Social media has revolutionised the direct selling industry. It provides a flexible platform for companies and sellers to constantly connect with consumers.
The goal is to remain relevant, to convert passive responses into active engagement, and to drive brand recognition and loyalty. You remain competitive by understanding and managing the legal risks associated with social media.
Recent examples which highlight the litigation risks for the direct settling industry in this environment include:
- False or misleading conduct. In the hyper reality that is social media, there is a temptation to elevate a passionate enthusiasm for a product or service to a representation which creates a false impression about its qualities, benefits or use. Even silence or non-disclosure of a material matter can be misleading. Consumers can make a claim even if there was no intention to mislead. The real risk is that this conduct will attract the attention of regulators such as the Australian Competition and Consumer Commission (ACCC) and the various state Fair Trading departments. The ACCC has taken action against a direct selling company for misleading testimonials published by an individual seller about its products, when the company was aware of and failed to take action to have the testimonials removed.
- Consumer law entitlements. Social media facilitates fast-paced and informal dialogue. Where such dialogue involves a seller and a consumer, there is the potential for the legal entitlements which protect consumers to be compromised. This can occur when a consumer raises a complaint and a seller is attempting to resolve the issue in a practical manner and to preserve the relationship. While well intentioned, such attempts often overlook the consumer’s legal entitlements to warranties, replacements and refunds.
- Defamation. Social media is an evolving area of defamation case law but the principles are the same. You can defame a person where a publication, through words or pictures, damages their reputation or causes others to think less of them. You cannot defame a direct selling company (except a “not for profit” organisation or a company with less than 10 employees), but you can defame an individual including a seller or consultant. Liability can arise whether you name the person or not. Defamatory comments on member only Facebook groups, private messaging, anonymous comments on online forums and Twitter posts are all vulnerable to a claim. Significantly, where a direct selling company hosts the page or has administrative privileges, it can be liable for a publication by a seller or an unrelated third party if it fails to remove the comments. Liability can also arise where publications are re-posted.
- Reputation. The ability to harness social media to build brand reputation and connect with an ever increasing pool of consumers is key to the success of many direct sellers. It is common for sellers to have their own social media accounts to promote the product or service as well as engaging with the company’s social media forums. The reach of social media is integral to business success but equally provides broad scope for negative stories and comments to be published which damage the brand and goodwill. Previously, a disaffected customer, seller or competitor had a limited forum to air their grievances. Social media enables such grievances to be aired, potentially to the world, with the click of the mouse. Similarly, claims or litigation which would have attracted local or industry specific media coverage now have the potential to go viral.
- Product liability. Direct selling companies are liable for any damage or injury caused by the products sold. Product liability cases risk an expanded pool of claimants being identified through social media. In the absence of the involvement of a regulator or a form of recall, direct selling companies were previously able to resolve any product liability claims commercially and on a case by case basis, often with a confidentiality clause. Social media allows consumers to make claims, often accompanied by photographic or video “evidence”, before the complaint is raised with the company. This is often under the guise of enquiring whether other users have had similar experiences. The result is that other claims may be identified and there is the prospect of a class action being formed. There are instances of social media being used as a tool to tout for class actions in product liability cases.
- Privacy. Direct selling companies with an annual turnover of in excess of $3 million which carry on business in Australia (with some exceptions) are covered by the Privacy Act. Disputes have arisen where information about a consumer is collected to facilitate a purchase and is then used on social media to promote them as a new customer or “tag” them in communications. There are restrictions on the use of personal information, including on social media, depending on the nature and purpose for which the information was collected.
- Intellectual property. Where sellers operate their business as independent consultants, there is greater scope for disputes over intellectual property such as copyright in individual articles and photographs on Facebook, Twitter and blogs. There can also be issues about use of trademarks on social media accounts and disclosure of trade secrets. Australia is yet to litigate the issue of who owns social media followers, but there is already U.S. case law about an employee accepting a position with a competitor and taking the company’s Facebook friends and Twitter followers with them.
As the social media environment continues to evolve, so too will the potential for new claims and legal risks. Part 2 of this article, Social Media - Litigation Risk Management, will follow next month and will provide tips for the direct selling industry.