Sunday Riley launched her skincare firm Sunday Riley Modern Skincare, LLC (“SRMS”) in 2009 and its skincare products, including Good Genes, Power Couple, U.F.O., C.E.O., Luna and Tidal, have enjoyed tremendous success, having been featured, promoted, and sold online through Sephora and its website, www. Sephora.com. On October 21, 2019, the Federal Trade Commission (“FTC”) announced a consent order in an action for violation of Section 5 of the FTC Act against Ms. Riley and SRMS for posting false reviews of its Sunday Riley products and falsely representing that the false reviews reflected the opinions of ordinary customers of the products.[1] The FTC’s proposed continuing consent order provides: (1) Riley and SRMS are prohibited from misrepresenting the status of any endorser or person providing a review of a product, including misrepresenting that an endorser or reviewer is an independent or ordinary user of the product; (2) Riley and SRMS are required to clearly disclose any unexpected material connection between SRMS and anyone reviewing a product; (3) Riley and SRMS are required to instruct employees, officers and agents as to their responsibilities for disclosing their connections to SRMS and any Sunday Riley product they endorse and that SRMS obtain signed acknowledgments from any endorser; and (4) Riley and SRMS are required to submit compliance reports to the FTC within one‑year of the order and to create records for twenty years and retain them for five years.[2]
The FTC complaint alleged that for two years from November 2015 until August 2017 SRMS managers, including Riley, posted reviews of Sunday Riley branded cosmetic products on the Sephora website, using false accounts created to conceal their identities and asked other SRMS employees to do so.[3] The complaint further alleged that, after Sephora removed false employee‑generated reviews, “SRMS employees suspected this was because Sephora recognized the reviews as coming from Sunday Riley Skincare’s IP address” and, in response, SRMS obtained, in the words of one manager, “an Express VPN account [to] . . . allow us to hide our IP address and location when we write reviews.”[4] The complaint further alleged that “[c]alls for employees to write reviews were associated with, but not limited to, the launches of new products.”[5] The complaint detailed how Riley directed employees to create fake accounts and post positive reviews: “I would like everyone to create 3 accounts on Sephora.com, registered as a different identities.”[6] She also directed employees to focus on certain products and gave specific instructions: “Leave a review – make sure to NOT compare the product to other products, to not use foul language, and to be very enthusiastic without looking like a plant. Always leave 5 stars.”[7] With regard to negative reviews, Riley directed: “The other thing, if you see a negative review- DISLIKE it. After enough dislikes, it is removed. This directly translates to sales!!”[8] The complaint further alleged that in April 2018 interns of SMRS also were asked to make fake Sephora accounts and write reviews of Sunday Riley skincare products.[9] The Complaint contained two counts for false and misleading endorsement claims and deceptive failure to disclose materials connections with endorsers.[10]
FTC commissioners Rebecca Kelly Slaughter and Robit Chopra dissented and noted in a public statement that “[t]oday’s proposal settlement includes no redress, no disgorgement of ill‑gotten gains, no notice to consumers, and no admission of wrongdoing.”[11] Commissioners Slaughter and Chopra stated: “Going forward, the FTC should seek monetary consequences for fake review fraud, even if the exact level of ill‑gotten gains is difficult to measure.”[12] Commissioners Slaughter and Chopra noted that the problem of fake online reviews is a global problem and United Kingdom, Canada and Australia all have recognized fake reviews as a threat to honest competition online.
While advertisers and marketers always want to create buzz and sizzle about new products, care should be taken to avoid violating the FTC Act when promoting products in the online marketplace. As the FTC has recognized, truth-in-advertising principles apply on social media platforms, and if there is a material connection between an advertiser and an endorser (whether she or he is a tweeter or blogger or endorser on another online site), it has to be clearly disclosed.[13] As the FTC’s Endorsement Guides make clear a “material connection” is a connection or relationship that might affect the weight or credibility a consumer would give the endorsement. Endorsements must “reflect the honest opinions, findings, beliefs, or experience of the endorser” but disclosure of one’s relationship with the product such as an employee or advertising agency of the advertiser is required.[14]
To sum up, the following takeaways are critical: (1) Employees and advertisers need to understand the FTC’s Endorsement Guides and the truth-in advertising principles; (2) Endorsements must be truthful and “reflect the honest opinions, findings, beliefs, or experience of the endorser;” (3) Endorsers must “clearly and conspicuously” disclose any “material connection” with the product being endorsed or its producer; and (4) A “material connection” between an endorser and the marketer of a product is any connection that might affect the weight or credibility consumers give the endorsement, including employment, business, family, or personal relationships, cash payments, or free products.
[1] https://www.ftc.gov/enforcement/cases-proceedings/192-3008/sunday-riley-modern-skincare-llc-matter. The FTC investigation was commenced after a whistleblower publicly accused SRMS of directing employees to write fake reviews of its products.
[2] https://www.ftc.gov/system/files/documents/cases/192_3008_sunday_riley_acco.pdf.
[3] https://www.ftc.gov/system/files/documents/cases/192_3008_sunday_riley_complaint.pdf (“Complaint”), ¶8.
[4] Complaint, ¶9.
[5] Complaint, ¶10.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Complaint, ¶14-15; 16-19.
[11] https://www.ftc.gov/public-statements/2019/10/statement-commissioner-chopra-joined-commissioner-slaughter-regarding.
[12] Id.
[13] In re Deutsch LA, Inc., https://www.ftc.gov/enforcement/cases-proceedings/122-3252/deutsch-la-inc-matter (The FTC alleged, inter alia, that Deutsch LA misled consumers by urging its employees to create awareness and excitement about the PS Vita on Twitter, without instructing them to disclose their connection to the advertising agency or its then-client Sony).
[14] FTC Endorsement Guides, 16 C.F.R. § 255 et seq.; https://www.ecfr.gov/cgi-bin/text-idx?SID=14e8f4d3c876671a54fce164a72f2e3e&node=pt16.1.255&rgn=div5.