wn HW NP ' Rou BS IN THE TRADE PRACTICES TRIBUNAL ' No. NSW 1 of 1986 IN THE MATTER OF AN APPLICATION BY THE AUSTRALIAN CONSUMERS' ' ASSOCIATION TO THE TRADE PRACTICES TRIBUNAL FOR THE REVIEW OF THE TRADE PRACTICES COMMISSION AUTHORIZATION OF CERTAIN CODES OF THE MEDIA COUNCIL OF AUSTRALIA. INDEX INTRODUCTION PARTICIPANTS AND WITNESSES PREVIOUS AUTHORIZATIONS THE APPLICATIONS OF THE MCA FOR AUTHORIZATION OF THE PRESENT CODES RELEVANT LAW - SCOPE OF THE APPLICATION AND STATUTORY TEST THE CASES OF THE MEDIA COUNCIL AND THE ACA 6.1 The Media Council's Case The ACA's Case The Clash of Values oO N CODES AND THE SELF REGULATION SYSTEM General The wider regulatory context The System of Codes System governance Code review and revision Clearance procedures Advertising Tribunals Penalties and appeals Table of representation on the Media Council''s system bodies ee i ee) WOR PWNE TY w CODES Broad structure of the Codes Relationship to the law Precision and generality in drafting Procedural provisions The international context B.5.1 Self regulation in other countries 8.5.2 Remarks nnmnowmaH O PUNE EY THE ADVERTISING INDUSTRY AND THE MARKET FOR ADVERTISING MESSAGES 9.1 Advertising and its role in society 9.2 The advertising industry and the identification of relevant markets 9.3 Features of the market for advertising messages Ope 212325283034393424548 49 S51 on RYT om ee ene we eo . . arespeooé 10. lL. 12. 13. 14. 13. MARKET POWER, PRIVATE REGULATION AND ANTI-COMPETITIVE EFFECT. 10.1 The media "bottleneck" 10.2 Accreditation 10.3 Coverage and organization of the system 10.4 Private regulation and anti-competitive effect THE TRIBUNAL'S APPROACH TO THE ASSESSMENT OF BENEFIT AND DETRIMENT 11.1 Classification of the Codes 11.2 The approach to assessing benefits 11.3 Sources of potential detriment BENEFIT /DETRIMENT FOR CODE-RULES REFLECTING LAWS BENEFIT/DETRIMENT FOR OTHER CODE RULES 13.1 The issue of private regulation 13.2 The issue of "grave offence" 13.3 The issue of the advertising industry's "collective wisdom" 4 The issue of generally expressed rules and their interpretation 13.5 The issue of "directed" advertising 13.6 The issue of outside participation in Code revision and Code interpretation 13.7 The issue of the Therapeutic Advertising Code 13.8 The issue of impacts on the markets for advertised products 13.8.1 Comparative advertising and disparagement 13.8.2 Therapeutic claims 13.8.3 The committee structure and barriers to new competition THE FUTURE OF THE MEDIA COUNCIL'S SELF REGULATION SYSTEM 6164 6875868998 104110 lil Tarp arrears a eigen ae IN THE TRADE PRACTICES TRIBUNAL No. NSW 1 of 1986 IN THE MATTER OF AN APPLICATION BY THE AUSTRALIAN CONSUMERS' ASSOCIATION TO THE TRADE PRACTICES TRIBUNAL FOR THE REVIEW OF THE TRADE PRACTICES COMMISSION AUTHORIZATION OF CERTAIN CODES OF THE MEDIA COUNCIL OF AUSTRALIA. LOCKHART J. - President, Professor M. Brunt, Dr. B.I. Aldrich 31 MARCH 1987 REVIEW OF COMMISSION'S DETERMINATION 1. INTRODUCTION This is an application by The Australian Consumers' Association ("the ACA") for review of a determination of the Trade Practices Commission ("the Commission") dated 10 January 1986. By its determination the Commission granted authorization to the Media Council of Australia ("the Media Council") and members of its constituent and affiliated organizations to adopt certain Codes as standards to which the rules of the Media Council governing the accreditation -of advertising agencies would apply. Pursuant to sub-s. 88(10) of the Trade Practices Act 1974 ("the Act") the Commission extended the authorization to apply to persons who and corporations which thereafter became members of the Media Council or members of its constituent or affiliated organisations and to advertising agents who were thereafter granted accreditation under the rules of the Australian Media Accreditation Authority ("the AMAA"). The Commission : 2. considered whether the authorization should be limited in time. The Commission decided, especially in view of its powers under s. 91 to review the authorization in the context of changed circumstances, that an authorization limited in time was not appropriate. The Commission noted that it expected to have discussions regarding the Codes with the Media Council from time to time. The Codes, which were the subject of the Commission's authorization, are six of the Media Council's seven proposed voluntary codes of advertising, namely: . the Advertising Code of Ethics; . the Cigarette Advertising Code; . the Alcoholic Beverages Advertising Code; . the Therapeutic Advertising Code; . the Slimming Advertising Code; and . the Domestic Insecticide Advertising Code. A seventh Code relating to mail order advertising was in the process of being reviewed by the Media Council and was not the subject of the Commission's determination. - The Australian system of self regulation in advertising has evolved through the co-operation of the media, advertisers and advertising agencies. Advertising codes have emerged which are essential to the self regulation system. The advertising industry is divided into four groups: the media, the advertisers, the advertising agencies and miscellaneous service groups. The media (newspapers, magazines, television, radio, posters and cinema) convey the paid eart orp roe ee 3. messages to the public. Advertisers are companies, government authorities and persons seeking to communicate paid messages to the public through the media. Agencies are engaged by advertisers to create advertisements and place them with the media. Miscellaneous groups supply services to the industry; for example, market researchers help to identify and define markets and production companies translate the concepts of advertisements into reality. In advertising matters the governing media body is the Media Council. The Media Council is an unincorporated voluntary association comprising seven other associations. It was established on 19 December 1967 by resolution of its original constituent associations. Its formation brought together a number of organizations of particular types of media; namely, metropolitan newspapers, country newspapers, magazines, commercial radio stations and commercial television stations. Nearly all proprietors of commercial media in Australia are members of the Media Council and are bound by its objects and rules. All the self regulatory Codes emanate from the Media Council. It is the Media Council which had the carriage of the application to the Commission for authorization of the Codes. The constituent member associations which currently comprise the Media Council are: . Australian Newspapers Council; : News Limited; . Australian Accreditations Bureau; . Australian Magazine Publishers Association; . Australian Provincial Press Association; see era x - a A - -! = 4 sen ee et ae ee 5 ' wee wee eee i ES wee eecer Fy R ements ase eee 4, . Regional Dailies of Australia Limited; : Federation of Australian Radio Broadcasters ("FARB"); and ' Federation of Australian Commercial Television Stations ("FACTS"). All these associations except FARB and FACTS are represented on the Australian Publishers' Bureau ("the APB"). The APB represents virtually all newspapers and magazines. Four other associations are affiliated with the Media Council and are bound by its rules. These are: . Australian Suburban Newspapers Association Pty. Limited; . Associated Rural Press of Australia; . The Outdoor Advertising Association of Australia ("the OAAA"); and . The Australian Cinema Advertising Council ("the ACAC""). The Media Council is the body responsible for the accreditation of advertising agents. Every accredited advertising agent regards itself as bound to comply with and observe the Codes and maintain a standard of ethics and conduct determined by the Media Council. 2. PARTICIPANTS AND WITNESSES We shall refer to participants except the Media Council, to whom we have already referred. The applicant for review before us, the ACA, is a company limited by guarantee. It was formed in 1959 with the object of ann erenee = 5. advancing the interests of Australian consumers. It has long demonstrated an interest in matters pertaining to the regulation of advertising. The ACA was dissatisfied with the grant of authorization and applied to this Tribunal for review of the Commission's determination. The ACA was not the applicant for authorization, but the Tribunal determined that it had a sufficient interest for the purposes of sub-s. 101(1) of the Act and proceeded to review the Commission's determination. The Tribunal permitted various bodies to intervene in the proceeding before it, namely: . the Advertising Standards Council ("the ASC"); . FACTS; . PARB; . the APB; . the AMAA; . the ACAC; . the OAAA; . Advertising Federation of Australia Limited ("AFA"); . The Tobacco Institute of Australia Limited; ° Rothmans of Pall Mall (Aust.) Limited; and . Phillip Morris of Australia Limited. The Media Council, FACTS, FARB, the APB, the AMAA, the ACAC and the OAAA were represented by the same solicitors and counsel. Bach of the remaining interveners was separately represented. Early in the proceedings leave to intervene was sought by and granted to the Secretary of the Commonwealth Department of Health, but the Secretary later sought and was granted leave to withdraw. wae pee ee en ae yr tte eee ne saree cere now cae ee ~ eres The Australian Association of National Advertisers ("the AANA") sought early in the proceeding before us to intervene, but later withdrew its application. Counsel for the AANA informed us that the AANA nevertheless supported the self regulatory system in the advertising industry and the present voluntary Codes. The Tribunal heard evidence from twenty-eight witnesses and received many documents into evidence. The hearing before us occupied eighteen days and we had the benefit of full submissions from counsel and solicitors for the parties and for the interveners and counsel for the Commission. Schedule A to these reasons is a list of the witnesses. Schedule B to these reasons is a list of the names and convenient abbreviations of the parties, interveners and other organizations mentioned in the evidence. 3. PREVIOUS AUTHORIZATIONS This is not the first occasion on which authorization has been sought for the voluntary Codes of advertising of the Media Council. In 1976 the Commission granted authorization to certain corporations to continue to be parties to the agreement contained in the Media Council's Rules Governing Accreditation of Advertising Agencies and certain associated Codes and Standards. That authorization was granted subject to the condition that one rule (Rule 23) be amended and that another rule (Rule 19) be abandoned. The applicants in that matter then applied to the Tribunal (constituted by "pam ' eee en ze 8 Jn or te rer et sere en eee . 7. Deane J., President; Mr. J.A.F. Shipton and Mr. J.N. Walker) for a review of the Commission's determination. The decision of the Tribunal is reported as Herald & Weekly Times Ltd. and others on behalf of the members of the constituent and affiliated associations of the Media Council of Australia ("The Media Council Case") in [1978] A.T.P.R. 40-058. The Tribunal said in its reasons for decision that, provided the Media Council was prepared to make certain amendments to its Accreditation Rules, it would allow the application for review and grant authorization of the Accreditation Rules and the associated Codes and Standards. The Tribunal found that real and substantial benefit to the public had resulted and results from the Media Council's Accreditation System including the benefits of efficiency and cost savings; the promotion of honesty, fairness and responsibility in advertising; and the encouragement and preservation of small advertising agencies. The Media Council subsequently indicated its willingness to make the amendments. The authorization ultimately granted by the Tribunal on 31 March 1978 was thus for the Rules Governing Accreditation of Advertising Agents as amended and the associated Codes and Standards. It is important to note that the Codes and Standards then granted authorization were viewed as an aspect of the Media Council's Accreditation System. The Accreditation Rules establish a system under which: 1. all accreditation rules are binding on all participating media proprietors and all accredited advertising agencies; 2. eligibility for accreditation by the Media Council's accreditation authority is dependent upon an agency's ene tomeemneae 2am ow 8. maintaining its independence and _ satisfying prescribed service and financial requirements; an accredited agency is granted unlimited credit and is responsible for payment for advertising and for making payment within the prescribed time; only accredited agents are eligible to receive commission from a member media proprietor and that commission is subject to a maximum prescribed from time to time; and advertising agents, in submitting advertisements to a media proprietor, are bound to conform to the standards of that media proprietor and to the Codes and Standards published by the Media Council and its associated bodies. In relation to 5., Rule 31 of the Accreditation Rules stated: "All advertising submitted to a Media Proprietor shall conform to the standards of the Media Proprietor concerned, and in addition - (a) (b) (c) (d) (e) shall be clean, honest and truthful advertising, and shall not be liable to misinterpretation either directly or by implication or by omission, and shall not contain statements or visual presentations offensive to public decency and good taste, and shall comply with all Commonwealth and State and Territory laws, ordinances, rules and regulations, and shall conform strictly with any advertising standards or Code of Ethics which may be published by MCA from time to time." The detailed Codes and Standards submitted to the Commission for authorization on that occasion were as follows: the Advertising Code of Ethics of the Media Council; the Slimming Advertising Code; the advertising guidelines for hair and scalp treatment; ak sheet helene el ere Ne Sw ee we 9. . the Domestic Insecticide Advertising Code; . the Therapeutic Advertising Code; . the standards of broadcasting practices of the predecessor body to FARB; and . the Television Advertising Board's Regulations and Approval of the Commercials and Timing System of the predecessor body to FACTS. However, the standards and regulations (in (6) and (7) respectively) were not included in the Commission's authorization and hence were not before the Tribunal or included in its authorization as the Commission decided to give them fuller consideration: see Commission determination (1976) TPCD [A3005] at para. 4.6.. Nor was item (5) above included in the Tribunal's authorization. In any event, a Therapeutic Advertising Code was granted separate authorization by the Commission in 1977 (see the list below). The authorization granted by the Tribunal in 1978 was for the Accreditation Rules and the following Codes: . the Advertising Code of Ethics of the Media Council; . the Slimming Advertising Code; . the advertising guidelines for hair and scalp treatment; . the Domestic Insecticide Advertising Code, Paragraph 3 of the Tribunal's authorization contains this important statement: wire ree ee ese 10. "This authorization neither operates as or involves a grant of authorization in respect of any of the provisions of the rules and regulations of constituent or affiliated organizations of the Media Council of Australia which are not now or hereafter the subject of a grant of authorization under the Trade Practices Act." The Tribunal noted the following: "The Trade Practices Commission is requested to examine from time to time the working of the accreditation system of the Media Council of Australia for the purpose of considering whether by reason of altered circumstances it is desirable that this authorization should be varied or revoked." We have dealt with the decision of the Tribunal in the Media Council case in 1978 in some detail because that decision provides a useful starting point for the present application. Although that decision is relevant for present purposes, its relevance must be qualified by certain considerations. It was the Accreditation System and Rules with which the Tribunal was primarily concerned in the 1978 case; and most of its reasons are directed to those matters. The application to this Tribunal is for authorization of certain Codes as standards to which the rules governing the accreditation of advertising agents would apply. The Accreditation System and the Accreditation Rules are not themselves directly in issue in the proceedings before us. As the Commission noted in para. 110 of its determination in the present case: ",.. the MCA Accreditation Rules are not the subject of this application, although in its consideration of the Codes the Commission has taken into account the context in which they would be administered". 