It can be a powerful way of selling your products or services, but you must tread carefully when venturing into the world of comparative advertising.
Comparative advertising has always been a valuable weapon in the arsenal of a skilled marketer. In times of economic uncertainty, price comparisons can be a particularly effective way to target increasingly cost-sensitive consumers.
However, you need to tread carefully when engaging in comparative advertising. Although the laws prohibiting misleading and deceptive conduct apply equally to all forms of advertising, when you publish a comparative advertisement you can always be sure that at least one business will carefully scrutinise the advertisement.
It might seek legal advice on whether it has a legal right to demand the advertisement be withdrawn and commence legal proceedings against you, seeking remedies like injunctions, damages and corrective advertising.
A misleading comparative advertisement may also attract the attention of a regulator like the Australian Competition and Consumer Commission.
In this article, we set out some tips and traps for businesses considering using comparisons (particularly as to price) in their advertisements.
Be accurate on price, but don't sell yourself short
Any advertisement which contains a price comparison must accurately state the difference in price, whether it be in the form of a "pay $X less" or "save X%" comparison. However, not only should an advertisement avoid overstating the difference in price between the advertised product and the competitor's product, advertisers should also be careful not to understate that price difference. This is because the focus of the law in this area is the protection of consumers, not the protection of one business over another.
For example, in a case involving the retail market for spectacles, a Specsavers advertisement sought to compare its prices favourably against the prices charged by OPSM (Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd 86 IPR 247). It did so by stating the average price paid by OPSM customers, along with the average (alleged) saving if Specsavers' product were purchased instead. However, the saving available at Specsavers was in fact much greater. Even though Specsavers made its competitor look better than it should have, Specsavers was still found to have (in this respect) engaged in misleading or deceptive conduct.
Accordingly, being conservative about prices and price savings in comparative advertising is not necessarily the risk-free approach. Any error on price may render an advertisement misleading or deceptive – accuracy is the key.
Make sure the comparison remains valid for the life of the campaign
To avoid being misleading, a comparative advertisement must be accurate for the life of the relevant campaign – being accurate at the start of the campaign won't usually be good enough. This issue is particularly problematic for price comparisons.
In many cases a competitor can quickly react to a comparative price advertisement by altering the price of its relevant product at short notice (particularly if its product is sold directly via the Internet). An accurate comparative advertisement one day can therefore be misleading on the next.
Although disclaimers stating that a price or calculation was accurate as at a certain date can mitigate the risk, the ideal strategy is to buy short but intensive media coverage. This reduces the risk that your competitor will change its prices while the advertisement is being published.
Clearly identify and accurately describe the relevant products
The traditional view of comparative advertising was that advertisers had to compare "apples with apples". However, some Australian court decisions now make it clear that there is no such general obligation. The test is only whether the comparison is accurate and not misleading or deceptive.
Accordingly, in some circumstances businesses can lawfully compare one of their "superior" products against a competitor's "inferior" product, as long as it does so accurately – even if the competitor also produces a more comparable superior product.
In one case, for example, a television commercial favourably compared a Duracell alkaline battery against an "inferior" Eveready carbon zinc battery, which does not last as long but is cheaper (Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 56 IPR 1).
Similarly, in another case, Optus advertisements favourably compared Optus' $49 Cap Plan against Telstra's "inferior" $40 Phone Plan (Telstra Corporation Ltd v SingTel Optus Pty Ltd  FCA 824). In each case, the advertisements were held to be lawful even though the competitor with the supposedly "inferior" product also sold other (more comparable) products.
However, these cases don't mean it is open slather to compare products which are clearly different. Each case needs to be assessed on its merits. The main reason that the Duracell and Optus advertisements were found not to be misleading is that the products being compared were very clearly identified and the statements made about those products were truthful.
In the Duracell case, the simplicity of the products being compared seemed relevant. The only differences between batteries are power and price. A comparison of relative power was not misleading because consumers could themselves decide whether alkaline batteries' additional power was worth the extra cost.
Making "value for money" claims
Notwithstanding our comments above, you must always be cautious when suggesting that your product is better value for money than a competitor's.
For instance, in an Australian case concerning car insurance, the advertising insurer used a table to suggest that customers could achieve a significant saving by purchasing its product over a competitor's product and stated that unless you insured through them: "you could be paying too much for your car insurance" (State Government Insurance Commission v JM Insurance Pty Ltd (1984) ATPR 40-465).
However, the advertisement did not make sufficiently clear that the competitor's policy had significantly superior benefits and features than the advertiser's. To this, the Court said that while general statements in advertising might be legitimate, "the comparison of costs... in this matter go much further and have a very significant impact". The advertisement was therefore found to be misleading and the advertiser was ordered to stop publishing it.
This does not mean that advertisers cannot lawfully compare the price of products with different features in certain circumstances. However, as the Court recognised in the Duracell case, a direct comparison between the price, quality or capability of two products is a very different thing to a comparison of the respective products' value for money.
Releasing the same advertisement across different media
Many advertisers run broad advertising campaigns across different media. However, what might be fine in one medium might be misleading or deceptive in another.
Television commercials and radio advertisements, for example, are transient in nature and therefore have a very different impact on consumers than print advertisements, which are more permanent and can be studied and examined by the consumer. A disclaimer, for example, is more likely to be read and understood in a print advertisement than in a television commercial, because it is more obvious, and the consumer has more time.
This is particularly true for price comparisons, where it is vital to correctly identify the product and any inputs into the price calculation. In particular, if a disclaimer is necessary to explain the price calculation process or correctly identify the competitor's product, it must be large enough and, if a television commercial, on the screen for long enough to be effectively communicated to the consumer. In some cases, a voice-over is the safest way to provide consumers with a disclaimer in television commercials.
Caution should also be exercised when using billboard advertising, as the courts have found that consumers often pass billboards at speed and therefore cannot effectively read and examine any disclaimer.
Releasing the same advertisement in different states
Similarly, it is often more efficient and convenient for advertisers to buy the same media and publish the same advertisement Australia-wide. However, as was considered in the Specsavers case, where price claims are made in a comparative advertisement you must ensure that:
- the price claims are accurate Australia-wide; or
- the advertisement clearly states which parts of the country the comparison applies to.
No matter what, be prepared for a fight
Even if a comparative advertisement is likely to fall on the legal side of the line, a business which engages in comparative advertising needs to at least be prepared for a legal complaint from a disgruntled competitor, and/or regulator in some cases. For example, a well prepared advertiser will be ready to deal with any letter of demand received from an aggrieved competitor and any subsequent legal proceedings seeking, in most cases, an urgent injunction to prevent the relevant advertisement being repeated. Comparative advertising is not for the faint-hearted.
In addition, a comparative advertisement will often be more effective the closer it is to the line between accurate and misleading. Advertisers need to understand what amount of risk they're prepared to run, and have a commercial and legal strategy in place which reflects that.
As a leading former judge in this area once observed, comparative advertising – if done correctly – is a pro-competitive activity which the courts should not actively discourage:
"to the extent that comparative advertising provides consumers with accurate hard facts about competing products, it assists in the making of better informed consumer choices and thereby results in more effective competition".
That said, those who venture into the world of comparative advertising should proceed with care. Getting it wrong can lead to grave consequences for your business, including the need to pay damages to a disgruntled competitor, or buy media for the embarrassing and costly exercise of publishing corrective advertising.
These tips and traps will help you when you're considering using comparisons (particularly as to price) in your advertisements, but they are no substitute for proper advice. Given the nature of this area, you should get specific advice for each proposed comparative advertisement before you run it.
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.