Dominant message: the High Court comes out pro consumer on misleading and deceptive conduct

On Thursday the High Court gave its decision on misleading and deceptive conduct by Australian internet provider, TPG.  The High Court struck down findings of the Full Federal Court and set aside its orders that had set penalties at $50,000.  The High Court reinstated penalties of $2 million that were given at first instance.  The decision was a resounding victory for the ACCC.

So how did the Full Court get it so wrong and what does the decision mean for advertisers?

Takeaways for advertisers:

• The "dominant message" of an advertisement is critical in determining if it is misleading.

• A tendency of an advertisement to mislead is not neutralised by attributing knowledge to the target audience.

• An advertisement that tends to mislead a consumer merely into a negotiation with the advertiser will suffice to breach the statute.

The facts

In September and early October 2010 TPG advertised on national television stations and seven capital city radio stations, in a number of national and capital city newspapers, and on its own website and websites of two third parties.

On 4 October 2010, the ACCC was wrote to TPG to convey its concerns regarding the advertisements.  TPG did not accept that the ACCC's concerns were warranted, but made some amendments to the advertisements.  The amended advertisements were deployed more widely that the initial advertisements, including in cinemas and billboards.

Decision at first instance

The judge at first instance found that each advertisement (including the advertisements amended following the ACCC writing to TPG) had the dominant message: "Unlimited ADSL2+ for $29.99 per month". 

The judge found that an "ordinary or reasonable consumer taking in only the dominant message would have the impression that the entire cost of the service is $29.99 per month, with no other charges and no obligation to acquire another service". 

The judge found that TPG's qualifications to the dominant message, that a consumer would need to pay a one-off setup fee and an ongoing telephone line rental, were in most cases given insufficient prominence to counter the effect of the dominant message.

The judge ordered that TPG pay a penalty of $2 million.

The Full Court

The Full Court disagreed with the primary judge's view that the "dominant message" of the advertisements was of critical importance in determining whether they were misleading.

The Full Court gave greater regard to "the attributes of the hypothetical reader or viewer".  Those attributes included knowledge:

• of the 'bundling' method of sale commonly employed by Internet service providers; and

• that set-up charges are often applied.

Accordingly, the Full Court did not regard many of the advertisements as misleading and gave reduced penalties of $50,000.

The High Court - primary judge was correct

The majority of the High Court considered that the Full Court erred in:

• holding that the primary judge was wrong to regard the "dominant message" of the advertisements as of crucial importance; and

• in failing to appreciate that the tendency of TPG's advertisements to mislead was not neutralised by the Full Court's attribution of knowledge to members of the target audience.

The High Court considered it relevant that the advertisements were an unbidden intrusion on the consciousness of consumers and an attempt to arrest the attention of consumers. Therefore consumers cannot have been expected to pay close attention to the advertisement.  Rather many consumers would only absorb the general thrust of the advertisement.  In those circumstances perfunctory attention by consumers would not be a failure on the part of those consumers to take reasonable care of their own interests.

The High Court considered that the Full Court did not recognise, as it should have, that the tendency of the advertisements to mislead sufficed to be determined by asking whether the advertisements tended to bring consumers into negotiation with TPG rather than with one of its competitors on the basis of erroneous belief engendered by the dominant message.  It was not necessary to ask if the advertisement tended to induce consumers to enter into contracts with TPG.

The High Court agreed with the primary judge that it was relevant to penalties that TPB had previously given an statutory undertaking to the ACCC that it would not engage in misleading conduct.  The Full Court had erred in failing to consider that as relevant.

The High Court reinstated the $2 million penalty ordered by the primary judge and awarded costs to the ACCC.  

See the full decision here