11. The relevance of the Accreditation System and Accreditation Rules to the review conducted by us was treated by the parties and interveners in evidence and final submissions as having broadly the same relevance as it had before the Commission. Although the Accreditation Rules are not themselves directly in issue before us, the result of our review of the six Codes in issue will directly affect the operation of the Accreditation System. Advertising submitted to a media proprietor shall conform strictly with the advertising standards or Advertising Code of Ethics of the Media Council (see Accreditation Rule 3l(e), the terms of which are set out earlier). Hence, in practice there is a close nexus between the Accreditation Rules and System and the Codes which are the subject of this present review. Although certain of the Codes and Standards of the Media Council were regarded by the earlier Tribunal in 1978 as part of the subject matter of review and of subsequent authorization, their public benefit was not subject to any real contest by the parties or any detailed scrutiny by the Tribunal. Indeed, the Tribunal said that it would "pay regard" to the Commission's findings as to public benefit where there were no special reasons to do otherwise. Further, when the Tribunal was conducting its review in 1978 it was essentially examining the Accreditation System and Rules with a view to their prospective operation. It did not have the benefit, which we have, of years of previous experience of the Codes and Standards as authorized from time to time. We shall refer to this point in more detail later when considering the tests which must be applied by us in the present matter. ware ns r 12. Thus, the Codes which were before the Tribunal in 1978 and the subject of its authorization, although having many elements of similarity to the Codes the subject of the present review, had many and distinct differences; not the least of which is that the Cigarette Advertising Code and the Alcoholic Beverages Advertising Code were not before the Tribunal at that time. The following additional authorizations have also been granted by the Commission, both before and after the review of the Tribunal in 1978, but were not within the scope of that Tribunal's reviews . A21264 of 23 June 1977 - standards of broadcasting practice of FARB; . Al7156 of 6 December 1977 - advertising standards for advertising of alcoholic beverages; . Al7155 of 6 December 1977 - voluntary code for the advertising of goods for therapeutic use; . A17040 and A90058 of 20 December 1977 - voluntary advertising codes for cigarettes; . A30045 of 23 July 1979 - amendments to voluntary code for the advertising of goods for therapeutic use; A90324 of 16 may 1980 - amendments to voluntary code for the advertising of goods for therapeutic use; . A30022 of 3 June 1980 —- standards for mail order advertising; . A90298 of 9 October 1980 - voluntary code of advertising alcoholic beverages; and . A30077 of 22 June 1982 ~ amendments to the rules governing accreditation of advertising agencies. wae 13. Also, applications (numbers Al1709 and A21265) for authorization of the FACTS Television Advertising Practices and Commercials Acceptance Procedures were granted by the Commission, although subject to conditions, in a determination dated 12 September 1984, FACTS decided not to accept the conditions and the Commission subsequently revoked the authorization. 4. THE APPLICATIONS OF THE MEDIA COUNCIL FOR AUTHORIZATION OF THE PRESENT CODES There were four applications for authorization to the Commission which, following authorization by the Commission, are therefore the subject of this review. They are as follows: . A30106 dated 9 August 1984 - the Advertising Code of Ethics, the Cigarette Advertising Code, 'the Slimming Advertising Code, the Domestic Insecticide Advertising Code; . A30110 dated 8 November 1984 - the Alcoholic Beverages Advertising Code; . A30111 dated 8 November 1984 - the Therapeutic Advertising Code; and . A90429 dated 6 May 1985 - the six Codes in so far as they contain provisions that may be exclusionary. In May 1985 application A30111 was amended before the Commission to incorporate a proposal of the Commonwealth Department of Health. The first three applications were made under sub-s. 88(1) of the Act for an authorization under that sub-section to make a contract Or arrangement, or arrive at an understanding, a provision of which would have the purpose, or would have or might have the effect of 14, substantially lessening competition within the meaning of s. 45 of the Act. The fourth application was made under sub-s. 88({1) in relation to the whole of the Codes for an authorization under that sub~section to make a contract or arrangement, or arrive at an understanding, where a provision of the proposed contract, arrangement or understanding would be, or might be, an exclusionary provision within the meaning of s. 45 of the Act. In each case the application states that, subject to authorization, "the Media Council of Australia intends to adopt the Codes as standards to which the Rules Governing the Accreditation of Advertising Agencies will apply". All six Codes arose out of a major review by the Media Council of its earlier Codes which had been in force for at least five or six years. We noted earlier that a seventh Code, relating to mail order, is in the process of being reviewed by the Media Council and is not, therefore, part of the conduct being reviewed in this determination, In February 1986 the Tribunal was informed that the Media Council proposed to amend certain of the Codes, the subject of the applications, to reflect legislative requirements and to incorporate changes requested by the Office of Road Safety, Canberra, the Commonwealth Department of Health and the ASC. The Tribunal has noted the amendments and is of the view that, if it is disposed to grant authorization to the Codes, the subject of the formal applications, the amendments would raise no additional questions. Po peepee ee Stee eee oe 15. The process by which the "old" Media Council Codes have come to be authorized has been one of marginal accretion and substitution. The present set of applications represents an important new phase in this process. The Tribunal is called upon to examine not only some new Codes but virtually a complete set of new Codes arising out of the Media Council's own major review. 5. RELEVANT LAW - SCOPE OF THE APPLICATION AND STATUTORY TEST The content of this Section has been determined by the President of the Tribunal as the Act entrusts to him decisions on questions of law arising in a review. This is the first occasion on which the Tribunal has examined extensively and comprehensively the proposed new Codes and the working of the Codes as already authorized. This review is concerned not with an examination of each of the five Product Codes and the Advertising Code of Ethics merely as documents. The Codes must be considered by us in the context of the self regulatory system of advertising in Australia as a whole, in the light of past experience, with a view to determining how the new Codes are likely to work in practice in the future. The operation of the old Codes which are to some extent the subject of prior authorizations is a permissible and useful guide to the likely operation of the revised Codes. The applicant for review, the ACA, has no onus cast upon it to show that the Commission was wrong in granting the authorization. The Tribunal must itself be satisfied of all matters, after examining the relevant material, by applying the tests propounded in sub-s. more ee eee = te nee or oy wore eccee + -¢ peleniemnernts enimaaenniinennee 16. 90(6): see Re Queensland Co-Operative Milling Association Ltd., Defiance Holdings Ltd. ("the 0.C.M.A. Case") (1976) 25 F.L.R. 169; (1976] A.T.P.R. 40-012 at p. 17,226 and Re Tooheys Ltd., Tooth & Co. Ltd (1979) 39 F.L.R. 1; (1979) A.T.P.R. 40-113 at p. 18,186. The Tribunal shall not make a determination affirming, setting aside or varying the Commission's determination unless it is satisfied in all the circumstances that the provision of the proposed conduct would result, or be likely to result, in a benefit to the public and that, that benefit would outweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the proposed conduct were engaged in. One of the applications for authorization was treated by the parties and by us as being in respect of an arrangement that falls in or may fall in an exclusionary provision within the meaning of that expression in s. 4D of the Act. The test is the same whether or not the provisions of the arrangements are governed by sub-s. 90(6) or constitute "exclusionary provisions" because the language of the relevant sub-section in that event, namely, sub-s. 90(8), is in all material respects the same. Hence, for alli practical purposes one applies the public benefit and detriment test already outlined. We note that this was also the Tribunal's view in the 1978 determination: see The Media Council Case (supra) at pp. 17605-6. In support of the proposition that a similar process of balancing benefits and detriments is appropriate under both sub-ss. 90(6) and 90(8): see The Locksmith's Case (1980) A.T.P.R. 40-176 at p. 42,431; also In re Rural Traders Co-Operative (W.A.) Ltd. ("The Rural Traders Case") (1979) 37 F.L.R. 244; (1979) A.T.P.R. 40-110 at p. 18,123. 7 ae oa ot te ey ree eee 17. When applying the statutory test of balancing public benefit against public detriment we must determine, so far as is reasonably practicable, what would be likely to happen in practice in the absence of this Tribunal's authorization of the 1986 Codes such that the 1986 Codes would not be operative. Market Forces would be at work, involving questions such as the likelihood of advertisers, advertising agents and the media imposing their own codes, controls or standards of conduct without the restraints imposed by the 1986 Codes. Although the Codes and conduct previously authorized by the Tribunal and the Commission (excluding the 1986 Codes) would probably technically remain authorized and the conduct countenanced by them would also probably retain the protection of the authorization, we do not accept that the previously authorized Codes and Standards would continue to remain under the protective umbrella of the previous authorizations other than for a short period of time. If this Tribunal were to conclude that the application of the statutory test formulated in sub-ss. 90(6) and (8) led us to refuse authorization of the 1986 Codes then the very fact that certain of their content has already been the subject of authorization which would remain technically in force must then, in our view, lead the Commission to exercise its powers pursuant to sub~s. 91(4) and make a determination revoking the relevant authorizations at least to the extent that their continuance would be inconsistent with the findings of this Tribunal in relation to the 1986 Codes. Also, it is difficult to see what, if any, practical value the existing authorizations of the old Codes and Standards would be to the Media a re ene et ee ne eee sree hyo nes nor re i8. Council and its constituent and affiliated bodies in the event that this Tribunal declined authorization in view of the dependence of the operation of the Accreditation System (approved in 1978) upon the legal status of the Advertising Standards and Code of Ethics of the Media Council from time to time (see Accreditation Rule 31 as mentioned earlier). The subsistence of the present authorizations, both of the "old Codes" and of the Code content of the Accreditation Agreement (Rule 31), would in our opinion be merely a temporary technicality which the Commission would be bound to set to rest as soon as possible after this Tribunal were to refuse authorization. Any other conclusion would result in a nonsense, set at nought the powers of this Tribunal as the statutory body charged with the duty of reviewing authorizations granted by the Commission and be disruptive of the efficient working of the Act. In our opinion, conduct that answers the statutory description of anti-competitive lessening of competition does not necessarily constitute anti-competitive detriment for the purposes of s. 90. It is erroneous to equate anti-competitiveness with detriment. Anti-competitive behaviour may in certain circumstances be a positive benefit. It is important to note that the authorization granted by the Commission, the subject of this review, is not directly concerned with the rules, codes or procedures of the constituent or affiliated organizations of the Media Council; including bodies such as FACTS, FARB and the APB. Nor are the arrangements between the Media Council 19. and the other foundation bodies, the AFA and the AANA, in relation to the ASC the subject of this review. Nor is this review directly concerned with the charter or the procedures of the ASC itself. Hence, the grant of any authorization in this matter would not operate as a grant of authorization in respect of any of the rules, codes or procedures under which the constituent or affiliated organizations of the Media Council operate. However, in applying the statutory tests to the six Codes with which this application is concerned, bearing in mind that they are involved here as standards to which the Accreditation Rules apply, we must have regard to the practical operation of those Codes as we perceive it is likely