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LAW2495 IP-Misleading and deceptive conduct Topic 3-2

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Intellectual Property Law and Trade Practices (LAW2495)

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Associ ate Degr ee in Legal Practice

(Par alegal )

LAW 2495

Intellectual Proper ty

Topic 3 – Misleading and

Deceptive Conduct

Topic 3- Misleading and Deceptive Conduct........................................................................................
- Objectives:......................................................................................................................................
- Reading:.........................................................................................................................................
- Key Cases:.....................................................................................................................................
Misleading and Deceptive Conduct.....................................................................................................
History.................................................................................................................................................
Section 18- Misleading and Deceptive Conduct..................................................................................
Application of section 18......................................................................................................................
- Trade or Commerce........................................................................................................................
- Conduct..........................................................................................................................................
- Misleading or deceptive conduct.....................................................................................................
  - Mere Confusion...........................................................................................................................
  - Clear Labelling............................................................................................................................
  - Comparative advertising..............................................................................................................
Representations as to future................................................................................................................
Section 29- False Representations......................................................................................................
Distinction between section 18 and section 29....................................................................................
Application of section 29......................................................................................................................
- What is a representation?...............................................................................................................
Representations about goods and services.......................................................................................
- Standard, quality, value or grade of goods or services..................................................................
- Representing that goods are new.................................................................................................
- Acquire Goods and Services.........................................................................................................
- Testimonials..................................................................................................................................
- False or misleading endorsements or performance claims............................................................
- Sponsorship, approval or affiliation................................................................................................
- False or misleading representations as to price............................................................................
- Availability for Repairs...................................................................................................................
- Place of Origin..............................................................................................................................
- Need for any goods and services..................................................................................................
- Warranties, Guaranties, Rights and Remedies.............................................................................
- Requirement to pay for a Contractual Service...............................................................................
Other Prohibited Conduct..................................................................................................................
- Single Price to be Stated...............................................................................................................
- Offering Gifts or Prizes..................................................................................................................
- Bait advertising.............................................................................................................................
- Pyramid Selling.............................................................................................................................
- Referral Selling.............................................................................................................................
- Accepting payment without intending to supply.............................................................................
- Coercion or harassment................................................................................................................
Enforcement and Remedies..............................................................................................................
Tutorial Questions..............................................................................................................................
- Short Answer Questions................................................................................................................
- Case Studies.................................................................................................................................
- Revision........................................................................................................................................

Topic 3- Misleading and Deceptive Conduct........................................................................................

Misleading and Deceptive Conduct involves misrepresentations which can be conveyed in the form of words, drawings, statements of opinion, promises etc. Conduct that is misleading and deceptive occurs when an ordinary member of the community is likely to rely on a statement (e. advertisement) and to be influenced by it in error. In this topic, a variety of different forms of misleading and deceptive conduct will be explored. Reference to specific sections of the Competition and Consumer Act 2010 (Cth) will be made. The main focus will be s18 and s29.

Objectives:......................................................................................................................................

At the completion of this topic you should be able to:

Define ‘misleading and deceptive conduct’ and understand the legal considerations that apply.
Define ‘false or misleading representation’, and understand the legal consequences that apply.
Explain the remedies available to a consumer and the penalties that can be imposed under the ACL 2010 for breach of Sec 18 and Sec 29.

Reading:.........................................................................................................................................

Nickolas James Business Law (Wiley, 3ed, 2014) pp437- Roger Vickery and Maryanne Flood Australian Business Law (Pearson, 7ed, 2012) Chapter Margaret Barron Fundamentals of Business Law (McGraw Hill, 7ed, 2012) pp534- Gibson Andy and Fraser Douglas, Business Law (Pearson 5ed, 2011) Chapter 24 pages 597-621 and 622- Further information can also be obtained from the following websites: lawhandbook.org Law Handbook Fitzroy Legal service (refer to Content then click on Consumer protection Law) accc.gov – Avoiding Unfair Business Practices (a guide for businesses & practitioners) Consumer Affairs Victoria, State Government of Victoria, 2014, <consumer.vic.gov/>

Key Cases:.....................................................................................................................................

