The Law of Misleading or Deceptive Conduct
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Introduction
This lens is one of a series of lenses which looks at intellectual property rights in Australia. Although the lens focuses on the legal regime in Australia, it does contain useful information for business owners both in and outside Australia. This lens contains general information only and is not intended to constitute legal advice. Each reader of this lens should obtain specific advice relevant to their individual circumstances.
This lens looks at statutory provision which prohibits misleading or deceptive conduct, but before discussing this topic, it is worthwhile considering intellectual property rights in general.
The term "intellectual property" covers a series of legal rights which have an impact on almost every aspect of business. Intellectual property is intangible property created by statute. The owner is given the exclusive right to do certain acts which give the owner a commercial benefit. Like physical property (such as land), intellectual property can be exploited or commercialised in a number of ways. For more information about intellectual property rights generally and the international conventions and treaties that apply, see the World Intellectual Property Organisation website. All statutory intellectual property rights are territorial. This means that Australian intellectual property rights do not affect activities outside of Australia which take place wholly outside of Australia. Parallel rights exist in other countries.
Like passing off (which has developed by case law), the prohibition of misleading or deceptive conduct gives a person a right to restrain the conduct of another person. The statutory prohibition does not give a person proprietary rights.
Many organisations recognise the need to identify, capture and exploit intellectual property that is generated in the ordinary course of their business and understand the importance of using intellectual property rights they have licensed in accordance with their licence terms. However, many businesses, do not and that is largely due to a misunderstanding of what actually constitutes intellectual property and the rights which attach to each different type of intellectual property.
The information included in this lens is derived from the Trade Practices Act 1974 (Cth) (which will be renamed the Competition and Consumer Act 2010). For ease of reading, case names or details have not been included. In this lens, the term "plaintiff" refers to the person who brings an action to restrain breach of the prohibition on misleading or deceptive conduct.
This lens looks at statutory provision which prohibits misleading or deceptive conduct, but before discussing this topic, it is worthwhile considering intellectual property rights in general.
The term "intellectual property" covers a series of legal rights which have an impact on almost every aspect of business. Intellectual property is intangible property created by statute. The owner is given the exclusive right to do certain acts which give the owner a commercial benefit. Like physical property (such as land), intellectual property can be exploited or commercialised in a number of ways. For more information about intellectual property rights generally and the international conventions and treaties that apply, see the World Intellectual Property Organisation website. All statutory intellectual property rights are territorial. This means that Australian intellectual property rights do not affect activities outside of Australia which take place wholly outside of Australia. Parallel rights exist in other countries.
Like passing off (which has developed by case law), the prohibition of misleading or deceptive conduct gives a person a right to restrain the conduct of another person. The statutory prohibition does not give a person proprietary rights.
Many organisations recognise the need to identify, capture and exploit intellectual property that is generated in the ordinary course of their business and understand the importance of using intellectual property rights they have licensed in accordance with their licence terms. However, many businesses, do not and that is largely due to a misunderstanding of what actually constitutes intellectual property and the rights which attach to each different type of intellectual property.
The information included in this lens is derived from the Trade Practices Act 1974 (Cth) (which will be renamed the Competition and Consumer Act 2010). For ease of reading, case names or details have not been included. In this lens, the term "plaintiff" refers to the person who brings an action to restrain breach of the prohibition on misleading or deceptive conduct.
Important!
The prohibition on misleading or deceptive conduct has an extremely broad application
The prohibition on misleading or deceptive conduct is extremely broad in its operation and applies to all conduct engaged in by persons in the course of trade and commerce.
Contents
- The prohibition on misleading or deceptive conduct has an extremely broad application
- Prohibition on misleading or deceptive conduct
- Description of the prohibition
- Concepts relevant to section 52 - engage in conduct
- Concepts relevant to section 52 - in trade or commerce
- Concepts relevant to the prohibition - misleading or deceptive
- Concepts relevant to the prohibition - likely to mislead or deceive
- Intention is not required
- Who must be misled?
- Aiding and abetting
- Examples of conduct which has been found to be misleading or deceptive
- Remedies for breach of the prohibition
- About Me
- About Me
Prohibition on misleading or deceptive conduct
Misleading or deceptive conduct is prohibited by the Trade Practices Act 1974 (Cth) (which will be renamed the Competition and Consumer Act).
Initially the prohibition in the Trade Practices Act applied to corporations and the Australian States had corresponding legislation which applied to individual, partnerships and other business structures that did not fall under the Trade Practices Act. However, as a result of an initiative to have a national consumer protection scheme, the provision of the Trade Practices Act which prohibit misleading or deceptive conduct and other provisions which deal with the interaction of businesses and consumers have been amended with the most significant amendment (from the perspective of uniform, national consumer protection scheme) being the application of the consumer protetcion provisions of the Trade Practices Act to the activities of all businesses and not just the activities of corporations.
