Reminders for AI Companies from FTC

On January 9, the Staff in the Office of Technology of the Federal Trade Commission (“FTC”) posted a reminder to AI companies, enumerating the ways that they can run afoul of the laws enforced by the FTC. In particular, FTC Staff called out Model-as-a-Service companies, and impressed the importance of safeguarding individual and proprietary data involved in creating the models. FTC Staff indicated that there could be both consumer protection and competition concerns associated with a failure to do so. Further, FTC Staff warned that AI companies need to be forthcoming in how data is being used, and companies that omit material facts that would affect whether customers buy a particular product or service may run afoul of competition laws.

FTC Targets Online Fake Reviews and Endorsements

Fake and deceptive reviews and endorsements – prevalent in online shopping – are a target of the FTC’s proposed rulemaking.  The FTC has authority to promulgate trade regulation rules that define with specificity the acts or practices that are unfair or deceptive in or affecting commerce under 15 U.S.C. 45(a)(1).

The FTC states that it is concerned that some platforms may have mixed incentives to deal effectively with the problematic reviews and, despite some platforms purporting to take enforcement of problematic reviews seriously, fake and deceptive reviews continue to flourish on those very platforms.  The sheer number of people engaged in fraudulent or deceptive reviews and endorsements makes them even more difficult to combat, especially given such content is often created by individuals or small companies, some of whom are located abroad.

The FTC is considering civil penalty remedies as a potent deterrent.  The FTC is considering initiating a Magnuson-Moss rulemaking to address certain types of clear Section 5 violations involving reviews and endorsements.  The FTC also noted that it reviewed many comments to the Use of Endorsements and Testimonials in Advertising, 16 CFR part 255.

The FTC has a long history of challenging reviews and endorsements, including, for example, that the FTC has challenged:

  • Fabricated consumer reviews. See, e.g., Complaint 9-17, FTC Roomster Corp., No. 1:22-CV-07389 (S.D.N.Y. Aug. 30, 2022) (purchase and sale of fake app store and other reviews for room and roommate finder app and platform); Complaint at 2-4, Sunday Riley Modern Skincare, LLC, No. C-4729 (Nov. 6, 2020) (company personnel created fake accounts to write fake reviews of company’s products on third-party retailer’s website); Complaint at 12-13, 15-16, Shop Tutors, Inc., No. C-4719 (Feb. 3, 2020) (reviews of LendEDU were fabricated by its employees, other associates, or their friends and published on a third-party website); Complaint at 20, FTC v. Cure Encapsulations, Inc., No. 1:19-cv-00982 (E.D.N.Y. Feb. 26, 2019) (Amazon reviews of defendants’ product were fabricated by one or more third parties whom defendants had paid to generate reviews). It has similarly challenged fictitious endorsements. See, e.g., Complaint at 14, 19, FTC v. A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (D. Colo. Dec 5, 2019) (fake consumer testimonials); Complaint at 20-22, 31, Global Cmty. Innovations LLC, No. 5:19-CV-00788 (N.D. Ohio Apr. 10, 2019) (fake consumer testimonials); Complaint at 27-28, 43, Jason Cardiff (Redwood Sci. Techs., Inc.), No. ED 18-cv-02104 SJO (C.D. Cal. Oct. 24, 2018) (testimonials in infomercial were paid actors who had not used defendants’ product); Complaint at 12-3, 20, FTC v. Mktg. Architects, Inc., No. 2:18-cv-00050-NT (D. Me. Feb. 5, 2018) (fake testimonials); Complaint at 14, 21, FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467-JDL (D. Me. Nov. 30, 2017) (fake consumer testimonials and expert endorsements); Complaint at 13, 18, 28, XXL Impressions LLC, No. 1:17-cv-00067-NT (D. Me. Feb. 22, 2017) (defendants do not know whether consumer endorsers of their products who appeared in their ads actually exist); Complaint at 5, 7, 12-13, FTC v. Anthony Dill, No. 2:16-cv-00023-GZS (D. Me. Jan. 19, 2016) (fake testimonials); Amended Complaint at 38-39, 43-44, FTC v. Lisa Levey, No. 03-4670 GAF (C.D. Cal. Mar. 8, 2004) (fictitious expert endorsements). It has also challenged false claims that specific celebrities endorsed specific products, services, or businesses. See, e.g., Complaint at 15, 19-20, 30-31, Global Cmty. Innovations LLC, No. 5:19-CV-00788 (N.D. Ohio Apr. 10, 2019); Complaint at 5, 18-20, 22-23, 36, FTC v. Tarr, Inc., No. 3:17-cv-02024-LAB-KSC (S.D. Cal. Oct. 3, 2017); Complaint at 13-15, 18, Sales Slash, LLC, No CV15-03107 (C.D. Cal. Apr. 27, 2015); Complaint at 2, 4-5, Norm Thompson Outfitters, Inc., No. C-4495 (Sept. 29, 2014); The Raymond Lee Org., Inc., 92 F.T.C. 489 (1978) (use of the names, photographs and words of public officials, including members of the Congress, misled consumers that the officials recommended or endorsed the business). It has similarly challenged false claims of endorsements by specific entities. See, e.g., Complaint at 15-16, 18, FTC v. Mercola.com, LLC, No. 1:16-cv-04282 (N.D. Ill. Apr. 13, 2016) (misrepresentation the FDA endorsed the use of indoor tanning systems as safe); Mytinger & Casselberry, Inc., 57 F.T.C. 717, 743-46 (1960) (misrepresentation that a consent decree restraining respondents from making certain claims was an endorsement by the U.S. government of its product); Trade Union Courier Publ’g Corp., 51 F.T.C. 1275, 1300-03 (1955) (misrepresentation that newspaper was endorsed by the American Federation of Labor when it was only endorsed by some unions within the AFL); Ar-Ex Cosms., Inc., 48 F.T.C. 800, 806 (1952) (misrepresentation that lipstick had been recommended by Consumers’ Research); A. P. W. Paper Co., Inc., 38 F.T.C. 1, 15-17 (1944) (misrepresentation that product was endorsed by the American Red Cross); Wilbert W. Haase Co., Inc., 33 F.T.C. 662, 681-83 (1941) (misrepresentation that insurance company had endorsed burial vault business and its vaults). Furthermore, the Commission has challenged advertisements that misrepresent endorsers’ experiences. See, e.g., Complaint at 14, 18, FTC v. A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (testimonialists had used a prior product formulation that contained substantially different ingredients); Complaint at 22, 25, NextGen Nutritionals, LLC, No. 8:17-cv-2807-T-36AEP (M.D. Fla. Jan. 9, 2018) (testimonials in ads misrepresented the actual experiences of customers); Complaint at 22-24, 27, FTC v. Russel T. Dalbey, No. 1:11-cv-01396-CMA—KLM (D. Colo. May 26, 2011) (testimonials misrepresented earnings from brokering promissory notes using defendants’ system); Computer Bus. Servs., Inc., 123 F.T.C. 75, 78-79 (1997) (testimonials by purchasers of home-based business ventures did not reflect their actual experiences); R. J. Reynolds Tobacco Co., 46 F.T.C. 706, 731-32 (1950) (endorsements communicated endorsers exclusively smoked Camel cigarettes whereas they did not smoke cigarettes, did not smoke Camels exclusively, or could not tell the difference between Camels and other cigarettes).
  • Giving an incentive for a review or endorsement and requiring that it be positive. See, e.g., Complaint at 14, 19-20, FTC A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (offered consumer endorsers with free product in exchange for “especially positive and inspiring” reviews); Complaint at 5-6, 8, Urthbox, Inc., No. C-4676 (Apr. 3, 2019) (deceptively provided compensation for the posting of positive reviews on the BBB’s website and other third-party websites); Complaint at 2-3, AmeriFreight, Inc., No. C-4518 (Feb. 27, 2015) (every month past customers were encouraged to submit reviews of respondent’s services in order to be eligible for a $100 “Best Monthly Review Award”, given to “the review with the most captivating subject line and best content” and that they should “be creative and try to make your review stand out for viewers to read!”).
  • Sellers who control websites claiming to provide independent opinions of products. See, e.g., Complaint at 2, 8-9, Son Le., C-4619 (May 31, 2020) (respondents operated purportedly independent websites that reviewed their own trampolines); Complaint at 19-20, 28, FTC v. Roca Labs, Inc., No. 8:15-cv-02231-MSS-TBM (M.D. Fla. Sept. 24, 2015) (defendants operated Gastricbypass.me website, a purported independent, objective resource, which endorsed defendants’ products); Complaint at 21-25, 28, FTC v. NourishLife, LLC, No. 1:15-cv-00093 (N.D. Ill. Jan. 7, 2015) (defendants operated Apraxia Research website, a purported independent, objective resource, which endorsed a type of supplement sold only by defendants). It has also challenged sellers who control purportedly independent organizations or entities that reviewed or approved the sellers’ products or services. See, e.g., Complaint at 3-5, Bollman Hat Co., No. C-4643 (Jan. 23, 2018) (respondents created seal misrepresenting that independent organization endorsed their products as made in the United States); Complaint at 18-20, 26, NextGen Nutritionals, LLC, No. 8:17-cv-2807-T-36AEP (M.D. Fla. Jan. 9, 2018) (misrepresentation that sites displaying the Certified Ethical Site Seal were verified by an independent, third-party program); Complaint at 2-4, Moonlight Slumber, LLC, No. C-4634 (Sept. 28, 2017) (respondent misrepresented that baby mattresses had been certified by Green Safety Shield, when in fact the shield was its own designation); Complaint at 4-6, Benjamin Moore & Co., Inc., No. C-4646 (July 11, 2017) (respondent used seal of its own creation to misrepresent that paints had been endorsed or certified by independent third party); Complaint at 2-4, ICP Constr. Inc., No. 4648 (July 11, 2017) (same); Complaint at 2-3, Ecobaby Organics, Inc., No. C-4416 (July 25, 2013) (manufacturer misrepresented seal was awarded by industry association when in fact it created and controlled that association); Complaint at 2-4, Nonprofit Mgmt. LLC, No. C-4315 (Jan. 11, 2011) (respondents misrepresented their seal program was endorsed by two associations when in fact a respondent owned and operated them); Complaint at 34, 37, FTC v. A. Glenn Braswell, No. 2:03-cv-03700-DT-PJW (C.D. Cal. May 27, 2003) (defendants established Council on Natural Nutrition and then misrepresented it was an independent organization of experts who had endorsed defendants’ products).
  • Suppression of customer reviews based upon their negativity. See Complaint at 1-2, Fashion Nova LLC, C-4759 (Mar. 18, 2022). Commission staff has also addressed the issue in a closing letter. See Letter from Serena Viswanathan, Acting Associate Director, Division of Advertising Practices to Amy R. Mudge and Randall M. Shaheen, Counsel for Yotpo, Ltd. (Nov. 17, 2020), https://www.ftc.gov/​system/​files/​documents/​closing_​letters/​nid/​202_​3039_​yotpo_​closing_​letter.pdf.

