Australia: Avoid social media folly: Seafolly v Madden case study and our top tips for managing legal risk

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 legal action.

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 the result?

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 with malice.

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 that.

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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