FTC Files First Case Challenging Fake Incentivized Product Reviews

The Federal Trade Commission (FTC) has successfully brought its first case challenging fake paid product reviews, a banned practice called incentivized reviews, on an independent retail website. In the case, the FTC asserted Brooklyn-based defendants paid numerous third parties to create and post positive Amazon reviews of their product in exchange for free products or payments without disclosure since 2014. Although Amazon has attempted to stem fake reviews on its site before, this is the first time the United States government has gotten involved. A proposed court order settling the FTC’s complaint against the defendants levied a deferred $12.8 million fine against the Brooklyn company and held it must back up future claims with reliable scientific data. The settlement also ordered the defendants to refrain from making future misrepresentations regarding its endorsements.

Fake product reviews are big business in the ultra-competitive Amazon marketplace. According to one e-commerce metrics firm, Amazon hosts 1.8 million vendors and sellers who offer nearly 600 million items that generate approximately 9.6 million new product reviews every month. In addition, around 82 percent of American adults check online reviews before purchasing items and they are often more swayed by the simple star rating than the actual review. Finally, the top three products listed typically generate around 64 percent of the purchaser clicks.

This means a high rating can be the difference between being a best seller on Amazon and getting lost in the crowd. Items are ranked by A9, Amazon’s search engine algorithm, which automatically determines a product’s spot on the website through a variety of factors, including product reviews. Despite the importance of trustworthy online reviews, a recent Fakespot study determined nearly one-third of Amazon product reviews are unreliable and over half of reviews on Walmart.com are inauthentic or unreliable.

While fake product reviews have been a problem since Amazon’s inception, the issue appears to have intensified in 2015 when Amazon started to seriously woo China-based sellers. That decision led to a flood of Chinese products, with sales from China-based merchants doubling that year. These merchants often sell counterfeit products at a sharp discount. In addition, many Chinese sellers try to game the system by using incentivized reviews or other similar methods to increase their ranking and make themselves appear legitimate. This change has made it harder for other Amazon sellers and lead many to take shortcuts in order to sell their own products.

The prevalence of this problem has led to the creation of websites whose sole purpose is determining whether an online product review is fake or legitimate. Many retailers such as Amazon have also taken steps to reduce the number of fake reviews posted on their sites, including suing thousands of merchants as well as developing technologies designed to identify fake reviews. Nevertheless, the problem has only continued to worsen.

It is encouraging to see the FTC enter the fray and try to stop the rise of fake incentivized product reviews. Although the FTC successfully brought charges against an American company in this case, it is unclear whether it could bring charges directly against Chinese companies that utilize fake paid product reviews in the future.

Photo by: Christian Wiediger on Unsplash