Advertising substantiation notices: Coming to a national regulator near you

When the ACCC suspects a CSP is breaching the Trade Practices Act with unacceptable advertising, one of its main weapons is to issue a ‘section 155 notice‘.

It’s a bit like a subpoena and even a search warrant and requires the CSP to provide detailed documents, records and other information that may show it is in breach.

Now the Federal Government has agreed to give the regulator an even more effective power that will change the way CSPs need to approach advertising.

Substantiation Notices

The new weapon is called a ‘Substantiation Notice’.

Basically, it lets the regulator issue a notice that says (for instance):  ‘In an ad on 12 March you claimed that your service offered the best P2P speeds in Australia.  Please prove it.’

States can already do it

Several State consumer affairs regulators have had power to issue them for some time, and the ACCC has been keen to get in on the action.

For instance, Victoria’s Fair Trading Act says:

Substantiation of claims

The Director may, by notice in writing, require a person who publishes or causes to be published a statement promoting, or apparently intending to promote, the supply of goods or services, to provide to the Director, within the period specified in the notice, proof of any claim or representation made in the statement.

A person on whom a notice under this section is served, who -

• fails to provide proof sufficient to support the claim or representation; or
• fails, without reasonable excuse, to provide that proof by the time specified in the notice; or
• provides information which is false or misleading -

is guilty of an offence and liable to a penalty not exceeding -

• 600 penalty units, in the case of a natural person; or
• 1200 penalty units, in the case of a body corporate.

Pretty powerful stuff.  Discussions so far have assumed that the ACCC’s new power will me modeled pretty closely on the existing State laws.  For the sake of this article, we’ll make the same assumption.  But bear in mind that Canberra could vary things if it wished.

The States haven’t used the power much

The States haven’t made much use of Substantiation Notices so far.  For instance, Consumer Affairs Victoria served nine Substantiation Notices in 2004-05 and six notices in 2005-06.

But the ACCC was keen to get the power

There are two key problems with section 155 notices, from the ACCC’s perspective.

Evidentiary threshold

First, it can only issue a notice if it is already satisfied that there is a matter that may constitute a contravention of the Trade Practices Act.

That’s not a very high test.  But it means that a section 155 notice certainly can’t be issued if the ACCC is simply wondering whether an advertising claim is fair and true.  There’s no such ‘evidentiary threshold’ for Substantiation Notices.  If the ACCC wants to be satisfied of a claim’s truth, it will be able to issue a notice.

Workload

A section 155 notice might elicit hundreds or thousands of pages of material from the target.  Fine, but the ACCC then needs to read and analyse it to understand whether it discloses and / or proves any legal breaches.  That can involve a lot of time and effort.

In many cases, what the ACCC really wants to know is the one thing it cannot do in a section 155 notice:  Ask the pointed question ‘You said ABC.   Prove it.’

This means that the target has to precisely make, or fail to make, the case for the truth of its claim.  The material the ACCC then needs to judge is far more focused.

What’s it mean for advertisers ?

It means that every claim in every advertisement will need to be written with the question in mind:  ‘Could we precisely and comprehensively substantiate this claim ?’

Of course, that’s how advertising should always have been written.  But once the ACCC has power to demand substantiation, there’s much greater danger in advertising ‘fast and loose’.

When ?

The recommendation that the ACCC be granted this new power arises from the Productivity Commission’s Consumer Framework Report we reported earlier.

The whole package from the Report is proposed to be implemented by 2011, but we gather that Substantiation Notices for the ACCC will be dealt with sooner rather than later.  Don’t be surprised if they’re part of the legal landscape in 2009.