to be. This must be viewed in the context of the operation of the self regulatory system as a whole. The Commission had before it the various applications for authorization mentioned earlier in respect of the 1986 Codes. It seems that the Commission exercised the power conferred by sub-s. 90(13) of the Act, namely, that as the applications were made by the same body and involved the same or substantially similar issues, the Commission could treat the applications as if they constituted a single application and, therefore, prepare one draft determination in relation to the applications. It is the determination of the Commission in relation to the applications for authorization that is the subject of the review before us pursuant to sub~s. 101(1) and that determination adopted a composite or global view in respect of the applications. The Codes do not exist independently of their respective rules; each Code is but the sum of the rules of which it consists. ee mene 20. There is also a real degree of overlap between certain of the rules in one Code with rules in another Code. Each Code must be examined, both in content and prospective operation, in its own right and as part of the set of related Codes; related because they overlap or interact with each other and are administered by various bodies which are common to more than one. It is important to note that the task of examining each of the six Codes requires an examination of each of its components, namely, its rules. Also, it is necessary to keep in mind that the Codes are part of a larger scheme and, therefore, to consider the operation of the Codes and the scheme as a whole as well as independently of each constituent element. The Tribunal must engage in a rehearing in the fullest sense and it must reach its own conclusions on the evidence. The reasoning process of the Commission is not itself the subject of this inquiry: The Q.C.M.A. Case (supra) at pp. 17,226-7; The Media Council Case (supra) at p. 17,601; Re Tooheys Ltd., Tooth & Co. Limited (supra) at p- 18,183; The Rural Traders Case (supra) at pp. 18,122-3 and The Locksmith's Case (supra) at p. 42,430. The comparison is between the future with the relevant conduct and the future without the relevant conduct: Re Tooheys Ltd., Tooth & Co. Ltd. (supra) at pp. 18,186-7. It is doubtful if past benefits may be relied on in support of the present applications for authorization (see A.C. Hatrick Chemicals Pty. Ltd. (No. 2), (1978) A.T.P.R. 40-057 at p. 17,590 and Re Tooheys Ltd., Tooth & Co. Ltd. (supra) at p. 18,186) except to the extent that the past may be indicative of the future. 21. The application of sub-ss. 90(6) and 90(8) must involve a number of comparisons. In identifying the relevant public benefit the Tribunal must compare the position which would apply in the future were the proposed arrangement not entered into, or given effect to, with the position in the future which would arise if the arrangement were entered into or given effect to. The Tribunal must consider all the circumstances that relate to public benefit including how the proposed arrangement is likely to operate in practice so as to give rise to public benefit. The Tribunal is not confined to some narrow or rigid examination of the documents constituting the Codes. Our function is to examine the practical operation or working out of the subject matter of the application for authorization. 6. THE CASES OF THE MEDIA COUNCIL AND THE ACA 6.1 The Media Council's case The Media Council's case before the Tribunal rested on five main propositions: 1. The Codes "encourage honesty, fairness, responsibility, decency and accuracy in advertising". While the Codes overlap the general law, they "embody higher standards and cover different fields". The Codes seek to reflect "responsible community standards". In effect it was claimed that the beneficial character of the standards embodied in the Codes is patently obvious; it is the control of "misleading and deceptive, harmful and offensive" advertising. Sayre eee ee gue ee eee woe wooo ON mers - > wopecree 22. There are pronounced operational and enforcement efficiencies by comparison with the legal system or vetting by individual media operators. First, the Codes are generally accepted and applied by individual advertisers and advertising agencies. The Codes have the consent of the governed and, in any event, there is the force of peer group pressure. Second, the system has vetting procedures collectively and expertly administered by bodies within the industry which are speedy, economical, preventative, flexible and conducive to uniformity. Third, in so far as doubtful advertisements may be published, the system responds to complaints through the ASC and offers the prospect of speedy withdrawal of offending advertising and the imposition of penalties additional to those that would be enforced by the Courts. Greater reliance upon government controls would not only be characterized by operating inefficiencies but would be politically and constitutionally difficult to achieve. Self regulation, with only limited participation of "outsiders", is appropriate not only for efficiency but also because the Code system furthers the legitimate interests and aspirations of the advertising industry; the Codes seek to substitute the "collective industry wisdom" for the short-sighted and foolish decisions -'the lapses of judgement and experience - of a minority of the industry. "There are no anti-competitive detriments." As a matter of principle, an anti-competitive effect may be a public benefit 23. rather than a detriment. In this case, the Codes incorporate standards and procedures which are entirely beneficial. Moreover, competition, when properly understood, does not include all the behaviour by which one competitor may seek to advance himself over his rivals. A competitor who murders, maims or imprisons his rival is not engaging in competition. Nor is one who lies or uses harmful advertising. 6.2 The ACA's case In its submissions and in examination of witnesses, the ACA explored numerous strands of complaint about the Media Council's Codes and the workings of the associated structure. Certain assertions and arguments were not proceeded with to the conclusion of the hearings. In the end, the substance of the argument put to the Tribunal by the ACA can be summarized in the following general propositions: l. The Codes and the procedures for their implementation have a clear anti-competitive effect. That this constitutes a detriment is demonstrated by numerous examples in which the outcomes of the operation of the self regulation system are plainly contrary to the public good. 2. The benefits resulting from application of the Codes, as accepted by the Tribunal in 1978, were benefits of a potential nature only which remain substantially unrealized in practice. yt tee TP DT win geen tree toe ree me ace ate 4 Te areal — vet a 24. Procedures for the review and revision of the Codes, so as to reflect changing attitudes in significant sections of the community, have not kept pace with needs arising from the emergence of new issues, such as sex stereotyping and other forms of discrimination in advertising, the appeal of cigarette advertising to adolescents and the control of advocacy advertising. Interpretation of the Codes in practice by the ASC has been neither consistent nor responsive to emerging public concerns and does not invite confidence. A self regulation system potentially can exhibit benefit exceeding anti-competitive detriment; but changes to the Media Council's system are needed to make the system less inward looking, less self serving and sufficiently responsive to public interest concerns about the secondary impacts of advertising. In particular, the balance of ASC membership and the absence of adequate participation from consumer interest groups in the workings of the Media Council's system reduces effectiveness and equity. These deficiencies should be remedied. 6.3 The clash of values There were fundamental differences between the case presented by the Media Council and the advertising industry on the one hand and pee x—- + aan Sr reg meng ete er ee - 25. the case presented by the ACA on the other. There was a pervading disagreement as to the benefits and risks to the community resulting from advertising. The Media Council stressed the role of advertising as an essential and commercially proper device for informing consumers about available products. The ACA stressed adverse secondary impacts that were seen to warrant greater control at the expense of market freedom. The participants found little common ground as to what represents suitable standards for advertising in practice and as to the purposes and underlying values appropriate for a system for the self regulation of advertising. The Tribunal considers these questions in some depth in later sections of this determination (in particular Section 13.3). 7. THE CODES AND THE SELF-REGULATION SYSTEM 7.1 General The advertising industry's self regulation system of Codes and procedures to apply them is a self-imposed discipline with the object of prescribing and monitoring standards of advertising which are said to be in the public interest. The stated objective of the self regulation system is that it is a series of advertising Codes developed by common consent within the advertising industry to accord with community expectations and standards which are administered through a complex network of institutions and procedures. Bach element in the system is designed to perform a distinctive function so that due standards are maintained consistently with the efficient day to day operation of advertising work. Breaches of the Codes expose the offender to penalty. 26. The parties which have adhered to the system since its inception and co-operated in the establishment and implementation of its procedures are, the Media Council and its constituent and affiliated organizations from the media sector, the AFA on behalf of the advertising agents, and the AANA which represents major companies advertising their products through the media. The proposed conduct, with the revised Codes, would employ the present system of administering authorized Codes. It is not possible to assess the effect of the proposed new Codes without examining also the likely force of the procedures and practices by which they would be administered, enforced and interpreted in practice. Much evidence was presented in this regard and will be discussed in Section 11. 7.2 The wider regulatory context All advertisements displayed by conventional media are expected to comply with the Media Council's Codes. They must also comply with the requirements of Federal and State legislation, and (for the electronic media) with the standards and conditions imposed by the Australian Broadcasting Tribunal ("the ABT"). Federal and State Parliaments have enacted legislation to protect consumers from abuses perceived to arise from the power of advertising. The Act, pursuant to s. 52, prohibits corporations from engaging in misleading or deceptive conduct or conduct that is likely to mislead or deceive. It also prohibits false representations about aro Se ryt ee 8 eee cee meee eee ne oe ne - — 27. goods and services offered by suppliers (e.g. s.53). The Act covers many areas where consumers are vulnerable and where selling malpractices are common (e.g. bait advertising and false representation in relation to advertising of employment and the sale of land). The Broadcasting & Television Act 1942 empowers the ABT to determine standards for programs broadcast and to grant, renew, suspend, revoke and accept the surrender of licences to broadcast. That Act prohibits the broadcasting of advertisements of certain products, notably medicines (unless approved by the Secretary of the Department of Health) and cigarettes. It also imposes ultimate liability for offensive advertising on the licensees of radio and television stations. The ABT publishes program and advertising standards, both of which are reviewed from time to time by it in consultation with the public and the industry. The ABT's Advertising Standards charge licensees with responsibility for the form and content of advertisements they broadcast, and cover: - compliance with other laws; - the scheduling of advertising; . the identification of advertisements; - the identification of advertisers; and - local content requirements. Advertising a variety of medicines and therapeutic products is restricted by statute in the States; for example, in N.S.W. by the Poisons Act 1966 and the Therapeutic Goods and Cosmetics Act 1972. Numerous other Acts also include provisions that limit advertising in specific ways. 28. The capacity of advertisers to inform freely potential customers about available goods and services through the media can also be limited by the policies of particular media. The proprietor or management of any advertising medium has the right to refuse placement or request amendment of any advertisement that is considered unacceptable by that medium. The Media Council states that its self regulation system complements these other forms of control on advertising. This view is supported by evidence that statutory control is, on occasions, designed and conducted with regard to the parallel operation of the self regulation system. 7.3 The system of Codes The system of codes has changed significantly since the Tribunal's decision in 1978. As then authorized it comprised an Advertising Code of Ethics and three Product Codes dealing specifically with advertising of slimming preparations and the like, hair pieces and treatments, and domestic insecticides. Later authorizations by the Commission allowed the evolution of the Codes by the addition of Product Codes for therapeutic products, cigarettes and alcoholic beverages. Comprehensive review of the Codes by the Media Council since 1983 has led to significant redrafting to achieve the system of Codes that is the subject of the present proceedings, and which comprises: fot oe ee mee —eorwps ona ey pee oe wet Ir se 29. . the Advertising Code of Ethics; . the Therapeutic Advertising Code; . the Cigarette Advertising Code; . the Alcoholic Beverage Advertising Code; . the Slimming Advertising Code; and . the Domestic Insecticide Advertising Code. The Advertising Code of Ethics is a general code stipulating required standards for all media advertising. The other five Product Codes add requirements for the advertising of certain classes of product where the advertising industry has concluded that undesirable advertising might appear unless specific potential abuses and contentious practices are ruled out. As we said earlier, a seventh code, setting standards for mail order advertising, is in the process of review by the Media Council and is not the subject of an application for authorization at this stage. 7.4 System governance Policy decisions on the Codes, on system structure and on the composition of component bodies of the system, are made by the Media Council or are delegated to other bodies under its authority. The Media Council's activities are deeply concerned with advertising matters and its operating expenses are met by levies from members broadly in accordance with their advertising revenues. Membership includes numerous constituent and associated media organizations, with the result that proprietors of Australian print, radio, television and other media are well represented. 