Australia: Product Disparagement: Protecting Your Product´s Reputation

Last Updated: 27 October 2008
Article by Peter Keel

Key Points

  • To recover losses caused by damage to reputation or product disparagement, corporations may look to the tort of injurious falsehood and remedies under the Trade Practices Act.
  • Corporations should be prepared to engage with the press so that if product disparagement occurs the correct position may be communicated to the public as quickly and efficiently as possible.

The right of most corporations to sue for defamation was abolished with the commencement of Australia's uniform defamation laws (UDA) on 1 January 2006.

The rationale for the change was that defamation law had developed to protect personal reputations and corporations and products do not have personal reputations to protect (only commercial reputations).

So what can corporations do to defend their interests when their commercial reputations are attacked or their products disparaged?

There are alternative legal options, including the economic tort of injurious falsehood and remedies under the Trade Practices Act. Although these options might previously have been rejected in favour of a defamation action, they are increasingly significant to corporations since the introduction of the UDA. However, as these options are only available in the particular circumstances (see below), it is also important for corporations to consider alternative strategies.

A corporation should be prepared to:

  • Identify the appropriate audiences in the event that it must make a statement in relation to a crisis - for example, is the audience the corporation, its shareholders, its consumers, or the public generally? To avoid the corporation, its shareholders, its consumers or the media finding out information (often inaccurate and damaging information) from another source, it may be necessary to make a comprehensive statement to the appropriate audience. There are various ways that this may be done - ASX release, website announcement, even a press release. It depends upon what is being said or suggested, and by whom.
  • Engage with the press. As a corporation cannot sue to protect its reputations in Australia or sue media entities under the Trade Practices Act (see below), it is all but compelled to engage with the press.

Injurious falsehood

Injurious falsehood is the publication to a third party of a false and malicious statement about a plaintiff's business, property or goods that causes actual damage, and is also known as slander of goods or product disparagement. "Goods" includes not only specific goods, but any type, class or kind of goods manufactured, sold, or otherwise dealt with in the course of any person's trade or business.

For example, a statement in a newspaper report that a particular model of car was unsafe may be actionable in injurious falsehood by the manufacturers and distributors of the car (see Sungravure Pty Ltd v Middle East Airlines Airliban SAL (1976) 134 CLR 1 at 23). However, as plaintiffs, the manufacturers and distributors would have to prove falsity, malice and actual damage.

  • Falsity

    The plaintiff must prove that the statement was false.

    Not all disparagements of another's goods or services amount to injurious falsehood. Exaggeration, puffery or hyperbole, for example, by means of an advertising campaign in favour of one corporation's products over another's, do not necessarily give rise to a cause of action in injurious falsehood. However, they may give rise to remedies under the Trade Practices Act (see below).
  • Malice

    The plaintiff must prove that the statement was malicious.

    A statement will be malicious if the defendant knew it to be false, was recklessly indifferent to the truth or falsity of it, had an indirect, dishonest or improper motive, or intended to injure the plaintiff without just cause or excuse.

    Proving malice is not an easy task as it involves an inquiry into the defendant's state of mind, which is often a significant obstacle to plaintiffs.
  • Actual damage

    The plaintiff must prove that actual damage was the natural and probable consequence of the publication of the false and malicious statement.

    Although a degree of guesswork is permissible, damage must be proved with as much certainty as is reasonable in the circumstances. The most obvious examples of actual damage is loss of profits due to a decrease in custom or a contract cancellation.

The elements of injurious falsehood are generally harder to prove than in a defamation action and recent authorities on injurious falsehood confirm that there are real difficulties for plaintiffs attempting to establish an injurious falsehood action. Having said that, the tort of injurious falsehood remains a strong alternative for corporations whose products have been disparaged.

Trade Practices Act

Alternatively, corporations may find recourse for damage to their reputations or disparagement of their products in a claim for misleading and deceptive conduct under section 52 of the Trade Practices Act (and its equivalents in the Fair Trading Acts of the States and Territories).

Section 52 goes some way to replacing the tort of injurious falsehood, and has some tangible benefits over it. Section 52 says:

"A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

Unlike injurious falsehood, there is no need to prove malice or actual damage and there is, arguably, a greater liability for exaggeration, puffery and hyperbole. The following elements are required:

  • A corporation

    Section 52 applies to corporations.

    Media organisations are exempt from section 52 when providing information (by virtue of section 65A of the Trade Practices Act). Where they publish misleading and deceptive advertisements promoting their own business, they move outside the ambit of the exemption. Although recent cases have attempted to chip away at the media's protection under section 65A, the decisions of Channel Seven Brisbane Pty Ltd v ACCC [2008] FCAFC 114, and Bond v Barry [2008] FCAFC 115, reaffirm the protection the section provides.

    Section 52 is extended to apply to persons in certain circumstances. Under the extended application of the Trade Practices Act, the reference to a corporation includes a person where the conduct engaged in involves the use of postal, telegraphic or telephonic services or takes place in a radio or television broadcast. Therefore, where misleading and deceptive material is placed on the internet or broadcast on radio or television, section 52 applies to persons.
  • Engage in conduct

    The expression engage in conduct includes the making of representations, statements or promises and silence.
  • Misleading and deceptive conduct

    Intention is irrelevant for the purposes of section 52. A corporation that acts honestly and reasonably may nonetheless engage in conduct that is likely to mislead or deceive.

    One of the most obvious examples of misleading and deceptive conduct is errors in comparative advertising. Comparative advertising is a common technique wherein corporations attempt to show that their products are superior to others. It is recognised that errors in comparative advertising are more likely to mislead and deceive than any other form of advertising, as it is likely that consumers will perceive it as providing a fair and precise comparison. The court will not excuse inaccurate or unfair comparisons on the basis that they are mere puff. Corporations engaging in comparative advertising have a heavy responsibility to ensure that their comparisons are accurate (and accuracy often requires comparing like with like) and capable of being substantiated.

    In the Duracell Bunny Case (Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2002] FCAFC 223), a Duracell television advertisement explicitly compared its own brand of alkaline batteries to Energizer's cheaper, non-alkaline battery - a different and inferior technology. The advertisement did not mention that Energizer also sold an alkaline battery of similar quality to Duracell's. The court held that comparative advertising does not require the comparison of like with like products to be a fair comparison; however, advertisers must compare the same aspect of a competitor's product, for example, the power of a battery. The court held that the advertisement was fair and not misleading because the batteries could be used interchangeably in the same devices and there was extensive cross-purchasing between the two in the battery market.
  • Remedies

    Where a corporation has engaged in misleading or deceptive conduct or conduct that is likely to mislead or deceive, a range of remedies are potentially available including injunctions, damages and appropriate rectification or relief (such as corrective advertising).

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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