The prohibition on misleading or deceptive conduct and related provisions dealing with specific commercial practices establish a standard of conduct with which businesses must comply. The provisions, together with the doctrine of passing off allow a trader to prevent some forms of unfair competition by other traders and the types of conduct they restrain overlap with the statutory intellectual property rights. Therefore, it is common to include a claim for breach of the prohibition on misleading or deceptive conduct if bringing a trade mark infringement claim or design infringement claim.
Initially the prohibition in the Trade Practices Act applied to corporations and the Australian States had corresponding legislation which applied to individual, partnerships and other business structures that did not fall under the Trade Practices Act. However, as a result of an initiative to have a national consumer protection scheme, the provision of the Trade Practices Act which prohibit misleading or deceptive conduct and other provisions which deal with the interaction of businesses and consumers have been amended with the most significant amendment (from the perspective of uniform, national consumer protection scheme) being the application of the consumer protetcion provisions of the Trade Practices Act to the activities of all businesses and not just the activities of corporations.
The prohibition on misleading or deceptive conduct and related provisions dealing with specific commercial practices establish a standard of conduct with which businesses must comply. The provisions, together with the doctrine of passing off allow a trader to prevent some forms of unfair competition by other traders and the types of conduct they restrain overlap with the statutory intellectual property rights. Therefore, it is common to include a claim for breach of the prohibition on misleading or deceptive conduct if bringing a trade mark infringement claim or design infringement claim.
Description of the prohibition
The new statutory prohibition provides as follows:
"A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
The courts have stated a number of general propositions in relation to the operation of section 52 of the Trade Practices Act which is the predecessor of the new prohibition including the following:
"A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
The courts have stated a number of general propositions in relation to the operation of section 52 of the Trade Practices Act which is the predecessor of the new prohibition including the following:
- In interpreting the prohibition, effect should be given to the ordinary meaning of the words used. They should not be qualified or expanded by reference to common law principles of liability.
- Intention is not a requirement of the prohibition. The section is not confined to conduct which is intended to mislead or deceive. A corporation which acts honestly and reasonably may nonetheless engage in conduct that is likely to mislead or deceive.
- For conduct to be misleading or deceptive, the conduct must convey a misrepresentation when all the circumstances of the case are considered. This requirement is highlighted by the cases which have dealt with advertising - in these cases, the courts have made it clear that a misrepresentation must be conveyed when the advertisement is looked at as a whole. Therefore, the overall impression created by the advertisement including all audio and visual aspects and any disclaimers (including the size of the disclaimer in print advertisements).
- The error or misconception must be the result of conduct of the corporation and not other factors for which the corporation is not responsible.
- Conduct will be likely to mislead or deceive if there is a "real or not remote chance or possibility" of misleading or deception regardless of whether it is more than 50%.
- The question of whether conduct is misleading or deceptive or likely to mislead or deceive is an objective question which the court must determine for itself. Hence, evidence that persons in the relevant class have been misled will, although admissible, not be determinative.
- Conduct of a corporation causing mere confusion or uncertainty in the minds of the public does not necessarily indicate that misleading or deceptive conduct has occurred.
- Actual deception is not required to breach the prohibition. Therefore, the court must consider whether a significant number of purchasers would be likely to be misled or deceived.
Concepts relevant to section 52 - engage in conduct
The TPA defines "engaging in conduct" as including:
* doing or refusing to do an act;
* giving an effect to a provision of a contract or arrangement; and
* arriving at or giving effect to an understanding.
Where more than one person is involved in the conduct, the involvement of each person must be assessed independently.
* doing or refusing to do an act;
* giving an effect to a provision of a contract or arrangement; and
* arriving at or giving effect to an understanding.
Where more than one person is involved in the conduct, the involvement of each person must be assessed independently.
Concepts relevant to section 52 - in trade or commerce
The cases have established the following principles:
* Section 52 applies only to conduct "in trade or commerce" and not conduct "in relation to trade or commerce".
* Section 52 applies to conduct which has a trading or commercial character. This requires the identification of the conduct and then an assessment of whether the conduct can, according to ordinary usage, be described as having occurred in the course of dealings "which, of their nature, bear a trading or commercial character". While the commercial undertakings of the corporation may be relevant, the more important question is whether the conduct is of a kind which is usually of a commercial nature. There may be some instances where this assessment is difficult.
* Section 52 applies only to conduct "in trade or commerce" and not conduct "in relation to trade or commerce".
