In the recent case of Seafolly Pty Ltd v Madden  FCA 1346 (29 November 2012), the Federal Court found Leah Madden, principal designer of Australian swimwear label White Sands, liable for misleading and deceptive conduct and false representations under sections 52 and 53(a) of the Trade Practices Act 1974 (now sections 18 and 29 of the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010) for making statements on Facebook and in emails suggesting that Seafolly had ripped off her designs.
After seeing a photo of Seafolly swimwear in a magazine, which she initially believed was her own creation, Ms Madden posted various comments on her personal Facebook page and the White Sands Facebook page implying that Seafolly had copied her swimwear designs, such as:
Ms Madden also posted to her personal Facebook page an album comparing eight photos of her garments alongside photos of Seafolly swimwear under the heading “The most sincere form of flattery?” Ms Madden then emailed a number of fashion and news publications replicating the Facebook album followed by the comment “Is it just us, or has Seafolly taken a little to [sic] much ‘inspiration’ from White Sands?”
Once Seafolly became aware of Ms Madden’s claims as a result of the media interest and issued press releases denying her claims, Ms Madden took some of her Facebook posts down but continued to post comments on the White Sands Facebook page, such as “White Sands Australia says: “bullies be gone and take your bully tactics with you! We tiny little fledgling designers will not be taken advantage of!”
Seafolly sued Ms Madden on the following grounds:
Ms Madden cross-claimed against Seafolly, for alleging in its press releases that her statements had been made with the malicious intent of damaging Seafolly, on the following grounds:
Misleading and deceptive conduct / false representations
In light of the evidence that the Seafolly swimwear generally predated those of White Sands, the Federal Court determined that:
The Federal Court rejected Ms Madden’s argument that her allegations were merely expressions of opinion and not statements of fact as, when read in context, her language conveyed that copying had in fact occurred. Even if her allegations could be understood as opinions, the Federal Court considered that she had been reckless in forming them. Ms Madden should have adopted a cautious approach as her allegations were made against a competitor and could potentially harm Seafolly’s reputation.
The Federal Court also rejected Ms Madden’s argument that her conduct was not ‘in trade or commerce’ as she had sought to influence the attitudes of customers and potential customers of Seafolly, a trade competitor, rather than merely provide commentary on industry matters.
The Federal Court accordingly found that Ms Madden had engaged in misleading and deceptive conduct and that she had made false representations as to the particular ‘style and model’ of the Seafolly swimwear. Ms Madden’s cross-claim for misleading and deceptive conduct failed as Seafolly’s allegations in its press releases that Ms Madden had sought to maliciously injure Seafolly were found to be true and not apt to mislead.
While Seafolly could establish the first three elements of the tort – a false statement of or concerning Seafolly’s goods or business, publication of that statement by Ms Madden to a third person, and malice on the part of Ms Madden – Seafolly could not establish the final element of proof of actual damage suffered as a result of the statement. Seafolly’s claim for injurious falsehood consequently failed as Seafolly did not provide adequate pecuniary, as opposed to reputational, loss suffered by it as a consequence of Ms Madden’s allegations.
Seafolly were unable to sue for defamation as it is a company with ten or more employees. The Federal Court noted that this case illustrates the difficulty confronted by such companies when their commercial reputations are called into question.
Seafolly also failed in its claim for copyright infringement as the owner of copyright in the Seafolly swimwear photos at time of publication by Ms Madden was the photographer, not Seafolly. Although the photographer subsequently assigned copyright in the photos to Seafolly and the right to sue for past infringements, Seafolly did not adduce any evidence to demonstrate that the photographer, as opposed to Seafolly, had suffered any damage as a result of the publication of the photos.
While the Federal Court found that Seafolly conveyed defamatory imputations of Ms Madden by asserting in its press releases that she had acted in a malicious way in order to harm Seafolly’s commercial interests, the Federal Court upheld Seafolly’s defences of:
As a result Ms Madden’s cross-claim for defamation failed.
The Federal Court ordered that Ms Madden:
Regarding the award of limited damages only, the Federal Court noted that the Facebook postings were accessible to a relatively small number of ‘friends’ for less than two days, however the email to the media outlets had the potential to be widely published. Despite this, the email did not actually generate significant publicity in the mainstream press.
This case serves as a warning to those who publicly shame brands on social media. It is important for brands to: