Jun 2005

Simpson Grierson's Sales & Marketing Law Group has been a regular contributor to "NZ Marketing Magazine" since 1994, writing on marketing law in New Zealand.

The business I work for sells goods online.  I've been asked to check that the business's website security policy is okay.  Is there anything that I should be aware of?

Selling online often depends on customers' willingness to give personal information over the internet.  Consumers have very few options to evaluate the vigilance of a particular vendor when it comes to security.  It is, therefore, good practice to post a security policy on your website as it can do a lot to reassure customers that their personal information (such as their bank account or credit card details) is secure. 

Generally, if making any claims about your business's level of online security, these claims must be correct.  If the level of security advertised on your website is different to the level of security actually offered, your business may be in breach of the Fair Trading Act 1986 ("FTA").  The United States Federal Trade Commission recently found that an animal supplies company website violated federal law by misrepresenting the level of security offered to its customers and the company was ordered to apply comprehensive securities policies and undergo regular security audits.

On the flipside, many businesses post broad promises to protect their customers' security when, in fact, they are not entitled to offer the promised level of protection.  For example, businesses may be required to provide a customer's personal information in the case of a criminal investigation.

Getting the wording of your business's security policy right can be a delicate balancing act.  On one hand, showing the business's commitment to security is a valuable online selling tool.  On the other hand, you must take care not to over promise that security can be assured.  You should consult your legal adviser if you are in any doubt.

I recently came across a website offering a particularly good deal on certain household appliances.  When I rang the business I was told the goods were no longer available at the prices advertised.  What law keeps online advertising in check?

The FTA applies equally to all media: newspapers, flyers, billboards and web pages to name a few.  Businesses that set up websites with misleading or out of date advertising have recently received a sharp reminder from the Commerce Commission to keep the content of their websites up to date.

The Commerce Commission fined an Auckland restaurant $3,000 plus $260 court costs after the restaurant pleaded guilty to breaching the FTA in relation to online promotion of its menu and prices.  According to the Commerce Commission, the restaurant website made various representations about the availability and price of certain meals on the menu.  The Commission's investigation revealed that many of the meals were not available for order in the restaurant and the prices advertised on the website were between 17% and 36% than the in-house menu. 

In sentencing, Judge Rota stated that "once the disparity was brought to the attention of the restaurant owner by the complainant and then by the Restaurant Association, the restaurateur took no steps to correct the disparity."

In addition, section 19 of the Fair Trading Act prohibits the advertising of goods and services for supply at a specified price when the person has no intention of supplying those goods or services or has no reasonable grounds for believing they can be supplied.

In short, businesses and organisations who advertise online must ensure that their advertising is not misleading in anyway.  Failure to do this may result in a breach of the FTA.  This is especially so when, as in this case, the misleading conduct is not inadvertent. 

I work for a health food company who is re-designing the labels of its products.  We're thinking of labelling some of our products as "GM Free".  Are there any legal requirements in relation to marketing products as GM Free?

Leaving the joint Australia/New Zealand Food Standards Code aside, ensuring that claims about the GM content of food are correct is extremely important given the high public interest in GM matters and the market advantage businesses can achieve when labelling food as GM Free.  There is, however, a great deal of confusion among both businesses and consumers.  Businesses are often confused as to what claims can be made on food labels.  Consumers are often confused as to what is meant by the various GM claims that can appear on food labels.

In a recent Commerce Commission decision, a vegetarian sausage manufacturer was fined $4,250 plus costs when it pleaded guilty to breaching the FTA for labelling its sausages "GMO Free" and "Non-GM".  The sausages were found to contain detectable amounts of GM Ready Roundup Soy in an audit by the New Zealand Food Safety Authority.  The Commerce Commission stated that although the GM soy content in the sausages did not meet the threshold for requiring GM material labelling under the joint Australia/New Zealand Food Standards Code, the manufacturer could not claim that the sausages were "GMO Free" or "Non GM".  The chair of the Commerce Commission stated that in the Commerce Commission's view, "free means free and non means non in the eyes of the consumer" – even though these expressions may mean other things within the industry. 

If labelling food as "GM Free" or "Non-GM" (or other similar variation) the food cannot contain any GM content.  Accordingly to the Commerce Commission, this is because there is no way for consumers to verify GM claims made and because consumers are often paying a premium for food labelled GM Free.

I own a café I'm thinking that in order to open over the Easter holiday period I will need to impose a surcharge to recoup the extra costs of having to pay my employees time-and-a-half plus a day in lieu.  Is there anything that I need to tell my customers?

The Holidays Act 2003 requires employers to pay all employees time-and-a-half, for all hours worked on a public holiday, plus a day in lieu if an employee's normal working day falls on a public holiday and they work on that public holiday.  As a result, many employers have chosen to either close their business or impose a surcharge on public holidays to compensate for the extra expense.  While businesses are legally entitled to charge a surcharge on a public holiday, they must inform customers that a surcharge will apply as, under the Fair Trading Act ("FTA"), it is illegal to make false or misleading representations with respect to the price of goods and services.  This means that businesses must clearly identify all the costs or charges that the buyer of the goods or services will have to incur before the customer decides to make a purchase ie before the point of sale.  If a customer is not informed that a surcharge will apply, a business may be acting illegally if it insists that the customer pay the surcharge.  In order to comply with the FTA we suggest that you display a sign, which clearly informs customers of the surcharge, that customers will see as they enter your café.

I run an advertising agency and I've heard that because the information that goes into an advertisement is supplied by the client, advertising agencies can't be liable for misleading consumers.  Is this correct?

Although clients often brief advertising agencies as to what words or images they want in their advertisements, the task of ensuring that an advertisement is not false, misleading  or deceptive falls on both the client and the advertising agency.  This has been made very clear after the Wellington district court found an advertising agency guilty for misleading advertising.  The decision is significant as it is the first time that successful action has been taken against an advertising agency in relation to an advertisement prepared for a client.  This decision also shows that a misleading advertisement will be in breach of the FTA regardless of whether the breach was deliberate or unintentional.  In this case the advertising agency did not intend to create misleading advertising – it was done in error.  While the district court Judge did accept that the misleading advertising was not deliberate, he went on to say that the level of carelessness of both the advertising agency and the client was "quite high".  Therefore, not only can an advertising agency be held liable for creating misleading advertising, an advertising agency may also be precluded from using a FTA defence, such as reasonable reliance on information supplied by another person, if the agency does not exercise a reasonable level of care when creating an advertisement for a client.  What amounts to a reasonable level of care is a legal issue.  If you are in any doubt whether an advertisement is likely to mislead or deceive the public, a cautious approach would be to get your lawyer to review the advertisement before it goes to print.

I work as a label designer and my product manager has asked me to design a label promoting a new product as "natural".  I've heard that people need to be careful when using words like "natural" in labelling and advertising and wonder if there is anything I should be aware of?

