Trouble in (Surfers) Paradise: sun, sand and social media

In Seafolly Pty Ltd v Madden (2012) 98 IPR 389 the Federal Court of Australia considered a dispute between swimwear designers regarding comments made on the respondent’s Facebook pages.  The applicant,Seafolly Pty Ltd (Seafolly), walked away with $25,000 in damages and an injunction restraining the respondent from making further comments.  The case serves as yet another reminder of the risks involved in the commercial use of social media.

Background

Leah Madden, the respondent, is a designer behind the White Sands swimwear label.  In September 2010 she saw a copy of the Gold Cost Panache lifestyle magazine.  The cover was dominated by prominent Australian model, Samantha Harris,¹ wearing what Madden thought to be a White Sands design.  Madden was surprised to learn that Harris was wearing a Seafolly design.

Earlier in 2010, Madden had some dealings with Julie McLaren, a buyer and account manager for a company majority-owned by Seafolly.  Madden showed McLaren a number of her designs in a private meeting.  McLaren took some photos of the swimwear on her Blackberry.

Madden believed that Seafolly had copied her designs.  On 1 and 2 September 2010, she posted an album of photos of Seafolly garments on her personal Facebook page, under the heading “The most sincere form of flattery?”  The album was captioned, “Why allowing ‘buyers’ to photograph your collection at RAFW can be a bad idea”.

On 2 September 2010, Madden updated her Facebook photo album, posting photos of White Sands designs alongside the photos of Seafolly designs.  The photos had disparaging captions, including “White Sands as seen at RAFW in May - Seafolly September 2010” and “White Sands 2009 - Seafolly 2010”.  Over the following days Madden and others made a number of comments on the posted photos, and on the White Sands Facebook page, alleging that Seafolly copied White Sands’s designs.

Later on 2 September, Madden sent emails from a White Sands address to a number of journalists, effectively replicating the comparisons made on her Facebook page.  The emails included the words, “Is it just us, or has Seafolly taken a little to [sic] much ‘inspiration’ from White Sands?”  The following are examples of the layout of Madden’s posts and emails:²

Madden’s emails resulted in a number of publications.³  Seafolly caught wind of Madden’s movements and, when prompted by a publisher, issued a press release.  It stated that Madden’s claims were “false”, made “without foundation” and to maliciously injure Seafolly.⁴  A number of the purportedly copied designs were in development well before White Sands released or showed its designs.  That evening, Madden removed postings from her personal Facebook page.  Facebook removed further content after an email from Seafolly.  However, in the following days, Madden posted further comments regarding Seafolly on the White Sands Facebook page. 

On 3 September Seafolly issued a letter of demand, requiring Madden to remove offending material, provide a written apology acknowledging that the representations in the emails were false and to provide an undertaking not to republish those statements.  Madden did not comply with the demand.

Seafolly commenced proceedings against Madden for misleading and deceptive conduct, injurious falsehood and copyright infringement.  Madden cross-claimed for defamation and misleading and deceptive conduct, focusing on Seafolly’s press release.

Findings

Tracey J allowed Seafolly’s application and dismissed Madden’s cross-claim.

Misleading and deceptive conduct

His Honour found that the Facebook representations and the emails clearly contained an allegation of copying.⁵  As Seafolly’s designs predated the White Sands designs, those allegations were false and misleading.⁶

Madden argued her conduct was a mere expression of opinion and so was not misleading or deceptive conduct, or likely to be so, for the purposes of the Trade Practices Act 1974 (Cth) (TPA).⁷  Tracey J disagreed, finding that when read in context, the statements would not have been understood by the class of persons to whom they were directed as mere expressions of Madden’s opinion.⁸  In any event, Madden was reckless in making the comments.⁹

Madden also argued that, as a natural person, she could not have contravened the misleading or deceptive conduct provisions (being sections 52 and 53(a)) of the TPA.  However, those provisions can apply to natural persons if the conduct involves the use of “telephonic services”: TPA, section 6(3).¹⁰  Citing authority that applied this provision to representations on a website,¹¹ Tracey J held that the use of Facebook and email enabled Seafolly to rely on the extended operation of the TPA through section 6(3).¹²

A further argument was that Madden’s comments, posts and emails did not constitute conduct “in trade or commerce” for the purposes of the TPA.  This submission was rejected; Madden was commenting on the conduct of a competitor’s business.¹³  Accordingly, Madden’s conduct was held to be false and misleading in contravention of sections 42 and 53(a) of the TPA, justifying an award of $25,000 in damages under section 82 TPA for damage to Seafolly’s commercial reputation.¹⁴

At trial, Madden refused to deny that she believed that Seafolly copied her designs.  In those circumstances, the Court also granted an injunction restraining her from making further representations in respect of the matter¹⁵ and made a declaration that she engaged in misleading and deceptive conduct.¹⁶ 

Other claims

Although Madden’s representations were false, malicious, and conveyed to third parties, they did not result in any actual damage to Seafolly’s business.  As damage to reputation cannot constitute damage for the purposes of the tort of injurious falsehood,¹⁷ that claim failed.¹⁸

Seafolly also failed in its copyright infringement claim because, at the time that Madden published the impugned photos, Seafolly did not have copyright in respect of those photos; the copyright remained with the photographer.¹⁹

Madden was successful in establishing that Seafolly had defamed her in its press release: the release contained the imputation that she acted maliciously to damage Seafolly.²⁰  However, that imputation was substantially true and so Seafolly could rely on the defence of justification.²¹  Further, Seafolly could rely on the defence of qualified privilege in responding to Madden’s allegations.²²  The cross-claim for defamation failed.

As it was found that Madden’s allegations were made maliciously for the purposes of injuring Seafolly, Seafolly’s press release was not in contravention of the TPA.²³

Lavan Legal comment

The decision serves as another²⁴ illustration of the courts’ willingness to attach significant consequences to communications made through social media.  It is notable that a number of the comments that contravened the TPA²⁵ were made by Madden through her personal, “Leah Madden” Facebook account and not the “White Sands” business page.  Still, the Court found that they were “in trade or commerce” for the purposes of misleading or deceptive conduct. 

Social media encourages openness; a certain level of openness is good for society and good for business.  However, in light of decisions such as this, the open expression of ideas should be tempered with a level of professionalism and risk-aversion, both in business and in seemingly private spheres.