San Diego Online Retailers: Paying for False Online Reviews Will Bring Legal Trouble
The Federal Trade Commission Act prohibits businesses from engaging in unfair and deceptive business practices including deceptive and false advertising. FTC Act, 15 U.S.C. § 41 et seq. Here in the Golden State, there is a similar state statute called the California Unfair Competition Law (“UCL”). See Cal. Bus. & Prof. Code §§ 17200 et seq. Like the FTC Act, the UCL makes it unlawful for California businesses to engage unfair business acts or practices and to engage in unfair, deceptive, untrue or misleading advertising.
Over the last 15 years, the legal principles underlying the FTC Act and the UCL have been extended to ecommerce businesses and retailers who use the internet for advertising and as a platform for sales. We wrote a while back about how companies must be careful using online “endorsers” and “influencers.” See here. If you have questions, an experienced San Diego corporate attorney can help. Essentially, the rule is that, if the endorser or influencer is paid, disclosure must be made of the fact that payment has been given. This follows from research that shows, and from what common sense would know, that consumers are more impressed with unpaid recommendations and endorsements. That is, the fact of payment is “material” and makes a difference in whether a consumer is more or less likely to buy a product. Failure to disclose is a form of deception.
The same legal and logical concepts apply to the use of online reviews. Most consumers assume that online reviews are not paid for and that the consumers are actual consumers. If reviews are compensated, consumers are less likely to give credence to the review. Thus, paid reviews must be disclosed. If your San Diego e-business uses or emphasizes online reviews, be cautious. It is better to over-disclose information about the reviews to the extent that your business has any involvement in procuring or promoting the reviews or any control over which reviews appear.
The FTC Act is administered by the Federal Trade Commission (the “Commission”). In a recent enforcement action, the Commission entered into a consent order in New York Federal court prohibiting an online marketer from using paid fake consumer reviews. The complaint was filed against a company called Cure Encapsulations, Inc. which sells and markets a dietary supplement called garcinia cambogia. The product is alleged to help with weight-loss. According to the Commission, Cure Encapsulations and its owner, Naftula Jacobowitz, paid a third-party website to write and post fake reviews on Amazon.com. The company is also alleged to have used their own employees to inflate ratings on Amazon and other websites. Further, the company was charged with making false statements about the effectiveness of the supplement. See FTC’s press release here.
The consent order resolving the case — see Order here — requires Cure Encapsulations to pay nearly $13 million in fines and penalties. With respect to the false advertising and the paid fake reviews, the Consent Order also requires Cure Encapsulations to send notice to past customers informing them they had paid for false reviews and inflated ratings on the independent retail website.
The legal lessons for San Diego businesses are clear: paying for online fake reviews and manipulating and inflating online ratings is false advertising and deceptive. Engaging in this behavior can result in expensive and reputation-damaging action by the FTC and state agencies.
Contact San Diego Corporate Law Today
If you want more information on legal issues with respect to advertising and avoiding false advertising, contact attorney Michael Leonard of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.