Comparative Advertising

1 October 2024 in Commercial Lawyers | 6 min read | skip to FAQs

Comparative advertising is a powerful marketing tool that can effectively influence consumer decisions. This form of advertising involves comparing a company’s products favourably against competitors’ products, often highlighting advantages in terms of price, performance, quality, or aesthetics. While this approach can drive competition and attract consumers, it also comes with legal risks. This article explores the practice of comparative advertising and examines the potential legal challenges that may arise under the Australian Consumer Law (“ACL”), which is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth).

Understanding Comparative Advertising and Legal Risks

Comparative advertising, in and of itself, is not an inherently disreputable or unlawful practice. In fact, when done accurately, it can promote healthy competition and help consumers make informed choices, provided that the advertising is based on truth and does not mislead or deceive consumers (see Specsavers Pty Ltd v The Optical Superstore Pty Ltd [2010] FCA 566).

However, it is worth noting that comparative advertising is often subjected to greater scrutiny than other forms of advertising because consumers may view it more critically. Excessive exaggerations may be dismissed as mere sales talk, but misrepresentations that cross the line into deception can lead to legal consequences (see Hospitals Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483).

Therefore, businesses that engage in comparative advertising must be careful to base their claims on factual truth to avoid misleading consumers and inviting legal challenges from competitors.

General Legal Principles

Under the Australian Consumer Law regime, there are no special rules or separate legal tests that apply exclusively to comparative advertising (see Reckitt Benckiser (Australia) Pty Ltd v Procter and Gamble Australia Pty Ltd [2015] FCA 753).

The general principles in relation to misleading or deceptive conduct and false and misleading representation are dealt with in sections 18 and 29 of the ACL.

Claims of Misleading or Deceptive Conduct

Importantly, legal liability may arise under section 18 of the ACL for misleading or deceptive comparative advertising. A comparison may be misleading if it omits material facts that would otherwise provide a balanced and fair comparison. This is illustrated in the following two case studies:

Case Study: Country Road Clothing Pty Ltd v Najee Nominees Pty Ltd

In the case of Country Road Clothing Pty Ltd v Najee Nominees Pty Ltd (1991) ASC 56-050, the respondent, Najee Nominees Pty Ltd (“Najee”), a retailer of men’s clothing, published an advertisement comparing its suits to those of Country Road Clothing Pty Ltd (“Country Road“), a well-known retailer of high-quality men’s suits. The advertisement featured three photographs of the same man wearing visually similar navy wool double-breasted suits—one of which was from Najee, and another from Country Road—with the tagline, “Why pay more?” and “Compare suits, then compare prices.”

Country Road claimed that the advertisement misled consumers by creating the impression that each of the suits displayed were of equal quality when in fact this is not the case, thus violating consumer law. However, the Court ruled in Najee’s favour, stating that the advertisement was factually accurate and did not engage in misleading or deceptive conduct. The court emphasised that the comparative advertisement, when fairly read, did not convey the message that the suits were identical but instead focused on value for money, inviting consumers to form their own conclusions.

Case Study: Makita (Aust) Pty Ltd v Black & Decker (A’asia) Pty Ltd

In contrast, the case of Makita (Aust) Pty Ltd v Black & Decker (A’asia) Pty Ltd (1990) ATPR 41-030 provides an example of misleading comparative advertising. In this case, both the applicant and respondent were manufacturers of power drills. Black & Decker, the respondent, aired a television commercial comparing its new 1166 industrial drill with a Makita 6Q10BVR drill. Although attempts were made to obscure the “Makita” brand name, the court found that the drill’s distinctive blue color made it readily recognisable.

The comparative advertisement portrayed the drills facing each other, connected by a shaft. When the Makita drill was turned on, it was quickly overpowered by the Black & Decker drill, causing smoke to emit from the Makita within 2.7 seconds. Black & Decker’s drill, by contrast, appeared uneffected. It was later revealed that the footage had been selectively edited to favour Black & Decker. The court ruled that this selective editing was misleading, as it failed to accurately represent the true performance of both drills.

