National Jeweler Network

Online Retailing

Government agencies take action on ‘astroturfing’

By Suzan Flamm, senior counsel and Erica Valencia-Graham, legal intern

July 07, 2014


Suzan R. Flamm, Esq., (suzan@jvclegal.org) is assistant general counsel of the Jewelers Vigilance Committee, which provides general educational resources and jeweler-specific advice. The advice is strictly the opinion of the JVC.

Today, social media is one of the fastest and most effective ways to communicate information. People use it as a tool to decide where to shop, what to buy and what to eat, relying on photos and reviews posted on websites like Foursquare, Yelp, Citysearch and Google Local.  Not surprisingly, positive consumer reviews can drive business, as many shoppers believe them to be the disinterested opinions of buyers like themselves.  

Unfortunately, they may not be unbiased, with some companies paying for favorable online reviews and endorsements -- without disclosing the monetary connection.  Both federal and state law enforcement have recently stepped in to stop this deceptive trade practice.  

Astroturfing
The growing importance of Internet marketing has created a new market for firms offering online reputation management services. These firms offer protection from defamatory online reviews and generally supervise a client’s reputation on the web. Some firms, however, are hired by companies not only to manage their reputations but to artificially enhance them.  

In a practice called “astroturfing” these firms will post fake online reviews, or pay others to do so.  These paid-for reviews are written to make readers believe they are honest opinions but, like Astroturf, they are inorganic imitations of the real thing.  

These reputation management practices have raised several legal and ethical concerns. Posting false reviews via social media websites and other online sources constitutes misrepresentation and unfair businesses practices, offenses that are regulated by various government agencies. 

The rise of deceptive online advertising has caught the attention of both federal and state-level law enforcement. Businesses involved in posting fake reviews online or hiring a reputation management company to do so on their behalf are now at risk of attracting scrutiny from the Federal Trade Commission, state attorneys general or local departments of consumer protection.  

Last year, the New York State Attorney General took action against 19 companies found to be engaged in deceptive online practices involving astroturfing.  A year-long investigation, dubbed “Operation Clean Turf,” was initiated in 2013 and revealed that companies were flooding consumer-review websites with fictional evaluations. 

The companies created fake online profiles on consumer review websites and paid freelance writers, some as far away as the Philippines and Bangladesh, from $1 to $10 per phony review. The 19 companies were found to have violated multiple state laws that prohibit false advertising and deceptive business practices.  As a consequence of the Attorney General’s action, the targeted companies will cease the practice, and pay more than $350,000 in penalties.

In announcing the agreement, the Attorney General unequivocally condemned the practice of flooding the Internet with bogus consumer reviews, calling it the “21st century version of false advertising.”        

False Endorsements 
The FTC has also taken action against deceptive advertising, online and on the air.  

The agency recently cracked down on the use of paid-for endorsements disguised as impartial expert testimony. In March of this year, a home security company was charged with misrepresenting paid endorsements as independent reviews on various blogs and other online platforms, as well as in radio and television spots.  Paid company endorsers were introduced as child safety, home security or technology experts and the connection between the endorsers and the company was not disclosed, even though they had been paid over $300,000 to pitch the company’s products. 

The investigation concluded with a settlement agreement prohibiting the company from engaging in any future misrepresentation in their advertising. The settlement also requires that, going forward, the company disclose any monetary connection with its endorsers.

FTC Endorsement Guides
The FTC Endorsement Guides mandate that if a relationship exists between the marketer of the product or service and the endorser or review writer it should be disclosed, particularly if the relationship is not obvious or reasonably expected by the audience. Under the law, a practice is deemed deceptive if it misleads “a significant minority” of consumers.  

If a connection is not disclosed, companies run the risk of government regulatory action based on charges of deceptive business practices. They also run the risk of being sued by competitors for false advertising.  

While writing or soliciting fake reviews is prohibited, businesses are allowed to invite real customers to review their products or services online. However, if something of value is offered in return then the customer should be advised to disclose what they received within the review. An offer of something of value could induce an endorser to write an exaggerated or misleading review. Thus, a disclosure will allow consumers to individually determine the credibility of those reviews. 

Conclusion
Ensuring the validity of online reviews and endorsements is important for the protection of both businesses and consumers. The rise of astroturfing and false endorsements on the Internet has caught the attention of state and federal authorities. Companies engaged in these practices could face regulatory action or fines, or lawsuits by competitors, and are thus well-advised to correct their advertising practices to avoid those risks. 

Disclosure is the best way a business can ensure compliance with the FTC Endorsement Guides and with state law. For additional information about legal compliance in this area, contact JVC or visit our website at www.jvclegal.com.