Using words such as "natural" in product labels or advertisements can be a valuable marketing tool – if the product is in fact natural.  Words such as "natural" are often understood in absolute terms ie they give consumers the impression that a product is 100% natural rather than partially natural.  Therefore marketers and traders alike need to ensure that any advertising or product labelling does not mislead consumers by misrepresenting key components of a product.  The Commerce Commission has recently ordered a company to publish corrective advertising and fined the company $17,500 for promoting its product as "natural".  Although the product did contain natural ingredients, only 16.7% of the total active ingredients were in fact natural.  While it is always important that claims are accurate, the Commerce Commission states that people should be particularly careful when making claims of "naturalness" as many consumers do not have the specialist expertise required to determine whether such claims are in fact accurate and are therefore reliant on advertising or labelling claims.  If you are going to use a word such as "natural" on the product label you must first establish whether using the word is likely to mislead consumers as to the true nature of the product.  Not only will misleading or deceptive statements breach the FTA, they may also cause confusion amongst consumers and potentially lessen their confidence in the product brand generally.

I own a general store which sells cigarettes as well as food and drink.  I've heard advertisements saying that amendments to the smoke-fee law will impose restrictions on the display of cigarettes.  What are the restrictions, and what is the penalty for non-compliance?

The overall intention of the Smoke-Free Environments Amendment Act 2003 is to reduce the visibility of tobacco products in retail stores.  As a result of this, from 10 December 2004 you will need to comply with the following restrictions:

1. A maximum of 100 packages and 40 cartons may be displayed (an exception applies to specialty tobacconists).

2. No more than two packages of the same kind may be displayed.

3. Counter top, or similar surface displays are prohibited.

4. If tobacco products are displayed, a "Smoking Kills" sign provided by the Ministry of Health must be displayed within two metres of a point of sale .

5. Tobacco products exceeding specified face size dimensions (66cm2 for a package, 105cm2 for a pouch pack, and 266cm2 for a carton) must not be displayed.  However, price notices which indicate the availability of oversized tobacco products are permitted.

6. Tobacco products must not be visible from the outside of the retailers' place of business (eg from the footpath looking inside).

7. Co-packaging tobacco products with another non-tobacco product at a single or reduced price is prohibited.

8. Tobacco products must not be displayed within one metre of children's products (eg confectionary, ice cream, soft drinks, comics, games, or toys) unless unreasonably practicable.

9. Tobacco products may not be made available free of charge, at a reduced rate, or with an inducement or reward.

So, you should consider the above restrictions when deciding where and how you display your cigarettes and other tobacco products in your store.  The maximum fine for breach of a product display restriction is $10,000. 

My organisation is thinking of hosting a corporate sports event as a way of creating and strengthening business relationships.  I remember reading about a number of events having been cancelled last year as a result of some new law or court decision. Could my organisation be liable if an accident occurred during the sports event?

Fortunately and somewhat unique to New Zealand, most personal injuries suffered are covered by our accident compensation regime ("ACC").  Despite this, it is still possible that liability may arise through a variety of civil, criminal and regulatory offences.  A well known and recent example of this is the case R v Andersen where event organiser, Astrid Andersen, was accused and convicted of criminal nuisance under the Crimes Act.

This case involved the organisation of an annual cycling event known as "Le Race".  During Le Race 2001 a participant overtook another cyclist while approaching a blind corner.  She rode across the centre line onto the wrong side of the road, collided with an oncoming car and died as a result of the injuries sustained in the collision.  Ms Andersen was charged with criminal nuisance under existing law, allegedly arising from unclear instructions to competitors about road closure and failure to take adequate steps to warn competitors of the risks posed by oncoming traffic.  The decision caused major outcry in the events industry.

Although very recently the New Zealand Court of Appeal overturned Ms Andersen's conviction, event organisers should remain cautious when organising events.  While it is difficult to eliminate risk totally, the possibility of injuries occurring can be minimised through risk management planning.  One useful resource is Guidelines for Risk Management in Sport and Recreation developed and published by Standards New Zealand (in association with SPARC and ACC) which provides tools, examples, templates, and an overview of legal requirements to assist those involved in organising events of any kind.

As with any event involving people, sports and a venue, there will be risks.  We suggest you consider developing and implementing a comprehensive risk management plan not only to help protect the safety of participants but also to promote a successful event.

I am heading overseas soon and thinking of using my credit card instead of cash or travellers cheques for safety reasons.  Is there anything that I should be aware of when using my credit card overseas?

While there are many incentives for the increased use of credit cards overseas, you should be aware that the cost of making overseas purchases with your credit card may be more than you realise.

The Commerce Commission recently announced its intention to file criminal proceedings against 8 major credit card providers for misleading conduct as a result of the non-disclosure of international currency conversion fees on overseas transactions.

Credit card statements typically set out the purchase price of your goods or services in foreign currency, the exchange rate, and the New Zealand dollar amount.  After investigating, the Commerce Commission claims that these credit card statements represent that overseas credit card purchases are currently converted into New Zealand dollars at the prevailing exchange rate.  It says that this is likely to be misleading in breach of the Fair Trading Act, because the exchange rate recorded on the statement also includes a conversion fee which in some cases can add an additional 2.5% to the New Zealand dollar cost of the transaction, and this additional conversion fee is not disclosed to credit card users.

Generally compliance with the Fair Trading Act 1986 requires marketers to ensure that all matters regarding price are disclosed to the consumer.  The Commerce Commission has made it clear in its guidelines that all costs which affect the true cost to the buyer of goods and services, must be clearly disclosed.  There must be no hidden costs.  For example, marketers must ensure that techniques, such as using an asterisk to refer to further information, are not being used to camouflage hidden costs as failure to disclose important information can be just as misleading as advertising incorrect or false information.

Watch this space for the outcome of the proceedings against the credit card providers.

Our company is involved in running events and we are looking at outsourcing the sale of tickets and using an agency.  We were wondering whether, in terms of ticket sales, booking fees and refunds, what we can require from a ticketing agency.  We have a standard ticket price we want to charge, but the agency is insisting on adding a booking fee.  The agency has also said that although we will refund the price of the tickets if the show is cancelled, they will not refund the booking fee.  We want to comply with the law, can you help? 

It is quite common for venue owners and event organisers to use ticketing agencies for the advertising and sale of tickets to their events.

It is acceptable for a ticketing agent to charge a service or booking fee where a person purchases a ticket to your show using the ticketing agency; however the key to complying with the law is to ensure that that booking fee or service fee is disclosed to a person whenever ticket prices and sales are advertised.

Recently a major ticketing agency was fined over $15,000 for breaching the Fair Trading Act, when it failed to disclose "ticket prices on its website and over the phone, as exclusive of booking fees".  These fees of $6 per booking by phone or internet (or $2 per ticket when booked over the counter) were disclosed to a person purchasing a ticket, only after the customer had decided to purchase.  The Commerce Commission said that these factors that affect the total price to be paid for any product or service must be clearly disclosed every time the price is advertised. 

This includes the fact that a price advertised is exclusive or inclusive of GST.  Commerce Commission guidelines indicate that a consumer can assume that a price quoted is inclusive of GST, unless it is specified to be exclusive of GST.

In relation to the ticketing agency that was prosecuted, the Commerce Commission stated that it was not good enough to have additional costs or charges disclosed only at the point when a person was ordering or purchasing the tickets, and the Commission confirmed that this "holds true whether the representations are made on a website, on the telephone or in print."

There was another issue in relation to refusing to refund the service fees.  Under the Consumer Guarantees Act, which is also monitored and enforced by the Commerce Commission, a consumer may have a statutory right to a refund of the booking fee where a show is cancelled.  In this case, the ticketing agency had refused to provide a refund of the booking fee to a customer who had booked tickets to a show, that was later cancelled.  The ticketing agency had not disclosed to the customer at the time of the sale of the tickets that the service fees element of the ticket price was non-refundable.  The Commission stated that businesses need to ensure their refunds policies are clear and do not mislead customers, and that customers are accurately informed about their rights. 

