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When being natural can be misleading: recent consideration of organic product claims

Recent decisions by the Australian Competition and Consumer Commission and the Federal Court of Appeal have demonstrated that it can be a fine line between branding and product claims: with a wrong step amounting to misleading and deceptive conduct under the Australian Consumer Law (ACL).

Manufacturers and businesses selling ‘organic’ or ‘natural’ products in particular should consider these recent developments and how they might impact their own approaches to marketing their products so as to avoid contraventions of the ACL.

Background

In June 2018, the ACCC imposed a $37,800 penalty against skin care company ‘GAIA Skin Naturals’ in connection with its baby shampoo products over what it regarded to be a misleading description of the product. The ACCC took issue with GAIA using the words “Pure, Natural, and Organic” on their products when, in truth, the products contained two synthetic chemical preservatives (among their organic ingredients).

At the centre of the ACCC’s decision to impose a penalty was its concern that GAIA may have misled consumers into believing that they were mistakenly paying a premium to purchase products they thought were free from synthetic chemicals. At the time, ACCC Commissioner Sarah Court said that businesses making organic claims must be able to substantiate those claims.

Context is key

The Federal Court also recently considered a similar issue in connection with organic and natural product claims allegedly made by Aldi Foods Pty Ltd (Aldi) in connection with Aldi’s in-house brand of argan oil hair products, ‘Protane Naturals’. In an action brought by the manufacturer of the well-known hair care range Morrocanoil, the Federal Court was asked to consider (among other allegations) whether the use of the word ‘Naturals’ in connection with Aldi’s in-house brand was misleading to consumers. Specifically, whether its use as part of the name of the product ‘Protane Naturals’ wrongly led consumers to believe that the product contained substantially or wholly natural ingredients.

At first instance, the trial judge held that the ordinary consumer could reasonably expect that a product that is advertised as ‘natural’, for example Aldi’s Protane Naturals, would be made from ‘wholly or substantially natural ingredients’. As this wasn’t the case for Aldi’s product, the trial judge found that the labelling amounted to misleading and deceptive conduct under the ACL.

However, on appeal in June 2018, the Full Federal Court overturned the trial judge’s decision finding that there was no misleading and deceptive conduct by Aldi due to several ‘contextual factors’ that effectively counteracted the meaning communicated by the word “natural” in the product’s branding. In particular, the Full Court relied on the following factors:

  • packaging: the word ‘NATURALS’ was in a smaller font size to the word ‘PROTANE’, and would have been understood as a ‘sub-line’ of the PROTANE products and not a statement about the quantity of natural ingredients in the products
  • description: the fact that ‘NATURALS’ was plural and not singular was held to further indicate to the ordinary consumer that this was a sub-line of ‘PROTANE’ as opposed to referring to the quantity of natural ingredients
  • sale displays: the Protane Naturals product were sold in the Aldi promotional discount bins, and it would be reasonable for an ordinary consumer not to expect to find hair care products made from boutique natural ingredients such as argan oil in Aldi discount bins.

Avoiding misleading and deceptive conduct

These recent ACCC and Federal Court of Appeal decisions demonstrate the impact that an overall branding strategy can have on product claims in the ‘organic’ and ‘natural’ product space, and the ease with which businesses can comply with the ACL. Manufacturers and businesses bear the responsibility of making a legal assessment of whether a branding exercise will amount to a product claim, and if so, whether that product claim can be substantiated, or if it is potentially misleading or deceptive to consumers. In light of these decisions, when making this assessment, businesses should consider the following before advertising a product as organic or natural:

  • Nature of the product: consider who the target consumer is and how much reliance they may place on the product’s natural or organic qualities. For example, GAIA’s baby shampoo vs. Aldi’s discount in-house branded shampoo.
  • Location of sale: consider not just which store or type of store your product will be sold in, but also the location within the store (discount bins for example), as this may affect a consumer’s expectation of organic or natural product claims.
  • Product labelling and packaging: consider how the word ‘natural’ or ‘organic’ is used in product labelling, packaging and description – and whether it may imply that the product is wholly or substantially made of natural or organic ingredients.
  • Cost of the product: consider whether a consumer would consider that the price of the product includes a premium for the ‘natural’ or ‘organic’ quality of the product, and whether this impacts the consumer’s expectations.
  • Substantiate: if you are holding out that your product is wholly or substantially made of natural or organic products, be prepared to substantiate that claim. A letter from the manufacturer stating their confidence in the product will not be sufficient, as was explored in the related earlier decision involving Aldi and Morrocanoil . A factual basis will need to be demonstrated as to why you or your manufacturer hold such confidence in the product’s organic or natural ingredients.
  • Organic certification: be careful when relying on organic certification. There are several different private bodies in Australia, and the certification standards are not uniform. It is also important to note that because organic certification is not a legal requirement of advertising products as being ‘organic’, legal liability will still fall within the purview of the ACL. The Voluntary Standard (AS 6000) is currently the most uniform reference point to determine the minimum standards that need to be met before your product goes to market.

Simply put, the general test is what the ordinary consumer understands from the statements that your business makes in the course of advertising. When labelling any product as ‘natural’ or ‘organic’, consider how these words will be interpreted by consumers and whether that accurately reflects your product. Product recalls, reprinting labels and enforcement penalties can become costly for any business, so it is important to consider these issues prior to labelling and marketing any product as organic.

If you would like more information, please contact a member of our Consumer Markets & Franchising team.