ACCC v Target [2001] FCA 1326 ACCC v Virgin [2002] FCA 1548 Accounting Systems 2000 v CCH Australia Ltd (1993)42 FCR 470 Aliotta v Broadmeadows Bus Services Pty Ltd (1988) ATPR 40- Annand v Thompson Pty Ltd Annonious v Karedis (1995) ATPR 41- Apple Computer Inc v Computer Edge (1986) 161 CLR 71 Argy v Blunts (1990) 26 FCR 112 Bateman v. Slatyer (1987) 71 ALR 553 Brown v. The Jam Factory (1981) 35 ALR 79. Clarke Equipment Aust v Covcat Pty Ltd (1987) 71 ALR 367 Dever v Creevey (1991) ATPR 46-

Durant v Greiner (1990) 21 NSWLR 199 Eveready’s Australia Pty v Gillette Australia Pty Ltd (includes corrigendum dated 5 January 2000) [1999] FCA 1824 Given v. Prior (1979) 24 ALR 442 Henjo Investments Pty Ltd v. Collins Marrickville Pty Ltd (1988) 79 ALR 83 Honeybank Properties Pty Ltd v Aquaris Hoover(Aust) v Email Ltd (1991) ATPR 41- Kiley v Lysfar Pty Ltd (1985) ATPR 40- Korczynski v Wes Loft (Aust) Pty Ltd (1986) ATPR 40- McWilliam’s Pty Ltd v. McDonalds System of Australia Pty Ltd. (1980) 49 FLR 455. McMahon v. Pomersay Pty Ltd (1991) ATPR 41- Makita (Australia) Pty Ltd v. Black & Decker (Australasia) Pty Ltd (1990) ATPR 41 030. Pacific Dunlop Ltd v Hogan (1989) ATPR 40- Pilmer v Roberts (1997) 80 FCR 303 Taco Co of Australia v. Taco Bell Pty Ltd (1982) 42 ALR 177 Thompson v Riley McKay Pty Ltd (No) (1980) 43 FLR 293 Thorpe v. CA Imports Pty Ltd (1980) ATPR 40- TPC v Cue Design (1996)ATPR 41-

Misleading and Deceptive Conduct.....................................................................................................

History.................................................................................................................................................

Basically up until the late 1960’s, apart from the Sale of Goods Act the only remedies available for dissatisfied consumers were under contract law. Unless you could establish a claim in misrepresentation it was difficult to obtain a relief for unfair practices.

In 1975 saw the introduction of the Trade Practices Act and section 52 which prohibited ‘corporations from engaging in conduct that was deceptive and misleading or likely to deceive and mislead”. Section 53 of that Act also covered false representations made by traders. In Victoria the Fair Trading Act had similar provisions to cover traders in state situations.

In Jan 2011 following extensive consultations between the Commonwealth and State governments a single national consumer law was enacted. The Trade Practices Act (TPA) was renamed the Competition and Consumer Act 2010 (Cth) and the Fair Trading Act was repealed.

Section 18- Misleading and Deceptive Conduct..................................................................................

The principal legislative control on advertising and promotional activities is section 18 of the ACL. Section 18 provides:

18 Misleading or deceptive conduct

Failure to disclose information

The failure to disclose all relevant information was also considered a breach of section 18. In Aliotta v Broadmeadows Bus Services Pty Ltd (1988) ATPR 40-78. Aliotta who was a prospective purchaser of an investment property was informed there was a proposal to lease the property for a certain period.

The statement was literally true but was found to be misleading and deceptive where the proposed lessee was unable to use the property for the purpose alleged.

Broken promises

Anonious, with little commercial experience, wanted to open a café. He negotiated with the developer in respect to a new shopping arcade in Neutral Bay. The developer made false claims telling them they would make $14,000 to $15,000 per week. The obvious happened they used their life saving- lost the business.

Saved under Sec 52 TPA- successful even though they should have made enquiries themselves. ( Anonious and Karedis (1995) ATPR 41-400)

Where a business gives a false warranty or misleading /deceptive warranty they may be accountable under section 18 refer Accounting Systems 2000 v CCH Australia Ltd (1993)42 FCR 470 Refer also Clarke Equipment Aust v Covcat Pty Ltd (1987) 71 ALR 367

Statement of opinions

A statement of opinion will not attract section 18 unless it implies false representations of fact or it was not reasonably held.

In Bateman v. Slatyer (1987) 71 ALR 553 the court held that:

“a statement of opinion is not misleading simply because it is wrong or incorrect but it may be misleading if there is no basis for it or if it is not honestly held”.

Silence

Silence can also amount to misleading conduct.

In Henjo Investments Pty Ltd v. Collins Marrickville Pty Ltd (1988) 79 ALR 83 statements had been made on behalf of a restaurant vendor that it seated 128 people; it did, but it was licensed to serve only 84 people. The Full Court held that this imposed a duty on the vendor to reveal the true position to the purchaser.

“He knew the physical appearance gave a false impression and he should have corrected this false impression. Where circumstances impose a duty to disclose relevant facts to a person so that silence may be relied on to show misleading or deceptive conduct, such duty is not negated by a failure by that person to make inquiries which, if made, would have revealed the true position.”