These are just some of the matters that should be addressed in your contract with a ticketing agency.

We are a small food importing and manufacturing company specialising in organic products.  We import various foods including snack bars which are clearly labelled as "organic" for retail purposes.  Recently we had a problem with one of our suppliers, who informed us that the manufacturer of the snack bars was temporarily unable to provide assurances that the fruit component in the snack bar was from an organic source.  We have already imported these products believing them to be organic products, and wonder what, if anything we can do to allow us to legally sell these products. 

Extreme care needs to be taken in the labelling of any product, but more so in the labelling of food products as organic products, as this tends to suggest that the product is healthier than other products.  As you are no doubt aware, it is a breach of the Fair Trading Act to make false or misleading and deceptive representations about a product, in particular in relation to the quality and characteristics of products.  If the packaging of your product prominently represents that the product as organic, then it seems unlikely that over-stickering of the "organic" representation on the label would be possible.  If you believe that over-stickering is an option, then we suggest that you consider this from a consumer's perspective. 

Recently there was an investigation by the Commerce Commission under the Fair Trading Act, exactly on this point.  Phoenix Organics Ltd produced a drink product that was clearly labelled and represented as "organic".  The label also included a BioGro standard mark which indicated a certain standard had been met in terms of organic certification.

Due to problems with the supply of imported organic mango puree, Phoenix affixed a small label to the back of approximately 100,000 affected bottles of this organic drink, stating that the mango puree was temporarily non-organic.  The over-sticker covered the BioGro mark.

Despite the fact that Phoenix had made efforts to inform consumers that the mango puree was temporarily non-organic, it was very clear that the main representations on the front of the drink product were that the product was organic.

The Commerce Commission considered the overall impression a consumer would have gained from the labelling on the product, even with the over-stickering.  Phoenix Organics made the mistake of over-stickering the organics label on the back of the bottle, leaving the front label unchanged.  Accordingly, anyone purchasing a bottle of this drink over the counter at a café, for example, would not even see the back label until the drink had been purchased, and most likely opened. 

Although in this case Phoenix Organics was not prosecuted due to its responsiveness and co-operation with the Commission, it was very clear that the labelling of this temporarily inorganic product was likely to breach the Fair Trading Act. 

On this basis, while it might be possible to temporarily modify the packaging on your product to correct a misleading representation or statement, care needs to be taken to consider the overall impression created by the label from the consumer's perspective, to ensure that you are not in breach of the Fair Trading Act.

UPDATE:  Santa Parades are back on.  Astrid Andersen's conviction for criminal nuisance in relation to the Le Race cycle event in Christchurch has been overturned by the Court of Appeal.  You may recall that Ms Andersen as event organiser was fined $10,000 last year after a cyclist in the race was killed during the 2001 event. 

Although there was comprehensive event information distributed to entrants plus race briefings before the event, there was confusion among competitors as to whether the road was open during the race, or not.

As a result of the conviction many events, including local Santa Parades, were cancelled for fear that event organisers might suffer the same fate as Astrid Andersen.  Fortunately, the Appeal Court judges said that under the criminal nuisance section of the law, where Ms Andersen was charged, she would have to have been found to have acted recklessly, rather than merely negligently, which is a lesser degree of culpability. 

So all those people involved in organising events, you still need to draft and implement risk management plans and health and safety plans, but at least we can look forward to  the traditional, upcoming Christmas Parades again.

For any queries you may have, please contact Peter Stubbs or Susanna Stoddart

This article appeared in the July 2004 issue of the "Marketing Magazine".

Q.  I am looking at buying a business which has a substantial customer database.  If I do decide to purchase the business is there anything I need to do to use the database for that business or any of my other businesses?

A. Under the Privacy Act 1993, you can't sell customer databases, or otherwise disclose personal information you have collected from customers, to third parties unless you have the customer's prior consent.  An exception here is of course when you buy or sell a business that has an established database provided that any disclosure of any personal information is necessary to facilitate the sale or other disposition of a business as a going concern.

It is also important to remember that you will only be able to use the information for the purpose that the individual originally authorised and if you are the buyer of the business, you will need to find out from the seller the extent of the authorisation, if any, given by individuals on that database to ensure you don't unknowingly breach the Privacy Act.

So once you find out what purpose the personal information on your database was collected for and the consents governing use of that personal information, you will then only  be able to use the information for that purpose, unless you obtain further consent from the individual customers. For example if you have two different businesses, you cannot generally cross sell your products to the separate databases unless you have your customers express consent to do so.

As always there are a number of exceptions to the general rule. For example, some exceptions allow a business to use personal information collected for one purpose, to be used for another purpose. In doing so the business must reasonably believe that the other purpose is directly related to the original purpose for which the personal information was collected or that the personal information was obtained from a publicly available document or source, or that the individual has agreed to the information being used for the new purpose.

Q.  I have recently read about a couple of companies who by using celebrity endorsements have increased sales by up to 20%.  Sounds like a great idea but are there any legal issues I need to be aware of when using celebrities to endorse my products?

A.  Often companies will use a celebrity to raise the awareness of a new product, to appeal to a particular audience or to change perceptions of an old product.  However, when looking at a celebrity endorsement or similarly a sponsorship, a company must make sure it is a good fit.  You have to remember this person will be the face of your company and your company may be judged on how that person is perceived in the wider media.

In accordance with the Fair Trading Act, it is important to remember that the celebrity must not make a false or misleading representation that the goods or services he or she is promoting have any sponsorship, approval, endorsement, performance characteristics, accessories, uses, or benefits.  The opinion on the product or service that the celebrity is giving to the public must also be genuinely held and related to their experience.

It is also important to remember to get the celebrity's consent.  Again under the Fair Trading Act it is an offence to make a false or misleading representation that a person or company has any sponsorship, approval, endorsement, or affiliation.  So just because a celebrity happens to use your product or enjoy your service doesn't mean they are actually endorsing it!  The best way to get a celebrity's consent is by way of a contract.  A contact is also handy if something goes horribly wrong and you need to be able to terminate the relationship quickly. 

In terms of the actual legal contract you have with a celebrity, one of the most valuable clauses for celebrity endorsements will be a 'no controversy clause'.  This should cover the situation where the celebrity is involved in anything controversial enabling you to terminate the arrangement immediately.  Also an 'exclusivity clause' is vital so that the celebrity is prohibited from endorsing a competitor's product and, where possible, they should also be restricted from using any other competitors' product.

Finally, be aware that with some products there are very specific rules about endorsements and testimonials.  Some examples are therapeutic goods, prescription medicines and weight management products.

Q.  There has been some talk in my industry about the need for compliance with the Door to Door Sales Act.  I have never heard of it.  Can you tell me a little bit about this Act.

A. The Door to Door Sales Act 1969 has been in force for over 35 years, yet it is often overlooked by many companies.  Don't be deceived by the name – it also applies to some telephone sales. The Act requires sellers of goods or services on credit at a place other than their ordinary trade premises to provide certain written information to the customer, and gives the customer a right to cancel the contract within a period of time known as the cooling-off period.  However, the Act only covers credit sales where the seller makes the first approach to a customer.  A seller will be deemed to have made the first approach if:

(a) the customer did not ask the seller to call or meet;
(b) the seller phones and arranges a time to call or meet;
(c) a customer wins a prize in a competition and the seller tries to sell the customer something at the time the prize is delivered; or
(d) the customer receives an advertising brochure in the mail and phones for a demonstration.

