Marketer Settles FTC Allegations Related to Compensated Online Reviews and “Free” Trial Offer

The Federal Trade Commission recently announced that it settled charges with a marketer and its principal concerning FTC law imageallegations that the company misrepresented that customer reviews were independent when, allegedly, it had provided those customers with free products and other incentives to post positive reviews online.

The administrative order settling the FTC’s complaint, which also alleges that the company failed to adequately disclose key terms of its “free trial” automatic renewal programs, prohibits respondents from engaging in similar conduct and requires them to pay $100,000 to the Commission to compensate consumers allegedly deceived by the trial offers.

“People should be able to trust that good customer reviews aren’t the result of companies secretly paying the reviewers,” said FTC attorney Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “As this case shows, we hold companies accountable for this kind of deceptive marketing.”

According to the Commission, from January through November 2017, the company conducted an incentive program to induce customers to post positive reviews of its snack products on the Better Business Bureau’s website. In many cases, the FTC contends, the company offered to send its customers a free snack box if they posted a positive review on the BBB’s website.

The BBB requires consumers who post reviews about a company to certify that they have not been offered any incentive from the company to write the review. However, according to the FTC, many of the company’s reviewers failed to disclose to the BBB that they in fact had been offered such an incentive for submitting their positive review.

The FTC attorneys also alleges that the company encouraged consumers to post positive reviews on other sites and that between 2014 and 2017 offered store credit and/or free snack boxes in exchange for positive consumer reviews on Twitter, Instagram, Tumblr, and Facebook. At the time, according to the agency, the company had no procedures or policies in place to monitor these reviewers’ posts.

The FTC also alleges that from October 2016 to November 2017, the company offered on its websites a “free” trial of its snack boxes for a nominal shipping and handling fee. During that time, however, the FTC contends that the company used both desktop and mobile websites that did not adequately disclose key terms of the offer, including that the company would charge them the total amount owed for six months of shipments if they did not cancel in time.

According to the complaint, the company violated the FTC Act by misrepresenting that positive consumer reviews on the BBB’s and other third-party websites reflected the independent experiences or opinions of impartial consumers, while the reviewers actually had a material connection to the company. The FTC alleges that the company failed to adequately disclose that some consumers received compensation, including free products, to post those positive reviews.

The complaint also alleges the respondents violated the FTC Act by failing to adequately disclose key terms of its “free” offer. Specifically, the FTC alleges that the company failed to adequately disclose that when the free trial plan expired, the company would automatically enroll consumers in a six-month negative option subscription plan and charge them the total amount owed for six months of shipments.

The complaint alleges that the respondents violated the Restore Online Shoppers Confidence Act by failing to adequately disclose the material terms of the free trial offer before obtaining the consumer’s billing information, and by failing to get consumers’ informed consent before charging them for the ongoing negative option subscription.

The FTC named the company’s principal as a respondent because he allegedly controlled or had the ability to control the company’s conduct that the Commission alleges violated the FTC Act and ROSCA.

The proposed order settling the FTC’s charges contains both conduct and monetary relief.

It prohibits the respondents from misrepresenting that an endorser of any good or service is an independent user or ordinary consumer of that good or service and requires them to clearly and conspicuously disclose any material connection with a consumer, reviewer, or endorser in close proximity to that representation. The order also requires the respondents to take all reasonable steps to remove any review or endorsement by any endorser with which it has a material connection from online review websites, including the BBB’s site, unless the disclosure requirements above are met, and to monitor any endorsers they engage.

The order prohibits the respondents from making misrepresentations in connection with the marketing or sale of any good or service with a negative option feature, and requires them to make certain disclosures relating to the negative option feature. The order also prohibits the respondents from using billing information to obtain payment for a good or service with a negative option feature without first getting a consumer’s express informed consent.

The respondents also must provide consumers with a simple mechanism they can use to avoid charges for products with a negative option feature.

Richard B. Newman is an Internet marketing attorney focusing at Hinch Newman LLP. Follow him on Facebook at FTC Defense Lawyer.

Informational purposes only. Not legal advice. Attorney advertising.