Puffs Under the general law a misrepresentation is not actionable unless it is of fact , and unless it is material. Puffs are mere exaggerations. The general public expects a certain amount of puffery in the promotion of or sale of products and services.

In some cases a puff can amount to a breach of section 18. In these cases it is where the puff is more a specific statement. For example to say a car is "good for thousands of trouble-free kilometres" may be a puff, to say that it is in perfect condition is not.” 1

In Given v. Prior (1979) 24 ALR 442 the FC held that statement about a proposed subdivision being a “wonderful place to live” breached sec 52 because the zoning laws prohibited the erection of a dwelling i. needed to apply for a council zoning approval.

Misleading or deceptive conduct.....................................................................................................

The third element to be established is whether the conduct is misleading or deceptive or likely to mislead or deceive. Conduct is misleading if it would “lead an ordinary member of the public likely to read the statement or to be influenced by it, in error”. However it is not essential that anyone be actually deceived or misled.

“[Evidence] that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The court must determine that question for itself. The test is objective.” 2

The main case which discusses the application of misleading or deceptive conduct is Taco Co of Australia v. Taco Bell Pty Ltd (1982) 42 ALR 177 which established that the court should determine the issue by applying four guidelines:

1 the section of the public targeted by the defendant conduct 2 the effect of the conduct on the targeted group 3 whether the conduct was misleading or deceptive or likely to mislead or deceive 4 the defendant’s conduct cause the false beliefs held by the target group.

In determine the effect of the conduct on the target group the test the court applied is the ordinary person test that the conduct is assessed from the perspective of someone with of less than average intelligence and general knowledge.

“the astute and gullible, the intelligent and the not so intelligent, the well-educated as well as the poorly educated” 3

1 Brown v Sheen and Richmond Car Sales Ltd [1950] 1 All ER 1102. 2 Taco Co of Australia v. Taco Bell Pty Ltd (1982) 42 ALR 177 3 Taco Co of Australia v. Taco Bell Pty Ltd (1982) 42 ALR 177

Section 29- False Representations......................................................................................................

Another provision to consider when looking at the conduct of businesses in relation to the advertising, promoting and selling products or services is section 29. Section 29 prohibits certain types of misleading or deceptive representations as opposed to the broader concept of conduct in section 18.

29 False or misleading representations about goods or services (1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services: (a) make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or (b) make a false or misleading representation that services are of a particular standard, quality, value or grade; or (c) make a false or misleading representation that goods are new; or (d) make a false or misleading representation that a particular person has agreed to acquire goods or services; or (e) make a false or misleading representation that purports to be a testimonial by any person relating to goods or services; or (f) make a false or misleading representation concerning: (i) a testimonial by any person; or (ii) a representation that purports to be such a testimonial; relating to goods or services; or (g) make a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits; or (h) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (i) make a false or misleading representation with respect to the price of goods or services; or (j) make a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods; or (k) make a false or misleading representation concerning the place of origin of goods; or (l) make a false or misleading representation concerning the need for any goods or services; or (m) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2); or

A prosecution can be brought under section 29 even where the maker of the representation had no knowledge of its lack of truth. 4 In addition, all of the provisions in section 29 use the broad expression ‘false or misleading representation” which allows accurate although still misleading statements to be caught within the section.

Representations about goods and services.......................................................................................

Standard, quality, value or grade of goods or services..................................................................

Section 29 (1) (a) and (b) concerns making a false or misleading representation that goods and services are of a particular standard, quality, value, grade, composition, style or model have a particular history or particular previous use.

S29 (a) Standard, quality, value, grade, composition, style, model, history or previous use of goods “standard” - Hartnell v Sharp Corporation of Australia (1975) 5 ALR 493 “quality” - Given v CV Holland (1977) ATPR 40- “composition” – Thompson v Riley McKay Pty Ltd (No) (1980) 43 FLR 293 “history” - Korczynski v Wes Loft (Aust) Pty Ltd (1986) ATPR 40-

Sec 29 (b) Standard, quality, value or grade of service Kiley v Lysfar Pty Ltd (1985) ATPR 40-

Representing that goods are new.................................................................................................

Making a false or misleading representation that goods are new is prohibited by s 29(1)(c).

The issue in these cases is what constitutes ‘new’? The word new has several meanings:  not secondhand  a current model not a superseded model  an original  goods that have not suffered deterioration or been used  where minor damage has occurred the article has been repaired or the damage part replaced and it is otherwise new is every respect.

