Hello.

This is Attorney Lee Young-kyung of Chungchul Law Firm.

In this column, we will look at the unfair advertising and labeling practices of Company A, which were recently sanctioned by the Fair Trade Commission. According to the FTC, Company A posted 274 comments and posts disparaging competitor Company B and its baby mats on 54 websites, including mom cafes, through an advertising agency, and made those posts look as if they were genuine experiences or recommendations left by actual consumers. The FTC particularly emphasized that the baby mat market is closely tied to children’s safety, prevention of noise between floors, and parents’ trust in reviews.

The press release explained viral marketing, which was the background to this case, as a method that prompts consumers to send messages to other consumers so that positive word of mouth about one’s own product or negative word of mouth about a competitor’s product is created. The problem is that this method went beyond advertising that merely borrows the appearance of consumer opinion and was used as a means to intentionally damage a competitor’s reputation. In the end, this case is a representative example of how far the Fair Labeling and Advertising Act can reach when a “post that looks like a review” is actually advertiser-driven advertising.

This column was written based on the Fair Trade Commission’s official press release, and the final legal assessment may change depending on any future objection procedures or court rulings.

[Question]

If you post disparaging comments about a competitor on a mom cafe while pretending to be a consumer, is that a violation of the Labeling and Advertising Act?

[Answer]

Yes. The FTC determined that Company A’s conduct was deceptive labeling and advertising because it concealed who wrote the comments, and defamatory labeling and advertising because it negatively evaluated a competitor and its products without objective grounds. As a result, an order to correct the practice and the maximum statutory fixed penalty of KRW 500 million were imposed.

1. Facts: 54 mom cafes, 274 comments, disparagement of a competitor disguised as consumer reviews

According to the FTC press release, from October 30, 2017 to June 27, 2018, Company A used advertising agencies and so-called throwaway accounts to write a total of 274 comments and posts on 54 websites (mostly mom cafes). Although the posts were uploaded using the advertising agency’s accounts or accounts of Company A’s affiliates, they were presented in appearance as if they were firsthand experiences left by ordinary consumers after using the product themselves.

The content of the problematic posts fell largely into three categories.

First, there were direct disparaging expressions aimed at competitor Company B;

second, there were false negative usage experiences such as claims that “my child’s skin turned red,” and

third, this was followed by recommending the Alzip product as the apparent alternative.

According to the press release, examples such as “Isn’t that really a crazy company...,” “I was using that cream, was I the only one having a problem?,” and “I recommend Alzip” were confirmed. This was not merely criticism of a competitor; it also involved a flow that stirred consumers’ anxiety and then presented the company’s own product as an alternative.

The FTC viewed this conduct not as an independent deviation by the advertising agency, but as an organized act carried out under Company A’s instructions and reporting structure. Company A specifically directed the advertising agency regarding the content and direction of the comments and received progress reports. For example, it was confirmed that Company A instructed the agency to focus publicity on the fact that dimethylacetamide (DMAc), a substance prohibited under certification standards, had been detected in Company B’s product and that its eco-friendly certification had been revoked.

In addition, these acts continued until the police raid in June 2018, and the resulting comments remained on the internet until as late as September 4, 2025. Moreover, former CEOs of Company A were convicted of criminal offenses such as obstruction of business under the Criminal Act, and the sentence was finalized on April 16, 2024 when the Supreme Court dismissed the appeal. This shows that online posts are not merely fleeting advertisements, but can leave a long-term impact on market reputation and consumer perception.

2. Issues and legal provisions: Why hiding the author becomes deceptive advertising, and why unsupported takedowns become disparaging advertising

There were two key issues in this case.

One was whether making a post look like a consumer review while concealing who wrote it constitutes deceptive advertising under the Labeling and Advertising Act, and

the other was whether spreading negative information about a competitor’s product without objective grounds constitutes disparaging advertising. The FTC recognized both issues.

