That Comment About Your Competitor? It Might Be Illegal

That Comment About Your Competitor? It Might Be Illegal

The Dangers of Airing Your Opinions on Social Media

Here’s a troubling question that most social media users never consider until it is far too late: what if that critical comment you posted about a competitor—the one that felt justified, righteous even—could result in a court order against you and a bill for tens of thousands of dollars in legal costs? It sounds extreme until it happens.

The human brain is exceptionally skilled at justifying our online statements.

We tell ourselves: “I was just raising questions.” “I was expressing an opinion.” “Everyone knows this already.” “It’s common knowledge in the industry.”

But as we often tell clients – the law does not work that way.

In fact, the gap between what we feel we can safely say online and what the law actually permits can be devastating.

Two Australian court cases—Seafolly v Madden and Nextra v Fletcher—demonstrated just how dangerous casual social media commentary can become when it strays into misleading or deceptive conduct.

Social media gives large and small businesses a direct way to interact with existing and potential customers and promote their products and services.

Businesses using social media channels like Facebook, Twitter, LinkedIn, and YouTube have a responsibility to ensure content on their pages is accurate, irrespective of who puts it there. But here is where things get complicated: what about comments made on personal social media accounts? What about blog posts? What about opinions expressed in a competitive context?

These questions are no longer theoretical.

Imagine that you are in-house counsel for a company and you discover that an employee has been making disparaging comments about a competitor on their personal social media page or blog. Would the company be liable? What if the comments had been posted on the company’s official social media page? What could you have done about it, and how do social media policies fit into this landscape?

These are all live questions that need to be considered in an internet age, where comments can go viral and do damage to a company’s reputation within hours. As Jarrod Bayliss-McCulloch, Associate at Baker & McKenzie, has commented: “…in modern times … our words can fly on the wings of the internet, beyond the village or town we live in to the most distant parts of the world, before coming to rest in a permanent record.” The effect of this permanent record can have a lasting impact on a business’s reputation, and recent cases in Australia indicate that the courts recognise this impact profoundly.

Case One: Seafolly Pty Ltd v Madden – When an Opinion Becomes a Legal Problem

Seafolly Pty Ltd v Madden FCA 1346 and Madden v Seafolly Pty Ltd FCAFC 30

The Seafolly case, along with its appeal, established a critical principle: whilst Seafolly’s swimwear designs may well be flattering, false comments that the swimwear giant copied someone else’s swimwear range are certainly not—at least, not without serious legal consequences.

What Happened

It all began in September 2010 when Leah Madden, the owner of an Australian swimwear label called White Sands, saw a copy of Gold Coast Panache Magazine featuring model Samantha Harris (an ambassador for the Seafolly swimwear label) modelling a bikini. Significantly, Madden’s “immediate thought” was that the model was wearing one of her White Sands bikinis. She only realised later it was a Seafolly design. At the time, Madden also recalled a Seafolly buyer viewing her range at an international swimwear show in the United States.

On the same day she had seen the magazine, Madden posted on her personal Facebook page an album of photos with the heading “The most sincere form of flattery?” The album juxtaposed photographs of Seafolly’s garments (reproduced from its website and catalogues) with those of White Sands. Below the photos, she included a caption about why allowing buyers to take photos of your range at a trade show is a bad idea.

The Public Response

The reaction from the public was immediate and significant. Comments flooded in:

• “Nasty! Shame on ’em! Won’t be buying Seafolly. WHITE SANDS all the way. X”
• “Seafolly own everything! Sunburn, Miraclesuit and Gottex… and unfortunately they do rip off everyone, they have copied a design 2 chillies has been doing for years!”
• “Disgusting! How people look at themselves in the mirror is beyond me.”

The comments snowballed.

Madden then sent emails to media outlets such as The Sunday Telegraph newsletter, Ragtrader magazine, and the Gold Coast Bulletin using the same phrase “The most sincere form of flattery?” in the subject line. These emails triggered further media commentary and online responses, with readers adding their own accusations of copying and unethical behaviour.

Seafolly’s Response

Seafolly was not prepared to sit passively in the face of criticism. The company immediately issued a press release denying the allegations of copying, stating that many of the designs Madden claimed Seafolly had copied were actually released into the marketplace by Seafolly before White Sands released its relevant garments. Seafolly issued a second press release to journalists, stating clearly:

“Seafolly denies these claims and says that they are completely false and without foundation. Seafolly says that these claims have been made maliciously to injure Seafolly and its business. Five of the designs which Ms Madden claims Seafolly has copied were released into the market place by Seafolly in March 2010… White Sands Swimwear held their fashion parade in May 2010 and as the Seafolly garments alleged to be copies of the White Sands Swimwear garments were either already released to market or nearly completely designed, it is impossible that Seafolly copied the White Sands Swimwear that was on display during this parade.”