A credit sale is a sale where the payment is made at a time after the goods are received.  Deferred payment schemes or paying by post-dated cheques all fall within the definition of a credit sale for the purposes of the Act. 

The Door to Door Sales Act is extremely prescriptive and sets out exactly what wording is required to be given to customers in terms of cancellation rights (even to the extent of setting the font size!).

The consequences of non-compliance with the Act can be quite substantial.  For instance, where the seller fails to comply with this Act, a seller cannot enforce a contract for sale and the customer may cancel the contract up to one month and one day after making the contract.   If a customer chooses to cancel, then the contract and any collateral contract, guarantee or security will be deemed never to have had any effect and the customer's money must be repaid.  For example, where a seller has provided services, a seller is not entitled to any compensation for services provided before cancellation and, if work was undertaken to install services onto the customer's property, the seller must also restore the condition of the customer's property to the condition it was in before the service was rendered or the goods supplied. 

And Remember!

Prohibited Prizes!

While the new Gambling Act 2003 came into full effect on 1 July 2004, the restrictions on certain prizes given away in sales promotion schemes and lotteries still apply.  For example, items such as liquor, firearms, ammunition, non-residential property and second hand goods cannot be offered as prizes in sales promotion schemes or lotteries.  However, as always there are exceptions and here it is that second-hand goods can be offered as prizes if they are of classic, historical or cultural significance, for example, while used cars cannot be offered as prizes, a used car that has "classic car" status may be offered as a prize.

ACVM Act – Transitional Provisions Expired 1 July 2004

For those dealing with animal remedies, agricultural compounds and veterinary medicines, the transition period is over.  If you haven't re-registered those products previously registered under the Animal Remedies Act your products may be illegal.   For more information contact Carol McMeekin or visit the ACVM Group section on New Zealand Food Safety Authority's website at www.nzfsa.govt.nz.

For any queries you may have, please contact Peter Stubbs or Susanna Stoddart

This article appeared in the May 2004 issue of the "Marketing Magazine".

Q.  SALE!! I have quite a bit of excess inventory piling up in my warehouse, so I am thinking of having a 'sale' to see if I can reduce my stock levels.  Are there any rules around having a 'sale' as it seems some retailers are having sales every week?!

A.  The rules that apply to someone proposing to have a 'sale' are the same as those that apply to all advertising in general – that "no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive", under the Fair Trading Act 1986.  The Advertising Standards Authority ("ASA") Codes of Practice also regulate advertising and will apply. 

Where a consumer sees a 'sale' sign there is an expectation by the consumer that the goods will in fact be offered for sale at a reduced price for a limited time. 

Recently a complaint was upheld against a retailer that was found by the Advertising Standards Board to be advertising false discounts in order to lure customers into its stores.  The retailer had embarked on a 20% discount promotion in November 2003 that said "It won't get any better this side of Christmas - guaranteed".  However, a week later the same retailer was advertising a 50% discount on the very same goods.  Not surprisingly this complaint was upheld as being contrary to the ASA Code of Ethics.  However had the matter been taken up with the Commerce Commission instead, this would clearly have breached the false and misleading provisions of the Fair Trading Act 1986 and the consequences would have been far more costly for the retailer. 

So when you have your 'sale' you should take into account the following:

Price Reductions – During a 'sale', 'price reductions' or 'discounts' must be genuine.  The goods must not have been available the week before the proposed sale at the same price and one dollar off a hundred dollar item is not likely to be considered a 'sale price'!

Special Offers – Similarly, a consumer's expectation of  a 'special offer' is that there is something genuinely special about the offer, for instance a free giveaway or genuine reduction of price for a limited time.  

Limited Time Only – Sales should be for a limited time only and this should be specified in any advertising.  Many retailers have been caught out by not including a date on which the sale will end, particularly on print flyers.  Technically this could result in a retailer having to offer the same discount or sale prices a year down the track.  Conversely, how often have we seen a 'closing down sale' where the sale is still going on a year later!! To avoid misleading conduct under the Fair Trading Act and to meet the requirements of the ASA Codes of Practice, sales must be for a limited duration or until stocks last.

Q.  I am a little confused about when I have to give a customer a refund.  Do I have to give a customer a refund simply because he or she has changed his/her mind?

A.  Any product sold by a manufacturer or supplier, whether wholesale or direct, to a consumer is generally covered by the Consumer Guarantees Act 1993 ("Act").  The Act sets out a number of minimum statutory guarantees that suppliers must offer consumers, such as a guarantee of acceptable quality and fitness for purpose. As a supplier, where your goods fail to meet these minimum statutory guarantees, the Act provides the consumer with various statutory rights of redress against the supplier and the manufacturer in certain instances. 

Where the goods you sold or gave away as part of a promotion are defective, a consumer may return the goods to you for remedy.  If the defect is minor or capable of remedy, you have the legal right to try and remedy the failure within a reasonable time.   However, there is no automatic right for a consumer to return goods and obtain a refund simply because he or she has changed his or her mind – there must be a failure of one of the guarantees under the Act or an express guarantee of refund if the customer is not happy with the purchase.  Under the Act, the minimum statutory guarantees are in addition to any express guarantees or promises made by the retailer or supplier.

It is important to remember however, that failure to remedy the defective goods or refusal or neglect to do so, entitles the consumer to have the defect remedied elsewhere and to recover all reasonable costs, or to cancel the contract altogether.  If however, the defect cannot be remedied, or is of a substantial character, the consumer may cancel the contract or continue with the goods but seek damages for any reduction in the value of the goods.
So to minimise the risk of claims being made under the Act, we recommend you consider the following when selling goods or supplying goods as part of a promotion:
• if goods are defective at the time of sale, specifically draw to the consumer's attention any defect in the goods prior to a sale;
• any description of the goods should be limited to a generic description rather than specific characteristics (other than defects);
• if samples or models are used in advertising, care must be taken to ensure the goods offered for sale correspond to those display samples or models; and
• notify consumers (either by a visible sign on the wall or by the cash register) to choose carefully as refunds are not given where a consumer changes his/her mind.
• If you are obtaining goods from a third party to supply as prizes or giveaways in your promotions request an indemnity from the third party suppliers in relation to any claims that may be made against you for defective product supplied by them.

Be warned, in most cases it is not possible to contract out of the provisions of the Consumer Guarantees Act.

Across the Tasman! Reprieve for Advertising Agencies

Advertising Agencies may be aware of a recent decision of the Full Federal Court in Australia involving Saatchi and Saatchi Pty Ltd.  While the decision is not binding on New Zealand Courts, it provides a good indication of the direction the New Zealand Commerce Commission is likely to take if they are looking to investigate advertising agencies.  Although the provisions of the Trade Practices Act are not identical to the Fair Trading Act, they are similar.

In the Saatchi decision, the Court stated that the mere preparation by an advertising agency, of a misleading advertisement, does not constitute the making of a misleading statement.  What is required by the advertising agency is something additional, such as where they are "knowingly concerned or party to" preparing advertisements that make false representations. 

