Lessons from Coke’s myth-busting campaign

Posted by Daniel Palmer on 8th April 2009

On 2 April 2009, Coca-Cola South Pacific Pty Ltd entered into court-enforceable Undertakings with the Australian Competition and Consumer Commission (ACCC) whereby the company was compelled to concede that its ‘Myth-busting’ advertisements potentially misled or deceived consumers, potentially breaching Section 52 of the Trade Practices Act 1974. This article explores the ACCC action and highlights the key differences between Sections 52, 53 and 55 of the Trade Practices Act, discussing the relationship between advertising and compliance by food companies.

The ‘Myth-busting’ campaign
In October 2008, Coca-Cola South Pacific Pty Ltd published several advertisements featuring Kerry Armstrong allegedly busting several ‘myths’ that exist in relation to Coca-Cola, namely:
“Myth. Makes you fat.”
“Myth. Rots your teeth.”
“Myth. Packed with caffeine.”

The Undertakings negotiated by Coca-Cola South Pacific Pty Ltd and the ACCC listed the following representations that could arguably have been misinterpreted by the reasonable consumer from the Myth-busting advertisements:

  • “Coca-Cola cannot contribute to weight gain and obesity.”
  • “Coca-Cola cannot contribute to tooth decay.”
  • That 250ml of Diet Coca-Cola only contains half the amount of caffeine as 250ml of tea; and
  • “A responsible parent can include Coca-Cola in a family diet without any regard whatsoever to the potential weight gain or tooth decay arising from consuming Coca-Cola.”

These alleged representations could be deemed to be in breach of Part V of the Trade Practices Act 1974. However, it must be noted that the Undertakings do not contain any admission by Coca-Cola South Pacific Pty Ltd. The Undertakings state the ACCC’s concerns and even describes them as the ‘Alleged Representations’.

Before the matter came to the attention of the ACCC, several complaints had been made to the Advertising Standards Board, which assessed the advertisements against the advertising industry’s own voluntary Codes of Conduct (in this instance the AANA Food & Beverages Advertising and Marketing Communications Code).

The role of the Advertising Standards Board
The AANA and its Advertising Standards Board are self-regulatory. This means the advertising industry itself regulates compliance with its own Codes of Conduct. When several complaints were made in relation to the Myth-busting campaign, the Advertising Standards Board dismissed the complaints on the basis of it finding the campaign did not promote “excessive consumption” of the product and that the advertisements being complained of had included extra detail about oral and dental hygiene.
However, Clause 2.1 of the AANA Food & Beverages Code states [emphasis added]:

Advertising or Marketing Communications for Food or Beverage Products shall be truthful and honest, shall not be or be designed to be misleading or deceptive or otherwise contravene Prevailing Community Standards, and shall be communicated in a manner appropriate to the level of understanding of the target audience of the Advertising or Marketing Communication with an accurate presentation of all information including any references to nutritional values or health benefits.

Therefore the concerns expressed by the ACCC, if true, would also be clear breaches of the AANA Food & Beverages Code. However, even if the Advertising Standards Board had deemed an advertisement to have been in breach of the Code of Conduct, it would have no powers to enforce such a determination should the advertiser in question continue with its campaign.

Mitigating damages when dealing with the ACCC – The difference between Sections 52, 53 and 55 of the Trade Practices Act
The risks involved in breaching Part V of the Trade Practices Act have been made clearer by this case. Coca-Cola South Pacific Pty Ltd agreed in the Undertakings to engage in a detailed corrective advertising campaign, to review its advertising procedures, and to engage in extensive Trade Practices compliance obligations. These obligations were agreed to under the ACCC’s power to enter into court-enforceable Undertakings under Section 87B of the Trade Practices Act.

It needs to be noted that Section 52 can be breached where a company has engaged in conduct that is likely to mislead or deceive – this means no one actually needs to have been misled in order for a company to have engaged in misleading or deceptive conduct.

