Australian Competition and Consumer Commission v Teracomm Ltd

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FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Teracomm Ltd
[2009] FCA 903

TRADE PRACTICES – misleading representation – representation of one-off service whereas in fact subscription service – false representations – quality of content services advertised – declaration by Court where contravening conduct found

Federal Court of Australia Act 1976 (Cth) ss 21, 80 and 86C
Telecommunications Act 1997 (Cth) s 99
Trade Practices Act 1974 (Cth) ss 52 and 53(aa), (e) and (g)

Campomar Socieded, Limitada v Nike International Ltd (2000) 202 CLR 45 applied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v TERACOMM LTD

NSD 59 of 2009

MOORE J
20 AUGUST 2009
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 59 OF 2009
BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant
AND:

TERACOMM LTD
Respondent

JUDGE:

MOORE J

DATE OF ORDER:

20 AUGUST 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS AND DECLARES THAT:

1.The respondent, while engaged in trade or commerce within Australia, contravened s 52 of the Trade Practices Act 1974 (Cth) by causing to be published advertisements promoting Viva Content Services (the Viva Mobile Advertisements) in the May, June and July 2008 editions of Dolly magazine which:

1.1represented that any consumer responding to the Viva Mobile Advertisements would, by sending an SMS message to the premium number 19 30 40, purchase a one-off service, when in fact, the consumer:

1.1.1in sending an SMS to the premium number 19 30 40, requested access to a subscription service charged at premium rates;

1.1.2paid an initial sign-up fee of $3 and a subscription fee of between $9-$12 per week which were billed to his or her mobile telephone account;

1.1.3in order to end his or her subscription, was required to send an SMS message to the content provider which contains the word “stop”; and

1.2failed to disclose, or failed to sufficiently disclose, that any consumer responding to the Viva Mobile Advertisements would have, by sending an SMS message at a standard SMS cost to the premium number 19 30 40:

1.2.1requested access to a subscription service which is charged at premium rates;

1.2.2paid an initial sign-up fee of $3 and a subscription fee of between $9-$12 per week which was billed to his or her mobile telephone account;

1.2.3in order to end his or her subscription, was required to send an SMS message to the content provider which contained the word “stop”.

2.The respondent, while engaged in trade or commerce within Australia, contravened s 53(aa) of the Act by causing the Viva Mobile Advertisements to be published in connexion with the supply and promotion of content services in circumstances where the Viva Mobile Advertisements made false representations with respect to the quality of the content services being advertised.

3.The respondent pay the costs of the applicant.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


The text of entered orders can be located using eSearch on the Court’s website.


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Details
Case
[2009] FCA 903
Decision Date

CaseChat Overview and Summary

The Australian Competition and Consumer Commission (ACCC) brought a case against Teracomm Ltd concerning the advertising of mobile premium services in various issues of Dolly magazine. The ACCC argued that the advertisements were misleading or deceptive as they implied that consumers would purchase a one-off service by sending an SMS to a premium number. In reality, the advertisements led consumers to subscribe to a recurring weekly service charged at premium rates. The ACCC also alleged that the advertisements failed to sufficiently disclose the true nature of the services and the costs involved.

The central legal issues revolved around whether the advertisements were misleading or deceptive and whether they contravened section 52 of the Trade Practices Act 1974 (Cth). The court needed to determine if the advertisements represented that consumers would purchase a one-off service, when in fact, they were signing up for a subscription service. Additionally, the court had to consider whether the advertisements adequately disclosed the nature of the subscription services and the associated costs, including initial sign-up fees, weekly subscription fees, and additional SMS and data charges.

The court found that the advertisements were misleading and deceptive, as they indeed implied a one-off purchase while promoting a subscription service. The court also determined that the advertisements failed to sufficiently disclose the subscription nature and associated costs, thus breaching the statutory provisions. Consequently, the court ruled in favor of the ACCC, finding Teracomm Ltd in contravention of section 52 of the Trade Practices Act 1974 (Cth). The court further concluded that the advertisements made false representations regarding the quality of the content services being advertised, leading to a breach of section 53(aa) of the Act.