The Court Case

Seafolly then instituted legal proceedings in the Federal Court of Australia alleging:

• Misleading or deceptive conduct (in relation to Madden’s emails to the press)
• Injurious falsehood (that Madden’s comments had caused damage to Seafolly’s reputation and economic loss)
• Copyright infringement (for reproducing photos from Seafolly’s catalogue)

Madden cross-claimed for defamation and misleading or deceptive conduct based on the content of Seafolly’s press releases.

Opinion vs. Fact: The Blurry Line

Madden argued that her question—”The most sincere form of flattery?”—was just an opinion, not a fact, and that readers should draw their own conclusions. The judge rejected this completely. He said the law does not care how you frame something. What matters is whether ordinary people—smart or not so smart, educated or not—might believe your words and be misled by them. A question mark is not a legal get-out-of-jail card. It does not protect you.

Madden also argued she was not making the comments “in trade or commerce,” so the laws against misleading conduct did not apply. Wrong again. She was in direct competition with Seafolly. Her comments were clearly designed to damage Seafolly’s business and help her own. The judge called it “a serious assault on Seafolly’s business integrity.”

What this means for you: If you post critical comments about a competitor online—whether as a statement, a question, or an “opinion”—the law will judge whether ordinary people reading your post might be misled or deceived. Framing something as a question does not make it safe. Neither does saying “in my opinion.” If you are in direct competition with the person or business you are criticising, and your comments are designed to influence customers, you are operating “in trade or commerce.” That means the laws against misleading conduct apply to you. You cannot hide behind punctuation or clever phrasing.

In this case, Seafolly succeeded in its arguments concerning misleading or deceptive conduct. While Madden had evidently convinced herself that Seafolly had copied her designs when she first made the Facebook statements, the judge made clear that it is not a question of whether the person making representations believed they were acting honestly or reasonably. What matters is whether potential members of the relevant class would be at serious risk of being misled or deceived.

The answer was a resounding yes. Justice Tracey observed that Madden had acted recklessly, without taking prudent steps to check the accuracy of her accusations. She could have made enquiries of retailers to establish when Seafolly garments were placed on the market. She could have attended a retail outlet and examined the garments. She could have contacted Seafolly directly to ask about design timelines. Had she taken even some of these steps, she may have discovered that some of Seafolly’s costumes had been placed on the market before hers. She was “reckless in giving public expression” to opinions for which she had “no adequate foundation.”

The Award: $25,000 in Damages

Even though Madden’s Facebook posts were effectively up for only 30 hours, and she claimed that her emails merely “raised questions” and invited readers to form their own conclusions, Madden was ordered to pay Seafolly damages in the sum of $25,000. She was also ordered to pay Seafolly’s costs of the application and the trial, which lasted several days.

But the matter did not end there.

The Appeal and Counter-Claim: A Pyrrhic Victory

On the first appeal, the Full Court essentially agreed with the trial judge’s finding but reduced the damages payable to Seafolly from $25,000 to $20,000. However, on further appeal, the court accepted Madden’s counter-claim and found that Seafolly was itself liable for misleading or deceptive conduct due to its press releases that accused Madden of “maliciously” making false claims. Seafolly was ordered to pay Madden $40,000 in damages.

This demonstrates a crucial point: it is not just statements made online, but how you react to them offline which can create liability.

In another case, a newsagency franchise owner Mark Fletcher posted a critical blog article accusing competitor Nextra of running misleading advertising campaigns. Fletcher argued his blog was just “information and discussion,” not commercial activity, so misleading conduct laws should not apply. The court disagreed. It found that Fletcher’s blog promoted his own competing franchise, so it fell within “trade or commerce.” The court ordered him to remove the article and prevented republication.

The Broader Lesson: The Internet Never Forgets

Sometimes, we post in anger.

We react emotionally to competitors. We convince ourselves that our criticism is justified, that our audience understands context, that no one will take offense. And then we hit send.

The human brain is exceptionally skilled at justifying our online statements in the moment—and remarkably poor at predicting the consequences.

The lesson from Seafolly and Nextra is simple but profound: stop, and investigate your claims in order to ensure that representations made online are true and supported by facts.

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Please note the above article is general in nature and does not constitute legal advice.

Please email us info@iplegal.com.au if you need legal advice about your brand or another legal matter in this area generally.