* Section 52 applies to conduct which has a trading or commercial character. This requires the identification of the conduct and then an assessment of whether the conduct can, according to ordinary usage, be described as having occurred in the course of dealings "which, of their nature, bear a trading or commercial character". While the commercial undertakings of the corporation may be relevant, the more important question is whether the conduct is of a kind which is usually of a commercial nature. There may be some instances where this assessment is difficult.
Concepts relevant to the prohibition - misleading or deceptive
The cases in relation to section 52 have established the following principles:
* Conduct will be misleading or deceptive if it induces or is capable of inducing error.
* The analysis of whether or not conduct is misleading or deceptive must begin by identifying the conduct and the facts relied upon to give it that character.
* Whether conduct is misleading or deceptive is a question of fact which is determined in the context of the evidence of the conduct and the surrounding facts and circumstances. Even if the conduct may cause confusion, it can only be categorised as misleading or deceptive unless the conduct contains or conveys a misrepresentation.
* The prohibition applies to all conduct and not just representations. Although on analysis, the conduct will generally involve either an express or implied representation or misrepresentation.
* An implied representation made to the public at large may be misleading or deceptive conduct. This is assessed in the following way:
# Identify the relevant section of the public.
# Consider the issue by reference to all members of the class including the astute and the gullible, the intelligent and not so intelligent, the well-educated and poorly educated but ensure that the conduct is also considered by reference to ordinary and reasonable members of the class.
# Evidence that some person has or persons have formed an erroneous conclusion may be persuasive but is not conclusive of the fact that there has been misleading or deceptive conduct. This type of evidence is not essential.
# It is necessary to inquire why the misconception has arisen.
* A corporation will not have engaged in misleading or deceptive conduct if a person makes an erroneous assumption. In the case of representations to the public, whether an assumption is erroneous is determined by reference to reasonable members of the class of people to whom the representation was made. Conduct will not be considered to be misleading or deceptive if all that the conduct has done is to have caused confusion or wonderment.
* Conduct will be misleading or deceptive if it induces or is capable of inducing error.
* The analysis of whether or not conduct is misleading or deceptive must begin by identifying the conduct and the facts relied upon to give it that character.
* Whether conduct is misleading or deceptive is a question of fact which is determined in the context of the evidence of the conduct and the surrounding facts and circumstances. Even if the conduct may cause confusion, it can only be categorised as misleading or deceptive unless the conduct contains or conveys a misrepresentation.
* The prohibition applies to all conduct and not just representations. Although on analysis, the conduct will generally involve either an express or implied representation or misrepresentation.
* An implied representation made to the public at large may be misleading or deceptive conduct. This is assessed in the following way:
# Identify the relevant section of the public.
# Consider the issue by reference to all members of the class including the astute and the gullible, the intelligent and not so intelligent, the well-educated and poorly educated but ensure that the conduct is also considered by reference to ordinary and reasonable members of the class.
# Evidence that some person has or persons have formed an erroneous conclusion may be persuasive but is not conclusive of the fact that there has been misleading or deceptive conduct. This type of evidence is not essential.
# It is necessary to inquire why the misconception has arisen.
* A corporation will not have engaged in misleading or deceptive conduct if a person makes an erroneous assumption. In the case of representations to the public, whether an assumption is erroneous is determined by reference to reasonable members of the class of people to whom the representation was made. Conduct will not be considered to be misleading or deceptive if all that the conduct has done is to have caused confusion or wonderment.
Concepts relevant to the prohibition - likely to mislead or deceive
The cases have established the following principles:
* It is unnecessary to show that the conduct in question actually did mislead or deceive anyone.
* Conduct is likely to mislead or deceive if there is a real or not remote chance or possibility regardless of whether it is more or less than 50%.
* It is unnecessary to show that the conduct in question actually did mislead or deceive anyone.
* Conduct is likely to mislead or deceive if there is a real or not remote chance or possibility regardless of whether it is more or less than 50%.
Intention is not required
The prohibition on misleading or deceptive conduct is a no fault provision. Intent on the part of the person engaging in the conduct is not required.
Whether conduct is misleading or deceptive or likely to mislead or deceive is determined by undertaking an objective assessment of the conduct. The consequence of this is that a person may be breach the prohibition even if they acted honestly and did not intend to mislead or deceive any person. However, courts have been more willing to find that the prohibition has been breached if there is evidence that the corporation intended to engage in misleading or deceptive or conduct that is likely to mislead or deceive.
If an intermediary passes on information, the intermediary may be liable for a breach of the prohibition unless the intermediary makes it clear that he or she is merely passing on the information and does not make any representations about the accuracy of the information. The cases have established that advertising agents are more than mere intermediaries.
Whether conduct is misleading or deceptive or likely to mislead or deceive is determined by undertaking an objective assessment of the conduct. The consequence of this is that a person may be breach the prohibition even if they acted honestly and did not intend to mislead or deceive any person. However, courts have been more willing to find that the prohibition has been breached if there is evidence that the corporation intended to engage in misleading or deceptive or conduct that is likely to mislead or deceive.