30. The AFA represents the vast majority of advertising agents in Australia. The AANA represents a large number of companies which advertise their products. Neither the AFA nor the AANA, representing other arms of the advertising industry, participate formally in the overall governance of the self regulation system. However, the AFA and the AANA, together with the Media Council, are members of the Australian Advertising Industry Council ("the AAIC") which provides a forum for consultation and a common platform. They also nominate members of certain bodies that perform' roles within the self regulation system, notably the ASC. The pattern of representation on the several bodies within the self regulation system, is perceived by the ACA and some others to bring into question the credibility of the system and its capacity to exercise sound judgement. This issue is discussed separately later. 7.5 Code review and revision The Codes and Standards Authority ("CASA") is a committee of the Media Council established in December 1982 to advise the Media Council in all matters relating to the Codes and Standards. Set up in the first instance to oversee a comprehensive review of the Media Council's Advertising Codes, it was retained as a standing body and meets monthly. It has seven members, all representing media organizations, with two observers nominated by the AFA. Advertisers are not represented directly on CASA. ve mweemrr ma as gre prensa % \ y aes ews Se meee 31. CASA is in turn advised in three sensitive product areas by sector advertising councils which have a wider representation of advertisers. These councils are the Therapeutic Advertising Council ("the TAC"), the Tobacco Products Advertising Council ("the TPAC") and the Alcoholic Beverages Advertising Council ("the ABAC"). The TAC is the oldest established council. It has nine members. Three of its members represent media interests, at least one of which must be a member of CASA. Of the others, one represents the AFA, one the AANA and four represent manufacturers" interests. The TAC is supported by a Working Party which also includes in its Membership a representative from the Federal Department of Health. The TPAC has seven members. Four members represent the print media. There is one member from each of the AFA, the AANA and the Tobacco Institute of Australia. The ABAC has eight members, four of whom represent media interests (one of whom must be a member of CASA), three represent advertisers of beer, wine and spirits and one member is from the AFA. Evidence indicated that the Media Council is contemplating corresponding public health representation on Working Parties in support of the TPAC and the ABAC. The revised Codes which are the subject of this proceeding are derived from a systematic review of Codes conducted in 1983 under CASA. Submissions were invited from the public. Many submissions were received, processed and considered according to defined procedures, which are now adopted by the Media Council as procedures for regular review. , us pete ~? pee eee ge ee ere, 32. The Media Council states that Codes are not drafted, or intended to be read, as statutes. Rather, they are drafted in lay language to assist practical advertising industry people in their duty to prepare and publish advertisements that conform with advertising ethics and with current legislation. 7.6 Clearance procedures Bach arm of the media maintains an organization which scrutinizes and approves certain advertisements prior to publication, display or broadcasting. The following organizations presently exist: 1. The Commercials Approvals Office of FARB checks' radio advertisements for products covered by the Media Council's Advertising Codes (whether they are to be recorded or broadcast live); 2. Through its Commercials Acceptance Division, FACTS checks and approves all advertisements covered by all the Media Council's Codes. This procedure is, in practice, conducted within the voluntary commercial clearance system operated by FACTS on behalf of all its member stations. One result is that all television commercials are checked for compliance with the ABT's standards; 3. Print media advertisements for products covered by the Media Council's Product Codes are checked and approved by the APB; sae were ce ee ae wt 2 ree eee 33. 4. All outdoor advertising for products subject to the Media Council's Product Codes is examined for approval prior to display by the OAAA; and 5. Cinema advertising, whether as slides or film, is subject to prior clearance by the ACAC. Each media organization that operates a clearance body faces the dilemma of avoiding procedural delay to the publication or broadcasting of advertisements (the overwhelming proportion of which satisfy the Codes) while efficiently checking for compliance. Except for television, where all commercials are checked voluntarily for reasons related to the ABT's licensing obligations, the clearance bodies confine obligatory clearance to advertisements for products subject to the tighter constraints of the Media Council's Product Codes. Clearance is determined by experienced permanent staff at a stage in the development of the final advertisement that allows inexpensive modification if a breach of a Code is found. In the normal course clearance processes are rapid, taking only hours to complete. Each formally cleared advertisement is given an identifying number so that the relevant medium can readily determine whether the advertisement has been cleared. The high volume and rapid throughput of the clearance bodies requires a somewhat mechanical approach to the interpretation of the Codes in assessing each advertisement. Heavy reliance, in this regard, is place on precedent. The clearance bodies (except in respect of television advertisements) also provide advice on request wbeaege ce eee 34, as to the implications of the Advertising Code of Ethics with respect to specifically planned advertisements. Failure to obtain clearance for an advertisement from the appropriate clearance body constitutes a breach of the Code and exposes the advertising agency concerned to penalty under the system. Failure to obtain clearance for an advertisement will also result in refusal of the relevant media operators to publish or broadcast the advertisement. The requirement for prior clearance of advertisements for television or for certain product classes, therefore also, has force against unaccredited agencies and direct advertisers. 7.7 Advertising tribunals There are two bodies within the Media Council's system of advertising self regulation which are constituted to adjudicate on complaints against specific advertisements. The Joint Committee on Disparaging Copy ("the JCDC") handles complaints within the advertising industry relating to Rule 2.16 of the Advertising Code of Ethics which prohibits unfair or misleading disparagement of identifiable products, services or competitors. The JCDC determines whether an advertisement has wrongly disparaged the relevant goods, services or competitors and, as a result, is in breach of the Code. The JCDC has six members, four representing media interests, one member from the AFA and one from the AANA, The Chairman, who is one of the four representatives of Media interests, is appointed by CASA. 35. The Advertising Standards Council ("the ASC") is funded by the Media Council, the AFA and the AANA. It has the central function of receiving public complaints about specific advertisements and then determining whether such advertisements are in breach of the Advertising Codes. The ASC, by its rulings, interprets the Codes in practice so that its rulings serve as references and precedent for clearance bodies and for members of the advertising industry generally. The ASC consists of an independent Chairman (who is, as was his precedessor, a retired Judge) with twelve other members; seven of whom are public members unconnected with the advertising industry and five of whom are representatives of the advertising industry. Members of the public may complain about an advertisement in any one or more of three ways: by writing to the medium in which the advertisement appeared; by writing to the clearance body for the relevant arm of the media; or by writing direct to the ASC. Procedures for lodging complaints have from time to time been advertised to the public by the Media Council. The ASC is the final appellate body for public complaints. When the ASC receives a complaint, directly or referred from the media, its Secretariat seeks comment, where applicable, from the appropriate clearance body, the advertiser, the advertising agency and the medium concerned. Proceedings of the ASC in dealing with complaints are not public, although its rulings are published. The ASC gives advice to the Media Council and its committees in relation to the Codes. Its Chairman also acts as an appeals tribunal under the provision of the Rules Governing the Accreditation of Advertising Agencies. ee ey egy see weet pe wee ee reece one sree wee roe 36. 7.8 Penalties and appeals As the administration of the Advertising Codes is conducted under the Media Council's rules, which also provide for the accreditation of advertising agencies (such conduct was authorized by the Tribunal in 1978), the Media Council self regulation system is able directly to exercise sanctions on advertising agencies where breaches of the Codes or of required Media Council procedures occur. The AMAA is a committee of the Media Council empowered to accredit advertising agencies. It has 13(12) members, 11(10) of which represent media interests and two represent accredited agencies. The AMAA performs other functions, one of which deals with breaches of the Codes. Breaches of the Codes are reported to it for determination of penalties against the advertising agency concerned. Minor or technical breaches will be noted in the agency's file; significant breaches can lead to a reprimand and warning; serious breaches, and especially repeated breaches, incur monetary penalty. The ultimate sanction may be the loss of accreditation. The monetary penalties of which evidence was given were pitched to exceed the agency's commission on the relevant advertising. The Media Council's system is less able to impose formal sanctions on an advertiser responsible for a breach of the Codes. Once a breach is determined in the prior clearance process, or by determination of the ASC, the media will not publish or broadcast it. Where an advertisement is subject to clearance the sanction is complete and modified advertising must be prepared. In other cases, tere ete ro a 37. the sanction is confined to advertisements that are intended for repeated publication or broadcast. As a result additional costs are incurred and a planned marketing campaign can be disrupted. Where an advertisement has been refused clearance an advertiser has access to appeal procedures. For the print media, an appeal is heard by the Review Panel of the APB with a further right of appeal to the Chairman of the ASC. The APB Review Panel is constituted by three senior executives of member organizations of the Bureau. An appeal lodged against a decision of the Commercials Acceptance Division ("the CAD") of FACTS is heard by the Commercials Clearance Appeals Committee("the CCAC") of that body which consists of the Chairman of FACTS, the Chairman of the FACTS Television Codes Board (which oversees the CAD), and a nominee of the AFA. An appeal against refusal of clearance by FARB is heard by the Codes Committee of FARB, which consists of four radio station executives. There is no further right of appeal against decisions by the FACTS and FARB appeal bodies. 7.9 Table of representation on the Media Council's system bodies As noted earlier, the credibility and capacity for sound judgment of the Media Council's self regulation system was questioned in evidence and argument, inter alia, on grounds that the membership of the various bodies within the system is not appropriate. The following tabulation exhibits the pattern of representation of interested parties on the relevant bodies: 38. Members Representing: No: Media AFA AANA Public Other POLICY AND ENFORCEMENT Media Council Executive 7 7 AMAA 12 10 2 CODES CASA 7 7 * 2 TAC 9 3 l 1 4 Working Party 7 3 1 1 2 ABAC 8 , 4 1 3 TPAC 7 4 1 1 1 TRIBUNALS JCDC 6 4 lL 1 ASC 13 3 1 1 8 * 1 APPEALS APB Review Panel 3 3 FACTS CCAC 3 2 1 FARB Codes C'tee 4 4 Notes: * Present at meetings as observers; media observer at ASC meetings represents CASA. Media representatives on TAC, ABAC, TPAC, JCDC include one person representing CASA. Other representation: Manufacturers: TAC(4), TAC Working Party (1), ABAC(3), TPAC(2), Department of Health. "a Qo yr os agers + areaaned " ~ ve 39. 8. THE CODES 8.1 Broad structure of the Codes The Codes proposed for authorization exhibit considerable variety in their form and content. Particular Codes and elements of them differ in their scope, purpose, generality of expression, standing in relation to current law and regulation and precision of application. The six Codes fall into two classes. The Advertising Code of Ethics is a general statement setting out requirements to be satisfied by all advertisements. The Tribunal is also asked to authorize five Product Codes; each of which particularizes and amplifies the general requirements of the Advertising Code of Ethics when applied to a class of products: cigarettes; alcoholic beverages; therapeutic products; slimming preparations; appliances and treatments; and domestic insecticides. The Media Council perceives that separate Codes are necessary for particular classes of products because of peculiarities of the products themselves or the requirements of the law with respect to them, all of which bear upon the advertising of those products. For example, cigarettes may not be legally sold to minors (variously defined in different States) and are subject to public health concerns about promotional methods which encourage consumption. The sale of alcoholic beverages to the young is also restricted. ot ape 40, Each Code consists of: 1. A Preamble which states the object or intent of the Code and statements of principle bearing on its application; 2. Code Rules which stipulate requirements of form, content and presentation to be satisfied by all relevant advertisements; and 3. Supplementary information helpful to the application and enforcement of the Code which includes procedures for the handling of complaints against specific advertisements. 