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Optus has been hit with a $5.26m penalty in the Federal Court, for falsely advertising  broadband download quotas.  The decision heralds a new level of risk in communications advertising in Australia.

The clear rule is that high-powered headlines plus small print equals advertising danger.

This bulletin explains:

• what Optus advertised
• how the advertised plans really worked
• how Optus defended the plans
• why ACCC took action
• what the court said and did in 2010
• what the court did on 7 July 2011
• why a $5.26m penalty is now possible
• other provisions that can attract penalties.

What Optus advertised

(a)            In April 2010, Optus campaigned for a new range of ‘Think Bigger’ broadband plans.

(b)            Each plan included a large data allowance (120/150/170GB) divided into ‘peak’ and ‘off-peak’ entitlements eg the 120GB plan was advertised with 50GB peak usage and 70GB off-peak usage allowance.

(c)             The disclaimers stated:  ‘Speed limited once peak data exceeded’.

How the advertised plans really worked

(a)            When peak allowance was used, entire service was shaped to 64kbps for rest of month.

(b)            Shaping applied to remaining off-peak allowance as well.

(c)             So, for instance, if customer used whole 50GB peak allowance first, then entire 70GB off-peak allowance shaped to 64kbps.

(d)            But if off-peak was exhausted first, further off-peak MBs were deducted from peak allowance, and shaping applied when that was exhausted.

How Optus defended the plans

Optus said that ‘Speed limited once peak data exceeded’ was a sufficient explanation:  Once your peak allowance is reached, speed is limited.

Why ACCC took action

ACCC disagreed that the disclaimer was a clear and proper explanation.  It argued:

(a)            Public would assume that peak and off-peak entitlements were independent.

(b)            Public would not understand that exhausting peak use would result in off-peak speed shaping to non-broadband speed.

What the court said and did in 2010

(a)            The court agreed with ACCC.

(b)            Court said that ordinary people simply wouldn’t understand the full rules of the plans, based on the advertising.

(c)             Court particularly attacked ‘headline advertising’ where a powerful headline told one story and small print told a different story.

(d)            Said there was:

(i)              misleading and deceptive behaviour generally, and

(ii)            likely specific misleading about ‘the quantity of services’.

(e)            29 October 2010:  Court ruled that advertising was deceptive.

(f)              2 November 2010:  Court banned Optus from repeating that kind of advertising for 3 years[1].

(g)             19 November 2010:  Court ordered Optus to write to all affected customers offering remedies.

(h)            8 December 2010:  Court held a penalty hearing.

What the court did on 7 July 2011

Announcing the result of the penalty hearing, the court ruled that Optus must pay the Commonwealth a pecuniary penalty of $5.26m.

Why a $5.26m penalty is now possible

(a)            Before 2010, no financial penalty was possible under the law in a case like this.

(b)            In 2010, the Competition and Consumer Act[2] (‘CCA’) was amended to allow the court to impose penalties on a company of up to $1.1m per breach of certain sections of the CCA.  That includes breaches of the law against misleading about ‘the quantity of services’.

Other provisions that can attract penalties

The new penalties are available for a wide range of breaches that communications providers should keep in mind.  Here’s a non-exhaustive list:

(a)            misrepresentations that goods are of a particular standard, quality, value, grade, composition, style or model

(b)            misrepresentations that services are of a particular standard, quality, value or grade

(c)             misrepresentations that a particular person has agreed to acquire goods or services

(d)            misrepresentations that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits

(e)            misrepresentation that the person making the representation has a sponsorship, approval or affiliation

(f)              misrepresentation with respect to the price of goods or services

(g)             misrepresentation concerning the availability of facilities for the repair of goods or of spare parts for goods

(h)            misrepresentation concerning the need for any goods or services.

Summary

Obviously, communications advertising has just become more challenging.  It’s a strong argument for having every advertisement checked by an expert in the area.

Tags: Federal Court of Australia, ISP, isp law, ISP Lawyers, MIsleading and Deceptive Conduct, Optus, telecommunications law, Telecommunications Lawyers, Trade Practices Law

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