Global and domestic businesses using online channels, take note: a recent ACCC enforcement outcome, new Federal Court proceedings and some recent international developments have again focused attention on dark patterns in online commerce, with further regulation of online sale and subscription processes imminent.
‘Dark patterns’ refers to the use of design choices in online user interfaces that manipulate, confuse or mislead customers - for further information, see our article ‘Dark Patterns Explained ’. The term dark patterns is often used to describe online marketing methods such as automatic or forced subscriptions, ‘traps’ that make it difficult to terminate or cancel a subscription or purchase, ‘nudging’ of customers online, and the use of mechanisms that create a false sense of urgency or scarcity in relation to product or purchase opportunity (e.g. discount).
In this update we keep you up to date with what has happened over the last six months and what looks likely to emerge.
What has happened?
Dreamscape
On 8 January 2024, the ACCC issued three infringement notices (amounting to penalties of $56,340) to Dreamscape Networks International Pte Ltd (Dreamscape). Dreamscape is a supplier of web hosting, domain registration, and web design services through its brand, CrazyDomains.com.au (Crazy Domains), providing businesses with tools and support to build and manage company websites, as well as offering complementary online marketing and security services.
Between October 2019 and July 2023, Crazy Domains advertised that its ‘additional domain name registration’ and ‘3-month website builder’ products - which were automatically added to customers’ shopping carts - were free gifts, when they were subject to automatic renewal, resulting in customers being charged fees after the free period ended.
The infringement notices also related to Crazy Domains offering a Domain Privacy product to customers who purchased a .au domain name that purported to “lock down from hijacking and hides your personal information ”, but did not hide contact names or email addresses from the public domain.
Emma Sleep
On 14 December 2023, the ACCC commenced proceedings in the Federal Court against Emma Sleep GmbH and its subsidiaries (Emma Sleep) for alleged false and misleading representations in its advertisements. Emma Sleep is incorporated in Germany and supplies mattresses, bed frames, pillows and accessories to consumers worldwide, including in Australia, predominantly through its website, https://www.emma-sleep.com.au/ .
The ACCC has alleged that Emma Sleep misrepresented savings through a combination of ‘was/now’ or ‘strikethrough’ pricing and prominently displayed percentage discounts (e.g. “50% OFF ” and “GET UP TO 55% OFF ”) and price discounts (e.g. “Save as much as $3,531 ”), when products were rarely, if ever, sold at the higher ‘strikethrough’ prices.
The ACCC also claims that the discounts were stated to be offered only for limited periods of time when this was not the case. Sales campaigns featured countdown timers or texts to consumers that sales were ending soon, but those countdown timers reset to a different period after reaching zero, and products continued to be on sale after the campaigns concluded.
eHarmony
On 7 September 2023, the ACCC also commenced proceedings in the Federal Court against eHarmony, Inc. (eHarmony), alleging that the online dating app had made false or misleading representations about the renewal, pricing and duration of eHarmony memberships since at least November 2019.
eHarmony offered two types of membership:
free basic memberships; and
a premium paid subscription-based service.
eHarmony advertised that users could engage in ‘free’ dating, but a user with a basic membership would have limited functionality, only being able to view blurry photos, ‘like’ members’ profiles, send ‘icebreaker’ prompts and send and receive one text message to and from a premium member.
If basic members sought to upgrade to premium memberships, certain representations were made on the subscription page as to a minimum monthly price to be paid for premium membership, with no single price for the membership specified until late in the subscription process, in small font. It was also not disclosed until late in the subscription process that users who chose to pay monthly were subject to an additional mandatory fee.
The ACCC also alleges that eHarmony failed to prominently disclose that subscriptions would automatically renew after the chosen subscription period (6, 12 or 24 months) or that premium members could not effectively cancel their membership until the next renewal date (i.e. after the 6, 12 or 24 month period expired) in advertising to consumers that they could “try before you buy ” and subscribe to premium memberships for one month only.
Global trends
This focus by the ACCC follows similar trends globally.
One of the most prominent examples is the complaint filed on 21 June 2023 by the Federal Trade Commission against Amazon, alleging that Amazon enrolled consumers in its Amazon Prime program without their consent, whilst sabotaging attempts to cancel their subscriptions, including through use of an "Iliad Flow ” (named after Homer’s epic about the long, arduous Trojan war), with the cancellation process deliberately designed to be labyrinthine in nature.
Where is it all going?
The ACCC has voiced concerns in recent years over the inadequacy of current consumer laws to address dark patterns and other unfair trading practices.
The ACCC has argued that it needs better tools to address this concern, including in ‘Interim report No. 5 - Regulatory reform’ of the Digital Platform Services inquiry (DPSI 5), published in September 2022. DPSI 5 recommended:
a new and expanded economy-wide prohibition against unfair trading practices (and stronger unfair contract terms laws);
mandatory processes to prevent and remove scams, harmful apps and fake reviews;
mandatory internal dispute resolution standards for digital platforms, including the ability to escalate to a human representative and transparency; and
an independent external ombudsman scheme for affected consumers and businesses.
On 8 December 2023, the Australian Government provided a brief response to DPSI 5, in which it expressed in-principle support for economy-wide consumer measures and referred to the ongoing consultation regarding reforms to unfair trading practices regulations. Options being considered as part of that consultation include maintenance of the status quo, expanding the existing prohibition on statutory unconscionable conduct, introducing a general prohibition on unfair trading practices and introducing a combination of general and specific prohibitions.
The Government is due to release its preferred response later this year. For further details regarding this consultation process, see our article ‘Treasury consults on unfair trading practices in Australia ’.
The ACCC’s actions against eHarmony, Emma Sleep and Dreamscape serve as a timely reminder that online business practices continue to be closely scrutinised by the ACCC as part of its 2022/23 and 2023/24 compliance and enforcement priorities, which include digital advertising. The ACCC also recently published two reports on its findings from internet sweeps of influencers and online reviews, indicating it is continuing to monitor businesses online.