FTC / Advertising Law Compliance practice area category
FTC / Advertising Law Compliance practice area categoryFTC / Advertising Law Compliance

Online Sellers Beware: FTC Increases Scrutiny of Fake Reviews

Resources & Self-Education   |   Sunday, July 14, 2019

FTC Gets More Aggressive In Online Marketplaces

The five-star review has become the Holy Grail for many Amazon sellers. After all, in the hyper-competitive world of the online marketplace, Amazon reviews can make or break a company.

In fact, a multitude of five-star ratings is often the driving force behind the success of hundreds of companies that find themselves relentlessly critiqued by an unforgiving market of buyers. And in addition to consumers being influenced by good reviews, Amazon’s search algorithm benefits sellers with consistently good reviews.

The necessity to maintain high rankings has spawned a shadow industry of fake reviewers who write glowingly about products in exchange for cash, gift cards and other financial incentives.

But, recent actions by the Federal Trade Commission signal additional regulatory oversight and enforcement in the area of compensated reviews. Under the FTC’s endorsement regulation, retailers and reviewers who engage in compensated reviews that do not disclose the compensation to the reviewer violate the FTC endorsement regulation. In a recent case, the agency challenged the use of paid fake reviews by an Amazon retailer and ended its investigation by meting out a stiff penalty against the company.

Cure Encapsulations Gets A Taste of FTC Enforcement - $12.8 Million Judgment

In its first ever paid fake review enforcement action arising from reviews on an independent retail marketplace website, the FTC accused New York-based Cure Encapsulations, Inc. and its owner Naftula Jacobowitz. The FTC alleged that the company “paid a third-party website to write and post fake reviews on Amazon.com,” according to a February 26 press release by the FTC. The enforcement resulted in a $12.8 million judgment, which will be suspended upon receipt of a $50,000 payment.

The agency noted the important role that reviews have in consumers’ online purchasing decisions.

“People rely on reviews when they’re shopping online,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “When a company buys fake reviews to inflate its Amazon ratings, it hurts both shoppers and companies that play by the rules.”

In the case of Cure Encapsulations, its reviews were purchased on amazonverifiedreviews.com, a website that wrote and posted favorable reviews about the company’s weight loss supplement. According to the FTC complaint, Jacobowitz wanted an average of 4.3 out of 5 stars. He asked the review site to help his product “stay a five-star” reviewed product.

Amazon Struggles To Keep Up

The FTC’s complaint against Cure Encapsulations strikes at the heart of an ongoing battle within Amazon, where the company seems to be playing perpetual catch-up with its own enforcement efforts, against the backdrop of what appears to be a startling increase in fake reviews.

Amazon began it efforts in 2016 to eliminate paid reviews, but the marketplace of paid reviewers migrated to Facebook, making it much harder - if not impossible - for Amazon to track.

According to a 2018 Washington Post article, there were about 100 Facebook groups, at the time in 2018, with Amazon merchants aggressively soliciting consumers to write paid reviews. One group had more than 50,000 members.

The Washington Post conducted research and used data from ReviewMeta, a company that tracks and analyzes suspicious Amazon reviews. Four product categories topped the list of questionable reviews: Bluetooth headphones, weight-loss pills, testosterone boosters, and bluetooth speakers.

Honest sellers say that fake reviews make it harder to stay legitimately competitive and that it’s hurting their profits. Independent research firms say that Amazon’s enforcement has done little to curb the rise of fake reviews, while suggesting that it is actually getting worse.

“These days it is very hard to sell anything on Amazon if you play fairly,” said Tommy Noonan, who operates ReviewMeta. “If you want your product to be competitive, you have to somehow manufacture reviews,” he said in The Post article.

For its part, Amazon asserts that it continues to take fake reviews very seriously, while investing in artificial intelligence technology, algorithms, and manual systems to monitor suspicious patterns and activities.

"We have brought lawsuits against over 1,000 defendants for reviews abuse and we will continue to pursue legal action against the sellers and manufacturers who create the demand for these types of reviews as well as the ecosystem of individuals and organizations who supply reviews in exchange for compensation of any type," an Amazon spokesperson said in a Forbes magazine article in 2017.

But, in spite of Amazon’s efforts and public statements, and even after banning hundreds of thousands of Amazon customers for violating its review policies, fake paid reviews are on the rise, destabilizing the businesses of honest Amazon merchants. Amazon’s community guidelines provide specific details about its enforcement policies. But, even Amazon’s lawyers have admitted the battle is far from over.

“Despite substantial efforts to stamp out the practice,” company lawyers wrote in a lawsuit, “an unhealthy ecosystem is developing outside of Amazon to supply inauthentic reviews.”

Legal Issues Are Hard. Getting Help Is Easy.

Fake news has become commonplace in today’s social and political environment. Facebook, YouTube, Twitter and other online venues have provided platforms for unscrupulous operators intent on releasing falsehoods, half truths, and opinions pretending to be facts. For an Amazon retailer who faces the relentless competition of spurious fake reviews, it can be tempting to adopt similar tactics. But, that comes with a risk. Reputation and brand is sacrosanct. So, when customers begin to doubt the integrity of a company, it could lead down a slippery slope to extinction. After all, an honest reputation takes years to develop and constant vigilance to maintain. And engaging in the procurement or publishing of fake paid reviews risks this reputation, as well as potential FTC lawsuit. If the recent action of FTC is an indicator, Amazon retailers should understand the high risks if they choose the path of bogus reviews.

Please contact us about how to make certain your company is complying with the FTC endorsement regulation and other FTC guidelines. Restoring a damaged reputation isn’t easy. We look forward to assisting you.

This entry was posted on Sunday, July 14, 2019 and is filed under Resources & Self-Education, Internet Law News.

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