The court ordered Teracomm Ltd to pay the costs of the ACCC and mandated that the respondent comply with the settlement and entry of orders as per Order 36 of the Federal Court Rules.

Orders

Orders of the court

1. The respondent, while engaged in trade or commerce within Australia, contravened s 52 of the Trade Practices Act 1974 (Cth) by causing to be published advertisements promoting Viva Content Services (the Viva Mobile Advertisements) in the May, June and July 2008 editions of Dolly magazine which:

1.1 represented that any consumer responding to the Viva Mobile Advertisements would, by sending an SMS message to the premium number 19 30 40, purchase a one-off service, when in fact, the consumer:

1.1.1 in sending an SMS to the premium number 19 30 40, requested access to a subscription service charged at premium rates;

1.1.2 paid an initial sign-up fee of $3 and a subscription fee of between $9-$12 per week which were billed to his or her mobile telephone account;

1.1.3 in order to end his or her subscription, was required to send an SMS message to the content provider which contains the word “stop”; and

1.2 failed to disclose, or failed to sufficiently disclose, that any consumer responding to the Viva Mobile Advertisements would have, by sending an SMS message at a standard SMS cost to the premium number 19 30 40:

1.2.1 requested access to a subscription service which is charged at premium rates;

1.2.2 paid an initial sign-up fee of $3 and a subscription fee of between $9-$12 per week which was billed to his or her mobile telephone account;

1.2.3 in order to end his or her subscription, was required to send an SMS message to the content provider which contained the word “stop”.

2. The respondent, while engaged in trade or commerce within Australia, contravened s 53(aa) of the Act by causing the Viva Mobile Advertisements to be published in connexion with the supply and promotion of content services in circumstances where the Viva Mobile Advertisements made false representations with respect to the quality of the content services being advertised.

3. The respondent pay the costs of the applicant.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

Background

Background to the litigation

The advertisement in the July edition (which is annexure "B" to these reasons) promoted the same services in much the same manner as the June advertisement. However, the text in both the body of the advertisement and at the foot of the advertisement was altered with the inclusion of a reference to subscribing and the name of the respondent as the service provider. As I discuss shortly, these changes were made in response to a letter from the ACCC. Specifically, the body of the advertisement contained a reference to "subscribe" with an asterisk. The asterisk was repeated at the foot of the advertisement before the text concerning, amongst other things, the cost of the subscription. In addition, the text at the foot of the advertisement was increased to size 6.7 font. It read:Subscribe to Viva Mobile. Need help? Call 1300 884 610. Service is available to those 16+ with bill payers' (sic) permission. Love Calculator Club - $9/week plus $3 per calculation. Cheat Meter - $9/week plus $3 per calculation. Luck Club - $9/week plus $3 per calculation. Flirt Meter - $9/week plus $3 per calculation. Soulmate Club - $9/week plus $3 per calculation. Funtones club - 3 fun tones for $9/week plus $3 sign up. Wallpaper club - 3 wallpapers for $9/week plus $3 sign up. Standard GPRS/WAP/SMS rates apply. To cancel subscription text stop to 19 30 40. Payment easily takes place over your monthly phone bill. Service provided by Teracomm. T&Cs see >The July advertisement was reproduced in all material respects in both the August edition and the September edition. Teracomm discontinued advertising in Dolly after the September edition. The ACCC only seeks relief in relation to the May, June and July advertisements.Other facts The ACCC first notified Teracomm of its concerns regarding the content of the May advertisement in a letter to Sybase 365 Pty Ltd, Teracomm’s aggregator, on 15 May 2008. The aggregator forwarded the letter to Teracomm. In the letter, the ACCC said it was conducting an audit on fine print advertising in relation to mobile premium services, the focus of which was "the overall impression created by the layout and visual effect of print advertisements… [s]pecifically, advertising that may imply that the premium services advertised are one-off purchases, as opposed to recurring weekly subscriptions". The letter went on to say that "[i]n the coloured section of the advertisement, there is no mention that the services are subscriptions. Rather, details of the subscription package are contained in miniscule fine print at the foot of the page… [t]his may give the overall impression that the service is a one-off purchase". The letter concluded by saying that "[a]t this stage, the ACCC has not formally considered what action, if any, will be taken. So that the matter can be considered with an understanding of your company’s position on this matter, please provide a response by 30 May 2008". Teracomm replied to the ACCC in a letter dated 28 May 2008. Teracomm said that it had "revised our advertising and made the following changes: included the word ‘subscribe’ prominent in the top left corner, linked order text with disclaimer via an asterisk; increased the disclaimer text size to 6.7 point (over 60% of size of premium number); made the pricing information bold in the disclaimer; placed the word ‘subscribe’ dominant in front of the disclaimer; and added the service provider [Teracomm] in the disclaimer". Teracomm was "confident that this will be fully satisfactory as it is not only compliant but far exceeds current industry standards”. The letter concluded by saying that "we have had only few unsubscription requests and one refund. This proves the service we are supplying is not misleading and our customers are very satisfied".

