What happens when a company vents their frustration
about a competitor on Facebook? How does the law respond? Learnings
from Seafolly v Madden.
We are all aware of the opportunities for success in business
through social medial and online marketing. It is useful,
therefore, to look at a recent case which highlights the various
issues that can arise.
The case relates to a small swimwear business called White
Sands. The owner of that business Leah Madden had designs that she
thought were original. She saw a catalogue of her big competitor
Seafolly, a very well known swimwear company, and she remembered
back to a buyer from another company who'd come and taken some
pictures of her designs and had promised orders and orders
hadn't happened. And she then put two and two together. It
turned out that that company was in fact owned by Seafolly so she
was pretty upset. She thought the designs were similar to hers.
Ms Madden posted on her Facebook page a number of extracts from
the Seafolly catalogue of the Seafolly designs with the question
"The most sincere form of flattery?" and the equivalent
names of her designs. Ms Madden also contacted media and so trade
press stories sprouted quickly.
Seafolly were naturally upset. Seafolly immediately did a
Facebook takedown request and that was effective to get the
material down on Facebook. They issued a press release saying that
Ms Madden was accusing them of copyright infringement and said that
they would sue her if she didn't stop. So of course there was
Seafolly sued Ms Madden for misleading and deceptive conduct in
breach of the Consumer Law (previously the Trade Practices Act).
They sued her for copyright infringement over taking the pictures
out of their catalogue and Seafolly also sued Ms Madden for trade
libel. They couldn't sue her for defamation because now a
company with more than 10 or so employees can't sue for
defamation. In fact, Ms Madden countersued for defamation over the
press release and, as an individual, she was not prevented from
doing so. It's an important case, therefore, that raises all
the legal issues that arise from this sort of context. So what was
Ms Madden was liable for misleading and deceptive conduct in
breach of the Consumer Law, the Trade Practices Act. Ms Madden said
in her defence: look its personal, it's not business and the
Court said no it's business, you're there actually trying
to influence their customers and to discourage orders being placed.
Ms Madden next said that it was opinion not a statement of fact and
the Court said look, its not opinion but even if it was you have
been reckless about it because you haven't actually made
enquiries because, of course, it turned out that really the designs
were not copied and Seafolly was able to show the designs were in
progress. So she was liable for misleading and deceptive conduct in
breach of the Consumer Law, Trade Practices Act.
Ms Madden wasn't liable for copyright infringement because
Seafolly couldn't actually prove their title. Seafolly
couldn't succeed in its trade libel claim because they
couldn't show damages.
Was Ms Madden successful in her defamation claim? No she was
not. The Court said well yes you've been defamed but Seafolly
has a defence because they have acted reasonably in their press
release in responding to the attack by Ms Madden and she had acted
The case is an interesting one because there was an injunction,
there were only modest damages, there were legal costs. The Court
said that the very large amount of damages claimed by Seafolly was
out of order and they had claimed $1m worth of damages on the basis
that Ms Madden had acted in a way that was not appropriate.
We have achieved a lot of learning from the case about what the
law's got to do in this situation and my three top tips coming
out of this, because there's going to be more cases, are:
To recognise that what's going up on social media and on
your own platforms is material that you have to be responsible for,
even your CEO's tweets, and have a framework around that.
The next important thing is your own terms and conditions on
your own platforms. Review them, make sure that they give you the
flexibility you need to be able to take down and to regulate what
users and consumers put up on your own platforms.
Third top tip - get your own intellectual property rights house
in order because that was a glitch for Seafolly not being able to
make its intellectual property right infringement claim good.
But otherwise, social media, online marketing – it's
the way of the future and we wish all business success with
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The issue of recording telephone calls was recently considered in the Federal Court in Furnari v Ziegert  FCA 1080.
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