8.2 Relationship to the law Many rules of the Codes proposed for authorization directly reflect existing requirements of the law. For example: . "Advertisements must be truthful and shall not be misleading or deceptive" - Advertising Code of Ethics, Rule 2.5; and : "All television commercials shall comply with: (a) Australian Broadcasting Tribunal Television Program and Advertising Standards" - Advertising Code of Ethics, Rule 2.18.a. The wording of such rules is not a precise statement of the relevant law and no provision is made for differences in the law between States. Other Code rules that do not reflect laws are claimed to reflect professional ethics and community requirements. For example: proccess BR net ee ee a ee 41. avoiding grave offence: "An advertisement shall not contain anything which in the light of generally prevailing community standards is likely to cause grave offence to the community or a significant section of the community" - Advertising Code of Ethics, Rule 2.4; avoiding undesirable advertising impacts on vulnerable groups: "No advertising for cigarettes may include persons who have major appeal for children or adolescents under 18 years of age" - Cigarette Advertising Code, Rule 2.4; and preventing advertising abuses which encourage consumption of certain products in ways or in quantities beyond those thought to be accepted by the general public: "The content of cigarette advertisements shall be directed only to adult smokers and only intended to effect or deter a change of brand" - Cigarette Advertising Code, Rule 2.1 "Advertisements for alcoholic beverages shall not show people consuming alcoholic beverages shortly before or whilst driving motor vehicles, swimming, operating boats or shortly before or whilst engaging in any activities or work where such drinking is potentially dangerous" - Alcoholic Beverages Advertising Code, Rule 2.7. Some broad patterns are apparent from the evidence which enable the Code rules to be classified according to the existence of corresponding laws: l. the Advertising Code of Ethics reflects laws, regulations and rules that are justified on other grounds; the Cigarette Advertising Code is predominantly a set of rules not founded upon applicable laws. As advertising of cigarettes is prohibited in the electronic media, this Code Bo ee a enor eer 42. applies only to print media, and cinema and outdoor advertising; 3. the Alcoholic Beverages Advertising Code is also predominantly a set of rules that is not founded upon applicable laws; and 4, the Therapeutic Advertising Code closely reflects laws which restrict the advertising of medicines and therapeutic treatments; but its rules go further and restrict, in like manner, advertising of all therapeutic claims whether requirements of the law to that effect are present or not. 8.3 Precision and generality in drafting The rules in the Codes vary considerably in their precision of expression. These variations mean that in particular instances, where it is claimed that an advertisement breaches a provision of the Codes, there may be some difficulty in interpreting the relevant rules, adjudging breach and determining a sanction. Plainly, rules expressed in precise language may be more easily interpreted than those expressed in more general terms. On the other hand, it was argued before us that a rule in general~terms lends itself to more flexible interpretation in the light of experience and changing community attitudes. Some Code rules are so broadly expressed as to be little more than a statement of the draftsman's perception of desirable social objectives. For example: 43. "Advertisements for any product which is primarily meant to be used by and/or purchased by children shall not contain anything which would result in their physical, mental or moral harm..." =- Advertising Code of Ethics, Rule 2.13 (in part); . "In essence, advertisements for cigarettes shall not encourage people, particularly the young, to start smoking or encourage existing smokers to increase their consumption." - Cigarette Advertising Code, Rule 1.1; . "Advertisements should not use copy or illustrations which indicate that sexual success is due to smoking. Advertisements may depict success or distinction but shall not claim that cigarette smoking contributes significantly to the attainment of social or business success or distinction." - Cigarette Advertising Code, Rule 2.7; and . "Advertisements for alcoholic beverages shall be directed only at increasing brand or beverage share of existing markets, rather than promoting any increased consumption of alcoholic beverages." - Alcoholic Beverages Advertising Code, Rule 2.3. Other rules, while still expressed in general terms, are more specific in identifying consequences to be achieved or avoided. For example: . "All advertisements for cigarettes must carry the health warning in printing or writing of such a size and prominence that it may be read or understood with ease." - Cigarette Advertising Code, Rule 2.5; and . "Advertisements for alcoholic beverages shall not depict or encourage consumption at a frequency or in a quantity likely to lead to over indulgence." - Alcoholic Beverages Advertising Code, Rule 2-10. Many rules are expressed with such precision that compliance or breach in specific cases must be self-evident. The Therapeutic Advertising Code has numerous rules precluding unverifiable advertising claims or claims of efficacy for particular medical conditions. Other Codes also include rules expressly prohibiting defined advertising claims. For example: +e ween 44, . "No advertisement may claim health properties from any cigarettes..." - Cigarette Advertising Code, Rule 2.11 (in part); . "Advertisements shall not claim that vitamin, mineral or herbal therapy in themselves contribute to weight loss." - Slimming Advertising Code, Rule 2.6; and ' "An advertisement relating to vitamin therapy ... shall ...: «.- contain no claims or dramatisation of benefits for irritability, sexual activity, nervousness or that vitamins will stimulate appetite or growth or provide nutritional insurance;" - Therapeutic Advertising Code, Rule 2.6.1.3 Some rules prohibit advertisements which show defined conduct or which include defined classes of people. For example: ' "No advertisement shall show a child using any insecticide product." ~ Domestic Insecticide Advertising Code, Rule 2.3; and . "Except in crowd or other scenes, where background is not under the control of the advertiser, no persons shall be employed in cigarette advertisements who are under 25 years of age and will not be represented to appear to be below this age." - Cigarette Advertising Code, Rule 2.2 These examples illustrate the diversity of form evident in the Codes before the Tribunal and the range of differences in precision of expression. In considering the workings of the Codes in practice and the resulting benefits and anti-competitive detriments the Tribunal is obliged to consider the implications for effective interpretation and enforcement of the Codes arising from this diversity. . 45. 8.4 Procedural provisions Certain administrative procedures of the self regulation system are seen to be so central to its orderly working and enforcement that compliance with these procedures is enforced as Code rules are enforced; by treating non-compliance as a breach of the Codes. For products subject to one of the Product Codes, and for which clearance by the appropriate clearance body is required prior to publication or broadcasting, failure to gain approval in due form, and for print advertisements to incorporate the Code approval number in the advertisement, exposes the offender to sanction. The statements of administrative and complaint procedure which form part of each Code include provisions to this effect. 8.5 The international context Material before the Tribunal included published reports and commentaries on procedures adopted for the regulation of advertising in other countries. It is apparent that there is some form of self regulation by the advertising industry in many market economies; including the major countries of Europe and North America. It is apparent also that these countries have from time to time modified these regulatory arrangements, at times with increasing sophistication, in the light of experience and changing perceptions of . the needs to be served. 46. 8.5.1. Self regulation in other countries United Kingdom procedures were stated in evidence to be the model for the Australian system. Codes of advertising practice are developed, publicized and from time to time reviewed and revised. The Codes are administered by an industry body called the Codes of Advertising Practice Committee ("the CAPC"). Unlike Australia, where the governing industry committee, the Media Council, is entirely controlled by the media, the CAPC is a mixed industry body which includes advertisers and advertising agencies. This Committee also handles complaints about advertisements from competitors. The Advertising Standards Authority ("the ASA") funded by a levy on advertising revenues, has a role closely analogous to that of the ASC in Australia as it is primarily concerned with the assessment of complaints from consumers. It consists of a minority of "advertising" members and a majority of "public interest" members appointed by the independent Chairman with regard to due "balance" of the Authority and to their capacity to contribute credibly and to work compatibly with other members. Members are appointed for overlapping three year terms. Neither government nor consumer organizations are formally represented in the CAPC or the ASA. Laws and regulations also constrain advertising in the United Kingdom, as in Australia. The Trade Descriptions Act 1968 prohibits misleading advertising. Advertising standards for television and radio in the United Kingdom are regulated by the Independent Television Authority. ret nr en or ene 47. Published commentaries state that the United Kingdom system works well; it is noted that the selection of suitable "public interest" members of the ASA is crucial to the performance of the system. Although in late 1986, a European Community directive came into effect under which the United Kingdom Government is required to provide a supplementary legal process to remedy misleading advertising beyond the procedures of the self regulation system. European self regulation systems exhibit predictable variety. The most notable differences for present purposes concern the participation of persons outside the advertising industry in the development of standards and in the adjudication of complaints. Such participation has become the rule although involvement in procedures is either advisory or substantive; while consumer interests are represented only in some instances. Canada applies a self regulation system with certain similarities to Australia. It is notable that, because of distances and language differences, complaints can be adjudicated regionally. The Canadian system has included consumer representatives in units to develop advertising codes for advertising to children, feminine hygiene products and sex stereotypes in advertising. The United States of America has a very' limited self regulation system which reflects both the free speech requirements of the First Amendment of the Constitution and the Federal anti-trust laws. 'Under the anti-trust laws, private regulation of advertising, through industry or co-operative advertising codes and standards, may constitute an illegal restraint ae Sa 48, of trade. On the other hand, public regulation is explicitly sanctioned under the Federal Trade Commission Act 1914 under which the Federal Trade Commission ("the FTC") is authorized to challenge "unfair or deceptive acts or practices" as part of its consumer protection mandate. The FTC's jurisdiction over "truth in advertising" is shared with other specialized Federal agencies and with State Government agencies which enforce legislation that parallels and supplements the federal act. Private law suits under the state acts are a significant ingredient of the American scheme. The National Advertising Review Board ("the NARB") rules upon complaints regarding truth and accuracy referred to it by the public or the business sector; but it has no power to enforce its determinations, nor does it administer its own codes. Advertisers and advertising agencies dominate membership of the NARB. Ten of its forty members represent the public and other interests. Comprehensive information on the NARB codes and on law and regulation governing advertising is issued by the Council of Better Business Bureaux for the information of advertisers. The WNARB's determinations are respected and commonly adopted voluntarily but where this is not the case, government enforcement agencies are informed. 8.5.2 Remarks In our opinion an advertising industry's self regulation system, pitched so as to complement the laws of this country, can in principle be effective and well accepted. a soe cree .ory - ae wre s "+ ote yee es me wee 49, The international material alerts us to some unusual or distinctive features (albeit not necessarily unique) of the Australian scheme: the wide ambit of the Codes and their application to virtually all media advertising, including that of non-associated independent advertisers; the development and implementation of the Code system by the media rather than by some tri-partite industry body; and the limited involvement of the general public. We shall comment in more detail on these features in subsequent sections. We noted that self regulation systems in other countries, as in Australia, have evolved significantly in form and detail to meet new requirements and expectations and cannot sensibly be examined as if they are constant in their substance and effect. We note also indications that overseas systems have faced common problems in resolving certain issues including the issue of responding suitably to new fields of public concern about advertising and the issue of devising the best procedures to gain continuing access to outside advice in such matters. 9. THE ADVERTISING INDUSTRY AND THE MARKET FOR ADVERTISING MESSAGES 9.1 Advertising and its role in society "Advertising" can be defined variously. For our purposes it refers to sales promotion messages that are conveyed by the media and consumed independently of the purchase of the products being promoted. Broadly these are the sales promotion messages which are subject to the Codes. RO pre tenn per eres cone 50. The realm of the Codes largely corresponds to "national advertising in main media"; that is, advertising in newspapers and magazines, radio and television, outdoor and cinema advertising but excluding retail advertising, amusement advertising, classified, semi-display and local advertising. Some retail advertising and some minor miscellaneous categories are also subject to the Codes. Figures quoted to the Tribunal point to expenditure upon advertising in the main media subject to the Codes ("national™ and relevant retailing and miscellaneous) as being in excess of two thousand million dollars ($2,000,000,000) in 1985 for the cost of space and time only. Advertising agency costs, production costs, and miscellaneous expenditure upon research and other services would be additional. It is clear that the market for advertising messages subject to the Codes has a very large value. However, a statistical measure of this kind fails to convey the importance of advertising in our society. Advertising is part of the environment of life. It is pervasive, plentiful and "free". It is part of the content of much that we read, see and hear every day. The Tribunal accepts the claim by the Media Council that the prime function of advertising 1s to motivate the profitable sale of advertised products by alerting and informing consumers as to the availability and characteristics of products and brands that may satisfy their needs. However, we accept also that advertising plays a larger role than this in our society. It is not just a means to an end, that is, for consumers a source of information regarding products and for producers an ingredient in their profitable supply. Advertising is an important form of consumption in itself. It is a > B Bote te er rg te > . 