FTC Finds Paid Reviews Defy “Truth In Advertising”

In a win for consumers, the Federal Trade Commission settled today with a video game company that hired a public relations firm to post reviews of its app in the iTunes App Store.

The FTC found that the reviews, which did not disclose the relationship of the reviewer with the company or product, constituted a form of false advertising by hiding facts that “would have been relevant to consumers who were evaluating the endorsement and deciding whether to buy the gaming applications”.

According to Mary Engle, the director of the FTC’s Division of Advertising Practices, the reviews defied “long-held principles of truth in advertising”.

“Advertisers should not pass themselves off as ordinary consumers touting a product, and endorsers should make it clear when they have financial connections to sellers,” said Engle in the commission’s release.

The settlement requires that the two companies remove any reviews that fail to disclose the existing business relationship and bars them “from misrepresenting that the user or endorser is an independent, ordinary consumer, and from making endorsement or user claims about a product or service unless they disclose any relevant connections that they have with the seller of the product or service.”

The FTC made a similar requirement of bloggers last year, when it issued new guidelines requiring bloggers disclose their relationships with companies, lest they be fined up to $11,000 per blog post. Those same guidelines, the FTC said in today’s settlement, require that “the online post by a person connected to the seller, or someone who receives cash or in-kind payment to review a product or service, should disclose the material connection the reviewer shares with the seller of the product or service.”

The decision is not only a win for consumer, but for online review sites like Yelp or Amazon, which rely on users’ trust in reviews to keep operating. If review services become overrun with paid endorsements, they become little more than bulletin boards for advertising, not actual user reviews.

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