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

MOORE J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: MOORE J

It is convenient, at this point, to set out the way in which the ACCC alleges the advertisements were misleading which is addressed by paragraphs 34 and 35 of the statement of claim. No distinction is drawn between the May, June and July advertisements. Each is comprehended by the expression "the Viva Mobile Advertisements". Those paragraphs provide:34. The Viva Mobile Advertisements were misleading or deceptive, or likely to mislead or deceive in contravention of s 52 of the Act, in that:34.1. the Viva Mobile Advertisements:34.1.1. represented that any consumer responding to the Viva Mobile Advertisements would, by sending an SMS message at a standard SMS cost to the premium number 19 30 40, purchase a one-off service (for example, one ringtone, wallpaper or game) when in fact, the consumer:34.1.1.1. in sending an SMS to the premium number 19 30 40, requests access to a subscription service charged at premium rates;34.1.1.2. requires a WAP enabled mobile telephone to receive any service advertised by the Viva Mobile Advertisements;34.1.1.3. pays an initial sign-up fee of $3 and a subscription fee of between $9 - $12 per week which are billed to his or her mobile telephone account;34.1.1.4. incurs standard SMS and data costs levied by his or her telecommunications service provider in addition to the weekly subscription fee; and34.1.1.5. in order to end his or her subscription, must send an SMS message to the content provider which contains the word "stop".ParticularsThe relevant terms and conditions which are extracted from the terms and conditions referred to in paragraph 31 are annexed and marked 'D'.35. Further or in the alternative to paragraph 34, the Viva Mobile Advertisements were misleading or deceptive, or likely to mislead or deceive, in contravention of s 52 of the Act, in that:35.1. the Viva Mobile Advertisements:35.1.1. failed to disclose, or failed sufficiently to disclose, that any consumer responding to the Viva Mobile Advertisements would, by sending an SMS message at a standard SMS cost to the premium number 19 30 40:35.1.1.1. request access to a subscription service which is charged at premium rates;35.1.1.2. require a WAP enabled mobile telephone to receive any service advertised by the Viva Mobile Advertisements;35.1.1.3. pay an initial sign-up fee of $3 and a subscription fee of between $9 - $12 per week which are billed to his or her mobile telephone account;35.1.1.4. incur standard SMS and data costs levied by his or her telecommunications service provider in addition to the weekly subscription fee; and35.1.1.5. in order to end his or her subscription, must send an SMS message to the content provider which contains the word "stop".ParticularsThe Applicant refers to and repeats the particulars to paragraph 34.Consideration It is necessary first to consider whether the advertisements were, having regard to their content, misleading or deceptive in the way contended in the statement of claim. It is also necessary to consider the allied question of whether members of the audience to which they were directed would have been misled or were likely to have been misled.