“This is a Five-Star Blog Entry”: The Perils of Fraud in Online Reviews

Retailers selling products on Amazon and similar sites strive for the coveted five-star review. In some instances, retailers go so far as to create the reviews themselves or pay others to post positive reviews. This past January, Amazon removed VIP Deals from its website because VIP Deals was offering full rebates to purchasers of Kindle Fire cases who wrote product reviews. Amazon’s policies prohibit sellers from giving compensation for reviews.

VIP Deals’ attempt to boost its online image with positive reviews is neither uncommon nor surprising. Consumers rely heavily on online reviews for everything from buying a book or appliance to choosing a doctor or hair stylist to making a hotel or restaurant reservation. For this reason, retailers go to great lengths to make sure their products receive favorable reviews and positive testimonials on websites such as Amazon, Yelp and TripAdvisor. Instead of focusing exclusively on making products better, some retailers like VIP Deals manipulate the online marketplace by paying freelance writers for positive reviews, offering rebates or other incentives to reviewers, or directing employees or outside marketing/public relations firms to post positive fake reviews. Negative reviews may be harmful to business, but retailers need to be aware that creating false online reviews can have serious legal as well as reputational consequences.

In 2009, the Federal Trade Commission released guidelines concerning the use of endorsements and testimonial. The guidelines state that any payments or other material connections between an endorser and a retailer must be disclosed. Further, any review, whether paid or not, is considered deceptive if it makes false or misleading claims. Though the guidelines are often thought to be targeted at bloggers, the first related charges brought by the FTC were against Reverb, a California marketing company. Reverb asked employees to write positive reviews of clients’ games on the Apples iTunes store. The FTC settled charges with Reverb and required Reverb to remove all of the employee-drafted reviews.

In addition to injunctive penalties, retailers may also face monetary liability. Lifestyle Lift, a plastic surgery company attempting to boost its image amid negative online reviews, directed employees to create accounts on Internet message boards and post reviews as satisfied customers. In July 2009, Lifestyle Lift settled charges brought by the New York Attorney General for deceptive commercial practices, false advertising and fraudulent and illegal conduct under New York and federal consumer protection laws. The settlement included a $300,000 payment to the State of New York.

The government is focused on any deceptive or false advertising and may bring charges as illustrated above. In addition, a retailer’s consumers, who are looking for genuine and reliable product information, and its competitors, who want to prevent unfair competition, both have a stake in keeping fake reviews off websites.

Retailers are understandably concerned about negative online reviews. After all, even a few negative reviews can steer a customer away from a specific product. It is clear, however, that failing to properly disclose any relationship between endorsers and a retailer and making any false or unsubstantiated claim can lead to lost sales, reputational harm and serious legal penalties.

Related topics: Retail