How often do your customers check reviews before making a purchase? And do they generally give more credence to authentic customer reviews instead of paid ads? Chances are, the answer to both of these questions is "yes, almost always." This reality is something the Federal Trade Commission (FTC) is also aware of and it has taken action against companies who pay for or "incentivize" what appear to be independent customer reviews.

The FTC's most recent enforcement action in this area involves a San Francisco subscription snack food company, Urthbox, Inc., which falsely implied that incentivized customer reviews were independent and deceptively enrolled customers in ongoing sales plans without their express informed consent.

Understanding the importance of customer reviews and ratings, Urthbox set out to improve its ratings at the Better Business Bureau (BBB). After launching a new program, Urthbox BBB reviews jumped from nine completely negative reviews in 2016 to 695 reviews in 2017. Of these reviews, 612 were positive, 68 were negative and 15 were neutral. How were these amazing results achieved? Well, it was not because of an improvement in the product. The vast majority of the positive reviews were submitted pursuant to an incentive program whereby customer service representatives at Urthbox encouraged customers to post positive reviews at the BBB by asking them to provide to Urthbox a screen shot of the positive review and the verification that the review was independent and unpaid. After customers provided this proof to Urthbox, they would receive a free Urthbox snack box and the Urthbox customer service representative would receive a bonus. Similar incentives were offered to customers posting positive reviews in the customer's personal social media accounts.

The FTC filed a complaint against Urthbox for these false and deceptive advertising practices and, on 3 April 2019, the FTC announced an administrative order (settling the FTC complaint) under which Urthbox is required to pay USD 100,000 to compensate customers; and Urthbox is barred from engaging in similar deceptions in the future.

Moreover, if Urthbox uses incentivized reviews in the future, it must:

  • provide each endorsing customer with a clear statement of their responsibilities to disclose clearly and conspicuously, and in close proximity to the endorsement, that the endorser received something of value for the endorsement;
  • obtain a signed and dated statement from each endorser acknowledging receipt of that statement of responsibility and expressly agreeing to comply with it;
  • establish a system to monitor and review the disclosures; and
  • create reports showing the results of the monitoring.

In addition to the deceptive reviews program, the FTC also took exception to Urthbox's automatic enrollment subscription program. According to the FTC's complaint, once customers agreed to accept a "free" snack box, they were immediately enrolled in a subscription for monthly snack boxes and charged the full six month subscription amount unless they cancelled the subscription before the first of the month following the shipment of their free snack box. This violated Section 5 of the FTC Act and the Restore Online Shopper's Confidence Act (ROSCA). While the subscription billing scheme was disclosed on the website, the disclosure was difficult to understand and easy to miss. The FTC scrutinized the disclosure in terms of how a customer would see it on a mobile device and on a computer. Whether viewed on a mobile device or a computer, the FTC determined the disclosure might not be seen until after the customer had provided his or her credit card information for shipping and handling for the "free" snack box. The FTC noted the reasons why the required disclosures were not effective, for example, the requirement to scroll through dense legalese, the use of small font, and hyperlinks that were not labeled in such a way as to make clear their importance.

If your disclosures are similarly difficult for a customer to find and understand, you may want to consider revamping those disclosure to ensure they comply with the relevant FTC guidelines.

If you have any questions about how this recent enforcement action may impact your company's use of endorsements in advertising or negative option sales, please contact your Baker McKenzie attorney or any of the contacts below.

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