51. source of enjoyment and utility. It can also be a form of unwanted and compulsory consumption. Advertising reflects and reinforces certain of our aspirations for everyday living: pride of ownership, beauty, convenience, cleanliness and health. The Tribunal is aware of controversy as to the nature and extent of the impact that advertising has upon consumer tastes and attitudes. It is unnecessary for us to express a view about this controversy beyond saying that, at the least, advertising reinforces particular values and prejudices of some people; it gives more concrete expression to underlying yearnings; it may create a permissive or supportive environment for peer pressure, images of folk heroes and similar societal influences; it may accelerate or retard changes in tastes stemming from more fundamental forces. 9.2 The advertising industry and the identification of relevant markets Submissions to the Tribunal exhibited no common approach to the delineation of relevant markets, though much emphasis was placed upon whether the Codes operated to place restrictions upon the competitive conduct of advertisers, advertising agencies and media. We heard much about the possible impact of the 1986 Codes upon the markets for advertised products. Indeed, there was some tendency during the hearing to regard advertising, not as a product in its own right, but merely as an aid to the supply of advertised products (from the advertiser's viewpoint) or a component of media content (from the viewpoint of the media). 52. The task of market delineation in this proceeding is not straightforward. The advertising industry has a complex organization. The advertising "product" undoubtedly has some curious and unique features; but that would seem to make it all the more important to isolate its market for purposes of analysis. We obtain some assistance from two considerations. First, it is conventional in the analysis of market structure to take as the starting point the supply of products in close competition. Second, as we said in Re Tooheys Ltd., Tooth & Co. Ltd. (supra) at p. 18,196 "we seek to identify the area or areas of close competition of relevance for the applications". The product that is the central concern of this inquiry is advertising messages. The central issues are whether the Code system is likely to improve the quality of advertising messages and to give rise to procedural and enforcement efficiences. The advertising industry encompasses four sets of suppliers: the advertisers, the media, the advertising agencies and miscellaneous service groups (e.g. market research and production companies). The advertisers, the media and the advertising agents are the three principal arms of the advertising industry. Advertisers, media and agents must all work together if an advertisement is to be created and published, giving rise to relationships which are necessarily characterized by both co-operation and conflict. Necessarily also, these three groups have a vital interest in the functioning of the 1986 Codes. 53. Advertisers supply both advertised products and advertising messages to consumers. They purchase services from advertising agents and other service groups, and space and time from the media. Thus, the advertised products and advertising messages are in common supply from'the advertiser's point of view. But the advertiser's message Must be placed in the media - newspapers, magazines, television and radio stations. From the media's point of view the advertising messages are in joint supply (we use this expression in the economist's technical sense) with the other information and entertainment provided by the media. For most of the media the sale of space and time for advertising is the chief source of revenue. Advertising agents are engaged by advertisers to create advertising messages and to place those messages in the media through the purchase of space and time. Their relationship with media and advertiser is not straightforward. Although engaged by the advertiser and acting on his behalf, agencies in some respects act as brokers between advertisers and media, and their remuneration is derived from fees and commissions from both. Unlike either the media or the advertisers, advertising agents are totally reliant upon the practice of advertising for their remuneration. We distinguish four markets of relevance in this case: 1. the market for the supply of advertisements or, more accurately, for the supply of advertising messages; 2. the individual markets for the supply of advertised products; 3. the advertising agents' market; and 4, the market(s) for the supply of media products. mo re re ce ace eee caro ve rent goer se rege mag ye ce - eee eee 54. Our central concern is with advertising messages. Accordingly, we take as the main product market for our consideration the supply of advertising messages directed to the Australian consumer or, more precisely, the supply of what the industry terms "national advertising" together with relevant retail and miscellaneous advertising. It is helpful to distinguish two "functional levels" - the advertising embodied in media publications and programs as the supply of advertising messages "at retail", and the initial supply of unembodied messages to the media as the supply of advertising messages "at wholesale", The twin participation of advertisers and media in the supply of advertising messages is reflected in their liability for content under the law. The greater emphasis in these proceedings was upon the impact which the Codes had upon the supply of the unembodied message. But the Tribunal accepts that the impact of the message upon the consuming public may be very dependent upon its placement in the media. The functioning of the other three markets is considered where relevant elsewhere in this determination. 9.3 Features of the market for advertising messages As has been said by the Tribunal in a number of its determinations, the establishment of benefit will "commonly depend upon an appreciation of the competitive functioning of relevant 55. markets, with and without the conduct in respect of which authorization is sought": Re application _by Concrete Carriers' Association (Victoria) (1977) 31 F.L.R. 193; [1977] A.T.P.R. 40042 as cited in Re Tooheys Ltd., Tooth & Co. Ltd. (supra) at pp. 18,194-6. In this case the key issues revolve around the functioning of the market for advertising messages, with and without the 1986 Codes. In the absence of any collectively operated Code system, the quality of advertising messages would be determined by broadly competitive market forces subject to government intervention by way of laws (and subject perhaps to some limitations that might flow from various barriers to entry to the media industry (see Section 10.1 below)). It is instructive to consider what forces would likely be at work to promote desired and eliminate undesired advertising if the market were completely unregulated (whether by public or private controls). Are there deficiencies evident in the probable functioning of the market for advertising messages which a code system might hope to remedy? If it is the expected tendency of the market to give the consuming public the kind of advertising messages it would want or (after the event) would welcome, that is the end of the inquiry so far as claims regarding improved quality of advertising are concerned. The only potential source of benefit to the public would then derive from more efficient vetting and enforcement procedures than the government regulatory apparatus or individual media operators could achieve, Industry evidence stressed that advertisers and their agents direct their message to a target audience, build upon the target audience's perceptions of the world and are anxious not to offend or ~ ower vars a " Spentnsenetons dam enieneenemmnenmmmnenmamnrsiaiin ta at detieatenemmadieierentete tee 56. alienate their target audience. Further, while wishing to mount a successful and profitable campaign, their conduct would be subject to personal and professional ethics. The media, likewise, would not wish to offend their target audience with an advertisement that will reach a group which would often be wider than that targeted by the individual advertiser. For this reason the media operator (as against the advertiser) might be thought to be motivated by considerations more reflective of general community values. Yet the individual media operator would be unlikely to refuse an advertising message unnecesarily since, subject again to personal ethics, advertising is the method by which revenue is' earned. But against that consideration, for the media operator it would be the sheer quantity of advertising and the desire to obtain messages complementary to the non~advertised content of its programs that would be the dominant motivation, not the utility of an advertisement in promoting the establishment or competitive edge of a particular advertised product. Market forces thus may have an important and positive role to play in regulating the supply of advertising messages. Yet we are also aware that advertising is no ordinary commodity. In addition to its significance for everyday life, (as discussed in Section 10.1), it has unique features, so that the market for advertising messages functions differently from other markets and in ways that may give rise to some concerns. Most obvious is the non-personalized, "broadcast" character of the advertising message. It is what economists term a "public good", with one person's consumption of the "good" (or product) not detracting from its availability to others. Nor is there any charge 57. for the message at the point of consumption. While the advertiser expects recoupment from product sales, these sales are separated from the reception of advertising. A third related characteristic of advertising is that the consumer is exposed to advertising by its very publication or dissemination. The consumer cannot, as with ordinary commodities, be excluded from consumption by the imposition of a price, and is not called upon to decide whether the expected utility of a particular advertising message would justify purchase at a cost. Indeed, advertising is not only free; its consumption is quite literally subsidized through the contribution that advertising revenues make to recovering the costs of the non-advertising content of the media. Moreover, advertising messages are intermingled with other media content so that it may be difficult for the consumer to choose to avoid contact with an unwelcome message. Consumers, too, may be ill-informed, so that they may be unable to detect a misleading or deceptive message. Finally, there may be vulnerable groups within our society (most notably children and adolescents) that society wishes to protect from the consumption of harmful messages. In short, there are cogent grounds for concluding that the principle of consumer sovereignty works somewhat unreliabily and roughly in this industry. Further, in circumstances where consumers are ill-informed and vulnerable, the wider public interest may lie, not in individual consumer sovereignty, but in some overriding requirement established by community standards and values. This is despite personal ethics of both advertisers and media proprietors which might serve to reduce misleading and harmful advertising. wea ener ae eee a ee rene me ee ee reer, 58. The Tribunal is aware from evidence placed before it of particular advertisements and campaigns that would exemplify these concerns. Some evidence related to advertisements that were unpublished, having been ruled unacceptable by the clearance systems; some to advertisements the subject of complaints to the ASC; and some to advertisements that were criticized by witnesses before the Tribunal. We are aware of misleading and deceptive advertising; of advertising that has taken advantage of vulnerable groups whether by design or inadvertence; of advertising that has undesirable secondary impacts upon recipients outside the targeted group (e.g. cigarette advertisements on adolescents); of advertising that, while commercially effective, may have degrading or demeaning or harmful references (e.g. overly sexual or violent or discriminatory undertones). Mr. Sallis (Chairman of the APB and Chairman of the AAIC) stated that the Codes "tend to prevent actions detrimental to the public as a result of lack of judgement, taste, ignorance or economic pressure and greed". The Tribunal's examination of the functioning of the market for advertising messages suggests that the bases for concern are broader than this; that problems stem not just from the lack of wisdom and the short-sightedness of a minority of the industry but, more fundamentally, from some systematic weaknesses in the capacity of the market to register and respond to community needs and values. We conclude that such deficiencies in the functioning of the market for advertising messages ("market failure" in some degree) provide a potential rationale for regulatory intervention (whether sn spe - ~: were pre 59. public or private) and thus for important aspects of the 1986 Codes. This conclusion is subject to evident limitations. First, it is a statement of what is possible in principle, rather than of what happens in practice. Whether the Media Council system itself registers and responds to community needs and values and does so in a cost efficient way is a question considered later in this determination. Second, the market for advertising messages is but part of the general market for ideas. In our society, we have a marketplace for ideas that is very wide and open. The question arises, if advertising has degrading or demeaning or harmful references, might there not be some merit in simply letting it go forward to be subjected to the competition of diverse alternative voices? Adverse secondary impacts from one line of advertising might to a degree be balanced and defused by the content of advertisements for quite different products, or by the free competition of ideas generally. We are reminded of Justice Holmes' famous words that "... the ultimate good desired is better reached by free trade in ideas - that the best test of truth is the power of the thought to get itself accepted in the competition of the market.": Abrams v. United States. 