Where a corporation has been deemed to have breached Section 52 of the Trade Practices Act, there are only limited remedies available to the ACCC. This is because Section 52 creates a norm of conduct and to breach Section 52 only constitutes a civil offence. When a corporation breaches Section 52 alone, the ACCC only has the power to negotiate Undertakings or to seek an injunction under Section 80 (which could even result in a product recall such as occurred in the Harvey Fresh case (2008)). If a private person has incurred losses as a result of a corporation’s misleading or deceptive conduct, that person can also seek damages under Section 82.

By contrast, Sections 53(a) and 53(c) of the Trade Practices Act forbid companies from falsely representing a quality of a product or representing that a product has a performance characteristic that it does not in fact have. Unlike Section 52, Sections 53(a) and (c) can only be breached where a company has made a false representation as opposed to a representation that is “likely” to mislead or deceive.

Section 55 of the Trade Practices Act also forbids companies from engaging in conduct that is “liable” to mislead consumers as to the nature or characteristics of a product.

It is arguable that some of the representations made by the Myth-busting campaign could have breached the abovementioned sections as well as Section 52. For example, the corrective advertisement published by Coca-Cola South Pacific Pty Ltd as a result of the Undertakings admits:
Finally, we said that 250ml of Diet Coca-Cola contains 1/2 the amount of caffeine as in 250ml of tea. We made an error – 250ml of Diet Coca-Cola contains about 2/3 the amount of caffeine as in the same amount of tea brewed from leaf or tea bag.

When a representation contains an error of fact, it is a statement that is not true. If it is not true, it must be a false representation. Arguably it would also be misleading. In this case, the ACCC did not allege that the Myth-busting campaign contained false representations about the composition of a product (in this instance caffeine content) in breach of Sections 53 and 55 of the Act.

This raises the significant issue of the importance of being able to distinguish between breaches of Section 52 and Sections 53 and 55 of the Trade Practices Act.

Breaching Section 53 or Section 55 can result in criminal convictions, large fines (up to $1.1 million per offence) and representative damages under Section 87.

ACCC Chairman Graeme Samuel stated (in a radio interview with presenter Jon Faine on Melbourne’s ABC Radio 774) that pursuing fines for a breach of the Trade Practices Act is a complex process, as such processes would involve the Commonwealth Director of Public Prosecutions or the Federal Attorney-General’s office. The Coca-Cola case has highlighted how negotiating Undertakings can mitigate your legal liability once the ACCC has approached your company. Anyone approached by the ACCC over allegations of breach of Part V of the Trade Practices Act ought to immediately contact a lawyer to discuss the legal arguments available to limit one’s legal liability.

The corrective advertisements which have since been published make few admissions and remain consistent with the theme that Coca-Cola regrets the potential for any misunderstanding by consumers. These corrective advertisements are expressed in positive terms and would be helpful in providing the public with new information in the manner of a re-launch of the product.

Actions proposed to strengthen ACCC powers and sanctions
On 17 February 2009, Federal Minister for Consumer Affairs Mr Chris Bowen had announced that the Trade Practices Act would be amended to strengthen the powers of the ACCC to improve further sanctions on any company accused of engaging in misleading or deceptive conduct. These amendments are currently scheduled to take effect nationally by January 2010.

These new powers may include disqualification orders, infringements notices, substantiation notices and public warning notices. Further, the ACCC would be able to seek civil monetary penalties up to $1 million. These new powers will significantly increase the legal risks for food businesses. If these powers had been in place already, the consequences for Coca-Cola South Pacific Pty Ltd may have been substantially different as the ACCC’s approach may have differed.

The need for food companies to be pro-active
The failure by the Advertising Standards Board to take action was criticised by ACCC Chairman Graeme Samuel in the abovementioned radio interview, particularly for the failure of the industry body to recognise a breach of Part V of the Trade Practices Act, which has been in operation since 1974.

The common practice in the food industry to allow marketers to develop an advertising campaign or product label without full consideration of the Trade Practices Act implications is fraught with legal risks.

Reproduced with the permission of Food Legal, a legal firm that has developed a highly successful training course in Food Marketing Law and Trade Practices Act Compliance that can provide those responsible for designing food advertising campaigns with the necessary skills to identify and mitigate legal risks under Part V of the Trade Practices Act.