FTC Moves To Enforce Rules Against False Online Ads
By Barry Levine
August 27, 2010 10:37AM

An astroturfing settlement with a public-relations agency has launched the Federal Trade Commission's crackdown on false online advertising. Reverb Communications has agreed to stop posting fake game reviews or face FTC fines starting at $16,000. An analyst said fake endorsements are widespread and eradicating them is like the Whac-A-Mole game.

The Federal Trade Commission has started enforcing false advertising rules against "astroturfing." On Friday, the agency announced a settlement with a public-relations firm that had been posting fake, favorable online reviews for a client. The settlement is the first enforcement under new FTC guidelines.

Astroturfing is a term used to described apparent grassroots efforts that are, in fact, part of an advertising or political campaign.

The marketing and public-relations agency, Reverb Communications, used employees posing as regular consumers to post fake game reviews at the iTunes Store. Mary Engle, director of the FTC's Division of Advertising Practices, said "advertisers should not pass themselves off as ordinary consumers touting a product, and endorsers should make it clear when they have financial connections to sellers."

Whac-A-Mole

The settlement requires Reverb and its owner, Tracie Snitker, to remove any fake endorsement posts that pretend to be ordinary consumers. The agreement also prohibits the company and Snitker from repeating this kind of fake endorsement in the future.

It's not known how widespread the practice is. Andrew Frank, research director for media and marketing at Gartner, said it's "more common than people think." He compared the FTC's enforcement to Whac-A-Mole, the game where a player can use a toy hammer to whack down a toy mole, only to find that other moles have popped up.

Frank also compared the enforcement to antispam efforts in that the larger perpetrators are targeted, even though the practice continues to be widespread. "In theory," he said, "the honest public should outnumber" the imitation consumers, but Frank said this kind of fraud will continue, especially given the availability of cheap labor around the world.

eBay deals with this problem, Frank noted, through a reputation system, where other people's opinions of your reliability are taken into consideration, but this isn't foolproof and cannot be applied to every site offering user opinions. It's still buyer beware, he said, and "one should always consider how credible the source of the comment is."

FTC Endorsements Guide

According to the FTC, Reverb posted reviews between November 2008 and May 2009 at iTunes on behalf of a video-game development company. User accounts were set up to suggest the commenters were ordinary consumers, and no mention was made of the fact that Reverb often received a percentage of the resulting sales.

Last year, the FTC issued a revised endorsements and testimonials guide, the first change to its endorsement rules in three decades. It specifies that online posts need to disclose if the commenter was connected to the seller or received cash or in-kind payment to review that product or service. The rules apply to both the seller and any advertising agency representing the seller.

The actual action under the guide, and against Reverb, is an administrative complaint. The FTC noted that a "complaint is not a finding or ruling that the respondents have actually violated the law," and a settlement "does not constitute admission by the respondents of a law violation."

However, a consent order has "the force of law with respect to future actions," and each violation of such an order can mean a civil penalty of up to $16,000.