250 U.S. 616 at p. 630. This is another theme to which we return, the question of the right balance between freedom of expression and the collective exercise of responsible restraint. Here it is sufficient to note how advertising stands somewhat apart from other forms of communication. As a technique it may be peculiarly persuasive: it uses highly skilled rn aes ota 60. and specialized arts; it is repetitive; and it frequently proceeds by way of campaigns. Moreover, its basic characteristic is that it is broadcast figuratively, as well as literally. 10. MARKET POWER, PRIVATE REGULATION AND ANTI-COMPETITIVE EFFECT Section 7 has described the institutional and administrative organization of the Media Council system. However, the economic structure of the system encompasses its market setting as well as its formal arrangements. That structure consists essentially in three tiers. First, the system is founded on the strategic role of the media in the advertising industry, that is, its collective power to refuse publication or transmission of advertising messages by virtue of its "bottleneck" position in the economy. Second, this is buttressed by the pre-existing authorization of the Media Council's Rules Governing Accreditation which ensures that media proprietors are bound into the self regulation system and can exercise a degree of control over the great bulk of advertising agencies. The third tier lies in the membership coverage and formal organization, including governance, of the Media Council system. We comment on each of these in turn. To anticipate the argument of the whole section: The three-tiered structure gives rise to very significant market power. That market power is exercised by the Media Council in the implementation of its Code system. What we observe is a system of private regulation by the Media Council, in supercession of the Market, that may or may not be in society's interest. In any event, it is anti-competitive. 2 epee ee ee Wwe - as a oes, we Se eee geese er ee 61. 10.1 The media "bottleneck" The advertiser's message must be placed in the media if it is to be "broadcast" effectively. The ultimate and most fundamental sanction against offending advertisers and their agencies is the denial of space and time. It is true that both advertisers and the media are dependent upon each other: the media are dependent upon the advertisers for what is normally the chief, if not the only, source of revenue. But it is much less conceivable that all or a vast majority of advertiers could combine to withhold advertising from offending media firms. This is for two reasons; first, the relatively large numbers of advertisers and agencies and, second, the accessibility of the markets for advertised products to new entrants. Perhaps there are high barriers to entry of some advertised product markets, but each market accounts for only a small proportion of total media advertising revenues. Evidence on national advertising expenditure in the main media indicated that there is no market (sufficiently properly delineated) for an advertised product group for which expenditure upon space and time would amount to more than five percent of total outlays. (Approximate expenditures in 1985 were as follows: Travel and Tours - 4.6%; Liquor - 3.4%; Toiletries - 3.1%; Confectionery - 2.3%; Banks - 2.2%; Insurance - 2.1%; Pharmaceuticals - 2.1%; Cigarettes - 1.5%; and Pet Foods and Pet Care Products - 1.4%.) Within each product group, there will be at least two major advertisers. wet pec eee 62. Of course, a large advertiser may have a presence in more than one industry (e.g. Cigarettes and Liquor), and it is true that there is a relatively small number of leading advertisers within Australia. In 1986, 154 corporate entities (including some government instrumentalities) constituted the membership of the AANA. The evidence was that these AANA members would account for somewhere between sixty and seventy-five percent of "national" advertising expenditure through accredited advertising agencies. Yet this is not a homogeneous group by any means. Collective action, either by this group of advertisers or some other, to withhold advertising looks most improbable, given opportunities for both existing and potential advertisers outside the group to exploit the situation. The number of media firms {in the sense of media corporations subject to the same ownership and effective control) is much fewer, and the barriers to entry of an entirely new operating entity, involving the creation of new capacity, are at this time generally very high. In both radio and television, transmission is dependent upon the grant of a licence; with the number of licences strictly limited by long-standing government policy. It is plain that a radio or television licence in Australia still retains its scarcity value. Barriers to entry of the various categories of print media - by way of establishing entirely new operating entities - are by no means as formidable as for television and radio, at least at this time, but are still significant. We are conscious of shifting interests and power relationships within the advertising industry that occur from time to time. We are conscious also that there may be changes in the tt es tyr tee ee wee eee soy ere - = ' - 63. legislative rules governing media entry and acquisitions yet to be announced. Yet in sum, there is an asymmetry in the power relationship between media and advertisers; and were all the existing main media to combine to grant access to their space and time only on their terms, the advertisers would have very limited alternatives open to them. Since the reception of evidence in August-September 1986, the pattern of media ownership and control has altered substantially in response to the announcement by the Commonwealth government of its intention to change the rules governing concentration and cross~media links. The changes will facilitate increased networking. Yet none of the recent developments will make it easier for an entirely new operating entity to be established within the media sector; the current fluidity that one observes is a reshaping of existing entities. Indeed, it may be the case that national networking will raise the barriers to entry of entirely new firms. We refer to these recent developments as confirmatory of the views we have formed on the evidence before us. 10.2 Accreditation The second tier of the structure lies in the Rules Governing Accreditation. The main features of the Accreditation System authorized in 1978 were described in Section 3. The system today is essentially unchanged with Rule 31, in particular, couched in identical terms. Every accredited agent is bound to comply with the cet oe ' , 64, Media Council's Codes and Standards. The formal penalties for non-observance of the Codes and Standards are set down in the Rules as cancellation and suspension of accreditation or a reduction in the amount of commission received. The Accreditation Authority also makes use of less drastic pressures (reprimand and breach are noted). The incentive for the agency to gain accreditation is the granting of unlimited credit and the access to commission from the media: an agency gets commission from the media only if it is accredited. Each participating media proprietor is also bound to comply with the Codes and Standards by virtue of adherence to the Media Council's objects and rules and to the Accreditation Rules. Each and every media proprietor is bound to reject or withdraw, upon advice, non-conforming advertisements including, importantly, those submitted by unaccredited agencies and direct advertisers. 10.3 Coverage and organization of the system The power of the Media Council system in practice is very much dependent upon its membership, its coverage of media, agents and advertisers within the Australian economy, and its organizational structure. Virtually all proprietors of the commercial media in Australia are members of the Media Council and are bound into the system: every commercial television licensee, all 138 radio stations, and almost all publishers of print media. Those outside are what were referred to in evidence as "isolated single titles" like the Melbourne Truth or the Western Mail in Western Australia, the ethnic press and various sectional publications. Included within the print segment are not only the metropolitan and provincial newspapers but virtually all the major women's and general interest magazines published nationally. 65. . The population of advertising agencies is by its nature somewhat volatile. At the time of the hearing there were in existence about 350 accredited agencies; about 60-80 "full-function" unaceredited agencies; and about 100 very "limited-function" and small establishments performing some advertising services. About 230 agencies belong to the AFA and these account for over 90% of the dollar volume of accredited agencies. The agency structure is top heavy; with the "Top Ten" accredited agencies (including their branches) accounting for over 50% of billings (turnover) of all accredited agencies. The Media Council has estimated that accredited agents place 44% of the advertising published by metropolitan daily newspapers, 65% of advertising broadcast by commercial radio stations, 82% of advertising telecast by commercial television stations and 95% of advertising published by national magazines. The membership of the ANAA has already been described. What very limited evidence we have indicates that it is a body subject to some internal tensions. In any event, its current membership would account for the greater part of "national" advertising subject to the Codes; though a lesser percentage of all advertising subject to the Codes. It is clear, as Section 7.4 states, that governance of the system resides with the Media Council. However we have not formed the impression that the interests of the three arms of the advertising industry are necessarily opposed. Even in the absence of media market power, many advertisers and agencies doubtless would participate in the system. For the agencies the Codes establish a "level playing Ter cee erences og 66. field" in that the constraints on behaviour are not discriminatory as between agencies. For the advertisers of products that are controversial in our society the Codes mandate what is and what is not acceptable or responsible conduct. For the advertising industry as a whole, the Code system is seen as much more preferable to government regulation; and there is a desire, in any case, to be associated with responsible advertising practices. Nevertheless, in the limited areas in which the media, advertisers and agencies work together both economic reality and formal organization combine to make the Code system very much the Media Council's system. 10.4 Private regulation and anti-competitive effect It follows that the "Self Regulation Code System" is something of a misnomer. It is, rather, a system of private regulation (as opposed to public regulation) with the media (in contrast to the advertisers and the advertising agents) largely formulating the policy 'of the Codes and organizing its implementation and enforcement for the advertising industry as a whole. It is a system of private regulation of the market for advertising messages. It is effective because all significant competitors, on both sides of the market, are either bound by its rules or are induced to conform. The Codes describe attributes of advertising messages which are different from those that would emanate from the freer market alternative. The Codes are collectively implemented and enforced, such that the outcome constitutes an exercise of very significant market power. 67. Thus, the collective implementation of the Codes is, of its essence, anti-competitive. It places constraints upon the functioning of the market for advertising messages; it changes the quality of the products emanating from that market and the manner in which they are produced. Clearly, also, those different advertising messages change the perceptions and, hence, the demands of consumers and thereby influence the functioning of the markets for advertised products. [In thus characterizing the Codes as anti-competitive, we adopt as our general concept of anti-competitive conduct any system (contract, arrangement or understanding) which gives its participants power to achieve market conduct and performance different From that which a competitive market would enforce, or which results in the achievement of such different market conduct and performance. In this case the bases for anti-competitive effect lie in the market power generated by, first, the "bottleneck" position of the existing media and, second, the existence and authorization of the Accreditation System. For the purposes of this case these are the realities which establish a framework within which this review is conducted. The question posed by the application to this Tribunal is whether the formulation of the Codes and their implementation in practice represents an exercise of this market power that gives rise to overall public benefit. SO tr wre gee Se ee + " wien ee wee og ere oee ee ee , 68. 11. THE TRIBUNAL'S APPROACH TO THE ASSESSMENT OF BENEFIT AND DETRIMENT 11.1 Classification of the Codes The most elementary inspection of the Codes makes it plain that benefit and detriment do not readily appear on the face of the rules themselves. Some rules so closely restate the law that it is not easy to contemplate that the fact of their restatement may cause anti-competitive detriment. Some rules are so generally expressed in their avowal of accepted community values that they are plainly acceptable in principle, yet questions arise as to their application in practice. Other rules are a conglomeration of restatement of the law and expression of accepted community standards as perceived by the Media Council. Some rules were criticized severely in evidence and argument and are claimed to be seriously detrimental in their intention, meaning or practical operation. In the Tribunal's view, evident benefit from the application in practice of certain elements of the Codes does not excuse the detriment from full consideration that may arise from other elements. Neither does the existence of proven detriment in certain narrow respects blacken the entire structure. To determine, as the Tribunal must, whether on balance the overall benefit exceeds the overall anti-competitive detriment, requires separate consideration of the benefit and detriment resulting from the application of groups of rules that have some common characteristics. ee ed IS tere preg Serre terre me eo ee Se ee ee 69, The Tribunal has found it essential in its approach to the assessment of benefit and detriment to develop a classification of the Codes by function and form: i. rules reflecting the law v. other rules; 2. precisely expressed rules ("hard" codes) v. generally expressed rules ("soft" codes); 3. rules proscribing misleading and deceptive advertisements v. rules proscribing "harmful" and "offensive" advertisements; and 4, consumer protection rules v. producer protection rules (for example, "unfair" advertising in the sense of inadmissible competitive methods). In general, the bans on misleading and deceptive messages reflect requirements of the law. Some of the rules that go beyond the law are precisely expressed (for example, some of the rules governing therapeutic claims), but many are couched in very general language with interpretation a matter of practice and subject to evolution over time. That the rules take this form is not necessarily a matter for criticism; it may indeed be a source of strength. But it is not possible to determine whether these "soft" codes are likely to give rise to public benefit without examination of how they are implemented in practice. The "soft" rules fall into the category of proscribing "harmful" and "offensive" advertisement. For example: 1. Advertising Code of Ethics "2.4 An advertisement shall not contain anything which in the light of generally prevailing community standards fe rete et greener "2.13 "2.16 70. is likely to cause grave offence to the community or a significant section of the community." Advertisements for any product which is primarily meant to be used by and/or purchased by children shall not contain anything which would result in their physical, mental or moral harm. No advertisement shall directly urge children to put pressure on their parents to purchase the product advertised." Advertisements shall not disparage indentifiable products, services or competitors in an unfair or misleading way." 2. Cigarette Advertising Code "2.1 "2.4 "2.7 The content of cigarette advertisements shall be directed only to adult smokers and only intended to effect or deter a change of brand." No advertising for cigarettes may include persons who have major appeal for children or adolescents under 18 years of age." Advertisements should not use copy or illustrations which indicate that sexual success is due to smoking. Advertisements may depict success or distinction but shall not claim that cigarette smoking contributes significantly to the attainment of social or business success or distinction." att ne eg re eee eee eee corre a ep we eee a 71. 