James Omond, Mentor

Can I take legal action if our competitors badmouth us?

StartupSmart /

A rival business has started to name us in its advertising, stating that our products are over-priced, our delivery times are slow and that customers can get a better deal at the rival company. All of this is untrue. Can I take any legal action or is there no recourse for this kind of thing?

 

Comparative advertising is a very tricky area. Based on what you have said, you can certainly take legal action against your competitor – if you have the stomach and the wallet for the fight.

 

You would hope that the Australian Competition & Consumer Commission (ACCC), or one of the State Fair Trading Offices, might step in and take action on your behalf – but that is unlikely to happen.

 

Yes, they occasionally take on one of the major telcos, but there usually needs to be a very compelling reason – such as a million or so consumers being misled. Given that probably won’t be the case with your business, then you will be left to your own devices.

 

The ACCC actually has a bit of material on its website (accc.gov.au) about comparative advertising. For example, they say that comparisons do need to be accurate — so a top of the range car needs to be compared to another top of the range car.

 

They also warn businesses to think about how competitors will react. If you begin a two-week campaign advertising price comparisons, a competitor could change its own prices overnight, rendering your campaign misleading. Then you would need to change your advertising immediately.

 

There have been some highly amusing examples of comparative advertising falling outside the law in Australia, under the general prohibition against “misleading and deceptive conduct”.

 

In one example, the TV advert showed two drills being opposed to each other, with the advertised brand’s drill overpowering the other. What they didn’t show was the previous four or five shots of the advertised brand’s drill blowing up first.

 

Likewise, an advert for a washing machine showed the advertiser’s product and competitors’ machines “filled with a two kilogram load”. During operation, the competitors’ machines began ‘walking’ around the floor, while the manufacturer’s machine remained still.

 

It turned out that the competitors’ machines were filled with two kilogram loads of lead shot! More importantly, the competitors’ machines would not have behaved in that way had they been filled with two kilograms of clothing.

 

Although the manufacturer did not make any false statements, it was held that the advertisement was misleading and deceptive therefore breaching the Trade Practices Act, because it gave the audience the wrong impression.

 

So what to do about the competitor? I would gather some “hard evidence” to disprove their claims, and then ask your lawyer to write a “fire and brimstone” letter threatening to rain down a withering legal case on them unless they ‘cease and desist’.

 

But do you do anything more than that? Not unless you get a very good idea of how much the next, litigious steps are going to cost you, and compare this very carefully with how much you think you are losing in sales to the competitor.

 

After all, consumers might be silly enough to believe the advertising claims, but once they experience the poor service/products, they are unlikely to stay with your competitor.

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