2022 continues to be the Year of the Review for consumer protection law enforcers. We have seen several cases already this year, and the latest suit has the added bonus of the Federal Trade Commission (FTC) teaming up with a bipartisan group of six states to sue one company and three individuals. The company of the day is Roomster, a platform that connects people with roommates or rental properties. The individual named defendants are Roomster’s co-owners, who are also the CEO and chief technology officer, as well as an individual who allegedly provided Roomster with the fake reviews.
There are two primary counts in the complaint. First, it describes the extensive lengths to which the company and its owners went to inflate their positive ratings, particularly in app stores. The complaint details efforts to post purchased positive reviews through “‘drip campaigns’ which involve ‘the steady flow of reviews’” that were designed to make the reviews appear natural and organic. Readers who are wondering about the legality of buying reviews may recall that earlier this year the FTC published related business guidance, and buying fake reviews was highlighted as a big “no.”
The second issue raised in the complaint might have broader applicability, and it deals with Roomster’s claims that its rental listings were either verified, authentic or available. They apparently weren’t, and such claims can certainly be material to consumers who are evaluating whether to purchase a service. The complaint discusses an undercover investigation that was conducted by law enforcement to demonstrate this – and yes, civil law enforcers at the FTC and state AG offices do such investigations frequently. The government plaintiffs allege that Roomster “immediately accepted and published a fake listing with a U.S. Postal Office commercial facility address.” Needless to say, Uncle Sam was not offering a cat-friendly room in a downtown, three-bedroom apartment.
This case also should remind us of two other important things. First, as we have previously discussed, one of the ways the FTC is evolving in order to deal with the Supreme Court’s AMG decision is by partnering with states more frequently. In federal court, the FTC can focus on the injunctive relief and the states can get money, since AMG did not have an impact on the states’ ability to recover money in federal court in the form of civil penalties, restitution or damages as provided by each state’s own laws. This is clearly at play in the Roomster case, where the FTC is partnering with state attorneys general on both sides of the political spectrum in order to obtain civil penalties and restitution. In fact, the individual who provided the fake reviews entered into a settlement of the case against him for $100,000 at the same time the lawsuit was filed. The proposed order makes it clear that the money will go to the states and not the FTC. The order also bans the individual from selling reviews or endorsements and requires him to notify the app stores of his alleged misdeeds.
The second important reminder is about individual liability. Just a few weeks ago, we saw a district court find that FleetCor and its CEO violated the FTC Act, and the FTC leaders as well as many states appear quite focused on naming individuals as defendants whenever possible. It is bad enough when your company is being investigated by law enforcement, but individual liability ratchets things up to a much higher level. While the Roomster case is proceeding as a civil action, many state false advertising and unfair business practices laws also provide for potential criminal penalties.
We will be watching this case closely as it proceeds in litigation. But we leave with two closing thoughts. First, companies should look closely at any claims they may make about services or vendors being verified, authentic or available – such terms likely will make consumers believe that there is legitimate vetting going on behind the scenes. These claims can be made explicitly with words or implicitly through images and suggestions. And second, it’s a great time to take a close look at how you are managing reviews, including how reviews are solicited or incentivized and how they are presented to consumers. Relatedly, the FTC review guidance points out that if you are working with a reputation management company, you should understand the steps it is taking to protect your brand and make sure it is not writing fake positive reviews about you or fake negative reviews about your competitors.