In New Zealand, in May 2004 a marketing company pleaded guilty to a number of breaches of the Fair Trading Act, where customers were misled about the chance to win free power if they took out a certain power insurance product. At the time the offer of free power was made, no prize draw had been organised.  It was not until the Commerce Commission began investigations into the prize draw (some 2 ½ years later!) that this became apparent.  The marketing company had not even determined with the power companies just how the prizes of free power would be determined.  However, in contrast to the Saatchi decision, this marketing company had had a pivotal role in arranging the promotion and therefore, it was both knowingly concerned and a party to preparing the advertisements in relation to the promotion.

REMINDER: Gambling Act 2003 Update – Remote Interactive Gambling – What is it?

Don't forget that the Gambling Act 2003 takes full effect on 1 July 2004.  While some parts of the Gambling Act are already in force, most of the provisions relevant to marketers and advertisers only come into force on 1 July 2004. 

One of the most important things to note about the Gambling Act is that from 1 July there will be a new provision specifically prohibiting "remote interactive gambling", which could have an impact on the way that you run some of your promotions or competitions.

"Remote interactive gambling" is defined under the Gambling Act as gambling by a person at a distance by interaction through a communication device.  It appears that the intention of the prohibition is to control the growth and minimise the harm caused by gambling, by placing restrictions on the ease of access to gambling through use of modern communication technology, which without regulation would enable people to gamble at a distance or remotely.

Consequently, a number of promotional activities that may have been legal prior to 1 July 2004, will now be illegal under the Gambling Act, if the promotion involves payment of some kind using a 'communication device' such as the Internet, radio or the telephone (which includes text messaging) in order to gain the chance to win a prize.  But, the news is not all bad – 'sales promotions schemes' are excluded from remote interactive gambling if they meet the specific criteria for a "sales promotion scheme" under the Gambling Act and provided that they are in the form of a lottery.

For any queries you may have, please contact Peter Stubbs or Susanna Stoddart.

Q. I just heard that the Advertising Standards Authority did not uphold a complaint against the Police for using the words "you're a bit pissed" on its latest TV advertisement. Can you tell me a bit about the Advertising Standards Authority and whether this means we can all now use the word "pissed" in our advertising?

A. The Advertising Standards Authority is a self-regulatory body set up by the advertising and media industries to help maintain proper advertising standards across the industry at all times.

The Advertising Standard Authority's role is to ensure that advertising:

• complies with the law;
• is truthful and not misleading or deceptive; and
• is socially responsible.

Codes of Practice have been developed which advertisers and advertising agencies have voluntarily agreed to abide by and an independent Complaints Board has been established where any member of the public who believes an advertisement is in breach of one of the Codes can complain. While many of the Advertising Codes reflect the law, the decisions of the Complaints Board do not have the force of the law but nevertheless still have an important role in helping establish socially accepted advertising standards.

Many of the general rules of advertising are found under the Code of Ethics.  Rule 5 of the Code of Ethics relates to offensiveness and states that:

"Advertisements should not contain anything which in light of generally prevailing community standards is likely to cause serious or widespread offence taking into account the context, medium, audience and product (including services)".

And yes you are correct.  Recently, the Advertising Standards Authority Complaints Board made a decision not to uphold a complaint against the Land Safety Authority in relation to an advertisement which showed a group of farmers having a drink.  One of the farmers said he was going to drive home and another replied "Don't be an egg, you're a bit pissed".  It was in this context the Complaints Board found that the language used in the advertisement "was relevant to the target audience, and the advertisement conveyed an important social message, and would not be likely to cause either serious or widespread offence."

You may also remember the Toyota Hilux Ute "Bugger" advertisement that created a bit of controversy when it came out.  In that case, the Complaints Board also decided that the advertisement did not breach Rule 5 the Code of Ethics as it considered the use of the word "bugger" in the context of the various situations around a farm was unlikely to cause serious or widespread offence, was factual, contextually specific and did not invite people to use inappropriate language indiscriminately. 

What both decisions tell us is that while some words may at first seem offensive, given the right context and audience they can be effective and appropriate.  Obvious humour may also be one way to minimise the risk of your advertising breaching the Code of Ethics.

 However a word of warning! These decisions do not mean that words like "pissed" and "bugger" can be used indiscriminately in advertising and if you do choose to use these words you should very carefully consider your target audience and the medium you use to make sure that the advertisement as a whole is appropriate and relevant  to your product. 

Direct Marketing and the Privacy Act – "Abuse it and you may lose it"

Ever-improving technology, from telemarketing (including automated dialling systems) to email and now even text messaging, has meant that the number of people being exposed to unsolicited and often unwanted marketing has increased.  Consequently, many countries are finding it necessary to introduce stricter measures, on top of already protective privacy laws, to control and restrict unsolicited marketing.

In the United States, last October, a National Do Not Call Register was introduced to restrict the amount of unsolicited telemarketing, making it illegal for a seller to call a number listed on the National Do Not Call Registry. A failure to comply could result in a fine of up to $11,000.  Similarly, in Australia, both NSW and Victoria are currently reviewing legislation in an effort to reduce and control unwanted marketing via the telephone. 

In addition to this possible regulation of telemarketing, from 11 April 2004, the Spam Act will come into force in Australia.  As part of an international effort to restore confidence in e-marketing, this Act will prohibit the sending of unsolicited commercial electronic messages with an Australian link.
 
New Zealand's Privacy Act 1993 provides individuals with some protection against unsolicited calls and in addition, telemarketers belonging to the Direct Marketing Association or DMA must abide by the DMA Code of Practice and are subject to complaints to and discipline by, the DMA.

Our Privacy Act deals with how agencies collect, store and use personal information about identifiable individuals.  Clearly, if an agency obtains an individual's contact details from a publicly available source then usually there should not be any problem with using the information.  However, where an individual provides information to an agency, if that agency intends to retain and use that information, the agency must, among other things, inform the individual of this and the intended purpose for which the information is going to be used and obtain that person's consent.  The agency can then only use the information for this authorised purpose and must comply with the further requirements set out under the Privacy Act.

The combination of the New Zealand Privacy Act and DMA initiatives seem to be reasonably effective in addressing the issues that prompted the United States to establish a National Do Not Call Registry and Australia to review its legislation.  However, marketers in New Zealand should be aware of international trends and keep in mind that the question of whether New Zealand's current regulatory processes are sufficient protection or not, may depend on the extent to which our telemarketers are able to demonstrate compliance with New Zealand's privacy laws and whether the industry is able to continue to effectively self-regulate to protect the privacy of individuals.  The well known phrase "abuse it and lose it" comes to mind.

New Wine Act 2003 now Law

Last year we mentioned the proposed Wine Bill intended to provide a more commercially focussed, flexible and up to date legal regime for regulating and protecting New Zealand's premium international reputation for quality and integrity of its wines.  On 1 January 2004 the Wine Bill became law under the Wine Act 2003 and replaced the earlier, more prescriptive regime provided by the Wine Makers Levy Act 1976 and the Wine Makers Act 1981.  The new Wine Act affects the making and exporting of all New Zealand wine including grape, fruit, vegetable and honey wine and cider and mead.

From a marketing perspective you should be aware that the new Wine Act provides for standards to be set in relation to the identity, truthfulness in labelling and safety of wine and provides an improved system of wine export controls.  The New Zealand Food Safety Authority is the principal regulator under the Act.  For more information on the new Wine Act visit www.nzfsa.govt.nz.

