Earlier this year, AmeriFreight, a Georgia-based auto shipment broker, settled with the Federal Trade Commission (FTC) over charges that the company posted customer reviews on its website while failing to disclose that it had given cash discounts to customers in exchange for the reviews.  According to the FTC complaint, AmeriFreight touted on its website homepage that it had “more highly ranked ratings and reviews than any other company in the automotive transportation business” and that a majority of the online reviews on  AmeriFreight’s website failed to disclose that the reviewers were compensated $50 for posting reviews and were also eligible to receive an additional $100 if selected for the “Best Monthly Review Award.”  The FTC charged that AmeriFreight, by failing to disclose the incentives it had given to reviewers, had misrepresented its customer reviews as those of unbiased consumers.  The FTC’s position can be summed up best by the following quotes from its Director of the Bureau of Consumer Protection: “Companies must make it clear when they have paid their customers to write online reviews” and if companies “fail to do that – as AmeriFreight did – then they’re deceiving consumers, plain and simple.”

The FTC’s Endorsement Guidelines

Guidelines issued in 2009 by the Federal Trade Commission (the “FTC Endorsement Guidelines”) make clear that an advertiser must fully disclose any connection between the advertiser and an endorser of the advertiser’s product or service that might materially affect the weight or credibility of the endorsement, such as the fact that the endorser received compensation or some other benefit or incentive from the advertiser in exchange for providing a favorable review.  An advertiser’s failure to disclose an endorser’s material connection with the advertiser constitutes an unfair and deceptive trade practice as well as false advertising, both in violation of Section 5(a) of the Federal Trade Commission Act.  The requirement of disclosure of material connections applies not only to celebrity, expert or professional endorsers, but also to ordinary consumer-endorsers.  Many companies today use consumer endorsements in promoting their products or services, including the so-called “word-of-mouth advertising” whereby satisfied customers tell other people how much they like a product or service.  A common example of this form of advertising is publishing consumer-submitted reviews on the internet.  Good word of mouth generated by favorable customer reviews can make a big difference in a company’s online ad campaign.  However, companies that are looking to incentivize customers to submit good reviews must be wary of not running afoul of the FTC Endorsement Guidelines.  In particular, where a company offers money or other benefits to customers in exchange for good reviews, it must disclose such fact when publishing reviews.

Key Takeaways for Businesses

The FTC’s complaint against AmeriFreight is the first time the agency has charged a company with misrepresenting online reviews by failing to disclose that it gave cash discounts to customers to post the reviews.  This has significant implications for businesses that use customer reviews as part of their advertising or marketing initiatives.  The AmeriFreight case makes clear that advertisements, regardless of form, must be transparent.  When a business touts its products or services, whether in endorsed advertisements or customer reviews, it must make clear that it has paid its customers and/or endorsers to review or endorse the product or service.  A business may not tout its “highly ranked ratings and reviews” or the like if it offered incentives to its reviewers without first disclosing the material connection between its endorsers and the business.  Hiding this fact may subject a business to the FTC Act and associated fines and penalties.