This was the point considered in the case of TPC V Annard and Thomson Pty Ltd (1979) ATPR 40.

Acquire Goods and Services.........................................................................................................

Section 29 (1) (d) prohibits false representations that a particular person has agreed to acquire goods or services. There are few if any decided cases on the provision. Some of the examples include cases where the assertion of the right to payment for goods or services allegedly ordered by a deceased person, this was what occurred in the case of O’Connor v Stevenson.

4 Given v Holland (Holdings) Pty Ltd (1977) 15 ALR 439

Testimonials

Section 29 (1) (e) concerns making false or misleading representations that purports to be a testimonial by any person relating to goods and services.

False or misleading endorsements or performance claims............................................................

The types of false representations falling within sec 29(g) are as broad as the number of ways that products and services are promoted. The section imposes liability for claims, which are false or unsubstantiated.

Cases Hartnell v Sharp Corporation of Australia (1975) 5 ALR 493 Apple Computer Inc v Computer Edge (1986) 161 CLR 71 Honeybank Properties Pty Ltd v Aquaris

“Performance Characteristics” covers the way in which something reacts under certain conditions or fulfills the purpose for which it was intended and applies to a wide range of claims.

Durability, speed, fully automatic, representations of the safety of goods are all examples of claims made on performance characteristics.

Sponsorship, approval or affiliation................................................................................................

Section 29 (1) (g) concerns making a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits. Section 29 (10 (h) is aimed at untrue representations about the business structure itself. Representations that the business structure is an offshoot of or affiliated with a well- known organisation would be a breach.

For example if a business was alleging that it was associated with the Olympics when in fact there was no association.

“Sponsorship or approval” any claims of sponsorship or approval must be accurate regarding existence and extent.

False or misleading representations as to price............................................................................

Under this section there must be no misinformation as to price. Price is defined sec 95A (1) as a charge of any description.

Example of false representations  advertisements stating discounts in money or percentage terms when they do not state the normal selling price  ad referring to a range of goods as being discounted when in fact only some of the goods are discounted  ad implying price reductions ie closing down sale where the goods are actually being sold at normal retail price  a price tag stating normal price $223 reduced to $185 when the normal price at which the goods are sold is $200.  Not disclosing charges such as installation or delivery fees in an advertisment  False comparison with a competitor price or with a recommended retail price.

Need for any goods and services..................................................................................................

To force a person into a transaction by falsely claiming that it is necessary is fraudulent (refer section 29 (1)(l)). For example telling a householder that plumbing work was required before a bathroom would conform to local government requirements or customers of medical insurance fund being told that they cannot choose their own doctor unless they pay for higher medical care.

Warranties, Guaranties, Rights and Remedies.............................................................................

Section 29 (1)(m) prohibits false representation concerning the existence, exclusion or effect of any condition right or remedy. This ensure that consumers who have been sold an unsatisfactory good or service cannot be denied their right to the three R’s  Refund  Repair  Return (exchange) Whichever is the most appropriate.

This is one of the most important provisions in the ACL and as with section 18 and the other provisions of section 29 it provides an effective alternative to action for breach of contract in disputes concerning conditions and warranties and rights and remedies.

There are a number of implied terms as to warranty and fitness for purpose and obligations on the manufacturer, which cannot be excluded.

A common sign “We exchange goods but do not give refunds” would be a breach of this section.

Requirement to pay for a Contractual Service...............................................................................

Section 29(1)(n) concerns making a false or misleading statement about a requirement to pay for a contractual right. This is a new provision in the ACL.

Other Prohibited Conduct..................................................................................................................

Single Price to be Stated...............................................................................................................

A corporation must disclose the total price payable for consumer goods or services, which includes any necessary taxes and charges. For example an advertisement for a mountain bike for $100 deposit and $25 per fortnight until paid would breach section 48 as the total price is not disclosed.

Offering Gifts or Prizes..................................................................................................................

Under section 32 a person is prohibited from offering gifts or prizes when it doesn’t intend to provide them, or not providing them as offered. Offering prizes with a hidden catch. For example prizes of $10,000 where the actual prize is a ticket in a $10,000 lottery or where a cash prize is actually a store credit. Proof of intention not to supply is essential for this section to operate.

Bait advertising.............................................................................................................................

In essence the practice was to advertise goods at a special price without the backup of sufficient quantities to satisfy the demand engendered. Having baited the customer the supplier could then switch the customer to normal lines or to a more highly priced line.

Section 35 prohibits the advertising of goods at a specified price where the retailer had reasonable grounds or ought to have been aware that it would not be able to comply with the advertisement.

