Misleading and deceptive conduct in advertising and marketing is prohibited by law. It is vitally important for businesses in Australia to understand what it means, the rules relating to specific marketing offers and how to avoid potential legal issues.
Author: Farrah Motley, Legal Principal of Prosper Law.
Advertising and marketing have a significant influence on consumer choice. Companies use advertising to persuade consumers to buy their products or services and increase brand awareness.
Advertising attempts to convey and reinforce a potential buyer’s perception of the products or services offered by a company. For this reason, advertising must be fair and truthful and not misleading and deceptive.
Misleading and deceptive conduct is both a legal and ethical issue because this behaviour distorts competition and consumer choice by leading people into error.
Brands are required to follow strict guidelines when advertising and marketing their products and services. As a marketer or a business that communicates to potential buyers through customer-facing material, you must ensure that your advertising is fair and truthful.
What is Misleading and Deceptive Conduct?
Misleading and deceptive conduct means conduct that misleads or deceives or is likely to mislead or deceive a person. The conduct includes doing or refusing to do something, entering into or performing a contract or agreement, or refusing to do or refraining from doing something.
In other words: Misleading and deceptive conduct essentially means conduct, including representations, advertisements, or other conduct in trade or commerce, that is not truthful and accurate.
‘Conduct’ has a wide meaning and includes spoken words and any form of written communication. It may be an act or even failing to take action. Misleading or deceptive conduct applies to a wide range of acts directed at any person or business, such as advertising campaigns or private negotiations between two parties.
Context is everything
Determining whether something is misleading or deceptive depends mainly on the actual circumstances surrounding the conduct. It does not matter whether the conduct actually misled or deceived anyone, but it is sufficient that the conduct was capable of doing so.
Therefore, it is crucial to take a step back and consider whether the overall impression can mislead the customer or audience.
The correct test is whether ordinary and reasonable members of the class of persons to whom the conduct was directed would or would be likely to be misled or deceived.
In addition, companies should be careful about the impression that the visual representations they use may convey. For example, suppose a company uses visual representations that give the impression that its animals are “free to roam or “raised outdoors,” when that is not the case. In this case, the visual representation may be misleading.
Guidelines to identity misleading and deceptive conduct
You can follow these guiding principles to identify misleading and deceptive conduct. The conduct:
- must result in, or appear likely to result in, a mistake;
- must clearly connect the conduct with the error of the person it is directed at;
- it is not enough that the conduct confuses someone (although there is a fine line between marketing that is confusing and marketing that is untruthful);
- is likely to affect a class of consumers that is identifiable (even if it is just aimed at the public at large or at a segment of the public). Further, it has to be determined whether a reasonable or ordinary consumer from that category of consumer would be misled or deceived; and
- is not unlawful if the response to the marketing and advertisement material is fanciful or extreme.
An eCommerce lawyer can also help you to identify specific claims that may be considered misleading and deceptive.
Businesses cannot make false and misleading advertising about:
- the quality, model, style, or history of a product or service
- whether or not the product is new
- the sponsorship, performance characteristics, accessories, benefits or uses of products and services
- the availability of repair facilities or replacement parts
- the need for the goods or services
- any exclusions for the goods and services
Types of marketing offers
Puffery is a term used to describe highly exaggerated, fanciful, or vague claims about a good or service that no one could take seriously or find misleading. Therefore, these statements are not considered misleading or deceptive under the law.
For example, a restaurant claims it has the ‘best steaks in the world’. These claims are called ‘puffery’ and are not considered false and misleading advertising.
Free offers are the act of giving products or services to consumers free of charge. These offers appeal to consumers’ values, guide purchase decisions, and entice them with the prospect of getting something for nothing. Therefore, the notion of receiving goods or services for free can generate a lot of interest among customers.
It is reasonable for consumers to understand “free” to mean absolutely free and without cost to them. Therefore, businesses should be careful when using the word “free” and should not make free claims unless those claims are accurate.
This means not inflating the cost of another item to cover the expense of the free item and not including hidden charges in relation to the free item.
Misleading marketing example #1:
The ACCC prosecuted a duck meat producer for falsely claiming that its duck meat products were raised in the open air, when in fact the ducks were raised in enclosed sheds. In addition, the manufacturer was found to have misrepresented its packaging, website, delivery trucks, signage and merchandise through written and pictorial representations.
As a result, the ACCC ordered the manufacturer to pay costs and penalties of $375,000.
Misleading marketing example #2:
A company uses the phrase ‘10% free’ – meaning that the price to the consumer is the same, but they get an additional volume of ‘free’ products. However, if the cost of the product has been increased, this could be misleading because the extra quantity is not free.
Misleading marketing example #3:
A company makes a ‘buy one, get one free’ offer but increases the price of the first item to broadly cover the cost of the second (free) item. Such practices may be deceptive or misleading.
Simply put, companies can get into trouble with free offers if they do not tell the whole truth, including any conditions the consumer must comply with. An eCommerce lawyer can help businesses to ensure their offers are compliant.
Comparisons – comparing products or services with that of a competitor
Comparative advertising includes all marketing tactics that compare two or more products or services.
Some companies may use comparative advertising to promote their products’ superiority over others directly. The comparison may be based on factors such as price, quality, range, or quantity. In addition, some advertisements or sales materials compare products or services to others on the market.
Comparative advertising challenges competitors, and before using it, consider the following:
- is the comparison between products or services that have comparable features (for instance, are you comparing apples with apples)?
- is the comparison of products or services reasonable?
- is the comparison valid for the duration of the promotion?
The use of comparative advertising is misleading if it is inaccurate or not adequately compared to products.
From a legal perspective, comparative advertising is high risk. If you hire an eCommerce lawyer, they will generally advise that you avoid comparative advertising.
