The German Federal Cartel Office (FCO) is not only Germany’s competition law watch dog, it also has an eye on consumer protection issues. Since mid-2017, the FCO has had the competence to conduct sector inquiries in this area. Similar to the competition law space, it has so far been demonstrating a special interest in digital markets. After the FCO had already conducted sector inquiries into online comparison websites and smart TVs, it started a third sector inquiry into online user reviews in May 2019 (see here for an overview of the FCO’s sector inquiries into consumer law issues). This investigation follows an intense public debate and studies about fake online reviews, as well as civil court proceedings in Germany. Besides the FCO, other regulators in various jurisdictions are investigating fake and misleading reviews, a topic that is also on the political agenda (for further information see below).
The FCO has just recently published its preliminary findings in form of a consultation paper (see here, available in German only). This is based on a comprehensive investigation into 16 different sectors, namely into apps, car dealers, clothes, craftsmen, DIY stores, doctors, electronics, events, gaming, generalists, lawyers/finance advisors, medicine, movies, restaurants, supplements and travel. The FCO received information from 62 major portals (major platforms, review portals, search engines, online shops, etc.) publishing user reviews, and talked to many other market players (including associations and regulators in the UK, Ireland and the US).
Interested parties can comment on the FCO’s consultation paper until 31 July 2020. The final report is expected to be published in autumn of this year.
What’s the issue?
Online user reviews are playing a vital role in digital markets and are beneficial for all market players. Most consumers are heavily relying on reviews when looking for and deciding on which products or services to buy or use. Besides pricing, reviews are the most important decision-making criterion. Also, the ranking of products or services on websites is often influenced by online reviews. Equally, websites and providers of goods or services benefit as reviews may increase their turnover.
However, not all reviews are accurate, but rather fake or misleading. Consumers might then be misled about a product’s quality and its characteristics – which would be illegal under the consumer protection rules as set out in the German Law Against Unfair Competition (UWG) – and might be harmed by making unsatisfactory purchasing decisions. Equally, portals and providers that do not use such critical user reviews might be losing turnover as quality and pricing competition could be distorted.
One of the core reasons for fake reviews is that many consumers like to read them but are not willing to draft reviews. In order to fill this ‘supply gap’ incentives are granted to consumers to write reviews and product tests, and paid reviews (including from dubious agents) are fostered.
Problem areas identified / suggested solutions
In its sector inquiry, the FCO explored the functioning of the portals’ review systems (collection, filtering and publication) and the interest of consumers, portals, product or service providers, as well as (reputable / dubious) review agents offering paid user reviews.
It then investigated various relevant areas that might be problematic and came up with suggestions on how to solve the issues identified (see list below). It found that the issues are very complex and that there is not one solution to all problems. Rather, each problem area needs to be addressed on its own and differentiated solutions need to be applied. The FCO acknowledges that portals are already taking steps to fight fake and misleading reviews. However, in its view those steps are not sufficient and may even lead to some of the distortions. It is therefore urging websites and platforms to take on a lot more responsibility for the reviews they publish. Increased efforts, more transparency and private enforcement of consumer protection law (there is no public enforcement of consumer protection in Germany) are seen as the key elements to tackle the problem areas identified.
Problem areas and solutions suggested by the FCO include:
- Incentivized reviews: Some reviews are incentivized by portals or providers (e.g. by granting a voucher or participation in a competition). According to the FCO, those reviews should be labelled as incentivized if the incentive leads to asymmetries as compared to non-incentivized reviews, e.g. if it results in more positive reviews than would normally be the case. There will certainly be some debate on the question as to when such asymmetries can be assumed. The FCO suggests that this will depend on the amount and selectivity of the incentives, but the exact boundaries will still have to be determined.
- Product test reviews: An issue arises if users are not aware of the fact that the review is based on a product test (i.e. users predominately using the product or service only to then provide a review on it). Such hidden product tests are usually commissioned by providers of goods and services. This issue, in particular, concerns trading platforms. The FCO suggests that portals should ramp up measures to identify and remove such hidden product test reviews (e.g. more filtering by analysing metadata of the posting of reviews or by automatically establishing connections between the review, the offers of review agents and reviewers). Alternatively or additionally, they should label them so that consumers can identify such reviews.
- Manipulated reviews: Especially, reviews by dubious agents offering to provide reviews against remuneration may be manipulated as their content is likely to have been influenced (e.g. if review agents are promising ‘100% satisfaction’ or a ‘5-star guarantee’). According to the FCO, portals should take more responsibility and step up actions against manipulated reviews by identifying and removing them from their websites.
