Misleading and deceptive conduct – Invisalign v SmileDirectClub

The case of Invisalign Australia Pty Limited v SmileDirectClub LLC [2023] FCA 395 (Invisalign v SDC) involved two (2) companies that offer what’s referred to as the “clear aligner teeth straightening treatment” (Clear Aligner).  On 23 December 2021, Invisalign Australia Pty Limited (Invisalign) commenced proceedings against SmileDirectClub Australia Pty Ltd and its US parent company (together, SDC) in the Federal Court of Australia.  It was alleged that SDC had engaged in false, misleading or deceptive conduct in relation to representations made in promoting the Clear Aligner.

Representations by SDC

SDC made the following representations about the Clear Aligner:

• “the total cost associated with treatment with SDC aligners is either $2,825 for upfront payment or $3,155 by instalments (Total Cost Representation);
• the total cost associated with treatment with SDC aligners is “less than $4 a day” for the duration of treatment (Less than $4 a Day Representation);
• various representations…to the general effect that SDC Aligner Treatment is of comparable efficacy to treatment with traditional orthodontic treatment…for all, or at least a majority of, patients (Comparable Treatment Representations);
• various representations to the effect that SDC Aligner Treatment is less expensive or ‘60% less’ or ‘up to 60% less’ expensive in all instances or alternatively for equivalent treatments obtained from an orthodontist or dentist such as braces or Invisalign (Price Comparison Representations);
• SDC Aligner Treatment provides a comprehensive solution to all orthodontic issues or alternatively all non-severe issues (Comprehensive Solution Representation); and
• SDC Aligner Treatment provides a comprehensive solution to all orthodontic issues or alternatively all non-severe issues at significantly less cost than that of equivalent treatments with braces or Invisalign (Lower Cost Representations).”

SDC then cross claimed alleging that they had engaged in misleading and deceptive conduct by making the various representations discussed below.

Representations by Invisalign

SDC claimed the following representations published in an “advertorial” created in partnership with Invisalign entitled, “DIY teeth straightening kits – Should you try this at home?” (DIY Article) was misleading and deceptive:

• The first representation was that:

“(a)  clear aligners such as SDC aligners that do not require in-person dental or orthodontic visits are equivalent to “do it yourself” dental treatment; and

(b)  through its implicit reference to SDC as the “DIY” solution described in the article, the treatment by SDC aligners do not involve oversight by a dentist or orthodontist for the purpose of treatment with clear aligners.”

(DIY Representation)

• The second representation was that:

“(a)  unlike clear aligner treatment that involves in-person dental or orthodontic visits, clear aligners such as SDC aligners that do not involve in-person dental or orthodontic visits are risky, harmful, dangerous and/or may cause severe or permanent damage, gum shrinkage, gum disease and bone loss;

(b)  unlike clear aligner treatment that involves in-person dental or orthodontic visits, clear aligners such as SDC aligners that do not involve in-person dental or orthodontic visits may ultimately cost the consumer more than the advertised cost of treatment because the consumer may incur additional expenses in fixing the problems caused by the aligners; and

(c)  consumers will suffer if they undertake treatment by clear aligners such as SDC aligners that do not involve in-person dental or orthodontic visits.”

(Harm Representation)

Both the claim and the crossclaim alleged breaches of sections 18 and 29 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) (ACL).  However, on 5 May 2023, the Federal Court held that representation made by both SDC and Invisalign were not likely to mislead or deceive an “ordinary and reasonable consumer”.

Why were each parties’ representations not likely to mislead?

Finding in relation to representations made by SDC:

• Total Cost Representations: “I find, on the evidence, that the representations as to price and the total cost of SDC Aligner Treatment are not false, misleading or deceptive or likely to mislead or deceive the ordinary and reasonable consumer”.
• Less than $4 a Day Representation: “If an ordinary and reasonable consumer formed the view that the less than $4 a day representations are referable to treatment time, it would be their own mistaken assumption, as such a view does not arise from anything SDC has represented in its promotional material”.
• Comparable Treatment Representations: “There is nothing within the promotional material…which would lead an ordinary and reasonable consumer to believe that SDC Aligner Treatment is of comparable efficacy to braces or otherwise impermissibly misrepresents the efficacy of its SDC Aligner Treatment”.
• Price Comparison Representations: “…evidence is clearly supportive of a finding that SDC Aligner Treatment is up to 60% less than braces or Invisalign Aligner Treatment”.
• Comprehensive Solution Representation: “There is nothing within the promotional material…which would lead an ordinary and reasonable consumer to believe that SDC Aligner Treatment can provide a comprehensive orthodontic solution to all orthodontic issues”.
• Lower Cost Representations: “SDC has not represented to consumers that it provides treatment that is equivalent in terms of efficacy to that of Invisalign or braces and in accordance with the principles set out in Gillette Australia“

Finding in relation to representations made by Invisalign:

In relation to the DIY Representation and the Harm Representation, the Court found that based on the evidence provided, there are no statements found in the DIY Article that are a direct reference to SDC and its Clear Aligner.

”I find that SDC has failed to prove that the DIY Representation and the Harm Representation in the DIY article are referable to SDC”.

For the reasons discussed above, the claim and crossclaim were dismissed.

Previous proceedings against SDC by the ACCC

In July 2021, ACCC instituted proceedings against SDC in the case of Australian Competition and Consumer Commission v SmileDirectClub LLC [2022] FCA 1343 (ACCC v SDC).  ACCC alleged SDC contravened sections 18 and 29 of ACL throughout 2019 and 2020 by representing that consumers are entitled to a reimbursement from their private health fund for part of the costs associated to the company’s Clear Aligners.

According to ACCC, 98.5% of Australian private health insurance companies do not in fact cover for the costs of SDC Clear Aligner.  In response, ACCC Commissioner, Liza Carver said:

“This was concerning conduct, and we began receiving complaints from affected consumers about it shortly after SmileDirectClub entered the Australian market”.

As a result of the misleading statements, a significant number of customers with private health insurance, covering orthodontic treatments, purchased the SDC aligners on the understanding that they would receive money back from their health fund, this was unfortunately not the case.  Therefore, on 11 November 2022, the Federal Court ordered SDC to:

• pay penalties in the amount of $3.5 million;
• compensate all affected customers by providing consumer redress;
• issue a notice of the consumer redress to each Australian consumer who purchased the Clear Aligner during the period, 1 May 2019 and 31 October 2020; and
• establish a Consumer Compliance Program for provisions of the ACL.

SDC accepted liability for the erroneous nature of the statements, however, denies they intended to mislead or deceive Australian consumers.

What does this mean for businesses?

The ACCC website provides guidance for businesses on how to avoid engaging in false, misleading or deceptive conduct.

Following the findings of the Federal Court in ACCC v SDC, ACCC Commissioner Liza Carver said:

“Making false or misleading statements is a breach of Australian Consumer Law.  This outcome is a reminder to all companies, whether established businesses or new entrants, that they must ensure they comply with Australian consumer laws when they sell their products and services to Australian consumers”.

Links and further references about misleading and deceptive conduct

Legislation

Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)) s 18

Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)) s 29

Cases

Australian Competition and Consumer Commission v SmileDirectClub LLC [2022] FCA 1343

Invisalign Australia Pty Limited v SmileDirectClub LLC [2023] FCA 395

Other references

ACCC Media Release – SmileDirectClub to pay 35m for misleading claims

ACCC Notice of Filing – Concise Statement

Federal Court Order – ACCC v SDC

Federal Court Order – Invisalign v SDC

Further information about misleading and deceptive conduct

If your business needs advice on misleading and deceptive conduct, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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