22 Apr 2012

Making misleading conduct unprofitable is a consideration in penalties

Submitted by Troy Rollo

In 2010 Optus was found to have engaged in misleading conduct, and in 2011 they were ordered to pay a fine of $5.26millon. The fine arose out of the widely cast "think bigger" campaigns for their broadband services. One of the more memorable advertisements involved a moose with extraordinarily large antlers. The advertisements were found misleading because they did not make it sufficiently clear the circumstances in which Internet access would be slowed down. In most cases the information was present, but not sufficiently prominent or clearly expressed.

Optus appealed to the full court of the Federal Court. In Singtel Optus Pty Ltd v ACCC [2012] FCAFC 20, the full court reduced the penalty to $3.61million based on one mistake made by the trial judge. The more interesting part of the reasons is the part discussing why the penalty was not reduced further.

It was relevant that Optus was a repeat offender, but more important in the reasons was that given that the prohibition on misleading conduct is a prohibition on engaging in misleading conduct in trade or commerce, a court should set a penalty that is sufficiently large that the risk of the penalty will not be seen as an acceptable cost of doing business. It was also relevant that the conduct of Optus increased its market share at the cost of the share of more law-abiding competitors. Reading between the lines, there seems to be a concern that if their profits (and more) from the conduct are not taken away, their competitors will see Optus getting away with it, and feel they have no choice but to do the same.

Among the most important things for sales and marketing people to understand about misleading conduct laws are:

  1. It does not matter if you were trying to be honest. You can have all the best intentions, and still be liable to a civil action or penalty;
  2. It does not matter if what you stated was the literal truth. If it gives a misleading impression, you can be liable. It is no defence to say "it was true", if it was misleading;
  3. It is not just the employer who can be liable - the individual who was involved in the conduct can be liable directly under the state laws, and indirectly under the federal laws.

This means that sales and marketing employees should think very carefully about the impression conveyed by their sales and marketing communications. If there is potential for somebody to get a false impression, there is potential for the employer, and the employee to be liable to a fine or to compensate a person who is misled. It is not something that is worth betting the house on. The intention of these laws is to make businesses and their sales and marketing employees exercise special care to make sure their communications are clear, complete and convey an accurate impression.

Another important factor in the Optus decision was that Optus did not have a sufficient compliance program in place, to ensure its sales and marketing staff understood and complied with the law. Sales and marketing employees who are not aware of any misleading conduct compliance program put in place by their employer should ask their employer about whether there is such a program, or any plans to put one in place. A negative answer to both of these questions should raise alarm bells, since the employee can be just as much at risk as the employer.