When a bargain is advertised the seller must have sufficient number of the items at that price to meed to the demand for a reasonable period or, if not, be able to explain the limited quantity. Refer to Reardon V Morley Ford Pty Ltd (1980) 49FLR 101

Pyramid Selling.............................................................................................................................

Participation in a pyramid selling scheme is prohibited under sections 44-46. The objectionable feature of the technique is what is sold is not so much the product as positions in a distribution hierarchy. The profits are almost entirely based on the entry fee commissions paid by new members

Worldplay Services Pty Ltd v ACCC (2004) 210 ALR 562

Referral Selling.............................................................................................................................

A corporation shall not induce a consumer to acquire goods or services by representing that the consumer will benefit after the contract is made by providing names of prospective customers.

A spotters fee is not in breach of section 49. An offence is committed where after they buy they will be paid a commission for referring other customers to the business.

Accepting payment without intending to supply.............................................................................

A business must not accept payment for the supply of goods or services when it has no intention to supply them or alternatively intends to supply something materially different from what the consumer expected. This is a breach under section 36.

Dawson v World Travel Headquarters Pty Ltd (1981) ATPR 40-

5 is the test established in Taco Co of Australia v. Taco Bell Pty Ltd (1982) 42 ALR 177 used to determine whether conduct is misleading or deceptive or likely to mislead or deceive?

6 section18 ACL be used by a business against a rival?

7 is the difference between section 18 and section 29 of the ACL?

8 the following situations and explain which of them, if any are false representations prohibited under section 29 ACL. Make sure that you include the specific section.

a)The Tornedo fashion store runs a sale where some items of clothing have tags that show an ‘old price’ followed by a reduced price. None of these garments has ever been offered at a higher price. b)A motor dealer offers a car for sale as ‘new’. In fact the vehicle is two years old. It has never been driven and is the latest model. c)A shoe factory that sells direct to the public advertises shoes that are ‘top quality’ when in fact they have some slight flaws.

9 is the difference between a product that is Made in Australia and a Product of Australia?

10 is bait advertising? Give an example and list a possible defence?

11 and give an example of the following selling techniques- ‘referral advertising’ and ‘pyramid selling’?

Case Studies.................................................................................................................................

Question 1 Michael and David were car dealers. Sales were not going well for the last two months and they decided to buy a BMW and to offer it at a low price as a way of attracting more customers into their shop. They advertised that they had brand new BMW's at low prices, when in fact they had only one BMW and it was an ex-rental car.

Has the ACL been breached? Why?

Question 2 Wheelslave Pty Ltd. carried on a business as a used truck dealership. It ran a series of advertisements to promote the sale of its trucks.

The advertisements offered potential purchasers "permanent or on contract" positions as owner-drivers with established carrier firms and stated that earnings would be at least $10,000 per month. However, these positions did not exist and the statement as to the earnings was false. There was no regular work available to purchasers that could bring in the level of income claimed by the company. In reliance on the advertisements. Oscar bought a truck and quickly got into serious financial difficulties.

Advise Oscar whether or not he has a remedy available to him under the ACL.

Question 3 The sales manager at Lovable Cars Pty Ltd. advertised a 1997 Toyota Corolla 'in excellent condition' for $8,000. The advertisement also included the statement that a number of 'good quality cars' from 1996-1997 were being sold for prices ranging from $8,000 to 16,000. In fact, the Corolla advertised at 8,000 required considerable body repairs and a complete paint job and the next cheapest car was priced at $13,000. a) Has the CC Act been breached? b) What remedies would be available?

Question 4 Siro brought a car alarm form a motor spare parts dealer three years ago. The alarm’s remote control broke and no spare remote controls are available. The dealer says he is not liable as the manufacturer has gone into liquidation and he sold the alarm in ‘good faith’. Advise Siro of his legal rights and chance of success.

Question 5 A PepsiCo Inc television campaign in Australia offered large prizes which could be obtained by a) purchasing the required number of original Pepsi points found on its product or b) providing at least 15 original Pepsi points and paying 10 cents for each point required. One of the prizes was a $70 million Harriet Jump Fighter aeroplane for 7 million points. John Leonard sent in 15 points to Pepsi and a cheque for just over $700 000. Pepsi argued that the advertisement was clearly a joke. John sued them under the American equivalent of the Trade Practices Act. What legal rights and remedies, if any, might be available if this situation occurred in Australia?

Revision- Solve the Puzzle

Un-jumble the letters using the clues to help you. 1 care must be taken in this type of advertising as to not breach s18. tocmivaerap _ _ _ _ _ _ _ _ _ _ _

2 Bateman v Slayter, this type of

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