The Federal Trade Commission (FTC) recently closed an investigation into Reverb Communications, Inc. marketing practices under the FTC's revised Guides Concerning the Use of Endorsements in Advertising. 16 CFR Part 255. The announcement exemplifies the FTC’s increasing willingness to investigate and sanction companies for their lack of transparency in marketing practices. The Guides require that someone who receives cash or in-kind payment in exchange for their review of a product or service to disclose any material connection the reviewer shares with the seller of the product or service. This obligation applies to employees of both the seller and the seller’s advertising agency.
Reverb settled charges that it had engaged in deceptive advertising by having its employees pose as ordinary consumers for the purpose of reviewing its customers' online games sold in the Apple iTunes store. The employees writing the reviews did not disclose that they were working on behalf of the game developers or that their employer received a percentage of the sales revenue for games sold through the store. The FTC found that these reviews were false and misleading because Reverb had represented that the reviews were independent. The FTC further found that the failure to disclose the material connection was a deceptive practice under the FTC Act.
The FTC Consent Order required that the company cease and desist from posting similar reviews that did not disclose the material connections between the game developer and the reviewers. Reverb was also required to remove the false and misleading reviews within seven days, but no monetary penalties were assessed.
This is further evidence that the FTC is actively reviewing the entire online industry, and that it is willing to file complaints and seek redress against offending parties for not disclosing material connections. Arent Fox is monitoring this issue and will continue to provide updates on the FTC’s activity with respect to the Guides.