ACCC points to VW scandal to drive home the importance of “truth in advertising”
ACCC Chairman Rod Sims has emphasised “truth in advertising” as a key ACCC priority at a recent Brisbane event, citing the ACCC’s investigation into Volkswagen’s alleged use of emissions-rigging software as an example of its enforcement activity in this area.
The ACCC is investigating potential breaches by Volkswagen Australia of mandatory standards and the Australian Consumer Law (ACL) in relation to claims that software was installed in some Volkswagen, Audi and Skoda vehicles to defeat emission testing.
Last week, the ACCC also issued enforcement guidance on “free range” egg claims to help business avoid possible breaches of the ACL when promoting and selling eggs.
These events serve as timely reminder to reflect upon the ACCC’s recent enforcement actions and potential enforcement armoury in relation to false, misleading or deceptive advertising.
The ACCC sees “truth in advertising” as a key enforcement priority
The ACCC sees truth in advertising as central to market efficiency, and a requirement of the ACL. Chairman Sims highlighted three key reasons for the ACCC’s focus on this area, namely:
- Consumer detriment – untruthful advertising may mislead consumers;
- Competition – honest competitors may be disadvantaged or lose their competitive advantage through untruthful advertising, and untruthful advertising may unfairly tilt the playing field away from honest and innovative competitors;
- Innovation – in the VW example, Chairman Sims noted that truthful advertising may have driven more effort into research for lower emission engines. Consumer scepticism regarding claims about products will have a detrimental impact on innovation and competition.
The ACCC has taken action in a range of industries
While the ACCC’s scrutiny of credence claims has often focussed on the food industry, in particular, “free range” and country of origin claims, credence claims and truth in advertising can affect all industries. The ACCC’s enforcement activities in this area now span a number of industries.
For example, over the past 2 years we have blogged about ACCC’s actions in relation to:
- Bet365’s promotions regarding “Free Bets” for new customers – the ACCC succeeded in its Federal Court action alleging misleading and deceptive conduct and false representations, with penalties yet to be determined
- RL Adam’s “free range” egg claims – Federal Court ordered a pecuniary penalty of $250,000;
- Independent Liquor Group’s labelling and packaging of “Aussie Beer” – the ACCC issued an infringement notice of $10,200;
- Reebok’s claims regarding the benefits of its “EasyTone” shoes – the Federal Court ordered pecuniary penalties of $350,000, partial refund and corrective advertising;
- Basfoods labelling and advertising of “Victoria Honey” – the ACCC issued infringement notices of $30,600 and sought an enforceable undertaking; and
- Euro Solar and Worldwide Energy & Manufacturing’s testimonials and advertisements about Australian-made solar panels – the Federal Court ordered pecuniary penalties totalling $125,000.
ACCC has extensive powers to investigate and enforce untruthful advertising
False or misleading advertising may breach the ACL’s prohibitions on misleading or deceptive conduct (section 18) and/or false or misleading representations (section 29). There are also rules about bait advertising (section 35) and offering rebates, gifts or prizes (section 32).
The ACCC has numerous powers under the ACL and Competition and Consumer Act 2010 to investigate and enforce suspected breaches of the ACL through untruthful or misleading advertising:
- Substantiation notices: The ACCC may issue “substantiation notices” requiring business who make claims or representations regarding the supply of goods or services to give information or produce documents to substantiate or support the claim or representation. Penalties apply if the substantiation notices are not complied with.
- Infringement notices: The ACCC may issue infringement notices of up to $10,800 for a corporation, $108,000 for a listed corporation, or $2,160 for an individual for each alleged contravention if it has reasonable grounds to believe that a person has contravened certain parts of the ACL (including false or misleading representations, but excluding misleading or deceptive conduct).
- Public warning notices: The ACCC may also issue a public warning notice to warn consumers of a suspected breach of the ACL, if it is satisfied that persons have suffered, or are likely to suffer detriment, as a result of the conduct and it is in the public interest to issue a public warning notice.
The ACCC may also initiate proceedings in the Federal Court of Australia to seek pecuniary penalties of up to $1.1 million (for corporations) or $220,000 (for individuals) for breaches of the ACL.
In April 2014, the ACCC released a helpful and updated “Advertising and selling guide” to guide businesses on their ACL obligations when advertising and selling their products or services.
Key focus areas
The ACCC has said that it will generally be more likely to investigate claims of false or misleading advertising if:
- there is a potential for widespread public detriment;
- the conduct is likely to become widespread if the ACCC does not intervene;
- the conduct involves a large trader and national advertising;
- the conduct is particularly blatant; or
- the conduct is by a trader or business who has previously come to the ACCC’s attention.
Recent enforcement activity emphasises that businesses should take particular care with representations in advertising regarding:
- country of origin;
- credence claims designed to increase consumers’ attraction to a product – e.g. “not tested on animals”, “organic” or “free range”;
- “free” offers, particularly where conditions on the offer are not clearly identified;
- price, in particular potential “drip pricing” (see our posts on the ACCC’s focus on drip pricing here and here);
- sponsorship, performance or characteristics of a good; and
- savings or discounts.