On Friday, November 6, 2020, the FTC finalized its settlement with Sunday Riley Skincare, a cult-favorite skincare brand known for its high-end products. The action comes after the agency’s initial announcement in October 2019 that employees of the brand, under direction of CEO, Sunday Riley, posted thousands of fake reviews of the brand’s products online over the course of almost two years.

The FTC vote to approve the final consent agreement was 3-2, with the two Democratic commissioners dissenting. The agreement prevents the company and its employees from posting reviews without disclosing any material brand connections, including employment status. As with the FTC’s initial proposal, the settlement agreement does not provide for monetary relief.

The FTC’s divided decision signals competing views on the agency’s role in enforcement of the promotion of competition and protection of consumers in the online marketplace. The majority statement explains that the final consent agreement “holds Ms. Riley personally liable, prohibits both Ms. Riley and Sunday Riley Modern Skincare from making future misrepresentations (including through fake reviews), and requires them to instruct employees and agents about their legal responsibilities.”

The dissenting statement bemoans what it sees as a “permissive approach to fake reviews,” arguing that the “no-money, no-fault settlement” is a “serious setback for the FTC’s credibility as a watchdog over the digital marketplace.” The authors urge the Commission to:

  • Issue a Policy Statement on Equitable Monetary Remedies expressing the Commission’s intent to pursue monetary settlements where there are allegations of dishonesty and fraud;
  • Codify the Commission’s Endorsement Guides, including by requiring endorsers to disclose material connections to sellers; and
  • Pursue civil penalties where parties engage in conduct known to have been previously condemned by the FTC.

Key Takeaways:

  • Make sure you have robust compliance programs to oversee user-generated content and employee endorsements, including up to the executive level; and
  • With new Democratic leadership expected in January 2021, our retail clients should expect a more active FTC that is less willing to entertain arguments that non-monetary sanctions alone can address consumer harm.