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Advertising & Marketing Law: Loss of reputation is the real cost of misleading advertising (part 2)

21 July 2020

#Technology, Media & Telecommunications

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Advertising & Marketing Law: Loss of reputation is the real cost of misleading advertising  (part 2)

A press release issued by a regulator has a way of making headlines and appearing on the first page of search engine results for some time after its release.

Reputational damage caused to a company or brand following a breach of the law is often far more significant to a business than any fines or other penalties that may be imposed by a regulator, and the greatest risk posed by advertising is likely to be in the form of misleading and deceptive conduct.

Misleading and deceptive conduct: The principle

In the first part of our series here, we outlined the importance of clearing advertising so that any potentially misleading representations were picked up on review.

The Australian Consumer Law (ACL) outlines the principle – do not engage in conduct that misleads or deceives or is likely to mislead or deceive. The principle applies regardless of any loss or harm suffered and regardless of whether there is any intention to mislead or deceive. The ACL also outlines further specific offences in respect of misleading and deceptive conduct in regard to matters, including price, description, origin of goods and services and conduct that suggests a false affiliation or endorsement relating to a product.

The fines or penalties that might be imposed for misleading or deceptive conduct include fines, to the greater of:

  • $10 million;
  • three times the value of the "reasonably attributable" benefit obtained by the breach, if the court can determine the value; or
  • if the court cannot determine the benefit, 10 per cent of the business’ annual turnover in the preceding 12 months.

Other penalties can also include court enforceable undertakings, injunctions, declarations, damages, and orders to compensate affected consumers. Investigations and proceedings can also come at great cost to a business in the time and cost taken to respond to requests for information and then to comply with any undertakings, including training and developing new processes.

The hike in total penalties handed down to companies in breach of the ACL, since the available penalties were increased in 2019, has been noticeable. In the past year, the record was broken first with a $26 million penalty given against Empower Institute, a failed education provider, followed quickly by new record financial penalty of $125 million handed to Volkswagen in December 2019 for false claims around diesel emission standards.

The penalties are certainly nothing to be sniffed at. The $5 million plus penalties given this year so far include those for false representations to members about the benefits offered by ahm health insurance policies, Bupa’s representation of services provided to residents at aged care homes, and STA Travel’s representations around its add-on conditions. However, our assessment is that the reputational loss is still the greater deterrent for brands, and this cost would be difficult to quantify.

Consider your audience

The regulator or the Court will usually consider the ‘target audience’ of the advertising when considering whether the ordinary person would be likely to be misled or deceived. This can be a trap as companies may assume that their audience has a degree of knowledge about their products, and the Court does not tend to agree. As a precaution, it is generally better to assume the target audience has less knowledge rather than more.

Implied endorsement or affiliation

One of the most commonly overlooked aspects in this space that we see are campaigns that imply an endorsement or affiliation in breach of the ACL. For instance, a brand might consider that there are no copyright infringement issues as there is no substantial reproduction of any third party material, and stop there without considering if the campaign invokes an affiliation or endorsement by making reference to a third party’s product or brand – often a film, TV show, song or celebrity. On occasion, brands may even make an implied suggestion that their brand or product has the approval or endorsement of a government agency which is not supported in fact, and therefore likely to draw the unwanted attention of the regulator.

Comparative advertising

Campaigns that seek to compare your product against that of a competitor need to be carefully considered, as they are likely to be scrutinised by your competitor and the regulator. Even if the claims are true upon publication, the competitor may then be able to change their offering, which means your claims could become untrue if your campaign continues to run.

Disclaimers cannot correct an otherwise misleading statement

It is wrong to suggest that you can add fine print or a disclaimer to correct a misleading headline. Instead, the Court will look at the overall impression created by advertising and this will usually be the impression formed by a catchy headline or dominant visual, for example. It is important, therefore, to develop your claims and headlines with this in mind – ideally create something that does need qualifying in the first place.

Also, consider the medium. For online advertising assets, advertising the price, for example, where there are “conditions” that apply and the offer is complex, may not be realistic given the space you have available.

Brands who get these principles right will retain the trust of their consumers and have a reputational advantage.

Authors: Dan Pearce & Emily Booth

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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