FTC settles FTC Act violations matter

Federal Issues FTC FTC Act Enforcement Deceptive UDAP

On January 25, the FTC announced a proposed settlement with an online fashion retailer (defendant) for allegedly engaging in deceptive practices—the FTC’s first action involving a company’s efforts to conceal negative customer reviews. According to the complaint, the defendant allegedly violated the FTC Act by, among other things, misrepresenting that the product reviews on its website reflected the views of all purchasers who submitted reviews, when it actually suppressed certain low reviews. The complaint further noted that the defendant utilized a third-party review management software to automatically post certain reviews to its website and hold other reviews for the defendant’s approval. However, from 2015 to 2019, the defendant allegedly did not approve or post lower-starred reviews. According to the FTC, “[s]uppressing a product’s negative reviews deprives consumers of potentially useful information and artificially inflates the product’s average star rating.” The announcement pointed out that this is the FTC’s second recent action taken against the defendant, which includes ordering the defendant to pay $9.3 million to resolve allegations that it failed to properly notify consumers and provide them the opportunity to cancel their orders after it failed to timely ship merchandise, and that it illegally utilized gift cards to compensate consumers. Under the terms of the proposed settlement of the recent allegations, the defendant is: (i) ordered to pay $4.2 million; (ii) prohibited from making misrepresentations about any customer reviews or other endorsements; and (iii) required to post on its website all customer reviews of products currently being sold, under certain circumstances. The FTC also announced that the agency is sending letters to ten companies “offering review management services, placing them on notice that avoiding the collection or publication of negative reviews violates the FTC Act,” and released new guidance for online retailers and review platforms on the agency’s key principles for collecting and publishing customer reviews that are not meant to mislead consumers.