Writing or Soliciting False Reviews Can Result in Liability for Small Businesses

False_morel_sauce_with_vegetables.jpgOnline user-submitted reviews have become a critical component of many businesses’ public images. According to a 2011 study from Harvard Business School, a one-star increase in an independent restaurant’s overall Yelp rating increased revenues by five to nine percent. Just as businesses benefit from good reviews, bad reviews can have a devastating impact on a business’ bottom line. Competition among small businesses can, in some instances, lead to false or misleading negative reviews about a competitor, or false positive reviews about a business’ own products or services. Some companies, under the guise of marketing services, provide positive reviews purportedly written by consumers. State and federal law prohibit many of these practices, and both the authors of false or misleading reviews and the businesses that benefit from them have been held liable.

Perhaps the most straightforward method of affecting a business’ online profile involves posting negative information about its products or services. This includes negative reviews posted to websites like Yelp, which allow consumers to write reviews of businesses, or sites like Ripoff Report, which collect consumer complaints. The reviews themselves could contain false information, such as false claims about a restaurant’s cleanliness or food quality, or the reviewer could assume a false identity by posing as a disgruntled former employee or other insider. Many sites attempt to screen and remove fraudulent reviews, but no system is perfect.

False positive reviews promote a business’ reputation at the expense of its competitors. The business could post its own reviews to Yelp and similar sites, or outsource the job to “marketing” companies. A more advanced form of false-positive reviewing involves creating a blog or website that appears to offer impartial reviews of multiple businesses in a particular market. The site ultimately and unsurprisingly recommends the company that created it, although readers do not know of the company’s involvement. Businesses may offer incentives to bloggers and writers with large audiences to promote their product, but without disclosing the writer’s financial interest.

Various state and federal laws protect businesses who are the victims of defamatory online reviews and prohibit acts that fraudulently promote a business. The federal Lanham Act, for example, prohibits any “false or misleading description…[or] misrepresentation of fact, which…misrepresents the nature, characteristics, qualities, or geographic origin” of their own products or services, or those of a competitor, in advertising or other commercial speech. 15 U.S.C. § 1125(a)(1)(B). Federal trade regulations require anyone publicly endorsing a product or service, such as a blogger publishing a positive review, to disclose any “material connection” to the product or its seller. 16 C.F.R. § 255.5.

An investigation by the New York Attorney General resulted in fines totalling $350,000 against 19 companies, including a charter bus company, a laser-hair-removal chain, and several “reputation-enhancement firms.” Investigators set up a fake Brooklyn yogurt shop, which they claimed had been the victim of misleading online reviews. The “reputation-enhancement firms” offered to produce fake positive reviews for as little as $1 each. Other companies identified by the investigation encouraged or even required employees to write and post positive reviews.

Small business attorney Samuel C. Berger handles a variety of legal matters for New York and New Jersey entrepreneurs and businesses. We offer fixed-fee legal-service packages to help clients who are starting a new business, growing their business, or just looking to keep things running smoothly. Contact us today online or at (212) 380-8117 to schedule a confidential consultation with a member of our legal team.

More Blog Posts:

Intellectual Property Rights and Monetary Value of Business Social Media Accounts, New York & New Jersey Business Lawyer Blog, March 27, 2014
Protecting Your New York Company’s Brand from Online Counterfeiters, New York & New Jersey Business Lawyer Blog, January 30, 2014
Five Legal Risks of Social Media for New York and New Jersey Small Businesses, New York & New Jersey Business Lawyer Blog, May 4, 2012
Photo credit: By Ilmari Karonen (Own work) [CC-BY-3.0], via Wikimedia Commons.