News & Analysis

Don’t make this $145,000 mistake in your startup

- February 6, 2014 3 MIN READ

There’s been a bit of ballyhoo around the subject of fake reviews after the Australian Competition and Consumer Commission (ACCC) issued a new set of guidelines targeting businesses that lure customers with bogus reviews. As of late, over 40 businesses across Australia, suspected to have engaged in deceptive practice, have been asked by Australian Consumer Law (ACL) regulators and their state-based Fair Trading counterparts, to prove the genuineness of the testimonials that appear on their website.

New South Wales topped the list, with 28 business issued ‘substantiation notices’ over the past six months. Substantiation notices require business to prove any claims they’ve made regarding their business. Infringement notices of up to $5,100 or court penalties of up to $16,500 can be issued for failing to comply. Out of the 28, only 18 responded in a satisfactory manner to prove the reviews are real, and the others were asked to remove the reviews from their website.

Penalties for deceptive conduct under Australian Consumer Law can be up to a whopping $1.1 million for companies, and $220,000 for individuals. Court recently issued $145,000 in fines to solar businesses that published fake video testimonials on their website, according to the Sydney Morning Herald. This included an individual fine of $20,000 for the director of one company. This was the first penalty issued in Australia for fake testimonials and sets an example for further fake and misleading testimonials.

Sam Johnson

Sam Johnson, Founder of Feedback Loop

According to Sam Johnson, former ACCC intelligence analyst and founder of startup Feedback Loop which helps with the detection of fake online reviews, “[this is] the largest single fine that any company has been issued worldwide. Fines in New York totalled $350,000 across 19 companies.”

“We have customers and staff in the UK, US and Australia, but Australia has by far been the most active in dealing with this problem. We’re the only country to have enforcement action in every state spanning multiple industries. This is a good sign for shopping online in Australia – given last financial year we spent $14.2 billion online.”

When asked why the problem is more prevalent in Australia, Johnson says it’s not a matter of prevalence, just that more businesses have been caught in Australia.

“[O]ur regulators are more active, and there are clearer guidelines about reviews and testimonials. In other countries they’re not as forward-thinking,” says Johnson.

He adds that substantiation notices have been put to good use, as they are “an easy way for regulators to find out whether businesses are being honest without the costs of taking them to court. They’ve only had these powers since 2011. It shows that any business can be caught, and it also means that consumers or competitors should contact their local office of fair trading if they think a business is using take reviews or testimonials.”

Before substantiation notices, if a regulator suspected a business making misleading claims, their only options were to ask them to prove it, or take them to court which is an expensive exercise. The substantiation notices give regulators the power to protect consumers more quickly and without wasting the resources it takes to pursue legal action. The infringing businesses can still take matters to court if they believe the regulator hasn’t followed the law.

Regulators can now also issue on-the-spot fines for infringements of misleading and deceptive conduct laws without going to court.

As part of the ‘National Testimonials Project’, 11 industries were investigated through surveys – including real estate, recruitment, restaurants, funeral services and alternative health. Which industries are more likely to engage in deceptive conduct hasn’t been revealed. But according to Herald Sun, at least two businesses are still under investigation. 

“We wouldn’t be surprised to see more companies being caught now that these fines and notices have been issued. We also look forward to other international regulators addressing this problem that is worldwide,” says Johnson.

There’s one obvious moral to this story: Don’t fake your testimonials! The other one, as Johnson points out, is to consider market demand. If false testimonials is the only way a business can think of to gain traction, it might be a sign that the product or service they’re offering isn’t really needed.

“When we started and didn’t actually have any customers, we published real testimonials from businesses owners speaking about how they were excited about the problem we were solving,” says Johnson.

Guidelines on reviews and testimonials are available via the ACCC website.