6 key legal risks to watch out for when marketing your startup

6 key legal risks to watch out for when marketing your startup

Marketing is a key tool for startups at all stages of the business lifecycle.  Whether you are just getting started, or you are already up and running, effective marketing can help you promote your business and convert leads into clients and customers.

However, marketing communications are heavily regulated in Australia under a framework of established laws and industry self-regulation and it is important to understand the legal framework you operate in to ensure your marketing communications comply with the law.

These laws apply equally to all media platforms, whether traditional print or broadcast, or online or social media, and your startup can also be liable for user generated content on its social media sites.

This blog is the first in a series on Marketing your Startup: Risks, Tips and Traps which will highlight some key risks which startups should watch out for and some tips to avoid the risk of a legal claim. See our other blogs here.

Below we provide an introduction to some of the issues that may arise and provide some tips on how to reduce your legal risk.

1. Copyright infringement

If you use content which is owned by another person to promote your business without getting their prior approval you run the risk of breaching that person’s copyright.  That includes taking content from the internet.

Copyright exists in artistic works (e.g. photos, pictures and drawings), literary works (e.g. books, articles and lyrics), dramatic works (e.g. film scripts), musical works and in other materials such as sound recordings, films and broadcasts.

This means the copyright owner has the exclusive right to reproduce and communicate that content to the public.  In most cases you can only reproduce or communicate third party content with permission from the copyright owner.  The copyright owner may allow you to use the content, but some owners may require specific licence terms and the payment of a fee.

VML Tips

• Just because it’s available, doesn’t mean it’s free to use!
• Get all third party content cleared. If in doubt, don’t use it.
• Music, photos and movies are high risk areas.

See our blog here to find out if you can re-use content from social media for other purposes.

2. Misleading and deceptive conduct

Australia’s consumer protection legislation, the Australian Consumer Law, prohibits businesses from making false, misleading or deceptive claims about their products or services.  The law is deliberately broad and captures a wide range of marketing conduct.

Some of the key risk areas are:

• making false or misleading representations or claims about the characteristics or performance of goods or services
• fake customer reviews or testimonials
• suggesting an affiliation with or endorsement from another company or person which does not exist in order to promote your goods or services
• making comparisons between your products and competitors’ products which are not correct

The Australian consumer law regulator, the Australian Competition and Consumer Commission (ACCC) has a wide range of investigative and enforcement powers targeted at companies (big and small) who engage in misleading or deceptive marketing practices.  The ACCC can require companies to substantiate claims and can take court action or issue an infringement notice where it identifies a breach of the law.

VML Tips

• You must be able to substantiate any claims or representations you make about your products. Have available materials and data which supports product claims (e.g. technical specifications; relevant consumer research; product testing results).
• Make sure any endorsements, reviews or testimonials are true and accurate (see our related blog for more information on this topic here)

3. Advertising Standards

Most content published or communicated by your startup will be considered to be advertising material for the purposes of Australia’s self-regulatory framework for marketing communications.

There are self-regulatory codes of conduct which regulate marketing practices, including the Australian Association of National Advertisers (AANA) Code of Ethics, which is administered by the Advertising Standards Bureau (ASB).  In practice, all advertisers comply with the self-regulatory codes.

The ASB considers and adjudicates on consumer complaints about advertising.  If the ASB upholds a complaint about your advertisement, you will need to modify or discontinue it.  No financial penalties apply (other than lost production costs for advertising), but the reputational risks can be significant.

The main code which must always be considered is the Code of Ethics.  The code deals with ethical considerations such as discrimination, sexual exploitation, portraying violence and health and safety that may offend prevailing community standards.  The code also requires that advertising content is clearly distinguishable as advertising.

