Misleading Conduct and COVID-19
Federal and state law protects consumers by restricting the type of representations and advertising that businesses can use in Australia. It is especially important that businesses remember their obligations under these laws when advertising goods and services during the COVID-19 pandemic. Notably, the ACCC has strict guidelines to prevent a business from advertising false or misleading claims about the protective or curative properties of goods and services. This article outlines the obligations on businesses to refrain from misleading conduct with reference to a recent case.
What is misleading conduct?
The Competition and Consumer Act 2010 (Cth) stipulates in section 18 that a person must not, in commerce or trade, engage in conduct that is deceptive or misleading or likely to deceive or mislead. Under this Act, businesses must not make misleading or false claims about the performance characteristics or benefits of products or services. A consumer who believes that a business is not complying with consumer law can make a complaint to the Office of Fair Trading in their jurisdiction or to the Australian Competition and Consumer Commission.
The Therapeutic Goods Administration (TGA) is another entity that applies scrutiny to the practices of businesses offering therapeutic goods. Recently the focus has been on advertising connected to COVID-19. When a business makes a claim that a product is in some way curative or preventative during the pandemic, the advertising must also comply with the Therapeutic Goods Act 1989 (Cth). Advertisers need to be aware that:
- Any reference to goods as therapeutic is a restricted representation and there must be prior approval from the TGA;
- Any therapeutic claim must be based on established evidence and must not be misleading;
- Any advertising must be consistent with current public health advice; and
- Any claim that a disinfectant kills the coronavirus must be based on scientific studies and must have prior approval from the TGA.
Lorna Jane Pty Ltd
In July 2020, Lorna Jane Pty Ltd launched a promotion campaign for LJ Shield Activewear, advertising that the clothing “stopped the spread”, “eliminated” and “protected wearers” against “viruses including COVID 19”. These representations were displayed on the company website, on social media platforms, in-store signage, email advertising and media releases.
The Therapeutic Good Administration (TGA) immediately issued Lorna Jane Pty Ltd with three infringement notices for breaching the advertising code, failing to register certain goods on the Register of Therapeutic Goods, and failing to seek TGA approval before making these claims. The penalties from the TGA totalled nearly $40,000.
In December of 2020, the Australian Competition and Consumer Commission (ACCC) accused Lorna Jane of falsely promoting its activewear as providing protection from and actually eliminating COVID during the global pandemic. The ACCC found that the marketing campaign was designed to capitalise on the public’s fear and desire for protection from the pandemic. The ACCC determined that this was particularly reprehensible as the company was making serious claims about public health without basis when the consumers could not easily investigate the truth of the claims.
Lorna Jane Pty Ltd admitted to falsely reporting that the company had a technological or scientific basis for making ‘anti-virus’ claims about the activewear. In fact, the company had not conducted any scientific testing that showed the efficacy of the activewear on viruses, and had no evidence to present to the court to establish the claims.
The Federal Court took into account that the misleading conduct emanated from a high managerial level and was overseen by the director and Chief Creative Officer (CCO). The CCO at Lorna Jean approved the marketing material, help to draft the wording and imagery, and personally made false statements on social media and in the media release.
The court handed down a decision in July 2021 ordering Lorna Jane Pty Ltd to pay a $5 million dollar fine in penalties for engaging in conduct that was liable to mislead the public and making false and misleading representation and advertising to consumers. The court imposed the comparatively heavy fine to reflect the seriousness of the company’s conduct, which was described by the court as “exploitative, predatory and potentially dangerous”. Under the judgment, Lorna Jane is restrained from making further claims regarding the anti-virus properties of its clothing without reasonable basis and must publish corrections in every medium used in the marketing campaign. Additionally, the company must establish a program for consumer law compliance and pay the ACCC’s legal costs in bringing the case.
As shown by this case, businesses have a clear responsibility to be honest and forthright with consumers during the pandemic. In addition to not falsely advertising goods or services as therapeutic in relation to COVID-19, businesses must also not use the pandemic as an excuse for stock shortages, price increases or delays in deliveries unless these claims are true.