Given the ever-expanding importance of influencer endorsements and positive online reviews, it is no surprise that fraud in this sector is endemic. However, in a welcome development for established brands, the Federal Trade Commission (FTC) signaled it is cracking down on fraudulent online reviews and influencer marketing by issuing two recent decisions:

  • FTC v. Devumi, LLC et al. The FTC and a corporate defendant and its CEO stipulated to the entry of a permanent injunction and monetary damages of $2.5 million dollars against the CEO (all but $250,000 suspended). This decision resolves an FTC complaint accusing the defendants of committing unfair and deceptive trade practices through the sale of “fake indicators of social media influence,” i.e., friends, likes, followers, subscribers, views, reposts, comments, and anything else designed to draw attention and/or raise the profile or influence of a social media account.
  • FTC v. Sunday Riley Modern Skincare, LLC. The FTC and cosmetics company Sunday Riley Modern Skincare, LLC filed a proposed order to settle the administrative case pending before the FTC in which the FTC accuses Sunday Riley and its namesake CEO of engaging in two separate unfair and deceptive trade practices: (a) posting fake reviews of the company’s products online, and (b) failing to disclose that reviews were written by Sunday Riley employees. The final order requires that any online reviews, endorsements or comments (such as “disliking” negative reviews) prominently disclose any connection between the reviewer and Sunday Riley.

In a press release addressing the settlements, the FTC suggests that these two cases are just the beginning of its efforts to “halt[] the deceptive online marketing tactics” because “[p]osting deceptive or inaccurate information online pollutes the e-commerce marketplace” and “harms shoppers, as well as firms that play fair and square.” (See FTC’s Oct. 21, 2019, press release, Devumi, Owner and CEO Settle FTC Charges They Sold Fake Indicators of Social Media Influence; Cosmetics Firm Sunday Riley, CEO Settle FTC Charges that Employees Posted Fake Online Reviews at CEO’s Direction.) Director of the FTC’s Bureau of Consumer Protection Andrew Smith is quoted as saying: “Posting fake reviews on shopping websites or buying and selling fake followers is illegal. It undermines the marketplace, and the FTC will not tolerate it.”

Notably, with respect to the Sunday Riley administrative order, two FTC commissioners issued a dissent criticizing the settlement as too lenient because it includes “no redress, no disgorgement of ill-gotten gains, no notice to consumers, and no admission of wrongdoing.” (See Statement of Commissioner Rohit Chopra Joined by Commissioner Rebecca Kelly Slaughter, In the Matter of Sunday Riley, Commission File No. 1923008, Oct. 21, 2019.) The dissenting commissioners warned that the FTC was falling behind international peers in tackling the issue of fake online reviews.

So what are the takeaways? Companies should create clear guidelines for their employees on social media posts about their products or competitors’ products — properly disclosing the affiliation is key. Companies also should require that any paid influencers they engage confirm that they do not pay for followers or likes, and ensure their social media managers build company social media accounts organically. Additionally, be aware that, with the FTC taking such a strong stance on these issues, consumer class actions and Lanham Act claims are sure to follow.