US companies ranging from Amazon to Applebee's, Google to Gap, IBM to IHOP, and Microsoft to McDonald's have received warnings from the Federal Trade Commission (FTC) about fake reviews and misleading endorsements.
The competition and consumer protection regulator says it has fired off "Notice of Penalty Offense" [PDF] letters to over 700 companies – from the biggest of Big Tech and Big Pharma down to iconic purveyors of Americana across the world. If you've heard of them, they're probably on the list [PDF].
The letter puts companies on notice that if they "use endorsements in ways that run counter to prior FTC administrative cases," they could be on the hook for "significant civil penalties" of up to $43,792 per violation.
This could mean fake reviews or endorsements where the person making the recommendation has been paid by the company to say nice things about it.
Samuel Levine, director of the FTC's Bureau of Consumer Protection, said in a statement: "Fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses. Advertisers will pay a price if they engage in these deceptive practices."
Drilling down, the letter defines marketing naughtiness as:
... falsely claiming an endorsement by a third party; misrepresenting that an endorser is an actual user, a current user, or a recent user; continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented; misrepresenting that an endorsement represents the experience, views, or opinions of users or purported users; using an endorsement to make deceptive performance claims; failing to disclose an unexpected material connection with an endorser; and misrepresenting that the experience of endorsers represents consumers' typical or ordinary experience. Note that positive consumer reviews are a type of endorsement, so such reviews can be unlawful, e.g., when they are fake or when a material connection is not adequately disclosed.
The two obvious companies most at risk here are Amazon and Google. Amazon for its e-commerce empire where fake reviews are not unknown, and Google for its omnipresent search engine which has reviews for bricks-and-mortar businesses and others built in.
The problem is that sellers and small businesses with a presence on these platforms can simply buy reviews from unscrupulous dealers. On Amazon, shoppers are less likely to purchase something that has no reviews, so websites have sprung up that present tempting ways to beat the algorithm.
Many review sites profess the laudable goals of exposure for small businesses or even undoing harm caused by poor reviews, but that doesn't stop some of these reviews from being misleading or deceptive.
These services are not difficult to find, and government regulators are beginning to take notice. This summer, the UK's Competition and Markets Authority opened an investigation into the fake review epidemic across Amazon and Google, citing concern that consumers are being misled and the tech giants aren't doing enough to stop it.
- UK's Digital Markets Unit – the Big Tech watchdog – remains toothless for now but statutory powers due this year
- That time a startup tried to hire me just to push clients' products in job interviews
- UK competition watchdog launches investigation into fake review epidemic across Google and Amazon
- Amazon says it's all social media's fault for letting fake review schemes thrive
As we reported, Amazon has blamed the rise of social media for the rash of fake reviews across its service, saying that it is "relentless in protecting our store and will take action to stop fake reviews regardless of the size or location of those who attempt this abuse."
The FTC also pointed the finger at social media, saying it has "blurred the line between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace."
The regulator was quick to add that just because a company has received the notice, it does not mean that they have been accused of deceptive activities. But given how rife the problem is, it's difficult to see how it will be policed.
We look forward to seeing if anyone will actually be fined under these circumstances.
Amazon and Google have been asked to comment. ®