AUTHORS
Shaun Temby | Partner
Tel +61 2 9291 6287
shaun.temby@maddocks.com.au
Miles Tuckfiled | Graduate Lawyer
Tel +61 2 9291 6198
miles.tuckfield@maddocks.com.au

Recent decisions by the Australian Competition and Consumer Commission and the Federal Court of Appeal have demonstrated that it can be a fine line between branding and product claims: with a wrong step amounting to misleading and deceptive conduct under the Australian Consumer Law (ACL).

Manufacturers and businesses selling ‘organic’ or ‘natural’ products in particular should consider these recent developments and how they might impact their own approaches to marketing their products so as to avoid contraventions of the ACL.

Background

In June 2018, the ACCC imposed a $37,800 penalty against skin care company ‘GAIA Skin Naturals’ in connection with its baby shampoo products over what it regarded to be a misleading description of the product. The ACCC took issue with GAIA using the words “Pure, Natural, and Organic” on their products when, in truth, the products contained two synthetic chemical preservatives (among their organic ingredients).

At the centre of the ACCC’s decision to impose a penalty was its concern that GAIA may have misled consumers into believing that they were mistakenly paying a premium to purchase products they thought were free from synthetic chemicals. At the time, ACCC Commissioner Sarah Court said that businesses making organic claims must be able to substantiate those claims.

Context is key

The Federal Court also recently considered a similar issue in connection with organic and natural product claims allegedly made by Aldi Foods Pty Ltd (Aldi) in connection with Aldi’s in-house brand of argan oil hair products, ‘Protane Naturals’. In an action brought by the manufacturer of the well-known hair care range Morrocanoil, the Federal Court was asked to consider (among other allegations) whether the use of the word ‘Naturals’ in connection with Aldi’s in-house brand was misleading to consumers. Specifically, whether its use as part of the name of the product ‘Protane Naturals’ wrongly led consumers to believe that the product contained substantially or wholly natural ingredients.

At first instance, the trial judge held that the ordinary consumer could reasonably expect that a product that is advertised as ‘natural’, for example Aldi’s Protane Naturals, would be made from ‘wholly or substantially natural ingredients’. As this wasn’t the case for Aldi’s product, the trial judge found that the labelling amounted to misleading and deceptive conduct under the ACL.

However, on appeal in June 2018, the Full Federal Court overturned the trial judge’s decision finding that there was no misleading and deceptive conduct by Aldi due to several ‘contextual factors’ that effectively counteracted the meaning communicated by the word “natural” in the product’s branding. In particular, the Full Court relied on the following factors:

  • packaging: the word ‘NATURALS’ was in a smaller font size to the word ‘PROTANE’, and would have been understood as a ‘sub-line’ of the PROTANE products and not a statement about the quantity of natural ingredients in the products
  • description: the fact that ‘NATURALS’ was plural and not singular was held to further indicate to the ordinary consumer that this was a sub-line of ‘PROTANE’ as opposed to referring to the quantity of natural ingredients
  • sale displays: the Protane Naturals product were sold in the Aldi promotional discount bins, and it would be reasonable for an ordinary consumer not to expect to find hair care products made from boutique natural ingredients such as argan oil in Aldi discount bins.

Avoiding misleading and deceptive conduct

These recent ACCC and Federal Court of Appeal decisions demonstrate the impact that an overall branding strategy can have on product claims in the ‘organic’ and ‘natural’ product space, and the ease with which businesses can comply with the ACL. Manufacturers and businesses bear the responsibility of making a legal assessment of whether a branding exercise will amount to a product claim, and if so, whether that product claim can be substantiated, or if it is potentially misleading or deceptive to consumers. In light of these decisions, when making this assessment, businesses should consider the following before advertising a product as organic or natural:

  • Nature of the product: consider who the target consumer is and how much reliance they may place on the product’s natural or organic qualities. For example, GAIA’s baby shampoo vs. Aldi’s discount in-house branded shampoo.
  • Location of sale: consider not just which store or type of store your product will be sold in, but also the location within the store (discount bins for example), as this may affect a consumer’s expectation of organic or natural product claims.
  • Product labelling and packaging: consider how the word ‘natural’ or ‘organic’ is used in product labelling, packaging and description – and whether it may imply that the product is wholly or substantially made of natural or organic ingredients.
  • Cost of the product: consider whether a consumer would consider that the price of the product includes a premium for the ‘natural’ or ‘organic’ quality of the product, and whether this impacts the consumer’s expectations.
  • Substantiate: if you are holding out that your product is wholly or substantially made of natural or organic products, be prepared to substantiate that claim. A letter from the manufacturer stating their confidence in the product will not be sufficient, as was explored in the related earlier decision involving Aldi and Morrocanoil . A factual basis will need to be demonstrated as to why you or your manufacturer hold such confidence in the product’s organic or natural ingredients.
  • Organic certification: be careful when relying on organic certification. There are several different private bodies in Australia, and the certification standards are not uniform. It is also important to note that because organic certification is not a legal requirement of advertising products as being ‘organic’, legal liability will still fall within the purview of the ACL. The Voluntary Standard (AS 6000) is currently the most uniform reference point to determine the minimum standards that need to be met before your product goes to market.

Simply put, the general test is what the ordinary consumer understands from the statements that your business makes in the course of advertising. When labelling any product as ‘natural’ or ‘organic’, consider how these words will be interpreted by consumers and whether that accurately reflects your product. Product recalls, reprinting labels and enforcement penalties can become costly for any business, so it is important to consider these issues prior to labelling and marketing any product as organic.

If you would like more information, please contact a member of our Consumer Markets & Franchising team.

AUTHORS
Shaun Temby | Partner
Tel +61 2 9291 6287
shaun.temby@maddocks.com.au
Miles Tuckfiled | Graduate Lawyer
Tel +61 2 9291 6198
miles.tuckfield@maddocks.com.au