Facts
Decision
Comment


The Federal Court of Australia recently found that comments made on Facebook by an Australian swimwear designer about rival swimwear label Seafolly amounted to misleading and deceptive conduct. The decision serves as a reminder that social media is not immune from the laws that apply to businesses in general.

Facts

In September 2010 Leah Madden, principal and designer of swimwear label White Sands, created a Facebook album on her personal page entitled "The most sincere form of flattery?" The album contained a series of composite photographs of White Sands' swimwear alongside similar pieces from Seafolly's collection. Madden captioned each photograph with the name of the designer, the name of the swimwear and alleged date of release of the design.

Madden posted various comments on the Facebook album, including the following:

  • "Why allowing 'buyers' to photograph your collection at [Rosemount Australian Fashion Week] can be a bad idea."
  • "Ripping off is always going to happen, but sending in a dummy 'buyer' to get photos is super sneaky!"
  • "Seriously, almost an entire line-line rip-off of my Shipwreck collection."

Madden subsequently emailed a copy of her composite collection to several media outlets, including newspapers and trade publications, asking: "Is it just us, or has Seafolly taken a little to [sic] much 'inspiration' from White Sands?"

On becoming aware of Madden's claims and actions through the media, Seafolly issued a press release stating that Madden had knowingly made false claims which were maliciously intended to damage Seafolly. Shortly thereafter, Madden removed the Facebook album but continued to make references to Seafolly's alleged conduct on Facebook.

Seafolly brought proceedings against Madden for misleading and deceptive conduct under the Trade Practices Act 1974 (now replaced by the Competition and Consumer Act 2010), as well as injurious falsehood and copyright infringement.

Decision

Misleading and deceptive conduct
Although Madden's Facebook postings were made on her personal page, the court held that because Madden was a trade competitor and her comments related to Seafolly's business and "sought to influence the attitudes of customers and potential customers of Seafolly", her Facebook comments were made "in the course of trade or commerce" and were therefore subject to the Trade Practices Act.

On investigation, the court found that the Seafolly swimwear designs - as published on Madden's Facebook page and in her correspondence - had been on the market or in production well before the date on which Madden created and released her own similar swimwear designs.

Although Madden did not use clear and unequivocal statements that Seafolly had "copied" her designs, the court held that when read in context, Madden's statements were intended to (and did) convey to her audience that she believed, erroneously, that Seafolly had copied her designs. The comments were therefore found to constitute misleading and deceptive conduct.

The court observed that Madden could have taken a number of investigative steps that would have revealed the error in her allegations and thereby avoided the costly and bitter dispute.

Injurious falsehood
The court rejected Madden's argument that she was merely expressing an opinion about the similarity of the depicted swimwear designs. The court held that, regardless of Madden's intentions or purpose in making the Facebook comments, it was the understanding of the audience which was significant and that her statements were taken by her audience to be allegations of copying. Furthermore, the court held that Madden was "reckless" and her allegations therefore lacked any honest foundation.

In turn, Madden's cross-claim against Seafolly for defamation and misleading and deceptive conduct arising out of its press release failed. While Seafolly's comments were considered defamatory, they were held to be defensible in that they were substantially true and proportionate to the seriousness of Madden's allegations.

Copyright infringement
Seafolly also sought a claim against Madden for infringement of Seafolly's copyright through reproduction of Seafolly's photographs. The court rejected Seafolly's claim of infringement on the grounds that Seafolly could not demonstrate that, as at the date Madden posted the photographs on Facebook, Seafolly was the legal owner of the photographs.

Although the court recognised that Seafolly had been given retrospective rights from the legal owner to sue for past infringements, Seafolly's action against Madden was flawed as it had sought infringement and subsequently damages in its own right and not on behalf of the legal owner. The court acknowledged that even if Seafolly had brought the action on behalf of the legal owner (rather than in its own name), no evidence had been submitted by Seafolly that the legal owner had suffered any damage as a result of Madden's reproduction.

Comment

This decision provides a useful reminder to businesses engaging contractors that they must ensure that the ownership of IP rights is dealt with upfront. It also highlights the importance of making proper enquiries before making allegations, particularly in an online forum such as Facebook, where allegations can be widely and quickly propagated.

The laws that apply to businesses generally also apply to their social media activities. Businesses must therefore be careful that statements made on social media are correct and can be substantiated. They should also be aware of the risks relating specifically to social media, in particular the ease by which comments can be hastily typed without proper reflection and the consequent speed by which these statements can spread. Larger businesses should ensure that they have appropriate policies and procedures governing the use of social media by their employees.

For further information on this topic please contact Cheryl Nemeth or Elle Nikou at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email (cnemeth@piperalderman.com.au or enikou@piperalderman.com.au).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.