Federal Court orders $2 million fine and corrective advertising for misleading and deceptive conduct

On 15 June 2012, the Federal Court handed down a decision on the penalty for an internet service provider’s misleading and deceptive advertising. The judgment contains a warning to other Australian businesses.

The misleading conduct

Between 25 September 2010 and 29 November 2011, TPG ran advertisements on television, radio, newspapers and various websites promoting its new internet plan.

The television, newspaper and internet advertisements stated in large and prominent print that customers could obtain ‘Unlimited ADSL2+’ for $29.99 per month. Significantly less prominent were the conditions that the customer had to incur set-up costs and bundle the internet plan with a $30 per month phone line rental.

The court’s decision

The Australian Competition and Consumer Commission (ACCC) brought proceedings to stop the ads and to impose a penalty on TPG for its breaches of the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) (Act).

On 4 November 2011, the Federal Court found that TPG’s ads were misleading and contravened the component pricing provisions of the Act (ACCC v TPG Internet Pty Ltd [2011] FCA 1254). However, Justice Murphy’s decision on the appropriate penalty was deferred until 15 June 2012.

In his penalty judgment (ACCC v TPG Internet Pty Ltd (No 2) [2012] FCA 1629), Justice Murphy ordered that TPG:

• be restrained from making certain claims in its future advertising campaigns
• pay $2 million in pecuniary penalties
• publish, at its own expense, prominent corrective ads bearing TPG’s logo and stating TPG had engaged in false and misleading conduct:
  – in The Australian and major metropolitan newspapers
  – on all of its websites in a manner that immediately appears on the screen upon accessing the site and does not disappear until the user closes the advertisement
  – in a mail-out to all customers who had taken out the advertised internet plan with TPG between 25 September 2010 and 1 December 2011
• maintain and administer a compliance program agreed between TPG and the ACCC
• pay the ACCC’s costs of the proceedings.

While the ACCC had urged the court to go even further, the scale of the penalty represents a significant victory for the ACCC in its ongoing pursuit of telecommunication companies for misleading advertising practices.

Certainly, TPG had fought the imposition of such a substantial penalty. It raised a number of grounds in seeking to resist this outcome, but the following are two of its more interesting arguments:

• TPG did not deliberately breach the Act because they genuinely believed the ads complied, based, in part, on legal advice that approved the proposed ads.
• There had been very few customer complaints about the pricing of the broadband bundle, which indicated that little harm had been done by the ads.

The court rejected both of these arguments.

On TPG’s first argument, the genuine belief of compliance was held not to excuse the conduct, because TPG knew or should have known that, even with favourable legal advice, the conduct was not risk-free and courts will not excuse unlawful conduct just because the person engaging in it thought it was lawful.

On TPG’s second argument, Justice Murphy dismissed evidence of the low number of consumer complaints and found that it was not only the harm to consumers that was relevant, but also the harm to TPG’s competitors.

The evidence showed that the ads had been very effective in increasing TPG’s market share and Justice Murphy concluded that at least some of that must have come at the expense of TPG’s competitors.

Lessons for business

The most obvious message for other businesses from this case is to ensure that advertisements that refer to the price of a product or service prominently display all of the costs a customer will incur. However, there are more subtle lessons that can also be learned.

The case shows the importance of obtaining frank legal advice on possibly contentious advertising campaigns, and taking a cautious approach to regulatory compliance issues even where there may be grounds for believing you have complied.

When considering potentially contentious advertising campaigns, businesses also need to be conscious that, if that advertising contains messages that are ultimately found to be untrue or misleading, the court will consider not only the effect their advertising might have on consumers, but also the harm that may be done to competitors.

Similarly, it is a reminder to businesses that feel as though a competitor’s advertising is harming their business to seek legal advice. Other recent court cases have shown that competitors can take direct action themselves without waiting for the ACCC to act.

If you would like more information on these issues, please contact Rocco Russo or Justin Ditton on +61 7 3231 2444.