Last week, the Federal Trade Commission (FTC) and six states permanently banned Roomster Corp. and its owners, John Shriber and Roman Zaks, from purchasing or incentivizing consumer reviews as part of a settlement over charges that they utilized fake reviews to lure consumers into paying for access to nonexistent rental listings. The settlement comes in the middle of a public notice and comment period for the proposed rule by the FTC on fake reviews that would cover much of the conduct alleged of Roomster.
According to the complaint, Roomster allegedly bought tens of thousands of fake reviews that were used to funnel unwitting customers to the company’s rental listings, which often ended up being fake or nonexistent.
The proposed settlement order would ban Roomster and its owners from ever misrepresenting that a review is truthful, or that a review is from a real user of the actual product. The permanent ban also extends to utilizing or disseminating biased reviews, such as from reviewers who have a relationship with the company that could potentially affect the credibility of the review.
In addition to the permanent bans, the settlement also includes civil penalties of $10.9 million payable to the states, and a monetary judgment of $36.2 million. Because of defendants’ inability to pay this full amount, these amounts will be suspended after Roomster and its owners pay $1.6 million to the six states that brought the action alongside the FTC.
In July, the FTC approved a notice of proposed rulemaking for a rule on fake consumer reviews. The public notice and comment period extends to September 29, 2023. Many of the prohibitions on Roomster’s future conduct are similar to the prohibitions within the newly proposed rule.
For example, the proposed rule would prohibit entities from either creating or selling consumer reviews by someone who does not exist, or who did not have experience with the product, or who misrepresented their experiences with the product. Even if they did not take part in creating or procuring the reviews, businesses would still be banned from disseminating said reviews if it knew or should have known that they were either fake or deceptive. The proposed rule would also prohibit buying or otherwise incentivizing positive or negative reviews, and as in the settlement order in Roomster, companies would be prohibited from posting reviews that are written by someone with an undisclosed relationship with the company.
But the proposed rule goes further than the injunctive relief for Roomster and covers a range of conduct that was not at issue. Among the conduct prohibited is what is known as review hijacking, which prohibits companies from repurposing reviews of certain products onto reviews of other products. The proposed rule would also prohibit businesses from illegally suppressing reviews that are negative, such as with unjustified legal threats or intimidation. If a business did have negative reviews that were suppressed on its website, then it would be prohibited from indicating that the reviews included on the website represented all reviews.
In addition to written consumer reviews, businesses would also be prohibited from either selling or procuring any fake indicators of social media influence such as followers, likes, or view counts. The proposed rule would provide a new path for the FTC to start imposing significant civil penalties on violators.
The Roomster ban is just the latest example of the FTC ramping up enforcement against phony reviews. The proposed rule indicates a persistent resolve on the part of the FTC to continue clamping down on deceptive reviews in the online marketplace. Businesses should pay close attention to this trend and be vigilant about how they manage or encourage customer reviews.
* The author would like to thank Micah Wallen, an associate in Venable’s Washington, DC office, for his assistance writing this article.