16 November 2020

Fake online reviews – back as area of enforcement by competition authorities

Bart de Rijke+ 1 other expert
The past year has seen a spike in enforcement activity by consumer regulators across Europe in relation to fake online reviews. Online traders using these reviews are not the only ones caught in the cross-hairs. Enforcement actions may well have collateral victims in the form of e-commerce and social media platforms, which are likely to be the target of requests for information needed to track down fake reviews. What starts out as a consumer protection effort may well turn into an investigation of competition or privacy concerns. Platforms' use of algorithms to display and rank reviews or to select products based on reviews will be of interest to regulators, as will the failure to use such algorithms to detect and prevent fake reviews. The role of data protection will also come into focus as data needed to effectively crack down on the issue consists overwhelmingly of the personal data of influencers and reviewers active on platforms.

Ongoing trend

This trend is likely to continue in the coming years with the increasing role e-commerce plays in our economy, and ever more so as a result of the Covid-19 pandemic. In addition, new national laws implementing the EU Omnibus Directive are expected across the EU next year (before November 2021). This directive gives broader investigative and disciplinary powers for the national authorities when it comes to fake online reviews.

Consumer protection risks at the core

Reviews, endorsements and likes are commonplace tools in today's digital economy and are embedded in consumer behaviour and business marketing strategies. 82% of potential buyers read consumer reviews before deciding to make an online purchase (according to a 2013 European Consumer Centres' Network report) – a number that is likely to be the same, if not higher, in 2020. Reviews have clear benefits to consumers, such as allowing for better and faster purchasing decisions, helping consumers narrow their search or bringing their attention to a wider range of products, services and providers. By contrast, fake or misleading reviews could be to the consumer's detriment, not only when it concerns individual purchasing decisions, but also because it erodes consumer trust in the market. While isolated incidents may not require coordinated or sustained enforcement, a widespread prevalence of fake reviews does pose an enforcement challenge. By some estimates, online fake reviews account for up to 16% of all reviews, whereas others put the number as high as 45%.

Competition risks stacked on top of consumer protection

The problem with online reviews concerns not only individual consumers and their welfare, but also competition. Genuine online reviews can ensure or boost competition between market players on the quality of their products and/or services. According to a Commission report, fake consumer reviews are recognised as one of the most market-distorting factors in the e-commerce sector. Reviews and popularity ratings are important input for comparison websites, for ranking purposes, and hence influence the consumer's choice. When consumers are unable to distinguish the quality of products or services due to fake reviews, e-commerce risks developing into a "lemons market", where buyers are unable to distinguish based on quality. This ultimately leads to an erosion of competition in terms of quality and other non-price elements.

Fighting fake online reviews for over a decade

Enforcement action in the fight against fake online reviews has taken place since the beginning of the last decade. For example, against:
  • a public relations business which was posting reviews on request of online traders, using its owns employees posing as ordinary consumers (by the US Federal Trade Commission in 2010);
  • a company misleadingly reassuring consumers that all reviewed content was genuine (by the UK Advertising Standards Authority in 2012);
  • 19 companies for creating fake online profiles on customer review sites (by the New York State Attorney General in 2013).
  • a travel review site for publishing misleading information about the sources of its online reviews (by the Italian Competition Authority in 2014);.
  • a customer review website for publishing fake consumer reviews partially written by a company based in Madagascar (by the Court of First Instance in Paris in 2014);
  • two solar panel businesses for publishing fake testimonials online (by the Federal Court of Australia in 2014).

New rules to tackle an old problem

Now there is renewed interest by lawmakers and enforcers alike. Although enforcement is already possible under national consumer protection laws prohibiting misleading conduct/advertisements, consumer protection rules have been modernised at EU level with the adoption of the EU Omnibus Directive at the end of 2019. This directive explicitly prohibits fake reviews, but the prohibition extends beyond fake reviews and endorsements. It includes the posting of "likes" on social media or the commissioning of others to do so in order to promote products, as well as the manipulation of consumer reviews and endorsements, such as by publishing only positive reviews and deleting the negative ones. Under the new rules, websites are expected to take proportionate steps to check that reviews claiming to be from consumers who have actually used or purchased a product, actually originate from those consumers. The directive calls for an increase in the powers of national enforcement authorities to work together in detecting and penalising cross-border infringements and to impose coordinated penalties. Under EU rules, national authorities will have the power to impose a fine of up to 4% of a trader’s turnover, or up to EUR 2 million if turnover information is unavailable. However, but member states are free to introduce higher maximum fines.

Recent enforcement initiatives

In addition to the new directive, we are seeing renewed interest in enforcement, perhaps motivated by the global pandemic. For example, in the UK (May 2020), Germany (October 2020) and the Netherlands (June 2020). According to the chief executive of the UK Competition and Markets Authority (CMA), Andrea Coscelli, "During lockdown, we're more dependent than ever on online shopping, so it's really important that the online reviews we read are genuine opinions". The director of the Dutch competition authority's Consumer Department, Edwin van Houten, noted that in addition to the risk posed to individual consumers, “the use of misleading endorsements can lead to unfair competition among businesses. That is why we take action against these practices.” Their enforcement actions focus on:
  • suspicious reviews, where one person has reviewed "an unlikely range" of products;
  • if businesses are manipulating reviews, for instance by combining good reviews for several products together;
  • paid reviews (not only monetary rewards, but also where a consumer leaves reviews expecting to receive free products or vouchers or where the consumer is prompted to "leave a 5-star review") and how they are handled by websites;
  • fake followers on social media; and
  • fake negative reviews about competitors.

Role of platforms in fake reviews

A few months prior to launching its investigation, the CMA secured commitments from Instagram to tackle the risk of people being able to buy and sell fake reviews via the platform, even though no allegations of intentional conduct on the part of Instagram had been made. Similarly, at the start of 2020, Facebook and eBay took action to tackle the issue by making various commitments. The German competition regulator expects platforms and other e-commerce market participants to avoid using algorithms/review filters that asymmetrically cherry pick which positive reviews to display, and what order and prominence reviews should feature in. While the use of algorithms to boost favourable reviews is frowned upon, the German authority does recommend the use of algorithms, such as smart filters, to block out fake reviews.