About a year ago, the Federal Trade Commission announced a proposed settlement with Sunday Riley Skincare, resolving allegations that the company misled consumers by posting fake reviews of its products online and failing to disclose that the reviewers were company employees. This was yet another in a long line of cases where the FTC said that if the brand has a material connection with the influencer that is not reasonably expected by the audience, the influencer must clearly and conspicuously disclose that relationship. When the Sunday River settlement was announced, which prohibits the company from publishing deceptive reviews in the future, Commissioners Rohit Chopra and Rebecca Kelly Slaughter dissented, arguing that the FTC isn't doing enough to stop the epidemic of fake reviews online.
After the proposed settlement was announced, the FTC published it, inviting public comment on whether the FTC should make the settlement final. Now, more than a year later, the FTC announced that it has approved the settlement by a 3-2 vote, with Commissioners Chopra and Slaughter dissenting again. When the settlement was announced, both the majority and Commissioner Chopra issued separate statements (with Commissioner Slaughter joining in Chopra's dissent).
What's this dispute about? And why do the Commissioners feel so strongly about it that they issued rare majority and dissenting opinions?
Sunday Riley's settlement highlights an ongoing debate among the FTC Commissioners about whether the FTC is being tough enough when settling false advertising cases involving fraudulent conduct, and, ultimately, about whether the FTC's false advertising enforcement program is effective.
In Commissioner Chopra's dissent, he asserted that the settlement with Sunday Riley lacks teeth because it is "no consequences" settlement that merely requires the company not to break the law again. The settlement, he says, lacks the kind of strong relief required to punish the company and to deter others from similar conduct. He wrote, "The settlement includes no redress, no disgorgement of ill-gotten gains, no notice to consumers, and no admission of wrongdoing."
Chopra called on the FTC to take a stronger stand against dishonest or fraudulent conduct by (1) publishing a policy statement on equitable monetary remedies that establishes a rebuttable presumption that the FTC will not pursue no-money settlements in cases involving dishonesty or fraud, (2) issuing rules to codify the basic principles of the FTC's Endorsement Guides, so that the FTC can seek civil penalties when advertisers fail to comply with them, including when they fail to properly disclose material connections with endorsers, and (3) designating specific conduct (such as failing to disclose material connections) as penalty offenses, so that the FTC can get substantial penalties for the worst violators.
Chopra argued that the Sunday Riley case is a missed opportunity to take a stand against fake reviews online. He wrote, "Despite clear authority to send a strong message through this case, the Commission is instead sending the message that there are no real consequences for online disinformation and fake review scams."
The majority (Chairman Joseph J. Simons and Commissioners Noah Joshua Phillips and Christine S. Wilson) issued their own statement. In defending the settlement, the majority pointed out that if Sunday Riley violates the order, it would be liable for civil penalties of up to $42,530 per violation, and that, "There is no reason to believe that the Commission’s order will not protect consumers from further misconduct or that the potential for civil penalties will not deter future violations."
The majority argued that, here, the relief obtained in the settlement with Sunday Riley "is consequential and will provide both specific and general deterrence." In particular, the majority pointed to the fact that the impact of the order -- such as the costs and constraints of complying with the injunction, the fencing in of otherwise legal conduct, the reputational effect of the order, the threat of follow-on actions by shareholders, private plaintiffs and other regulators, and other collateral consequences, such as the effect on relationships with business partners, vendors, investors, and regulators -- "can have substantial deterrent effect on violative behavior."
The majority emphasized that it considers fake online reviews to be a serious problem and that the FTC will continue its enforcement efforts in this area. The majority wrote, "Advertisers and retailers should not doubt our resolve."
One thing the FTC Commissioners can agree upon is that fake online reviews are a serious problem and that more enforcement is coming. Only time will tell, however, whether we'll start to see tougher settlements, with significant monetary penalties and other stricter relief, in these types of cases and in others as well. But, with the political winds changing in D.C., these changes may not be that far off.
"Fake reviews are polluting digital marketplaces, harming consumers and honest sellers" -- FTC Commissioner Rohit Chopra