VML Tips

• Ensure that your marketing communications meet generally accepted ethical standards
• Ensure that your advertising is clearly distinguishable as advertising and not disguised as user-generated content, a private post or independent reviews, e.g. use “#sponsored” on social media posts by influencers. (For more information on influencers, see our related blog here)
• Consider if your goods or services are regulated by a specific code of conduct

4. Trade marks

Your trade mark is commonly referred to as your brand, and it is one of the most important and valuable assets of your startup.  Using and marketing your brand distinguishes your goods or services from other traders and contributes to your startup developing an identity and goodwill.  It is an integral component of any effective marketing strategy.

However, a trade mark can be more than just a word or a logo.  You can register other distinctive features of your startup that distinguish your goods or services, including a letter, number, phrase, sound, smell, shape, picture, or combination of these.

It is not compulsory to register your trade mark but a registered trade mark will give you greater legal benefits, including better enforcement rights if a person uses a brand that is substantially identical with, or deceptively similar to, your trade mark in relation to the same or similar goods.  It will also be expected by investors and other financiers.

See our blog on using competitor trade marks in SEO and Adwords here.

VML TIPS

• A trade mark is not the same thing as a registered business name, registered company name, or a domain name. Only a trade mark provides legal brand protection.
• Undertake a thorough search of existing registered and unregistered trade marks before you settle on a name for your startup – it can be costly if you proceed without checking and there is already a competitor in the same market with the same name or a similar name.
• Register your trade mark to provide your startup with maximum legal protection and enforcement rights.

5. Privacy and data security

If your startup has an annual turnover of $3 million or more and handles personal information, you are required to comply with the Privacy Act in all aspects of your marketing communications.  A business subject to the Privacy Act cannot collect, use, disclose or store personal information without complying with these laws.

Personal information is any information that can reasonably identify an individual. This could include a name, phone number or email address.

If you are under the $3 million threshold, although the legislation will not apply to you, it pays to plan for what you want your business to be in the future.  Putting in place policies and procedures now will assist with managing and minimising privacy risks.  It also has the important benefit of developing transparency and trust with customers in your marketing communications.  Customers have greater comfort when they know what information about them is being collected, how it is being used and how secure it is.   Your clients will also expect good privacy governance and data security.

The Privacy Commissioner has enforcement powers against businesses which are required to comply with the Privacy Act.  Online marketplace site Freelancer received an adverse decision from the Privacy Commissioner last year when it disclosed personal information about a user on publicly accessible sites. The complainant was awarded $20,000 in damages.

VML TIPS

• Develop a privacy policy, make it publicly available and ensure that your operational practices and procedures support your privacy policy
• Be transparent with customers in marketing communications if your business will collect personal information – tell people how and why you collect it, and who you will share it with.
• Ensure all data is securely stored with an adequate security system

6. Defamation

Defamation is the communication, publication or broadcast of material about a person that injures that person’s reputation.  The legal test is whether an ordinary reasonable person would think less of that person due to the defamatory material.

While businesses rarely intentionally seek to defame someone in their marketing communications, there are defamation risks that startups should be aware of.  Key risk areas to watch out for are:

• republishing defamatory content, including by sharing, reposting, retweeting or ‘liking’ a defamatory comment made by a third party on social media
• sending or forwarding a defamatory email
• allowing defamatory user generated content to remain on your business’ social media site and not taking it down within a reasonable period, or after being notified of it
• seeking to defame a competitor without naming them – a person does not need to be named to be defamed if the audience could reasonably understand who the target is

While defences to defamation may be available depending on the context, for example if the material is true, or an honest opinion, these defences should not be relied on to avoid a legal claim.

Companies cannot be defamed (unless they have less than 10 employees), however there is a separate legal action known as “injurious falsehood” which may apply if one business maliciously seeks to damage the reputation of another business.

VML TIPS

• Be careful with sharing content on social media – you can be liable if you republish defamatory material
• If you have social media sites which include user generated comments or posts, monitor that content and remove defamatory remarks (however you should not remove valid criticisms of your own business without reason)

We hope you enjoyed our first blog in a series of blogs about Marketing your Startup: Risks, Tips and Traps

Please see our other blogs in the series here. 

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