- Non-authentic reviews: Those are reviews provided by persons that did not use the product or service, or not by a real person but by bots (i.e. software applications). This is an issue that mainly concerns reviews for services (e.g. as regards hotels or doctors). Again, the FCO suggests that portals should do more to identify and remove such reviews (especially in open review systems) by using, for instance, more targeted pre-filtering functions for reviews (e.g. based on the assessment of metadata, for instance the speed of submitting and clustering of reviews, region of author and irregularities in relation to IP addresses or appliances).
- Asymmetrical selection of reviews: Here the issue is that although the individual reviews are authentic and not manipulated, the entirety of reviews is nevertheless distorted by the fact that certain categories of reviews are more likely not to be published than others, especially negative reviews. One of the reasons for such asymmetries are asymmetrical incentives and filters. This may be the case if it is easier for users to provide positive than negative feedback (e.g. if it only takes one click for a positive feedback, but a reasoning is necessary for providing a negative review). Other examples: If incentives are only granted in case of a positive feedback or if filters are applied in a way that capture negative feedback more often (e.g. only those are checked manually and are therefore deleted more often) this might also lead to less negative feedback being published. In this regard, the FCO takes the position that only removing the feature in the review system which is leading to the asymmetry can solve the problem (e.g. stop granting an incentive).
- Asymmetries as a result of notice-and-take-down procedures: Another reason for asymmetries are so-called notice-and-take-down procedures which trigger a verification of reviews after their publication. As complaints usually concern negative reviews those may be more often removed than is positive feedback as a result of such procedures. The FCO believes that portals should therefore reinforce efforts to verify reviews even before they are published – at least if portals are faced with many complaints and, thus, the risk of asymmetries. It is also suggesting allowing for, or even requesting, further information from users when submitting reviews, so that it would be easier to conduct authenticity checks.
- Further problem areas identified include fictitious review systems (which should be abolished), misleading average information on reviews (e.g. if only a few reviews are available for a product) and missing representativeness of reviews (e.g. as only the very satisfied or the very dissatisfied users are submitting reviews or as some consumers groups are more likely than others to provide reviews).
Activities of other regulators and institutions
As said, the FCO is not the only regulator having a closer look at online user reviews:
- Already in 2011, the Australian Competition and Consumer Commission fined a company for publishing false consumer testimonials on its moving review website (see here).
- Also, the British Competition and Markets Authority did not only deal with this topic during its presidency of the International Consumer Protection and Enforcement Network (ICPEN) in 2015/2016, but also on national level (including investigating misleading online reviews (see here), taking action against a company and its fake online reviews (see here), and inducing companies to fight trading of fake and misleading reviews on their websites (see here)).
- In the US, the Federal Trade Commission took action against two companies allegedly selling fake indicators of social media influence and for posting fake online reviews (see here) as well as against fake paid reviews on a retail website (see here).
Further institutions and legislators are also dealing with this issue including the following:
- In May 2017, the World Tourism Organization published ‘Recommendations on the Responsible Use of Ratings and Reviews on Digital Platforms’ (see here).
- In 2019, the EU ‘Unfair Commercial Practices Directive’ was amended introducing rules on user reviews (see here).
- Also, a DIN standard titled ‘Online consumer reviews - Principles and requirements for their collection, moderation and publication (ISO 20488:2018)’ was released in Germany, which is relevant for all organizations publishing user reviews (see here). Moreover, the Federation of German Consumer Organisations conducted a study into fake online reviews in 2018 (see here, in German).
Outlook: Impact on companies
The FCO’s sector inquiry into online user reviews will further fuel the debate in relation to online user reviews – not only in Germany but also in other jurisdictions. Although the FCO currently has no power to force companies to implement any of the suggested measures, as its competencies are limited to investigate, its findings and clear call on portals to voluntarily take on more responsibility for the reviews published on their websites will nevertheless increase the pressure to actually do so. Also, market players (including portals, providers of goods and services as well as consumer protection associations) will be encouraged to initiate civil court proceedings (e.g. claims of portals against review agents in case of hidden product tests, manipulated or non-authentic reviews or, in turn, claims by consumer protection associations against portals to request compliance with potential specific monitoring obligations in such cases). As the FCO’s sector inquiry and its discussions with other stakeholders (including other regulators) may trigger even more interest in other jurisdictions, companies may increasingly be faced with further investigations elsewhere.