Article 3(1) of the Act on Fair Labeling and Advertising prohibits businesses from engaging in acts that are likely to deceive consumers or cause them to misunderstand, and that may impair fair trade order. The law expressly identifies deceptive labeling and advertising and disparaging labeling and advertising as types of such conduct. In other words, the law does not only prohibit false wording; it also regulates the very method of making consumers misunderstand the source and nature of information.

The FTC especially viewed whether the author was an ordinary consumer or a competing business as a factor that significantly affects consumers’ purchasing and selection decisions. If people believe a post reflects a real consumer’s experience, they accept it as a trustworthy review. But if they learn it was written by a competitor or advertiser, the credibility of that information changes dramatically. Therefore, hiding that a post is advertising and making it look like a review can be deemed deceptive not only because of its content, but also because of its form of expression and concealment of the source.

The same applies to the disparaging advertising issue. Under the Enforcement Decree of the Labeling and Advertising Act, disparaging labeling and advertising means disparaging by advertising content that lacks objective grounds, or disparaging by advertising only unfavorable facts. In this case, many of the posts at issue singled out Company B’s products and contained extreme criticism or false consumer experiences that lacked any objectively verifiable basis. Accordingly, this went beyond mere expression of opinion and could only be assessed as an advertising act that artificially undermined the market’s trust in a competitor’s product.

The penalty aspect is also worth noting. The FTC imposed the maximum statutory fixed penalty of KRW 500 million on Company A because the advertisements targeted not Company A’s own products but Company B and its products, making it difficult to separate Company A’s related sales. In the end, this case is significant not simply as a warning, but also because it shows that the FTC viewed the illegality of online review-style advertising as quite serious.

3. The FTC’s decision and implications: The boundary between review ads, viral marketing, and comment marketing

First, the FTC clearly recognized the deceptive nature of the conduct. Whether the author of the comments was an ordinary consumer or a competing business significantly affects consumers’ purchasing and selection decisions, yet Company A did not disclose this at all in the comments. Moreover, these posts were not in the form of ordinary advertising copy or a blog-style user review; they were advertisements in the form of posts or comments, making it more likely that ordinary consumers would mistake them for sincere experiences or opinions.

The FTC also recognized the disparaging nature. Considering that 264 of the comments and related posts singled out Company B’s products and contained disparaging expressions or false consumer experiences that could not be supported by objective grounds, the FTC found disparagement. In the end, this case involved circulating unverified content in the form of consumer reviews in order to create a negative impression about a competitor’s product quality or safety, and the FTC regarded this as conduct likely to harm fair competition.

Another important point is consumer deception and interference with fair trade. The FTC reasoned that because consumers rely heavily on other consumers’ personal experiences and opinions in order to reduce trial and error, this type of comment-based advertising distorts the market’s information order. In particular, in markets such as baby mats, where parents are highly sensitive to their children’s safety and health, a single review or a few comments can have a much greater impact than with ordinary products. That is why the FTC sees the significance of this case in that it detected and sanctioned conduct that maliciously exploited parents’ concerns.

From a practical standpoint, this case clearly shows what companies should check when using advertising agencies. First, if comments, reviews, or community posts are advertisements, their author identity or advertising nature must be managed in a way that does not mislead consumers. Second, any comparison or reference to a competitor’s product must be backed by objective grounds, and fabricating negative experiences is especially risky. Third, even if an outside agency is used, responsibility is not easily separated if the company internally instructs the wording of the comments or receives reports on them. In the end, the problem with viral marketing is not simply whether it is “advertising or not,” but rather who wrote it, what it was based on, and how consumers perceive it.

Ultimately, this FTC sanction shows that comment marketing carried out on online communities and mom cafes can no longer be seen as a light promotional tool. Even if a post looks like a review, if it is substantively advertiser-driven advertising and furthermore aimed at disparaging a competitor, it can simultaneously raise issues of deceptive advertising and disparaging advertising under the Labeling and Advertising Act. From a company’s perspective, now is the time to check not only a single marketing line, but also the review management process, internal approval system, and advertising agency oversight standards first.