For any queries you may have, please contact Peter Stubbs or Susanna Stoddart.

This article appeared in the January 2004 issue of the "Marketing Magazine".

Q. I am currently looking at marketing strategies focusing on attracting kids. I have heard about the success fast-food restaurants have had with giving free toys to customers who purchase a child's meal. Working along these lines I thought we might include give away toys with our product sales. Is there anything I need to be aware of?

A. You should be aware that in New Zealand, if you wish to sell or give away toys you must comply with the Toy Safety Standards developed under the Fair Trading Act 1986. The Standards were introduced to reduce the risk of death or injury to young children by ensuring that toys, or parts of toys, are not small enough to be swallowed or inhaled.

The Toy Safety Standards apply to all toys that are intended or suitable for use by children under three years old. Toys subject to these Standards range from rattles and games to soft toys and bath toys, regardless of whether they are sold, given away, new or second-hand. Toys given as prizes, gimmicks or sales promotions (e.g. with a child's meal or in a breakfast cereal packet) must comply with these Standards. Some items however such as balloons, marbles, books, writing materials, some paints and modelling materials, are excluded.

Children under three years are targeted because they are extremely vulnerable to choking. Very young children are inclined to put things into their mouth and have not yet developed a coughing reflex when they choke, so cannot remove the object without assistance. The Standards state all toys for under three year olds are not to be of a size that creates a hazard if swallowed or inhaled, or have small parts that can be pulled apart from, or broken off the toy. The Standards refer to a cylinder, much the same size as a film canister, for measuring whether toys or toy parts are too small. If a toy, or a part of a toy, can fit completely into the cylinder, then it is too small and will not meet the Standards.

If you give away toys or any other item in a promotion then you need to consider your target market and whether the type of giveaway is appropriate. Any toys or other items which are designed for, marketed for, or are likely to be attractive to under three year olds, must meet the Standards. Non compliance is an offence under the Fair Trading Act and recent changes to the Fair Trading Act have doubled fines, up to $60,000 for any one individual, or up to $200,000 for a company.

If you are unsure about whether a toy or giveaway item meets these Standards then you need to clearly state "Not Suitable for Children Under 3yrs" on the packet or promotional material. However, a label stating this will not necessarily save you from liability or a complaint, particularly where a toy is clearly intended for children under 3 years. This statement will only be effective if the toy is clearly intended for older children.

In terms of giveaway toys and other items you will also need to consider other relevant provisions of the Fair Trading Act such as section 17, which states you must ensure all gifts and prizes provided, match the advertised description or depiction of them, and most importantly, that you provide them as "promoted".

Additionally, the Consumer Guarantees Act 1993 requires that the prizes and gifts you supply meet certain standards. The Consumer Guarantees Act imposes minimum statutory guarantees on suppliers and manufacturers of goods and services in trade to consumers, you may know prizes and giveaways in a promotion are also subject to these guarantees. If you are the promoter, you come within the definition of a "supplier" under the Act and are therefore also responsible for ensuring that the goods you supply as part of a promotion, meet these standards. As a result, you need to ensure any gifts or prizes are of acceptable quality, comply with their description and are fit for any particular purpose that you have made them out to be for in the promotion.

Q. I have noticed a number of complaints and investigations in relation to misleading labelling of sports water, juice and alcohol products. I'm the marketing manager at a newly established food and beverage company. What are some of the things I should look out for?

A. In the past couple of years, the Commerce Commission has investigated and, in some cases, laid charges against a number of companies who produce sports water, juice and/or alcohol. These are mostly related to breaches of the Fair Trading Act 1986 on issues such as follows:

• misleading labelling by failing to disclose the product contained as much as 50% neutral spirit in addition to the bourbon and cola content;

• misleading representations as to the freshness, content and origin of the juice;

• misleading labelling giving the impression that the product contained 100% New Zealand orange juice, where it actually contained imported organically certified orange concentrate;

• a campaign likely to mislead consumers into believing its juices were fresh when they had in fact been highly pasteurised and had a shelf life of at least six months;

• misleading labelling giving the impression that the beer was only brewed in Dunedin, when the beer was in fact also brewed in Auckland or Christchurch;

• misleading representations that a sports drink contains no sugar when it actually contains natural sugars from fruit juice.

The major focus of the Commerce Commission's concern relates to the fact that consumers may be influenced by claims about the nutritional quality and composition of the food or beverage, the presence or absence of additives, and how the food was processed. This is not only restricted to the wording on the label but also extends to any representation, including pictures on a product label or in an advertisement.

The Fair Trading Act prohibits claims about food content, quality and quantity, characteristics or benefits that could mislead or deceive customers. Therefore, the key point for you to remember in any advertising is whether the overall impression given to consumers will, or is likely to, mislead.

You will also need to consider the labelling of your food and beverage products in light of the Australia and New Zealand Food Standards Code. The Code has been in effect since December 2002 and is a comprehensive set of food labelling and composition standards most of which jointly apply to the import and sale of food and beverage in New Zealand and Australia. Food and beverage labelling must now contain more information including:

• Food identification: labels must identify the food, its batch, and the name and address of its supplier.

• Mandatory advisory statements, declarations and warnings: advisory statements and declarations about certain ingredients that may react with some people must be included on labels, for example, caffeine and nuts.

• Ingredients: labels must list ingredients by weight in descending order.

• Date marking: products with a shelf-life of less than two years must display their best before date or use by date. A best before date is the date after which the product is no longer at its best but may still be safe, and a use by date is the date after which a product may be unsafe and cannot be sold.

• Nutritional information: nutritional information panels must now be displayed on most food products, not just those making nutrient claims. The panel must list the amount of energy, protein, total fat, saturated fat, carbohydrate, sugar, and sodium in the product.

• Percentage labelling: labels must display the proportion of characterising ingredients in a product. For example, strawberries are a characterising ingredient of strawberry yoghurt.

• Legibility: all information required by the Code must be displayed prominently, legibly, and in English.

And don't forget the Code of Advertising for Food, one of a number of self regulatory advertising codes established by the Advertising Standards Authority to help maintain the standards of advertising in New Zealand. The Codes are intended to help ensure that advertising is conducted in a manner that is socially responsible and most importantly, does not mislead or deceive the consumer. Although not legally enforceable, a number of the Codes reflect the law and we suggest that all advertisers should be familiar with the principles of these Codes and use them as a guide in day to day practice.

Comparative Advertising Update

You may recall last year we highlighted the proposed changes to the law relating to comparative advertising and the use of another party's registered trade mark in your advertisements. The new Trade Marks Act 2002 came into force on 20 August 2003. Under the old Trade Marks Act there was a provision that technically prohibited the use of another party's registered trade mark in an advertisement, without the owner's authority. The new Act deals specifically with comparative advertising and provides a defence to trade mark infringement. A registered trade mark will not be infringed where it is used without authority for the purpose of comparative advertising, provided that the use is in accordance with "honest practices in industrial or commercial matters" and the use "does not, without due course, take unfair advantage of or be detrimental to the distinctiveness, character or repute of the trade mark".

As a result of this new law, comparative advertising now has greater potential as a powerful marketing tool. But you must still take care!

