08 Jul 2011

Risky business? Misleading statements and social media - a dangerous mix

by Richard Hoad, Kezia Adams

Businesses must ensure the accuracy of statements posted on their social media sites, including those posted by third parties.

Many businesses now use social media sites such as Facebook and Twitter to advertise and market their products and services. However, as the recent Federal Court decision of ACCC v Allergy Pathway (No 2) [2011] FCA 74 shows, the use of social media carries significant risks, including the risk that businesses may be held liable for comments posted by third parties on their Facebook and Twitter pages.


In early 2009, the ACCC commenced legal proceedings against Advanced Allergy Elimination Pty Ltd (now Allergy Pathway Pty Ltd), which operated a clinic for the diagnosis and treatment of allergies using a "muscle strength indicator technique".

The ACCC alleged that Allergy Pathway and its sole director (Mr Keir) had engaged in misleading and deceptive conduct relating to its claims that it could treat allergies using the technique. The claims were made on Allergy Pathway’s website, its Facebook and Twitter pages, as well as in advertisements on radio, in newspapers and in brochures distributed to clients.

The case concluded with the Federal Court ordering that Allergy Pathway and Mr Keir pay fines, undertake corrective advertising, and commit to ongoing compliance training (Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd [2009] FCA 960).

In addition, the Court accepted certain undertakings from Allergy Pathway and Mr Keir. Specifically, Allergy Pathway and Mr Kier undertook not to "make, publish or cause to be made or published" statements that represent that either of them could test for and cure allergies using the technique, or that it would be safe to have contact with the allergen after treatment by Allergy Pathway.

The decision of the Federal Court in Allergy Pathway (No 2)

Subsequently, the ACCC took further action against Allergy Pathway and Mr Keir, this time alleging that they had breached the undertakings given to the Court on 35 separate occasions. As a result, the ACCC alleged, both Allergy Pathway and Mr Keir were in contempt of court.

The alleged breaches involved statements and testimonials on Allergy Pathway's website as well as its Facebook and Twitter pages. The Court grouped the alleged breaches into four categories:

1. statements and links to statements published by Allergy Pathway on its website and Facebook and Twitter pages, and in a YouTube video embedded on the Facebook and Twitter pages;

2. testimonials written by clients and posted by Allergy Pathway on its website and Facebook and Twitter Pages;

3. testimonials written by clients and posted by clients on Allergy Pathway's Facebook "wall"; and

4. Allergy Pathway's response to queries posted by members of the public on its Facebook ”wall”.

Allergy Pathway conceded that most (if not all) of the statements in categories 1, 2 and 4 breached the undertakings. As the Court noted, category 3 statements were “controversial” as they were posted by Allergy Pathway's clients and not by Allergy Pathway itself. In determining whether Allergy Pathway should be held responsible for statements made by others on its Facebook wall, the Court considered how Facebook and Twitter operate and whether Allergy Pathway had in fact "published" the statements written and posted by its clients on its Facebook wall.

The Court ultimately found that Allergy Pathway had become the "publisher" of the testimonials because it knew of the posts and decided not to remove them. The Court found that Mr Kier was liable as an accessory. Justice Finkelstein stated that " it is clear that it [Allergy Pathway] caused them [the posts] to continue to be published from the time it became aware of their existence, which is enough to put Allergy Pathway in breach". He also inferred that "one reason Allergy Pathway did not remove the testimonials was that it wanted to take the benefit of the praise for its services" and that Allergy Pathway thought the testimonials "added legitimacy" to its services. Ultimately Allergy Pathway and Mr Keir were fined $7,500 each for contempt of court and injunctions were ordered preventing them from engaging in similar conduct in the future. In addition, Allergy Pathway and Mr Keir were ordered to undertake corrective advertising and pay all of the ACCC's legal costs.

The decision is also a legal landmark because it is the first time that the ACCC has obtained court orders requiring someone to place corrective notices on channels of video streaming websites such as YouTube (albeit these orders were made by consent). As Graeme Samuel, Chairman of the ACCC, noted, “[t]his outcome shows that companies using social media and other popular websites to make misleading and deceptive claims can be expected to use those same channels to correct the misapprehensions they have caused.”

Lessons learned

The decision makes it clear that businesses must:

1. ensure the accuracy of content they themselves publish on their websites and social media sites (such as Facebook, Twitter and blog sites); and

2. ensure that they remove any misleading content posted by third parties as soon as they become aware of it. (Future decisions may cast the net wider than this – for example, it may be sufficient that, in all of the circumstances, a business ought to have been aware of the third party posts and removed them.)

As well as legal risks such as the publication of misleading third party content, there are other potential risks associated with social media, such as the posting of offensive material and the reputational damage which that could cause.

In order to minimise the legal and other risks involved, businesses should consider putting procedures in place to monitor third party content on social media sites. Whether such procedures are necessary or even desirable will depend on the particular circumstances of the business in question, and this is an issue on which businesses should obtain legal advice. Where businesses do not have the desire or resources to monitor posts, one option is to consider disabling the ability of users to post content on their Facebook pages and other social media sites.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.