Misleading advertising can be very costly
Some recent, high-profile cases have highlighted the significant fines for businesses found guilty of misleading advertising. The $44.7 million fine imposed on travel group Trivago by the Federal Court for misleading customers demonstrates that making false claims in advertising can be very costly.
Trivago breaches Australian Consumer Law with misleading advertising
The global hotel booking giant Trivago advertised widely that it made it easy to find the “best price”, whereas in fact the company often listed more expensive options at the top of its search results. (Please see Australian Competition and Consumer Commission v Trivago N.V. (No 2)  FCA 417.)
The Australian Competition and Consumer Commission sought a penalty of $90 million when it took Trivago to court for breaching Australian Consumer Law on multiple occasions. Trivago argued $15 million was an appropriate penalty.
How Trivago misled its customers
Justice Mark Moshinsky said in his judgement that Trivago’s breaches of consumer law were “extremely serious”, as its advertising was “highly misleading”.
Trivago was found by the court to have chosen its top listed hotels according to which online hotel booking site paid Trivago the highest cost-per-click fee.
The judgement said Trivago’s advertising conveyed that the Trivago website would quickly and easily identify the cheapest rates available for a hotel room responding to a consumer’s search.
But the website did not do this. Higher priced offers were selected for the top position over alternative, lower priced offers in 66.8 per cent of listings.
The court found that over three years, 93 per cent of clicks went to the offer in the top position – about 57 million clicks. Over that period Trivago earned $92 million from those deceptive top listings.
The court found consumers paid $30 million more for their hotel rooms than they would have if they had always clicked on the cheapest offer, instead of the top offer listed by Trivago.
Misleading advertising found to be in breach of consumer law
The judgement in the Trivago case demonstrates that misleading advertising or making exaggerated claims in marketing can be punished harshly if it is deemed to have breached consumer law, which is designed to protect consumers.
The court found that Trivago’s actions were on the very serious end of the spectrum. It was a very large business which had not just made an error or exaggerated something: instead it had acted with great deliberation simply to maximise its profits, with little regard for the interests of its customers.
However, it cannot be assumed that a small business just making some misjudgement might be treated leniently. The court cited a very recent High Court case emphasising that the principal consideration in setting a penalty in this field is deterring non-compliance. This is why it is so important for businesses to be satisfied that their advertising is not misleading.
If a business is in doubt about whether its marketing could breach consumer law, it would be wise to get legal advice before it ends in a huge fine and loss of reputation. (For more information please see Businesses warned against “greenwashing”.)
Uber’s misleading or deceptive conduct
Another massive fine is already in the pipeline, with Uber admitting to the ACCC that it had engaged in misleading or deceptive conduct and made false or misleading representations in the Uber ridesharing app.
Uber admitted it told two million customers they could be charged a fee for cancellations that were actually free, and for inflating the predicted price of regular taxis. A proposed $26 million fine is currently before the Federal Court.