For any queries you may have, please contact Peter Stubbs or Susanna Stoddart.

This article appeared in the October 2003 issue of the "Marketing Magazine".

Q. I understand there is now a new Gambling Act to replace the Gaming and Lotteries Act. Generally the sales promotions I run to promote my products have had to meet the requirements of the Gaming and Lotteries Act so what happens now? Can I continue to offer sales promotions to my customers?

A. You're right, the Gambling Act 2003 did come into force in September this year although only partially, replacing the Gaming and Lotteries Act 1977. The key change under the new Act relates to the classification of gambling into 6 different legal classes based on the risk and stakes involved and the value of prizes offered. For example class 1 represents low stake/low risk gambling that does not require a licence with class 4 representing high risk, high turnover licensed gambling. Casino gambling and gambling conducted by the Lotteries Commission have their own separate classes.

Fortunately the concept of a 'sales promotion scheme' has survived under the new Act and is a specially authorised form of gambling that does not require a licence, regardless of the value of the prizes offered. There is no longer any doubt that a sales promotion is 'gambling' under the Gambling Act as it is now specifically included in the wider, new definition of 'gambling'

Although the wording of the definition of 'sales promotion scheme' has changed under the new Act, what hasn't changed is the importance of making sure your sales promotion fits within the definition of 'sales promotion scheme' so that it is legal.

While the definition of "Sales Promotion Scheme" has been slightly widened to include any 'gambling' that does not involve a gaming machine or a prohibited prize, rather than only a prize competition, lottery or instant game, for a sales promotion to be legal under the new Act it must still meet the following criteria:

• it is used by a creator, distributor or vendor of the goods or services to promote those goods or services; and
• participation requires a person to purchase goods or services for a price which does not exceed the usual retail price; and
• there is a set promotion period which is made clear to the participant at the time and place of sale; and
• the participant is not required to pay any further direct or indirect consideration other than to purchase the goods or services
• promoted; and
• the outcome is determined –

(a) randomly or wholly by chance; or

(b) party by chance (whether chance plays the greater or lesser part) and partly by the application of some knowledge or skill.

The definition of 'sales promotion scheme' under the Gaming and Lotteries Act required that sales promotion had to be organised by the manufacturer, distributor, wholesaler or retailer of goods and services. It's interesting to note that under the new Act this has been extended to cover the 'creator' of the goods and services.

In terms of meeting the criteria for a sales promotion scheme, this is generally not a problem. However it is worth remembering that a sales promotion will be illegal if it fails to meet all the above criteria. The one issue that often catches organisers out and where you need to take care with relates to the fourth point, where a participant having purchased the necessary goods at no more than the usual retail price is not then required to pay any further direct or indirect consideration to enter, eg. postage costs on any entry form or dialling a phone number with a cost attached. To avoid such problems, freepost addresses or 0800 numbers should always be used.

But the good news is that you can continue to run sales promotions to promote the sale of your goods and services, just make sure they are legal under the Gambling Act 2003.

Q. I am currently looking at new marketing strategies focussing on attracting kids. I have heard that the introduction of Happy Meals in 1976 provided McDonalds with a dominant share of the fast food market for children. Working along these lines I thought we might include giveaway toys with our product sales. Is there anything I need to be aware of?

A. Its hard to believe that since the introduction of the Happy Meal, McDonalds has become the largest toy distributor in the world. The Happy Meal (consisting of a hamburger or cheese burger or chicken nuggets, fries, small drink and a free toy) is such a big seller that it has become crucial to McDonalds annual revenue stream.

In New Zealand, if you wish to sell or giveaway toys you must comply with the Toy Safety Standard. The Toy Safety Standards applies to all toys for children under three years old. As young children of that age are particularly partial to putting things into their mouth, the purpose of the Standards is to reduce the risk of death or injury to young children by ensuring that toys, or parts of toys, cannot be swallowed or inhaled. There is therefore, a minimum size under the Standards with which toys made for under three year olds must comply. In addition, small bits must not be able to be broken off the toy.

The Standards relate to all toys for under three year olds ranging from rattles and games, to soft toys and bath toys, whether they are sold or given away or whether they are new or second-hand. Toys given as prizes, gimmicks or sales promotions (i.e. with a Happy Meal or in a breakfast cereal packet) must comply with the Toy Safety Standards.

Q. I have a great new herbal weight loss product that I am looking to market to health shops and gyms around the country. What claims can I make in relation to this product?

A. The Advertising Standards Authority recently adopted the Code for Advertising Weight Management, which replaces the old Code of Advertising for Slimming or Weight Loss. The purpose of this new Code is to distinguish weight management from weight loss.

Under section 4E of the Medicines Act 1981 "therapeutic purpose" includes altering the shape, structure, size or weight of the human body. What this means is that if you make a claim for weight loss, at least one of the ingredients included in your weight loss product advertised must be registered as a medicine. If there are no ingredients in your weight loss product registered as medicines, weight loss claims cannot be made.

To comply with the Code for Advertising Weight Management, advertisements should not by implication, omission, ambiguity or exaggerated claim:

• mislead or deceive or be likely to mislead or deceive consumers; or

• abuse the trust of or exploit the lack of knowledge of consumers; or

• exploit the superstitious or, without justifiable reason, claim on fear.

Advertisements should not have depictions which unduly glamorise a product or portray unrealistic outcomes and make misleading claims such as "eat as much as you like" or "eat and get slim". You may however, advertise that the product assists weight management if used in conjunction with a balanced diet and a regular exercise regime.

While the difference between weight loss and weight management is subtle, the law is clear that only registered medicines can make weight loss claims. In such cases, the Code for Therapeutic Advertising will apply.

Q. I have noticed a number of investigations in relation to misleading labelling of juice and alcohol products. I run a food and beverage company. What are some of the things I should look out for?

A. In the past couple of years, the Commerce Commission has investigated and, in some cases, laid charges against a number of alcohol and juice companies. These mostly related to breaches of the Fair Trading Act on issues such as follows:

• misleading labelling by failing to disclose the product contained as much as 50% neutral spirit in addition to the bourbon and cola content;

• misleading representations as to the freshness, content and origin of the juice;

• misleading labelling giving the impression that the product contained 100% New Zealand orange juice where it actually contained imported organically certified orange concentrate;

• a campaign likely to mislead consumers into believing its juices were fresh when they had in fact been highly pasteurised and had a shelf life of at least six months;

• misleading labelling giving the impression that the beer was only brewed in Dunedin when the beer was in fact also brewed in Auckland or Christchurch.

The major focus of the Commerce Commission's concern relates to the fact that consumers may be influenced by claims about the food or beverage's nutritional quality and composition, the presence or absence of additives, and how the food was processed. This is not constricted to the wording on the product's label but also relates to pictures and any other representations.

The Fair Trading Act prohibits claims about food content, quality and quantity, characteristics or benefits that could mislead or deceive customers. Therefore, the key point for you to remember in any advertising is whether the overall impression given to consumers will or, is likely to, mislead.

[You will also need to consider the labelling of your products in light of the recent Australia and New Zealand Food Standards Code….? ]

Changes to the Fair Trading Act

A quick reminder!

