Competition and Antitrust

Protect your company from being the next target of action from the U.S. Federal Trade Commission (FTC). Become familiar with the FTC’s “Guides Concerning the Use of Endorsements and Testimonials in Advertising” to learn how to protect your interests while staying on the right side of the law.

If you own or work for a company whose products or services are frequently reviewed online by consumers, you are probably already sensitive to the impact that such reviews can have on your business. You may also, unfortunately, have encountered the darker side of these reviews. In some cases, you might have been victimized by a competitor using stealth screen names or other means to bash your product, or you might have reason to suspect competitors of using fake reviews to inflate the reputation of their products (at the expense of yours). The legal implications for such conduct can be serious.

For example, the U.S. Federal Trade Commission (“FTC”) recently brought a complaint against a marketing company named Reverb Communications and its principal over the reviews that Reverb’s employees allegedly wrote. In its complaint, the FTC claims that Reverb, whose clients were companies that published programs for sale on Apple’s iTunes retail platform, committed unfair or deceptive trade practices because its employees endorsed their clients’ products in the form of favorable reviews posted on iTunes. Although the matter was settled without a legal determination of wrongdoing, the FTC’s action presents a cautionary tale for companies to steer clear of certain online marketing practices.

 

Don’t Fight Fire With Fire: Deceptive Practices to Avoid

It can be frustrating when your competitors engage in unfair or deceptive practices, but you should resist the temptation to stoop to their level. If you do, it could land you and your company in serious legal trouble. Here is a short guide of the practices you should follow to stay on the right side of the FTC guidelines:

Disclosure Is Key

• Under the FTC’s Guide Concerning the Use of Endorsements and Testimonials in Advertising (the “Guide”), 16 CFR § 255, material connections between endorsers and product sellers must be disclosed. For the purpose of the Guide, the term “endorser” is defined broadly, to include any “advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser . . . .” A “material connection” is likewise broadly construed under the Guide to be anything that “might materially affect the weight or credibility of the endorsement.”
• Because these guidelines are quite broad, the FTC has provided examples to give a fuller understanding of how advertisers and endorsers should act. One such example deals squarely with online conduct in “new” types of forums:

An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts. They exchange information about new products, utilities, and the functionality of numerous playback devices. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the message board.16 CFR § 255.5, Example 8 (emphasis added).

• The key lesson is that if an online reviewer has a “material connection” to the company selling the product or service, this connection must be disclosed by the reviewer, or else there is a risk that the consumer will be misled and give undue weight to that review.

Types of Relationships That Should Be Disclosed

• Employees. If the reviewer is an employee of the company, or an employee of any entities closely affiliated with the company (for example, a major investor in the company, or the company’s marketing firm), the reviewer needs to disclose that connection in the review.
• Marketing “Network Affiliates.” In new media marketing campaigns today, it is common to have a group of people who are regularly given free use or samples of a product, so that they will use the product or service and review it or otherwise generate word-of-mouth publicity for it on message boards, blogs, or other forums. Because these “network affiliates” receive the free products with either the explicit or unspoken understanding that they will continue to receive the free items if they write reviews, these affiliates should disclose their role in the review.
• Friends and Family. The FTC’s guidance is not as clear as to whether friends or family members of company employees must disclose that relationship when writing a review. If these friends or relatives have a close relationship to the employee (a spouse, for example) such that it would likely affect the weight a consumer would give to that review, the reviewer should disclose the relationship.
• Any Other Quid Pro Quo. In any circumstance, if the reviewer is given the product for free or paid any other compensation in exchange for writing a favorable review, the reviewer needs to disclose this information. Even if there was not an express agreement that the reviewer would write a favorable review, disclosure is appropriate especially where the circumstances are such that the reviewer’s credibility could be affected if the consumer becomes aware of the circumstances.

Don’t Write Fake Reviews
Fake Reviews. Avoid fake reviews—in which the reviewer pretends to be someone he is not, or writes a review of a product he hasn’t used. The issue here is less one of disclosure (who, after all, would write a fake review and disclose that fact in the review?), but rather one of outright deception, and an advertiser or seller must never deceive.

Policing Online Reviews: Yours, and Your Competitors’

Policing Your Own Reviews
The foregoing discussion addresses situations in which the reviewers should disclose their relationship to the company making or selling the product. But as the manufacturer or seller, you should be mindful of how your employees, your affiliates (such as your marketing firm) and others might be writing reviews of your products. Although such people may be only trying to help your company succeed, they might do more harm than good if they arouse suspicion and cause the FTC, another regulator, or one of your retailers to initiate an investigation against your company.

To discourage such improper reviews on your behalf, you should do two things:

1. Warn your employees, agents and other affiliates that they are not authorized to write reviews of your products without disclosing their relationship to your company; and
2. Monitor your employees, agents, and affiliates—and your marketing programs—to ensure that such activity is not taking place. Such monitoring is particularly important where you have network marketing program, involving “network affiliates” as discussed above.

Under such programs, because your marketing department or your outside marketing firm likely uses a large group of people only somewhat controlled or affiliated with your company, you may have to use monitoring to ensure that they are not writing deceptive reviews on your behalf.

A company-wide written policy, which each employee (and/or each marketing contractor) has to read and sign, is a good step to take. It will help to ensure that your employees act properly, and your effort to implement the policy will also be important if there ever are charges of impropriety.

Being Vigilant about Your Competitors’ Conduct
Your competitors might be trying to gain an unfair advantage against you in one of two ways. First, they might write negative reviews of your products. Second, they might write positive reviews of their own.

It is therefore important to monitor consumer reviews the websites of the key online retailers where your products are sold. If you notice suspicious reviews, bring it to the attention of the online retailer. Even if the retailer was turning a blind eye to the issue before, you may cause them to take action and institute precautions or protocols to cut down on such suspicious reviews. In the event of a particularly egregious suspicious reviews, you may want to advise the retailer to preserve its records of all such reviews and website activity, which you will need if you choose to pursue legal action.