As commerce shifts to online shopping and consumers increasingly rely on user reviews, some researchers are predicting that by year end 10-15% of consumer reviews will actually be fake reviews (either positive or negative) paid for by advertisers or their agents. Gartner Says By 2014, 10-15 Percent of Social Media Reviews to Be Fake, Paid for By Companies, Gartner.com, September 17, 2012.

“With over half of the Internet’s population on social networks, organizations are scrambling for new ways to build bigger follower bases, generate more hits on videos, garner more positive reviews than their competitors and solicit ‘likes’ on their Facebook pages,” said Jenny Sussin, senior research analyst at Gartner. “Many marketers have turned to paying for positive reviews with cash, coupons and promotions including additional hits on YouTube videos in order to pique site visitors’ interests in the hope of increasing sales, customer loyalty and customer advocacy through social media ‘word of mouth’ campaigns.”

The U.S. Federal Trade Commission (“FTC”) has made numerous attempts to curb the practice of fake consumer reviews in the US.  In 2009, the FTC revised the “Guides Concerning the Use of Endorsements and Testimonials” (“Guides”) for the first time since 1980 to address the issue.  While the Guides do not have the force of law, they provide advertisers with important assistance to avoid potentially unfair and deceptive advertising practices under Section 5 of the Federal Trade Commission Act. 15 U.S.C. §§ 41-58, as amended. The Guides require that all product reviews disclose material connections to the providers of the reviewed products or services.

The FTC took action under Section 5 and these Guides in August 2010 against Reverb Communications, based on allegations the ad agency engaged in deceptive trade practices by “having employees pose as ordinary consumers posting game reviews at the online iTunes store, and not disclosing that the reviews came from paid employees working on behalf of the developers.” Public Relations Firm to Settle FTC Charges that It Advertised Clients’ Gaming Apps Through Misleading Online Endorsements, FTC.gov, August 26, 2010.

As part of the consent order with the FTC, Reverb was required to refrain from misrepresenting the motive or status of any user or endorser of a product or service, without disclosing the individual’s material connections to the product or service.

The consent order will remain in effect until August 2030.  In 2011, the FTC settled a complaint against Legacy Learning Systems relating to its guitar lessons, alleging that the company deceptively advertised its products through online affiliate marketers who falsely posed as ordinary consumers or independent reviewers. Legacy Learning Systems paid $250,000 to settle the matter and also entered into a 20-year consent agreement.

As paid reviews attract scrutiny, some states are enforcing deceptive trade practice statutes against online reviews.  In 2009, the New York Attorney General settled deceptive practice and false advertising claims against a plastic surgery company named Lifestyle Lift, for allegedly causing its employees to create false accounts on online forums to post positive review or to counteract critics. The company agreed to halt the practice and paid New York $300,000 to settle the matter.

Jay Greathouse (jgreathouse@fulbright.com / +1 210 224 5575) an attorney in Fulbright’s Corporate Practice.