent news stories.

Creaxion, a PR agency, was tasked with creating a campaign to promote a client’s new mosquito repellent product around the time the press was reporting about the mosquito-borne Zika virus during the 2016 Summer Olympics. As part of the campaign, the agency partnered with the publisher of Inside Gymnastics magazine to secure athlete endorsers and run stories about the product.

Together, the companies paid two gold medalists to promote the product, and the athletes posted endorsements on social media, without disclosing that they had been paid. The publisher re-posted those endorsements in its magazine, again without a disclosure. Inside Gymnastics also ran paid ads for the product that, in the eyes of the FTC, were made to look like independent news stories.

As part of the settlements, the companies are prohibited from misrepresenting that influencers are independent consumers. Any connections between an influencer and the companies whose products they endorse must be clearly disclosed. To that end, the companies agreed to institute procedures designed to ensure that influencers make these disclosures, including notifying influencers of their responsibilities, monitoring compliance, and terminating influencers who fail to comply.

The companies are also prohibited from expressly or implicitly misrepresenting that paid ads reflect the opinions of an independent or objective publisher or source. Although the settlement doesn’t go into details on this point, this requirement likely means that ads that appear near new stories need to be clearly labeled as ads, as the FTC has advised in its native advertising guidance.

Dalton Blog Post