Who: Federal Trade Commission (FTC) and Sunday Riley Skincare LLC
Where: United States
When: 22 October 2019
Law stated as at: 1 November 2019
What happened:
The FTC discovered that Sunday Riley’s founder and employees had been posting fake reviews for Sunday Riley’s products on a popular global beauty retail website, Sephora, between November 2015 and August 2017. Emails from Sunday Riley’s founder advised employees to create fake accounts, leave five-star reviews and dislike negative reviews. Sephora had begun taking down fake reviews when it realised that the reviews were from Sunday Riley’s IP address and so Sunday Riley started obscuring IP addresses using virtual private networks.
The FTC charged the Sunday Riley and its founder with two violations of the Federal Trade Commission Act. A draft settlement has been proposed, which directs Sunday Riley to no longer post fake reviews in the future.
The draft settlement is surprising as no financial penalty was imposed. To this end, two FTC commissioners have criticised the proposed settlement stating that by not penalising Sunday Riley, the settlement “does little to address the epidemic of fake reviews online“. In particular, “this settlement sends the wrong message to the marketplace. Dishonest firms may come to conclude that posting fake reviews is a viable strategy, given the proposed outcome here. Honest firms, who are the biggest victims of this fraud, may be wondering if they are losing out by following the law. Consumers may come to lack confidence that reviews are truthful“.
The settlement is expected to be finalised after public responses have been collated.
Why this matters:
The proposed settlement is interesting as no financial penalty has been imposed despite the FTC holding evidence of deliberate activity to post fake reviews and mislead consumers. In particular, it seems unusual in light of the FTC’s efforts to increase transparency of influencers and ensuring that consumers clearly know whether a post is genuine or paid-for.
In addition, as pointed out by the two FTC commissioners disputing the proposed settlement, it potentially lowers the risk of posting fake reviews to improve sales when the FTC is not imposing a financial penalty and may encourage businesses to take similar steps.