The FTC obtained comments to the proposed rulemaking so expect new rulemaking and guidance in 2023.

FTC Clamps Down On Unreliable Coronavirus Marketing Claims

The coronavirus pandemic has caused illnesses, deaths, isolation and tremendous economic disruptions. Not surprisingly, many people are feeling desperate for solutions, and unfortunately, they can fall prey to misleading coronavirus marketing claims.

The Federal Trade Commission (FTC) is seeking to prevent these marketing practices. Indeed, the FTC recently sent ten warning letters to multi-level marketing companies (MLMs) telling them to remove and address claims that the MLMs or their participants are making regarding the supposed ability of products to prevent or treat the coronavirus or about the alleged ability of people to recoup lost income. Continue reading “FTC Clamps Down On Unreliable Coronavirus Marketing Claims”

FTC, FCC Flex Muscles

Duane Morris partner Joseph Burton was featured in a video on Bank Info Security  on the impact of regulators involved in cybersecurity.

The Federal Trade Commission and the Federal Communications Commission are among U.S. regulators now starting to flex their muscles when it comes to enforcing cybersecurity standards, says Burton. What enforcement trends might we expect to see in 2017?

To view the video, please visit the Bank Info Security website.

FTC – the Federal Internet Cop

The Internet brings people together in all sorts of new ways. And when people come together, there can be all sorts of problems. So, is there a federal watchdog looking out for the rights of consumers in cyberspace? The answer is “yes” — the Federal Trade Commission (the FTC).

The FTC was created in 1914, long before the Internet, to prevent unfair methods of competition in commerce. The Federal Trade Commission Act later expanded the authority of the FTC to police unfair and deceptive acts or practices generally. Continue reading “FTC – the Federal Internet Cop”

Are U.S. Companies Violating European Union Privacy Rules?

Gone are the days when some companies may decide to take lightly the responsibility to safeguard private data. Indeed, many companies have been very earnest in complying with U.S. privacy rules when it comes to sensitive data such as health and financial information.

But how are U.S. companies doing when it comes to protecting European data? Not so well, according to a recent complaint filed with the Federal Trade Commission (FTC).

Continue reading “Are U.S. Companies Violating European Union Privacy Rules?”

Do Snapchat Messages Really Vanish? Ask the FTC

People frequently use Snapchat to send messages back and forth with the understanding that those messages will disappear after a designated expiration time.

However, the Federal Trade Commission (FTC) launched an investigation and asserted charges that Snapchat messages actually do not vanish as promised. In the wake of those charges, Snapchat and the FTC have settled, according to a recent FTC press release.

So, what is the scoop? Read on.

Continue reading “Do Snapchat Messages Really Vanish? Ask the FTC”

FTC Investigates Facebook’s Proposed Privacy Policies

The Federal Trade Commission (FTC) has launched an inquiry to determine whether Facebook’s recently announced privacy policies violate an agreement to obtain express consent before revealing users’ private information to new viewers.

According to The New York Times, the FTC claims Facebook’s new policies require users to provide Facebook with broad permission to utilize their personal information in advertising. Facebook has fired back, stating that this requirement comes from a class action settlement to users who were unhappy that their names and images were used in Facebook ads to shill products to their friends.

Continue reading “FTC Investigates Facebook’s Proposed Privacy Policies”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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