Reviews Can Drive Business

Reviews matter. In a survey conducted by Yelp, 83% of consumers who read reviews say they trust online reviews about local businesses. However, fake reviews may mislead consumers. Recently, there was media attention around a one-night-only restaurant in New York City that arose from fake reviews. The idea for a restaurant spawned from a joke. A group of friends had renamed (on Google Maps) the house they lived in to ​“Mehran’s Steakhouse” and left reviews about the ​“restaurant.” It was not an established ​“restaurant” at the time, though some of the reviews suggested otherwise. ​“Mehran’s Steakhouse” had 91 reviews and a near-perfect Google rating. The friends set up a website and created a waiting list, where over 900 people signed up. Eventually, the friends put together a one-night-only dining experience. They obtained a liquor license, food handling permits, printed menus, and set up a number of ​“fake”-themed performances (e.g. fans of the artist, Drake, stood outside the restaurant holding posters to get Drake’s attention, though Drake was not there; a fake proposal occurred in the dining room).

Though this was an isolated and arguably amusing incident, there are greater harms that regulators, such as the FTC and state AGs, consider in how they’re approaching fake reviews.

AGs Comment on Rules for Unfair or Deceptive Reviews in NPRM

In July, the FTC published its NPRM on ​“banning fake reviews and testimonials.” We have previously summarized the proposed prohibitions of the NPRM.

Last month, a bipartisan group of AGs of 21 states and the District of Columbia led by the D.C., Illinois, and Pennsylvania AGs also submitted a response
to the FTC’s NPRM. The comment generally commends the FTC for the proposal and provides recommendations specific to the ​“Review Suppression” sections of the proposed Rule based on the AGs’ experience from consumer protection cases. The AGs make two main recommendations:

First, the AGs agreed with the FTC that merchants shouldn’t retaliate against consumers who post negative reviews, particularly with threats and/or legal action against the consumer. The AGs stated that such action could have a chilling effect by bullying consumers into removing their reviews. Current language in the NPRM defines unlawful review suppression as including an ​“unjustified legal threat or a physical threat, intimidation, or false accusation.” The AGs recommend, however, that the FTC change the language from ​“unjustified” to ​“unfounded, groundless, or unreasonable,” to provide greater clarity and a more objective legal standard. They also recommend adding a standard to differentiate between enforceable and unenforceable NDA and similar agreements to allow for ​“bona fide legal threats” regarding enforceable agreements. The AGs provide a reminder that both they and the FTC can enforce the Consumer Review Fairness Act (CRFA) prohibiting certain contracts that impede consumer reviews. Further, the letter notes that AGs, such as the D.C. AG, have taken the position that NDAs used to quash reviews may violate state consumer protection laws, citing the Smile Direct Club action
as an example. The AGs point out that using the word ​“unjustified” in the current version of the rule may present a problem where businesses assert ​“that their legal threats were justified by their NDAs” which should have been unenforceable by the CRFA in the first place.

Second, the AGs further addressed review suppression and agreed with the FTC that by not posting both positive and negative reviews, a merchant is potentially misleading consumers. As written, the proposed Rule prohibits a company from indicating that reviews are representative when in reality, reviews are being suppressed based on their ratings or their negativity. The AGs recommend deleting the phrase, ​“based on their ratings or their negativity,” claiming it is both redundant and that it may create an unintended loophole. The AGs point out that without removing that phrase, companies may try to circumvent the Rule by suppressing a review not because it is negative, but because it violates ​“contracts or policies.” The AGs believe ​“legitimate suppression” would still be permitted for businesses under other parts of the proposed Rule.

The AGs conclude by strongly endorsing the NPRM and say they ​“look forward to continuing [their] partnership with the FTC.”

These comments should serve as a reminder and warning that not only are state AGs also paying attention to the impact of consumer reviews and the potential deceptive practices, but are advocating for even stronger positions than the FTC. Whether it be through the Consumer Review Fairness Act or their state UDAP laws, we can anticipate the states will be looking for potential enforcement targets given the increase in consumer reliance on reviews in making purchasing decisions.