By: Kaylie Scalze
Hey Dude has agreed to settle with the Federal Trade Commission for several charges, including misleading consumers by hiding negative reviews that gave their shoe products anything less than four out of five stars. Hey Dude willpay fines worth $1.95 million to the FTC and has agreed to several of the FTC’s proposed injunctions.
The increasingly popular shoe brand – Hey Dude was created in 2008 by Italian entrepreneur and shoe designer Alessandro Rosano. Rosano aimed to create shoes as comfortable as slippers and began with the first Hey Dude design – the Wally. In 2010, Rosano partnered with Daniele Guidi, who would become Hey Dude’s American distributor.
Fast forward a few years, Hey Dude took off partly thanks to the Covid-19 pandemic. People began spending less money on fashion goods due to the financial hardships and skepticism that the pandemic brought. Consumers were looking for more affordable options along with more comfortable options. Loungewear, slippers, and activewear were the height of pandemic fashion, and Hey Dude saw its sales rise from $20 million in 2018 to $581 million in 2021. In 2021, Crocs acquiredHey Dude from Rosano for $2.5 billion. However, trouble with the Federal Trade Commission started before the sale occurred, with the FTC claiming the company violated the FTC Act and the FTC’s Mail, Internet, or Telephone Order Merchandise Rule between 2020 and 2022.
The FTC Act empowers the Commission to “prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce,” – such as hiding negative online consumer reviews. The FTC claimed Hey Dude violated the Act by rejecting and not publishing less-favorable reviews. The company used a third-party online management review interface and allegedly had written policies and procedures that directed Hey Dude staff to only publish reviews if they were positive.
Hey Dude’s violation of the Mail, Internet, or Telephone Order Merchandise Rule (also known as the Mail Order Rule) was supposedly three-fold: (1) they failed to issue shipping delay notices when they could not promptly fulfill consumer’s orders; (2) there was a failure to cancel customer’s orders and issue timely refunds after failing to issue the proper notices; and (3) Hey Dude did not send refunds via the original payment method for the goods ordered but not shipped, but instead, issuedcustomers gift cards. The FTC rule directs when a seller cannot ship within the timeframe promised to the customer, the seller must get consent from the customer for the postponement or refund the customer for the item(s) they bought. Within this regulation is the requirement that the refund to the customer be made using the same form of payment the customer used to purchase the item.
Hey Dude has agreed to settle the matters with the FTC for $1.95 million. If approved by the court, the FTC’s proposed court order bars Hey Dude from violating the Mail Order Rule in the future and requires the company to post “all reviews related to products currently offered for sale.”
This is not the first online retailer to receive backlash from the FTC for hiding negative reviews. In January 2022, American fast-fashion retailer Fashion Nova settled a complaint from the FTC asserting the retailer had stifled negative reviews. This was a monumental moment for the FTC as it had never before gone after a company for failing to post negative reviews. Like Hey Dude, Fashion Nova used a third-party product review system to moderate the reviews posted to their website. This particular third-party system extemporaneously posted reviews that gave products four or five-star reviews and separated reviews, givingfewer stars to be approved by the company later. A spokesperson for the retailer told TIME magazine – “the FTC allegations were “inaccurate and deceptive” and that the company was “highly confident that it would have won in court and only agreed to settle the case to avoid the distraction and legal fees that it would incur in litigation.”’
One would assume the Fashion Nova case – with a steep price of $4.2 million – would warn other companies to be careful withonline reviews. That assumption would prove incorrect, as evidenced by the recent Hey Dude case and several other review-related complaints the FTC has brought against companies in 2023.
In February of 2023, the FTC charged The Bountiful Company (Bountiful) marketer with hijacking ratings and reviews on e-commerce giant Amazon.com. The FTC considers “review hijacking” to be an action a marketer takes in which they steal or repurpose a review of another product to use for their advertising. Bountiful used an Amazon.com feature to boast their products’ reviews with the reviews of other, similar products in an attempt to sell certain supplements that were not selling. This was mostly achieved by “borrowing” another product’s ‘Amazon choice’ and ‘best seller’ badges.
Most recently, the FTC brought a claim against Roomster in August of 2023. The complaint claimed Roomster bought fake reviews, which deceived consumers of rooms the site claimed to be available and verified, although, in reality, many were fabricated. Not only was the FTC involved in charging Roomster and the individual who sold the company the fake reviews, but six states joined in on the action against the two deceitful parties.
The FTC’s seemingly new-found confidence to go after major online companies and retailers comes amidst a major revamp of the Commission’s Endorsement Guidelines. Completed in July of 2023, the FTC added several provisions highlighting marketer’s heightened dependence on online reviews, social media, and influencers. In addition, the FTC has proposed a new rule to ban fake reviews and testimonials. The Director of the FTC’s Bureau of Consumer Protection, Samuel Levin, stated, “Our proposed rule on fake reviews shows that we’re using all available means to attack deceptive advertising in the digital age.” If approved, companies and individuals who violate the rule may face fines of up to $50,120 per violation.
While the FTC’s crackdown on larger companies is admirable, the ever-increasingly rapid reach of social media and the new threat to consumers posed by Artificial Intelligence present new harmful advertising practices that the FTC has yet to address outside of proposed business practices. The FTC admits that “case-by-case enforcement without civil penalty authority” may not be enough to dissuade future deceitful advertising tactics. In fact, as of the time of this article, the FTC has yet to charge an individual who does not have employee-like ties to a marketer, specifically independent social media influencers.
The FTC needs to intensify its enforcement efforts on influencers and continue to dole out harsher and harsher complaints against companies like Hey Dude if the Commission plans to be able to handle regulating advertisements in this new digital age. A step in the right direction would be the acceptance of the FTC’s proposed Trade Regulation Rule on the Use of Consumer Reviews and Testimonials. The Supreme Court’s support also plays a crucial role in the future of FTC regulation of online reviews. Support the FTC has yet to receive.
Prior to 2021, the FTC was able to secure billions of dollarsfrom deceptive companies to return to the consumers affected by such deceptive practices. This was an important mechanism for the FTC to be recognized as a force companies should be wary to mess with. However, in 2021, the Supreme Court ruled in favor of AMG Capital Management and with it “deprived the FTC of the strongest tool [they] had…” The FTC no longer has power under the Federal Trade Commission Act to seek restitution to require companies to give back money to customers. Without this crucial power, the FTC and its regulations may not be taken as seriously by large companies.
Hey Dude is just one on the list of many companies the FTC has gone after in recent years to combat deceptive advertising practices, and if the FTC wants to continue to be a respected regulatory authority on these matters, the Commission needs to persist with its fight. Hopefully, in light of Hey Dude’s splashy mistakes, brands will take note and rectify any current online strategies that may be unfair or misleading to their consumers.
Student Bio: Kaylie Scalze is a second-year law student at Suffolk University Law School. She is a staff writer on the Journal of High Technology Law and is a member of the Executive Board of the Business Law Association serving as the Social Media Chair. Kaylie received a Bachelor of Arts in Legal Studies from Suffolk University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