If an intermediary passes on information, the intermediary may be liable for a breach of the prohibition unless the intermediary makes it clear that he or she is merely passing on the information and does not make any representations about the accuracy of the information. The cases have established that advertising agents are more than mere intermediaries.
Who must be misled?
The cases establish the following principles:
- The prohibition applies to conduct directed at the public at large and private negotiations between two parties and in all circumstances between these two extremes.
- The identification of the class of persons who must have been misled or be likely to be mislead is dependent on whether the conduct is directed at an individual, an identifiable group or the public at large.
- In relation to conduct directed at an individual, the court will review the individual's response to the conduct. This review requires a court to consider what each party knew about the other party.
- In relation to groups or the public at large, the conduct is considered by reference to how a significant portion of the group would behave in response to the conduct. A court will consider how a reasonable person in the group would respond to the conduct.
- Gullible people, stupid people and people who do not take reasonable care of their own interests cannot be protected by the prohibition.
Aiding and abetting
A director or any other person who has:
* aided, abetted, counselled or procured a breach of section 52;
* induced a breach of section 52;
* been in any way, directly or indirectly, knowingly concerned in, or party to the breach of section 52; or
* has conspired with others to breach section 52,
can be subject to an action for a breach of section 52.
* aided, abetted, counselled or procured a breach of section 52;
* induced a breach of section 52;
* been in any way, directly or indirectly, knowingly concerned in, or party to the breach of section 52; or
* has conspired with others to breach section 52,
can be subject to an action for a breach of section 52.
Examples of conduct which has been found to be misleading or deceptive
The courts have found misleading or deceptive conduct to have occurred in a wide range of instances. The following types of conduct represents a small sample of the situations in which misleading or deceptive conduct has been found to have taken place:
- representations made in commercial negotiations between two parties;
- warranties included in a contract;
- incorrect advice including advice given by bankers, financial advisers and lawyers;
- opinions (generally where the person giving the opinion did not believe the opinion or did not exercise adequate skill and care in giving the opinion;
- statements (or the failure to include statements) in advertising material (whether print, television, radio, online or other form);
- comparative advertising where the products that are compared are not competing products or the comparison is not between competitors;
- character merchandising where the character or personality does not have any connection with the product, services or business being advertised;
- small print in advertisements where the small print is not sufficiently prominent to ensure that the overall impression of the advertisement is not misleading or deceptive;
- a label on which a price printed on the label was struck through to show a sale price but where the item was never sold at the printed price;
- a label which has incorrect information about place of origin;
- advertising a product as being on sale at a reduced price when the product has never been sold at the higher price or has not been on sale at the higher price for a reasonable period before the advertised sale price;
- packaging a product in a way that is similar to a competing product or using the same or similar get up;
- describing "free" offers when an offer is not free at all times (eg, advertising free mobile phone calls but not including a qualification that the calls are only free at weekends or only free at evenings or only free between users on the same network);
- using the same or similar business name, trade mark, logo or domain name as a competitor or a well known brand (even if the brand is in a different product or service market);
- claiming a connection with a competitor or a well-known brand; and
- representing that a product has particular attributes or performance features that the product does not have.
Remedies for breach of the prohibition
A person who is affected or may be affected by a breach of the prohibition may bring an action for an injunction to restrain the conduct. An affected person may claim damages either in addition to or instead of an injunction. Other remedies are also available in prescribed circumstances. The action can be brought against the corporation and any person who aided or abetted the corporation's conduct.
Damages are only available if the plaintiff can show that it would not have suffered damages but for the conduct of the defendant. This in effect means that the plaintiff must show reliance on the defendant's conduct to the plaintiff's detriment.
The Australian Competition and Consumer Commission can also bring an action for an injunction and can request the imposition of fines on both the corporation and any person who aided and abetted the corporation's conduct.
Damages are only available if the plaintiff can show that it would not have suffered damages but for the conduct of the defendant. This in effect means that the plaintiff must show reliance on the defendant's conduct to the plaintiff's detriment.
The Australian Competition and Consumer Commission can also bring an action for an injunction and can request the imposition of fines on both the corporation and any person who aided and abetted the corporation's conduct.
Books about misleading or deceptive conduct
Books about passing off
Books about unfair business practices
Books about intellectual property
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Feel free to leave your comments. Thank you.
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reasonablerobinson
May 23, 2011 @ 11:49 pm | delete
- Very interesting, lensrolled to my Marketing Ethics and Criticism lens because it will make you rich, help you live longer, make you more attractive and ensure you are blissfully happy.........only kidding!
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