Dear Retail Clients and Friends,
The US Federal Trade Commission (FTC) has settled charges brought against Fashion Nova, LLC (Fashion Nova) under Section 5(a) of the FTC Act for failure to publish negative product reviews on its website. This edition of Morgan Lewis Retail Did You Know? analyzes the FTC’s charges, and the practical impact it has for retailers that post online customer reviews.
On January 25, 2022, the FTC announced that it had settled charges against Fashion Nova, a California-based “fast fashion” apparel company. According to the FTC’s proposed administrative complaint (filed simultaneously with the proposed settlement), the FTC alleges that Fashion Nova used a third-party online product review management interface to automatically post to its website customer reviews that were four stars or higher (on a five-star scale), but hold back for further scrutiny reviews that were three stars or less. Once held back, Fashion Nova never approved or published lower-starred reviews.
Despite holding back negative customer reviews, the complaint states that Fashion Nova encouraged customers to submit product reviews directly on its product pages and in emails sent to customers following a recent purchase.
The complaint contains one count for violation under Section 5(a) of the FTC Act. Section 5(a) allows the FTC to investigate and challenge “unfair methods of competition in or affecting commerce.” Here, the FTC charges Fashion Nova with using unfair methods of competition based on the company making false or misleading representations on its website concerning its products.
The terms of the FTC’s settlement provide that Fashion Nova must:
In the same announcement, the FTC stated that it would be sending letters to 10 review management companies to place them on notice that censoring negative reviews is a violation of the FTC Act.
Along with the settlement, the FTC also released additional guidance on how companies can properly collect, moderate, and publish reviews.
The FTC admits this case is the first of its kind—a signal to retailers that the FTC is mobilizing to ensure that online reviews are accurate. While the Fashion Nova settlement falls under the FTC’s enforcement authority under Section 5(a) of the FTC Act, retailers should also be on alert that the FTC has similar authority under the more recently-enacted Consumer Review Fairness Act (CRFA), which makes it illegal for a company to employ a contract provision that (1) bars or restricts review of a company’s products, services, or conduct; (2) imposes a penalty or fee against someone who provides a review; or (3) mandates surrender of intellectual property rights in the content of reviews.
Between the FTC’s enforcement authority under Section 5(a) and the CRFA, this settlement with Fashion Nova suggests that any editing or purging or other actions that could be seen as manipulating product reviews subject retailers to the risk of an enforcement action. Retailers should carefully review their processes for handling reviews. This includes a review of relevant consumer-facing terms and conditions, their agreements with third-party review management platforms, and any other relevant contract provisions to ensure that all customer reviews are published in accordance with the law.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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