A Whistle & Co (1979) Pty Ltd, is a franchisor of an Electrodry Carpet Cleaning business with over 100 franchisees throughout Australia (except in Sydney). Between February 2012 and June 2012 the franchisor was involved in publishing fake testimonials on the internet. The involvement took the form of posting and requesting that franchisees post false testimonials and reviews about Electrodry on popular product review websites, including Google, True Local and Yelp. Testimonials and reviews were posted from non-existent customers and from people that had not received Electrodry services.
For this conduct, the franchisor was ordered by the Federal Court to pay penalties of AUD215,000. The Court expressly noted that but for the franchisor's cooperation a much larger penalty would have been imposed. Other orders, including injunctions, corrective advertising and the payment of costs were also made.
The ACCC commented on the use of testimonials as a "useful and genuine marketing tool" but stressed the importance that businesses understand "making or inducing false or misleading representations about testimonials breaches the Australia Consumer Law."
The line drawn between acceptable conduct and misleading and deceptive conduct is not always so clearly discernible or observed in practice. Given the lure of the anonymity inherent in the internet and the perceived difficultly of verifying information like testimonials and reviews, many were surprised that the ACCC invested resources to investigate the franchisor's conduct. This case shows that the ACCC does not shy away from taking action, even in circumstances where that action may be difficult to prove. Franchisors, particularly when they are starting out, may be tempted to solicit favourable publicity to increase their online profiles. Franchisors using or allowing the use of testimonials and reviews that are not genuine risk substantial fines and significant risk to the reputation of the franchise system. K&L Gates can assist if you are unsure whether conduct is likely to be assessed as being misleading and deceptive.