Swimwear designer in hot water for slagging off Seafolly on social media

In the recent case of Seafolly Pty Ltd v Madden [2012] 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.

Image: Seafolly Pty Ltd v Madden

Background

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:

• “Seriously, almost an entire line-line ripoff of my Shipwrecked collection.”
• “Ripping off is always going to happen, but sending in a dummy ‘buyer’ to get photos is super sneaky!”

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!”

Claims

Seafolly sued Ms Madden on the following grounds:

• misleading and deceptive conduct and false representations;
• injurious falsehood; and
• copyright infringement.

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:

• defamation; and
• misleading and deceptive conduct.

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:

• Seafolly did not copy the White Sands swimwear;
• the Seafolly swimwear were original designs created by employees of Seafolly without reference to the White Sands swimwear; and
• Seafolly did not use underhanded means to obtain photos of the White Sands swimwear and did not create the Seafolly swimwear using such photos.

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.

Injurious falsehood

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.

Copyright infringement

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.

Defamation

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:

• justification, on the basis that Seafolly’s statements were substantially true given Ms Madden had acted maliciously with reckless indifference; and
• qualified privilege, on the basis that Seafolly’s response was commensurate with the serious allegations made against it by Ms Madden.

As a result Ms Madden’s cross-claim for defamation failed.

Orders

The Federal Court ordered that Ms Madden:

• pay:
  • Seafolly limited damages of $25,000 (for reputational damage only, as Seafolly could not establish any economic loss as there was no downturn in Seafolly’s sales and profitability); and
  • Seafolly’s costs; and
• be restrained from:
  • reproducing or authorising the reproduction of the Seafolly photos without Seafolly’s consent; and
  • making, or aiding, abetting, counseling or procuring the making of, similar statements, representations or claims to third parties.

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.

Key take-outs

This case serves as a warning to those who publicly shame brands on social media. It is important for brands to:

• not be reckless in their commentary on industry matters and ensure they ascertain, or take reasonable steps to ascertain, the truth of such commentary before posting it to social media;
• proceed with caution where such commentary relates to, or has the potential to harm, the trade or reputation of a competitor;
• monitor their social media pages for posts that are potentially misleading or defamatory or may infringe copyright;
• determine whether to treat, tolerate or take down these posts as soon as reasonably possible;
• upload house rules to their social media pages clearly defining the standards of behaviour that users of the page must abide by;
• implement company policy stipulating that their employees must not post anything to their personal social media pages that appear to be made ‘on behalf of’ the brand unless expressly authorised by the company; and
• if in doubt, seek legal advice early before the issue escalates.