Social Networking in Business

Date: Jul 05, 2011
Document Type: Newsletter

Many businesses including small businesses have embraced social networking sites as a way to market their products and services. Facebook fan pages are often a popular choice, enabling members of the public to post comments about a product or service.

As a result of a recent Federal Court of Australia decision, businesses may be liable for misleading and deceptive statements made on their social networking sites by third parties. Businesses which employ social networking techniques need to review their strategies to ensure they comply with this decision. This may be particularly important for direct selling organisations.

In the case of the Australian Competition and Consumer Commission (ACCC) v Allergy Pathway Pty Ltd (No 2) [2011] FCA74, the court found that the company and its former director were liable for testimonials posted on its Facebook and Twitter pages, even though the company itself did not post the testimonials.

The company operated clinics for the diagnosis and treatment of allergies. The techniques used by the company were not medically validated. In 2009 the ACCC commenced proceedings against the company, alleging that the company had made misleading and deceptive statements about its ability to identify, treat and cure allergies. The Federal Court found that the company and its director had engaged in misleading or deceptive conduct in contravention of the Trade Practices Act 1974 (Cth). In addition to other relief granted by the court, the company and its director gave undertakings that they would not publish or make the same or similar representations for a three year period.

In 2010, initiated contempt proceedings alleging that the company had continued to make numerous representations in breach of its undertakings and that the director had knowingly been involved in those breaches. The ACCC’s allegations related to four categories of representation:
1. statements and links to statements posted by the company on its website, Facebook and Twitter pages, and a video posted on YouTube, Facebook and Twitter;
2. responses by the company to queries posted by the public on Facebook.
3. testimonials written by clients and posted by the company on the company’s website, Facebook and Twitter pages; and
4. testimonials written and posted by clients on Facebook and Twitter.

The company and the director conceded that they were in breach of their undertakings in relation to the social media posts that the company had made containing client testimonials but argued that they were not liable for testimonials posted by clients.

The Federal Court fined the company and the director for contempt of court, finding that they breached undertakings made to the court in relation to “false, misleading or deceptive” posts published on the company’s website, Twitter, YouTube and Facebook pages.

The court found that the company and its director were liable for the testimonials written and posted by clients on Facebook and Twitter because the company knew the misleading testimonials had been posted on its Facebook wall and Twitter pages and had not taken any steps to have them removed. The court noted that while it could not be said that the company was responsible for the initial publication of testimonials, they accepted responsibility for the publications when it knew of them and decided not to remove them.

The court ordered the company and its director to pay $7,500 each in fines, engage in corrective advertising (including on the company’s website, Twitter and Facebook pages) and to refrain from making the same or similar representations in the future.

This decision makes it important for businesses to take care when using social networking sites. Businesses must monitor statements posted by customers or members of the public on their website and social networking sites and delete any comment that may breach the Australian Consumer Law. The new Australian Consumer Law expressly prohibits the use of misleading testimonials. Businesses should develop and put in place an effective online compliance strategy to mitigate the risk of being liable for the publication of statements made by customers or members of the public on the business’s social networking sites. Among other things, this strategy should include frequent monitoring of websites for comments which may not comply with legislation, the development of policies and protocols, and dealing with false or misleading content promptly.

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