The court emphasised that while the advertisement’s primary message—that Black & Decker’s drill had superior power—was factually correct, the representation contained in the advertising was not a true reflection of the true position of both manufactures, in that:

“The impression given by the advertisement is not merely of a contest between two drills in which one of them demonstrates its superior power by reversing the turn previously achieved by the other; but, rather, of a contest in which one drill is completely devastated, quickly overheating and smoking, whilst the other drill is apparently unaffected by the ordeal… to state that one boxer is capable of eventually knocking out an opponent is one thing; to suggest that he is able to do so almost immediately, without injury or even raising a sweat, is another.”

The exaggerated depiction of Makita’s drill as quickly overheating and smoking was deceptive. The ruling resulted in an injunction against Black & Decker and an order for corrective advertising.

The Makita case highlights a critical point: comparative advertising must not only be factually accurate but also present a true reflection of the products being compared. Any attempt to skew the facts, whether through selective editing or half-truths, risks misleading consumers and violating the ACL.

The Defence of Advertising “Puffs”

An action against comparative advertising is not actionable under ACL if it merely amounts to “puffery”, that is, some form of exaggeration or expression of opinion that are so obviously self-evident that no reasonable consumer would take them seriously. Such claims, while not literally true, are not considered misleading or deceptive under consumer law.

1. In Proctor & Gamble Australia Pty Ltd v Energizer Pty Ltd [2011] FCA 1347, the court ruled that the respondent’s claim that its razor provided the “best shave for your skin” was mere puffery. Justice Bennett found that this slogan was merely a marketing tactic designed to attract consumer attention and “would not be understood as a statement capable of being proven to be correct or incorrect, or to be taken literally, or to be treated seriously”. Her Honour said that consumers are familiar with such language in advertisements that a product is the best and in the absence of some kind of factual comparison capable of assessment, were unlikely to take it seriously or rely on it in making their purchasing decisions.
2. Similarly, in REA Group Limited v Fairfax Media Limited [2017] FCA 91, the Federal Court held that Fairfax Media’s comparative advertising that its property app, Domain, was the “#1 property app in Australia” was puffery. The court found that such broad slogans such as “No.1”,  “the best” or “the greatest” are commonly made in trade and advertising and often lack specific factual content. Reasonable consumers would recognise that “NO.1” depends on various subjective and objective factors and would not interpret it as a definitive statement of superiority. The court therefore considered that although Domain makes a claim of superiority in its comparative advertising, the claim has little content and is unlikely to mislead consumers. In the court’s view it only invites the question “No.1 in what way?”.

Key Takeaways

Comparative advertising can be a powerful marketing tool, enabling businesses to introduce new products, expand market share, and influence consumer choice. However, while comparative advertising is not inherently prohibited under the Australian Consumer Law, it must be handled with caution. Advertisers must avoid making false or misleading representations, as any inaccuracy, half-truth, or selective omission can lead to legal liability and costly litigation. The defence of puffery applies when it is clear that the statements made are exaggerated promotional claims that no reasonable consumer would rely upon and take exaggerated claims seriously.

The key takeaway for advertisers is simple: accuracy and fairness are non-negotiable. In a competitive market, comparing your product truthfully while allowing consumers to make informed decisions is not only the ethical course of action but also a legal necessity.

How can BSM Sydney Lawyers assist you?

At BSM Law, our commercial lawyers specialise in consumer law matters and provide tailored advice to protect your business’s reputation and avoid costly litigation. Advertising is a key element of any commercial strategy, and our highly experienced lawyers are here to guide you through the legal aspects, helping to safeguard your interests and prevent potential claims from competitors. Whether you need assistance with comparative advertising or broader business and commercial law issues, Brander Smith McKnight law firm Sydney is committed to providing practical, results-driven solutions for your business. The business and commercial lawyers at BSM Lawyer Sydney offer a free 20-minute consultation to discuss your matter and formulate a plan.

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