Facebook reported it had more than a billion monthly active users and an average of 618 million daily active users in December 2012. If it was a country, it would have the third largest population in the world, behind China and India. In Australia, there are 11,677,680 users of Facebook, which is a penetration rate of 54.28% of the population. Social media is no longer just a tool to stay in contact with friends. Businesses are finding new ways to interact with their customers via social media. Businesses therefore need to stay on top of the case law and regulation in this area to ensure they do not find themselves falling foul of the law.

A business can be held responsible for user generated content on its social media sites. Such content must therefore comply with the Australian Consumer Law (ACL). The latest case of Seafolly Pty Ltd v Madden [2012] FCA 1346 now teaches us that posts by the proprietor of a business on their personal Facebook page can also be captured by the ACL. Businesses should also keep abreast of the position of the Australian Competition and Consumer Commission (ACCC) to ensure they stay on the right side of the regulator.

Past Lessons

Company Facebook and Twitter pages are considered advertising. We have learned from:

  • the decision in Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd (No 2) [2011] FCA 74 that a company will be held responsible for posts by customers on its Facebook or Twitter pages if they breach the ACL;
  • the Advertising Standards Board decisions regarding the VB and Smirnoff Facebook pages and guidance released by the Australian Association of National Advertisers1 (AANA) that the AANA self-regulatory codes apply to user generated content communicated via a site or digital platform over which the marketer has a reasonable degree of control.

Seafolly Pty Ltd v Madden [2012] FCA 1346

The case of Seafolly Pty Ltd v Madden extends the lessons further. In that case, the Federal Court held that the comments made on Leah Maddens’s personal Facebook page were comments made “in trade or commerce” and so must comply with the ACL.

The Facts

Leah Madden was the principal of the swimsuit business, White Sands. Madden saw a magazine cover featuring a model in a swimsuit which she had initially thought was designed by White Sands, but which the magazine revealed was designed by Seafolly. Madden recalled dealings she had had with a buyer from a subsidiary of Seafolly in May 2010, who had previously been employed by Seafolly. The buyer had been shown the White Sands range and had taken sample photographs on her Blackberry.

Over the next couple of days, Madden made a range of comments on Facebook and by email including:

  • posting on her personal Facebook page, which had 518 “friends”, the heading “The most sincere form of flattery?” and an album of photographs of White Sands swimwear alongside Seafolly swimwear with the caption “White Sands as seen at RAFW in May – Seafolly September 2010” or “White Sands 2009 – Seafolly 2010”;
  • posting various comments with Facebook user name “Leah Madden” or “White Sands Swimwear Australia” such as “Ripping off is always going to happen, but sending in a dummy “buyer” to get photos is super sneaky!”;
  • posting various comments on the White Sands Australia Swimwear Facebook page, which had 3,535 “friends”;
  • sending an email to a number of media outlets which included the same photographs and captions.  

Seafolly issued a press release denying the claims and noting the Seafolly garments alleged to be copies were either already released to market or nearly completely designed before White Sands released its relevant swimwear garment. Seafolly also filed a copyright complaint notification with Facebook, sent a letter of demand to Madden, and then brought an action against Madden for misleading and deceptive conduct, injurious falsehood and copyright infringement. 

The Decision

The Federal Court held that Madden had breached sections 52 and 53(a) of the Trade Practices Act 1974 (now s18 and 29(a) of the ACL).

The Federal Court found that whilst the statements were made to a limited audience of Madden’s Facebook “friends”, the responses showed the representations were understood by readers as asserting Seafolly had engaged in unethical practices.

Were the statements expressions of opinion?

The Court disagreed with Madden’s claims that the reasonable reader would understand she was expressing no more than an opinion about the similarity between the garments.

The Court held that even if this were the case, Madden was reckless in forming these opinions and there was no adequate foundation for them. She had failed to take a number of steps which would have elicited facts inconsistent with the allegations of copying such as enquiring when the Seafolly garments were placed on the market, examining some of the Seafolly garments or contacting Seafolly. If she had taken prudent steps, the Court held, she would have become aware that six of the garments she had highlighted were on the market prior to May 2010 and the other two were going through design stages and were released in July 2010. Further, the dates Madden placed under the photographs were wrong and her intention was to suggest her garments were in the market place before Seafolly’s. There were also varying degrees of design difference between the actual garments.

Were the Statements made in Trade or Commerce?

The Court held the comments by Madden were made in trade or commerce, as required for an action for misleading and deceptive conduct. It found that:

  • Madden was the principal of a trade competitor of Seafolly;
  • Madden’s statements related to the manner in which Seafolly conducted its business; 
  • Madden alleged Seafolly had engaged in conduct which was improper, to the detriment of her own business; 
  • Madden thereby sought to influence the attitudes of customers and potential customers of Seafolly.

ACCC Guidance on Social Media

The ACCC website sets out the ACCC’s view on the use of social media.2 Tips from the ACCC are:

  • Do not make misleading claims: For example, if a company pays a celebrity to tweet they loved staying at its resort when they have never been there, the tweet is likely to be false, misleading or deceptive. 
  • Remove negative comments about competitors if misleading or deceptive: A company can be held accountable for negative and untrue comments on its Facebook page posted by a fan about a competitor’s product if it knows the comments are incorrect but leaves them up. 
  • Monitor regularly: The amount of time required to be spent monitoring depends on both the size of the company and the number of followers. The ACCC provides the following examples:
    • A company with 300 staff: A larger company usually has sufficient resources and sophisticated systems and so would be expected to become aware of misleading or deceptive posts on its Facebook page soon after posting, and to act promptly to remove them. 
    • A company with 20 staff, but more than 50,000 Facebook fans: Given the number of people that could be misled, the ACCC would expect the company to devote adequate resources to monitoring its Facebook page and to remove misleading or deceptive posts soon after posting. -
    • A company with 12 staff and 80 Facebook fans: A small company is unlikely to have the same resources to dedicate to social media monitoring, also there is less potential for widespread public detriment for incorrect posts. The ACCC would not expect this company to monitor its Facebook page as regularly. 
  • You can respond to a comment instead of removal if appropriate: However keep in mind, your response may not be sufficient to override the false impression created.
  • Rectifying potential impact: The ACCC advises that in order to rectify the potential impact of false, misleading or deceptive statements, a business should offer a refund to any customer who made the decision to purchase their product or service based on a false, misleading or deceptive claim on their social media page.  

The ACCC outlines on its website that it is more likely to pursue cases if there is the potential for widespread public detriment if the statement is relied upon, if the conduct is particularly blatant or if the business has previously come to the ACCC’s attention.