FTC issues fine over fake online reviews

Posted by Emma Woollacott

The Federal Trade Commission has come down hard on a company which was found to be posting fake reviews of its products online.

Nashville, Tennessee-based Legacy Learning Systems and its owner, Lester Gabriel Smith, will pay $250,000 to settle the charges.

The company produces the Learn and Master Guitar program, marketed as a way to learn the guitar at home using DVDs and written materials.

But, says the FTC, it advertised using an online affiliate program, through which it recruited 'Review Ad' affiliates to promote its courses. Methods of doing this included endorsements in articles, blog posts, and other online editorial material, with the endorsements appearing close to hyperlinks to Legacy’s website. 

In return, these affiliates received substantial commissions on sales resulting from referrals.  According to the FTC, such endorsements generated more than $5 million in sales of Legacy’s courses. And with no hint being given to consumers that these 'reviewers' were getting commission, the FTC has ruled that it amounted to deceptive advertising.

"Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive," says David Vladeck, director of the FTC’s Bureau of Consumer Protection. 

"Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising."

As well as handing over $250,000, Legacy and Smith will now have to monitor and submit monthly reports about their top 50 revenue-generating affiliate marketers, making sure that commissions are disclosed.  They'll also have to monitor a random sampling of another 50 of their affiliate marketers, and submit monthly reports to the FTC.

This appears to be the first time that the FTC has issued a fine over fake reviews - but it may not be the last. It's been looking at the issue for some time, and a number of other similar cases are likely to be in the pipeline.