Amendments to the Fair Trading Act were passed by Parliament in July 2003. There are subsequently changes that you need to be aware such as:

• The maximum penalties for offences have been doubled from $30,000 to $60,000 for individuals and $100,000 to $200,000 for companies;

• The maximum penalty for Pyramid Schemes has also been increased to $200,000 (available for both companies and individuals). The Court is also able to order payment of the equivalent revenue or commercial gain earned from the offender; and

• Search powers have been extended to include ability to obtain information as to the extent of the offender and new information gathering powers have also been effected.

Your company, Black Tie Ltd, sells and hires suits. Its main competitor is Suits R Us Ltd. You believe your company sells and hires better products at a better price than Suits R Us Ltd but have struggled to get this message across to the public. You think comparative advertising would be a good way to convince the public just how good your company is and to help increase its market share.

You are considering an advertisement which compares Black Tie’s suits and prices with those of Suits R Us. You like the idea of a two column style table comparison listing relevant products and prices. Black Tie would be on one side and Suits R Us on the other side. You’re hoping to use the SUITS R US trade mark and the Suits R Us logo to identify Suits R Us Ltd. SUITS R US is a registered trade mark of Suits R Us Ltd covering suits and the retail and hireage of suits. The Suits R Us logo, which is a stylised picture of a man in a suit, is not registered as a trade mark.

Can we use the SUITS R US trade mark in this way?

Your proposed advertisement raises a number of issues under New Zealand’s current trade mark laws.

New Zealand is one of the few countries in the world which (currently) retains a provision that prohibits the use of a registered trade mark by a competitor for the purposes of comparative advertising. Under our Trade Marks Act 1953, the owner of a registered trade mark has an exclusive right to the use of that trade mark in relation to the categories of goods or services for which it is registered.

Your proposed comparative advertisement will infringe Suits R Us Ltd’s rights in its registered SUITS R US trade mark if:

• the use is without authority;
• a mark identical to the registered mark is used;
• the use of the trade mark is in relation to goods or services covered by the registration; and
• the use suggests a reference to the trade mark owner of the goods and services of the trade mark owner.

We have assumed that your proposed ad will likely meet all these criteria. As a result, under current trade mark laws, you would not be able to use the SUITS R US trade mark in the proposed comparative advertisement.

How will the new Trade Marks Act impact on our advertising?

The new Trade Marks Act 2002 is due to take effect around the end of 2003. It deals specifically with comparative advertising and provides a defence to infringement where there is use of a registered trade mark. Under the new Act, a registered trade mark will not be infringed where it is used for the purposes of comparative advertising, provided that the use is in accordance with “honest practices in industrial or commercial matters” and the use “does not, without due course, take unfair advantage of or be detrimental to the distinctive character or repute of the trade mark”.

The UK has a similar provision. Recent cases in the UK have held that comparative advertising is permissible as long as the use of the trade mark is honest. The courts have decided that honesty is an objective test and has to be gauged against what is reasonably expected by the average consumer. In essence, however, it appears that, if an ad as a whole is significantly misleading, it will not be considered ‘honest’ and the user of a competitor’s registered trade mark will not generally be able to rely on this defence.

Additionally, the courts have held that the further qualification (ie “the use does not, without due course, take unfair advantage of or be detrimental to the distinctive character or repute of the trade mark”) adds little to the section. It remains to be seen how this will be interpreted in New Zealand.

In short, under the new Trade Marks Act provided that the comparisons made in the proposed advertisement are factually accurate, we believe Black Tie Ltd should be able to rely on this new comparative advertising defence in respect of its use of the SUITS R US trade mark.

What about the use of the Suits R Us logo? We understand this logo isn’t registered so there shouldn’t be any problems should there?

The provisions of the Trade Marks Act 1953 and the new Trade Marks Act 2002 only relate to registered trade marks. As the Suits R Us logo is unregistered, no issues will arise from the use of this logo under New Zealand’s trade mark laws. But there may be other intellectual property issues such as copyright.

An interesting aside is what would happen if Black Tie Ltd ran an advertisement in its shop window which took an original Suits R Us brochure as distributed to consumers which featured the Suits R Us logo and marked comparisons of Black Tie’s prices and products on this brochure. A recent High Court decision has held that this type of use may constitute a reproduction of the Suits R Us logo and consequently constitute copyright infringement.

In our view, this decision is difficult to justify given there is no ‘reproduction’ as such and this type of use should not constitute copyright infringement.

I have been approached by a client who has been making various wines including a fruit wine as a hobby for a number of years, and now wishes to commercialise his product, initially testing the New Zealand market but looking to expand globally in the future.

We have come up with a great design concept for his wine product labels but we have heard about some new wine law that could impact on the label and the information that must appear on the bottle.

Obviously in terms of design, advertising and marketing of this product we need to clarify this.

There are at least two recent changes in the law which will impact on how your client labels his wine product. In December 2002 the joint Australia New Zealand Food Standards Code (“Joint Code”) came into full force as a sole food standard for the labelling and composition of all foods manufactured and imported for sale in New Zealand and Australia.

“Food” is widely defined to include alcoholic and non-alcoholic beverages with specific labelling and composition requirements for fruit wine, wine and related products. All wine sold in New Zealand, whether New Zealand made or imported, must meet the labelling and composition standards prescribed in the new Joint Code.

But the “wine law” you have probably heard about is the Wine Bill 2002 which is not yet law. This bill purports to regulate the New Zealand wine industry to ensure that it retains its premier position in the world by imposing rules for the making and export of all New Zealand wine including grape, fruit, vegetable and honey wine.

The Wine Bill provides for standards to be set for the identity, truthfulness in labelling and safety/hygiene of wine.

In relation to identity standards, certain compositional requirements such as a minimum percentage of specific types of grapes, eg chardonnay grapes, will need to be present in a wine before it can legally be described as a “chardonnay”.

The requirements under this proposed law may extend to cover vintage, variety and country or area of origin, with the focus on ensuring that consumers are offered wine that is truthfully labelled.

Any such new law will continue to be read in conjunction with the provisions of the Fair Trading Act 1986 which prohibits false and misleading or deceptive representations being made about products and services.

Bear in mind that the Wine Bill 2002 may not become law or may change before it does.

When it comes to advertising your client’s product you and your client should also be aware of the Code for Advertising Liquor that imposes restrictions on ads involving liquor.

We know that the joint Australia New Zealand Food Standards Code took effect on 20 December 2002 as the compulsory and sole food standard for New Zealand and Australia and that as a result there are now new labelling and composition requirements for food. But what about food products we have in stock that were labelled before 20 December 2002? Do we need to re-label this stock to comply with the new joint Code?

You can continue to sell foods manufactured and packaged before 20 December 2002 so long as they comply with the old food regulations, subject to three conditions:

• 12 month stock-in-trade provision You can continue to sell these goods until 20 December 2003. However, it is expected that most will be compliant with the new Code within two or three months after 20 December 2002.
• 24 month stock-in-trade provision for long shelf-life products If you're talking about food such as canned fruit, meat, fish, vegetables and packaged herbs, spices and sauces – ie food with a shelf-life of more than 12 months – and if it has been manufactured and packaged before 20 December 2002, you have until 20 December 2004.
• 12 month extension of the transition period for instore products Where food is manufactured, packaged and labelled instore – eg meats and breads – the date for compliance with the joint Code has been extended in relation to most labelling requirements. However this extension will not apply to labelling requirements under the new joint Code for mandatory warnings, advisory statements, use-by or best-before dates, and all directions for use and storage of food information to appear on labels.