If your business publishes a promotion that compares your products with that of a competitor, the competitor may move quickly to change the characteristics of their product or service. If this happens, your promotion will immediately become misleading and deceptive.
Misleading marketing example #1:
A manufacturer of batteries packages its products in a box with a red sticker claiming that they last longer than two other reputable battery brands. Independent tests support the claim, but only compared to some of the other brand’s batteries.
The sticker does not indicate that the claim does not apply to all other brands’ batteries. While there is a more specific reference to the comparison on the back of the package, however, the sticker still makes the packaging misleading.
Misleading marketing example #2:
In ACCC v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd, GlaxoSmithKline and Norvatis were involved in the marketing and sale of ‘Osteo Gel’ and ‘Emulgel’ as different products. A higher price was charged for Osteo Gel, and it was portrayed as being more effective than Emulgel.
However, both products were the same product as they contained the same active ingredients and were equally effective in treating local pain and inflammation.
The ACCC initiated proceedings for misleading and deceptive conduct, false or misleading representations of the gel, and misleading conduct as to the product’s nature, manufacturing process, and characteristics. The concern was that consumers might have been misled into paying more for an identical product because they believed it was more effective.
As a result, GlaxoSmithKline was ordered to pay $1.5 million, and Norvatis was ordered to pay $3 million.
Promotional games (spend X and go in the draw to win)
Promotional games offer brands an engaging way to drive user attention and traffic to their company. Gameplay allows brands to take an innovative approach to drive more sales and increase brand awareness.
In ACCC v Oscar Wylee Pty Ltd, the ACCC initiated proceedings against a glasses company Oscar Wylee, which had run a “buy a pair, give a pair” promotion. The company planned to donate a pair of glasses to someone in need for every pair purchased. However, out of 328,010 pairs of glasses sold, the company donated only 3,181 frames without lenses to charity.
The court found Oscar Wylee engaged in unlawful conduct that exploited customers’ charity and goodwill to induce them to purchase products.
As a result, Oscar Wylee was ordered to pay a $3.5 million fine. In addition, publish corrective notices and contribute to the ACCC’s costs.
Discount coupon schemes offer discounts as an incentive to buy, reducing the price of a product or service. However, these discounts can only be claimed if the conditions associated with the scheme are met.
In ACCC v Kogan Australia Pty Ltd, it was found that Kogan, a well-known online shopping platform in Australia, had misled consumers by advertising that customers could use the code ‘TAXTIME’ to reduce prices by 10% at checkout. However, the court found that the price of 621 products had been increased by 10% immediately prior to the promotion. As a result, Kogan was ordered to pay a fine of $350,000.
% or $ off promotions must be truthful. This means that the original price to which the discount is applied must be the price the customer would usually expect to pay. The business must be able to show that the product or service was sold in reasonable quantities for a reasonable time before the discount promotion.
If a product or service is frequently discounted and rarely sold for the original or ‘retail’ price, the claim that the customer is receiving a discount is likely to be misleading and deceptive.
Cashback promotions operate like a loyalty and reward program. Customers are rewarded by getting back a percentage or a fixed amount off the amount they paid. These offers are usually time-limited and have specific requirements that customers must meet in order to receive the cashback.
This marketing approach is not inherently problematic, but you should use it carefully. Before purchasing, any conditions, restrictions, or limitations should be made clear to the consumer.
Misleading marketing example #1:
The packaging of certain deodorant cans says ‘$3 Cashback’. After the consumer gets home and opens the package, they find that the offer is limited to one can per customer and that the offer expired a week earlier. The consumer was misled and may not have otherwise made the purchase.
In this case, the packaging was misleading because the cashback offer was boldly displayed without clearly stating the limitations of the offer.
As a result, the consumer believed the offer applied to every product purchased. This type of packaging prevents consumers from recognising the rules of the offer and creates a misleading impression.
Misleading marketing example #2:
An electronics retailer sells a $3000 television with a $500 cashback offer after purchase. When advertising the TV, the retailer should list the TV price as $3000, not $2500, because that is the price a consumer will pay to purchase the TV.
How to avoid a claim of misleading and deceptive conduct
Businesses that sell or advertise online should ensure that their use of online platforms does not create a misleading impression or contain false claims. It should be noted that this law also applies to statements or claims about products or services in the online environment as well as other traditional forms of advertising.
As an advertiser, you should know how to avoid being the target of a claim for misleading and deceptive conduct.
The following guide will help you avoid claims of misleading and deceptive conduct:
- make sure your advertising and other promotional materials contain accurate claims about the qualities and other characteristics of your goods or services.
- sure you can support all claims, statements and representations about goods and services with evidence.
- make sure that anything you say about your goods and services will be accurate and will not mislead anyone.
- do not remain silent when it is necessary to say something to prevent someone from being misled. When you think a customer is unsure about a specific offer, term, or feature, be sure to clarify it.
- do not use misleading pricing practices. For example, an ‘original price’ must have been the original price for a reasonable period of time.
- do not make predictions or forecasts without reasonable grounds.
- do not distribute material prepared by others without verifying its accuracy.
- seek legal advice from an eCommerce lawyer if you suspect that planned statements or conduct may be misleading.
How can Prosper Law help?
Prosper Law is Australia’s online law firm with experience providing legal services to businesses throughout Australia. Our experience in dealing with commercial legal matters is second to none.
If you are a marketer or marketing agency and need legal advice on Australian consumer law, misleading and deceptive conduct and your legal rights and obligations, contact our team today.
Farrah Motley | Legal Principal
PROSPER LAW – Australia’s Online Law Firm
M: 0422 721 121
A: Suite No. 99, Level 54, 111 Eagle Street, Brisbane, Queensland Australia 4000