The Federal Court in Sydney has ordered the franchisor of the Electrodry Carpet Cleaning business, A Whistle & Co (1979) Pty Ltd, to pay total penalties of $215,000 for its involvement in the publishing of fake testimonials on the internet, following action by the Australian Competition and Consumer Commission.
Electrodry is a franchised business that provides carpet, drapery, grout, upholstery, and mattress cleaning services with over 100 franchisees in Australia excluding Sydney.
The Court found that Electrodry posted, and requested that its franchisees post, customer testimonials about the quality of carpet cleaning services, when those customers were fabricated and the services had not been provided.
The Court declared that Electrodry contravened the Australian Consumer Law (ACL) between February 2012 and June 2012 by posting a number of false reviews or testimonials on the internet and by inducing and attempting to induce its franchisees to post false testimonials or reviews about Electrodry on popular product review websites including Google, True Local, and Yelp.
In his judgment, Justice Yates stated he considered inducing and attempting to induce franchisees to post fake testimonials was serious conduct. He said that all fabricated testimonials, once posted and searchable, were equally capable of misleading or deceiving consumers. Along with other forms of false or misleading advertising, the fabricated testimonials had the potential to mislead a large number of consumers, divert customers from law-abiding competitors, and generate a positive perception of Electrodry that was based on falsehoods.
“Consumer issues in the online arena remain an area of ACCC concern. While online testimonials can be a useful and genuine marketing tool, it is important that online businesses understand that making or inducing false or misleading representations about testimonials breaches the Australian Consumer Law,” ACCC Deputy Chair Dr Michael Schaper said.
“By manipulating or producing false reviews or testimonials, businesses mislead consumers who rely upon them when making purchasing decisions.”
The Court also made other orders including injunctions, corrective advertising and that Electrodry pay a contribution towards the ACCC’s costs.
Electrodry cooperated with the ACCC in resolving these proceedings, by agreeing on facts and joint submissions to be put to the Court as well as consenting to orders relating to injunctions, corrective advertising and costs.
The Court also noted that in deciding the amount of penalty to impose on Electrodry, a substantial discount for co-operation was warranted. Justice Yates made it clear that, but for that cooperation, significantly greater penalties would have been imposed.