Seafolly to pay double damages for false statements made about swimwear competitor
Madden and Seafolly are competitors in the swimwear industry. Madden posted comments on her personal and business Facebook pages, and in emails to media outlets, to the effect that Seafolly had copied some of her swimwear designs. Most of the Seafolly garments in question, however, actually predated Madden’s relevant swimwear and there were varying degrees of design difference between the garments.
Seafolly ‘retaliated’ by issuing two press releases containing: a lengthy description of Madden’s Facebook posts, Seafolly’s denial of Madden’s allegations in those posts, and an explanation as to why Madden’s posts were false.
However, crucially, Seafolly’s press releases also contained an accusation that Madden had been malicious in making false claims against Seafolly in order to damage Seafolly.
Full Federal Court findings on Madden v Seafolly decision
On 1 July 2014 we reported on the outcome of the Full Federal Court decision of Madden v Seafolly Pty Ltd  FCAFC 30. The findings of the Full Federal Court included:
- Madden’s conduct was misleading and deceptive and constituted false representations in contravention of the (then applicable) Trade Practices Act 1974 (Cth) (‘TPA’). Madden was ordered to pay Seafolly $20,000 in damages.
- Seafolly’s ‘retaliation’ to Madden’s comments was also misleading and deceptive under the TPA because Madden had not been malicious. The reason for this was that, regardless of Madden’s lack of inquiries, at the time Madden made the allegations of copying, she was convinced that they were true, and therefore she had not deliberately set out to injure or damage Seafolly.
On 12 September 2014, Justice Tracey assessed the damages that Seafolly was to pay Madden. Although it only occupied a single line in an otherwise lengthy and accurate press release, the Court assessed the damages that Seafolly was to pay Madden for Seafolly’s comment about Madden being malicious at $40,000 – double the amount Madden was ordered to pay Seafolly for her misleading and deceptive conduct.
This decision emphasises that a misleading or deceptive comment cannot be hidden amongst an otherwise accurate publication, particularly if the entity making the statement is a large and reputable business.
Damage to both Madden and Seafolly’s reputation
The damages that each of the parties were ordered to pay were for damage to their respective reputations.
How the Court calculated the sum of $20,000 for damages to Seafolly’s reputation
Seafolly’s profits had continued to increase during the period in which the misleading and deceptive comments were made. However, it is not necessary for the entity about whom the misleading and deceptive comments have been made to have suffered any loss or damage in terms of financial loss.
Where no actual financial loss is established, the Court must have regard to the nature of the misrepresentations, and the manner and extent of their publication. If the damage is unable to be calculated precisely, the court can however estimate the sum. In coming to the figure of $20,000, the Full Federal Court considered the following:
- The misrepresentations were to the effect that Seafolly was conducting its business dishonestly. As a result, Seafolly’s business reputation will have suffered some real damage.
- The posts on Facebook occurred over two days and Madden then removed them, therefore the communications were not long-lasting.
- On Facebook, the misrepresentations were published to Madden’s and her business’ ‘friends’. A limited number of those ‘friends’ posted comments in response to the statements. There was no other evidence of how many people read the publications, although there was evidence that Madden had 518 ‘friends’ on her personal Facebook page and 3,535 ‘friends’ on her business Facebook page.
- In relation to the emails to media outlets which led to two media articles, there was no finding about the circulation figures, however the Court commented that it appeared they were not widely published.
How the Court calculated the sum of $40,000 for damages to Madden’s reputation
Like Seafolly, Madden also sought damages for damage to her reputation. In coming to the figure of $40,000, the Court had regard to the following:
- The serious nature of the allegation. Although the allegation only occupied a single line in a lengthy press release, the Court commented that it was just as serious as if the allegation stood alone or appeared in a shorter press release.
- The size and positioning of Seafolly in the marketplace. Because Seafolly is a well-established reputable business, its allegation that Madden had acted maliciously would not have been made lightly and therefore, its size and positioning in the marketplace was a relevant factor.
- The extent of its publication. The press releases were published on a number of websites which remained accessible on the internet until the date of the trial. The unique views and page views for the publications of the articles were relatively modest, with the numbers either being in the hundreds or low thousands.
- The gravity of the impact of the allegation on Madden personally. The effects on Madden included stress and loss of sleep. These were not due solely to the allegation that she had acted maliciously, rather were also because of Seafolly’s other factual statements made in retaliation to Madden’s false allegations that Seafolly copied her swimwear designs. However, it was sufficient that some of her hurt and offence was caused by the misrepresentation.
No economic loss suffered by Madden’s business as a result of the press releases
Madden also claimed damages to her White Sands business because orders from customers had declined since the press releases were published and Madden stated that she believed that the decline was due to the press releases. However, this was not sufficient evidence to establish that Madden’s business had suffered loss or damage as a result of the press releases. There was no, for example, evidence from a stockist or a forensic accountant that orders had not been placed due to the press release.
Six good reasons for checking statements made about competitors
Six good reasons for checking that a publication about a competitor does not contain any misleading or deceptive statements can be taken from this decision. They are:
- The person who made the statement can be liable for damages even if no financial loss was suffered as a result of the statement.
- Even if the majority of the publication was not misleading or deceptive and was in response to someone else’s false statements, the amount of damages payable can still be substantial.
- A statement can be misleading and deceptive when it is hidden amongst correct statements.
- If the person making the statement is a large and reputable business, the damages awarded against it will likely be greater than if a smaller and lesser known company made the statement.
- The longer the false statement stays on the Internet, the higher the damages will likely be.
- If the misleading and deceptive statement is only read by a relatively small group of people (in, say, the hundreds), the damages can nevertheless be in the tens of thousands of dollars.