Paying For Favorable Reviews May Result In Significant Fines

March 11th, 2015

by Leonard A. Bellavia, Esq.

A few years ago, Yelp began flagging reviews that it believed were paid for by businesses hoping to boost their popularity on the website. These actions were the result of a growing concern that the parties are trying to manipulate ratings on review websites in order to attract additional business. Many businesses do not understand that services that offer to post reviews on a business’s behalf for a fee may breach state and federal consumer protection laws.

According to guidance issued by the Federal Trade Commission (“FTC”) (http://www.ftc.gov/opa/2009/10/endortest.shtm) on paid reviews:

The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed [emphasis added].

A favorable review posted online about a business’s services would fall within the definition of an endorsement. It is likely that the FTC would find a material connection between businesses that pay for reviews and the individual endorsers or businesses that compile these endorsements. If material connections exist between your business and the endorser, the FTC requires full disclosure of this relationship. Full disclosure would mean each review stating clearly what consideration the business paid for the review. Even if you do not contract with a vendor to submit reviews, you have to comply with the FTC’s rules.

For example, if you give a consumer a gift card in return for a favorable review, the customer must disclose he or she received the gift card in exchange for the review. Failing to make the necessary disclosures may result in significant fines and penalties. In one enforcement action, the FTC levied $250,000 in fines against a business for failing to disclose it compensated reviewers for favorable reviews (http://ftc.gov/opa/2011/03/legacy.shtm).

You should review your agreements with vendors to see whether any are posting reviews on your behalf, and if so, whether the vendor compensates the reviewer in return for a favorable review. Also, check reviews posted on review websites such as Edmunds.com and Yelp to see whether any of the reviews appear suspicious or lack the requisite disclosure in cases where your business may have compensated reviewers.

Call us at 631-224-7000 so that we can help you make sure that your business’ endorsement policies are compliant with the law.

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