Five-Star Enforcement and the Expanding Regulations
Does your company sell to consumers or businesses that can leave reviews or rate your products? Whether your customers can leave reviews on your website or another public-facing review platform, companies should be aware of new developments in the consumer review enforcement space that may impact how you publicize and conduct your product rating and review system. If you are not aware of the expanding consumer review regulations, it could cost your company millions or even land you in jail.
CUSTOMER REVIEWS AND PROPOSED REVISIONS
Section 5 of the Federal Trade Commission (FTC) Act (the Act) prohibits unfair and deceptive acts and practices. Specifically, as the Act relates to customer reviews: negative customer reviews and ratings cannot be suppressed or hidden; any incentives for reviews must be disclosed; material connections between a reviewer and the reviewed product must be disclosed; and review gating is prohibited. The FTC has heightened its focus on consumer reviews as of late and proposed revisions to the Endorsement Guides for advertisers that would tighten enforcement against posting false positive reviews or manipulating consumer perception by suppressing negative reviews, among other things. The proposed guideline revisions would state that “in procuring, suppressing, boosting, organizing, or editing consumer reviews of their products, advertisers should not take actions that have the effect of distorting or otherwise misrepresenting what consumers think of their products.” See Federal Register, Guides Concerning the Use of Endorsements and Testimonials in Advertising, Section IV (C) (July 26, 2022), In addition to broadening its Endorsement Guides, the FTC has already demonstrated a significant increase in consumer review enforcement—including pursuing increased penalties and new priorities like review hijacking.
CONSULTANT RECEIVES PRISON SENTENCE FOR BRIBED REMOVAL OF NEGATIVE REVIEWS
In February 2023, Hadis Nuhanovic, a merchant consultant, was sentenced to 20 months in prison for taking part in a global scheme in which he bribed employees of a technology platform to remove negative online reviews on his clients’ products and reinstate suspended accounts, among other illegal activities such as stealing sensitive company information related to product-review rankings and targeting his clients’ competitors on the platform. Nuhanovic, together with a co-defendant, reached out to platform employees in India and bribed them to obtain unfair advantages for his own business’ gain. For example, Nuhanovic admitted that he paid a platform employee to remove negative reviews and further admitted that he operated multiple sham accounts—created using false information—to purchase products from merchants and submit negative reviews about them, with the intention of deceiving consumers and harming the targeted accounts. Additionally, Nuhanovic used his sham accounts to leave positive reviews for his preferred accounts, further deceiving consumers and improving the placement of certain favored products in searches.
In addition to the review bribes, Nuhanovic was investigated for other related crimes to which he ultimately pled guilty. He was sentenced to three years of supervised release on top of the 20 months in prison and forced to forfeit $100,000 and pay $160,000 in unreported taxes.
COMPANY FORCED TO PAY FOR “REVIEW HIJACKING”
“Review hijacking” occurs when a company—in advertising its products or services—steals or repurposes reviews of another product or service it offers. Review hijacking constitutes false advertising and can take place when a company merges its new products with different, older but more established products that already have ratings, reviews or badges on a website.
In its first enforcement action targeting customer review hijacking, on February 16, 2023, the FTC obtained a consent agreement with The Bountiful Company (Bountiful) for “manipulating product pages and deceiving consumers” that included a $600,000 payment for consumer monetary relief. As alleged by the FTC, Bountiful abused a feature, which allowed the company to trick consumers into believing that its newly introduced products had more ratings and reviews, higher average ratings, and “#1 Best Seller” badges. Some platforms have a feature that allows vendors to place new products on the same product detail page as older variations with the total ratings, average star rating and reviews for all products in the variation relationship; Bountiful, however, allegedly took advantage of that feature to advertise its supplement products with different formulations to boost visibility and increase sales.
The FTC views this kind of review hijacking as clearly deceptive and unfair to consumers and thus, has heightened its focus on companies who use this practice to boost new products’ ratings and reviews.
CONCLUSION AND TAKEAWAYS
The FTC and US Department of Justice’s broad enforcement indicates the agencies’ trend toward pushing the boundaries on holding companies accountable for deceiving consumers. Enforcement actions like Nuhanovic could signal a new criminal approach by the agencies to hold companies and individuals accountable for consumer deception, particularly as it relates to customer reviews.
In response to Nuhanovic, some platforms have indicated they have systems in place and teams organized to detect, investigate and stop suspicious or illegal activity and hold bad actors accountable. Companies with similar product review or rating systems should set up detection systems and remain vigilant of attempts both internally and externally to manipulate customer perception or be prepared to face the consequences.
