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When not to defend a FTA prosecution and when might an in-house counsel give evidence? District Court finds Vodafone guilty in relation to FibreX

Home Insights When not to defend a FTA prosecution and when might an in-house counsel give evidence? District Court finds Vodafone guilty in relation to FibreX

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Contributed by: Joe Edwards, Yao Dong, Brigette Shone and Troy Pilkington

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Published on: April 30, 2021

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It is relatively rare that a business defends a prosecution by the Commerce Commission (Commission) under the Fair Trading Act 1986 (FTA), so any decision is welcomed as it provides an opportunity for the Court to fully consider when marketing campaigns can be misleading.
 
In a judgment released this week, the District Court found Vodafone guilty of engaging in conduct that was liable to mislead the public in relation to its "FibreX" broadband service, delivered over its hybrid fibre-coaxial (HFC) network. Specifically, Vodafone was guilty of nine charges under section 11 of the FTA due to its use of the name "FibreX" and the way that it promoted the service. 

Background

In 2012, Vodafone purchased TelstraClear and its broadband network in Christchurch, Wellington and Kāpiti. Vodafone rebranded its HFC network to "FibreX" in 2016 following a network upgrade, and undertook an extensive marketing campaign in Christchurch, Wellington and Kāpiti across numerous channels. Specific claims included "FibreX is here" and "FibreX" has arrived", including on radio and billboards, in stores, online and in print. Some advertisements included a background of shooting beams of light.
 
On Vodafone's website, in offer summaries for plans, Vodafone described FibreX as a "hybrid fibre coaxial network that uses fibre cabling to the local area and coaxial cabling to the home". The HFC network is different to a "fibre to the home" (FTTH) network, which only uses fibre optic cable to deliver broadband to customers' homes. Building the FTTH network is the subject of the Government's "Ultra-Fast Broadband Initiative".
 
The Commission laid charges in early 2018. Vodafone stopped using the FibreX brand prior to the hearing.

Meaning of "fibre"

The Court considered the meaning of "fibre" and found that a significant number of consumers in the relevant consumer group in Christchurch, Wellington and Kāpiti would have understood "fibre" to mean FTTH. The evidence before the Court established that fixed line broadband networks are identified by the technology used for the last mile to the home or premise. Chorus and Enable (in Christchurch) gave evidence that they had invested heavily in advertising with a clear message that "fibre" meant FTTH. 
 
The Court went on to consider whether the addition of "X" was enough to alert consumers to the fact that FibreX was not the same service as what is commonly identified as "fibre". The Court accepted expert evidence that consumers were likely to think the "X" in FibreX was related to speed or capacity rather than the network access type, based on the fact that broadband providers commonly use "fibre" and a suffix to brand FTTH services (eg Fibre 100). 
 
Vodafone did not present sufficient evidence to establish that consumers would have seen articles on Vodafone's launch of the FibreX network and/or that the articles would have made any difference to consumers' understanding of the FibreX service when they subsequently viewed Vodafone's advertisements. The Court also noted that there was no evidence frontline staff made clear to consumers that FibreX was not a FTTH service. 
 
Having formed the view that the branding and promotion of FibreX was liable to mislead, the Court stated that the fact a consumer may subsequently go to Vodafone's website and find out that FibreX was on an HFC network did not overcome the misleading advertising – this was simply too late in the process. This follows well-established case law that it is very difficult to subsequently "cure" a misleading representation.
 
There was also significant technical evidence showing the HFC network is inherently more variable in performance than the FTTH network in terms of speeds, capacity, latency and reliability.

What is a telecommunication service?

Under section 11 of the FTA, the Commission was required to establish that Vodafone's conduct was in relation to "characteristics" of the FibreX service. Vodafone argued that its service was "the provision of rights of access to the internet for the transfer of electronic data to and from the consumer" and the physical makeup of the cables, hardware and software were not characteristics of the service. Instead, characteristics of its service were, for example, download and upload speeds, and the amount of data that a consumer is permitted to transmit as part of their plan.
 
The Court disagreed and found that the particular network over which electronic data is transmitted is an integral part of any telecommunication service. In any event, the Court found that the medium of delivery is clearly a characteristic of Vodafone's FibreX service because it is the last mile technology that is the determinative feature of a fixed line broadband service, and the technology is important to consumers.

Role of in-house counsel?

Interestingly and of relevance to a large number of readers of this Alert, one of Vodafone's in-house counsel gave evidence on the launch of the FibreX campaign. Some of the points given in evidence will be familiar to any in-house counsel dealing with complex marketing campaigns, including:

  1. there was "an overwhelming amount of information to communicate to consumers";
  2. disclosure of information about the network on offer summaries was appropriate; and
  3. using the word "cable" suggested slow, outdated and aging technology (this argument was not overly helpful, as the Court found it supported the position that the technology was important to consumers).

Ultimately, none of these points were successful in Vodafone's defence.
 
There was also reference to Vodafone's formal responses as part of the Commission's investigation, which is a timely reminder that any information provided to regulators could one day end up before the courts.

Conclusion

The Court's FibreX judgment provides a further example of the application of section 11 of the FTA, which has a lower threshold of liable, rather than likely (under section 9), to mislead. It acts as a reminder to businesses that a generic description of certain goods or services may be understood by consumers to mean a particular type of good or service (and that consumers' understanding of a particular term may develop over time). The key is what consumers will likely understand at the time of the representation. Businesses need to sufficiently differentiate their description of their goods and services from the generic description where their goods or services are not what consumers would commonly identify with that generic description.
 
Interestingly, Vodafone decided to contest the charges of misleading customers into believing that FibreX was a FTTH service, despite the evidence and the fact it had stopped using the FibreX brand prior to the hearing. Vodafone has not ruled out appealing the conviction and has until 24 May 2021 to file any appeal. If Vodafone does not appeal, it is due to be sentenced later this year.

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