3. Alcoholic Beverages Advertising Code "2.1 The content of advertisements for alcoholic beverages shall be directed only to adult audiences." "2.3 Advertisements for alcoholic beverages shall be directed only at increasing brand or beverage share of existing markets, rather than promoting any increased consumption of alcoholic beverages." "2.5 Advertisements for alcoholic beverages shall not claim or suggest that drinking alcoholic beverages can contribute towards social, sporting, er sexual achievements. Responsible consumption in relaxed situations after work or after sport may be depicted." O£ course individual rules may have "hard" and "soft" elements and they may be "soft" in differing degrees. All the Codes are potentially a form of consumer protection. However, the Rule governing disparagement (Advertising Code of Ethics 2.16) is oriented to protection of both the reputable producer and the public. Our four fold classification of the Code rules is intimately related to the manner in which the Codes are likely to give rise to benefit and detriment in practice. In the detailed assessment that follows this Section we observe the basic division between Code rules spy ee 72. that seek to implement the law and Code rules Lhat seek to supplement the law. Our consideration of the latter class of rules then -makes use of the distinction between "hard" and "soft" rules. In our opinion, it is mainly the rules which go beyond reflecting the law that are controversial as they have capacity for overall benefit but in practice can cause significant detriment. That detriment relates mainly, though not entirely, to the "soft" Codes. We have been interested to note some conclusions of Professor 3.3. Boddewyn, an authority on self-regulation of advertising whose work in this area was drawn to our attention by the Media Council, in his recent treatment of "Advertising Self-regulation: Organization Structures in Belgium, Canada, France and the United Kingdom" in Private Interest Government: Beyond Market and State, 1985, Ch. 2). He makes a fundamental distinction (at p. 38) between "traditional areas of advertising control - namely, false, misleading/deceptive and unfair advertising" and "such 'softer' issues as good taste, decency, privacy, sex stereotyping and the representation of minorities in advertisements". Again (at p. 41), he points to the way in which the "growing issues of taste, decehcy, sexism, privacy, 'vulnerable groups' (children, uneducated consumers in less developed countries, etc.), 'objectionable products! (liquor, tobacco, etc) and the like reflect the influence of ''community' values on the agenda of advertising associations." 11.2 The approach to assessing benefits In our opinion a Code system can give rise to benefit to the public in two ways. oy ee SoTL poe soe oe re Sant edie wt Ae ll eneestened lier sneeineeniant anata! were ae re 73. First, it might improve the quality of advertising messages. We seek from our mixed economy advertising messages that the community wants or {after the event) welcomes; that is, advertising that is informative, entertaining, aesthetically pleasing and not advertising that is deceptive and misleading or harmful and offensive. The likely results from the Media Council's Code system must be compared with "the alternative" competitive system encompassing vetting by individual media operators and subject to significant government regulation. In Section 9.3 we have already concluded that there are deficiencies in the functioning of the market for advertising messages which can, in principle, be remedied by collective action. Second, a Code system might give rise to procedural and enforcement efficiencies which is to be contrasted with controls administered by individual media operators or government agencies. These efficiencies may stem both from the language of the Codes (e.g. plain English) and procedures for their implementation. Yet such cost efficiencies are not truly a benefit if they result in undue standardization of advertising messages or distortions of legal and regulatory requirements. Whether such conceivable advantages are achieved in fact is a matter for the evidence which we review in succeeding sections. ! Where a Code rule seeks to implement the law, any benefit comes not from the subject matter of the rule but from its language and the manner of its implementation. This points to the possible significance of cost efficiencies (the second category above) under fo ie cere ee ene ape eee vertemmee er ee we 74, this head. Yet we are conscious that a self regulatory system may be peculiarly effective in achieving the objectives of government policy; and so, when we approach this type of Code rule, we ask whether the private system is likely to be both more efficient and more effective in implementing laws and regulations than either the public sector (including the Courts) or the individual media operator. Either way, we are very much concerned with the practical operation of the Media Council's Codes. Where a rule under the Media Council's Codes seeks to supplement the law any likely benefit to the public turns on the subject matter, the terms of the rule and the manner of its implementation. While the immediate emphasis is upon the likely impact of the rule upon advertising quality there are still issues of comparative cost efficiency. Further, with this type of rule we are conscious that we need to go beyond our own assessment of the terms of the Codes and ask how they came to be formulated: what was the input from the public and from those with relevant expertise? We need to inquire also into the mechanisms governing their amendment, evolving their interpretation and their practical operation. In the previous Section we concluded that the implementation of the Codes is inevitably anti-competitive. It is an exercise of market power which affects the quality of advertising messages and the manner in which they are produced. It is possible, however, that the Code system will result, or be likely to result, in anti-competitive benefit. For, as the Tribunal said in 1978: "The restraints upon competition resulting from the obligation to abide by codes and standards are themselves of benefit to the public.": The Media Council Case (supra) at p. 17,621. 75. 11.3 The approach to assessing detriment The Code system is a system of private regulation which exercises market power in ways which are claimed to be in the public interest. The Media Council submits in effect that it performs a stewardship role by utilizing the collective wisdom of the industry to devise advertising codes and to implement them to reflect community standards. In this case we do not find detriment in the exercise of market power in itself but in that use of market power which gives rise to results that are inefficient (in terms of quality of advertising or cost efficiency) or inequitable (in the sense of the arbitrary and unfair treatment of individual persons and firms). Where the performance of the Code system is likely to be worse than the alternative market based system, that is anti-competitive detriment; where it is likely to be better, that is (anti-competitive) benefit. We find that we need to examine the market for advertising messages in some depth and, in addition, some aspects of the markets for advertised products. Impacts upon the agency market, in the sense of the supply of agency services, need not be examined by us as they relate to the operation of the Accreditation System which has previously been authorized. Of course, the actual advertisements that agents create are very much subject to the Codes, but the effect of those advertisements is analyzed as an aspect of the functioning of the market for advertising messages. Impacts on media markets (the » t- ee -t pomrosrans errs ee geen ne 76. supply of publications and broadcasts) are somewhat remote; again, for purposes of this application we need look at the impacts on media markets only as an aspect of the functioning of the market for advertising messages. In the following Section we find that there is some evidence of anti-competitive detriment arising from rules implementing the law. In Section 14 we conclude that there is some real cause for concern regarding some aspects of the rules supplementing the law, especially those dealing with "soft" issues. The task of interpreting and applying "soft" standards is an on-going one. Even if we were convinced that the language of these rules is not open to criticism, there would remain the question of how the rules would work in practice. Moreover, the very existence of doubts as to the beneficial functioning of the Code system - if such were to exist - must count as an anti-competitive detriment; for the system gives great power to its participants which must be seen to be wisely used. The public interest requires the existence of 'mechanisms, an aspect of system design, which give adequate assurance that standards reflect evolving community values and that decisions give rise to the provision of messages which the community wants. A finding of benefit to the public implies that we can view constraints upon freedom of expression with some degree of equanimity; indeed, as preserving and fostering other values which require some sacrifice of freedom of expression. It is plain that the community generally, and the law itself, sometimes takes that view. We think of the law of obscenity, the law of defamation, the law of 77. misrepresentation, the law of sedition and the law of contempt of court. If leaving advertising decisions to a free market would produce the kinds of advertisements that the community would prefer not to see or hear, there is a case in principle for censorship of the broad character of the Code system. We have explored that case in Section 10.3. But we are conscious of the dangers; especially when this censorship constitutes the exercise of very significant market power. So there are real issues regarding the quality and quantity of that censorship. We are conscious that this private regulatory system could err in either of two directions: undue suppression or undue permissiveness. To take an example of the first possibility, the ACA submitted that the Media Council had refused publication of certain anti~smoking advertisements of the N.S.W. Health Commission contrary to, what might be inferred to be, the desires of the wider community. To take an example of the second possibility, there were numerous claims by witnesses that the rules in practice permitted the publication of harmful and offensive advertisements (especially cigarette advertisements) that would be found appealing by adolescents, or the use of offensive sexual images and demeaning stereotypes. The risk of erroneous decisions being made within the Media Council's system is that of two kinds: first, unjustified suppression of advertisements which the public wants as judged by community standards; and second, undue permissiveness in the publication of advertisements which have secondary consequences unwanted by the public. ly + we em np eerrens eee NO ey coe we eseae so eeqew vers ee Lae aoe ee en oe, ' mee pee = 78. The question arises as to how error of the second kind (that is, undue permissiveness) can ever occur. A finding of detriment refers to an outcome that would be worse than the alternative market based system. Do the rules, in so far as they may be found to give rise to undue permissiveness, do anything more than give the stamp of approval to decisions that would be made anyway by individual advertisers, agencies and media operators? We think they may do more than this. The very existence of industry-wide Codes and practices can mould the attitudes of advertisers, agencies and media operators as to what is neither offensive nor harmful. Conceivably (but we make no findings at this point) the existence of certain Codes or rules could be characterized as ""window-dressing" or "lip-service". The very existence of ineffectual Codes could serve to make firms (advertisers, agencies and the media) less responsible than they otherwise would be and governments less prone to legislate for controls in the public interest. Again, repeated interpretation and application of a Code rule which permits publication of particular offensive and harmful references conveys institutional approval to such practices and advertising. This could eliminate the application of independent scrutiny and judgement by individual advertisers, agencies and media operators which would otherwise take place. Finally, it is possible that the very formulation of rules may divert the attention of participants to the narrow and technical commands of the Codes rather than to their spirit. Anya even ne ee wn ee map eee 79. 12. BENEFIT AND DETRIMENT FOR CODE RULES REFLECTING THE LAW The Tribunal finds that the formulation and implementation of rules of the Media Council's Codes reflecting the law results in a clear and an important benefit to the public. The evidence was clear, and was unchallenged by those appearing before us, that the Media Council's self regulating system supplements the implementation of the law by the legal system and the individual medium operator, in ways that are both cost efficient and effective in their implementation of government policy. The reformulation of the law into a set of working rules directed to the display and ready understanding of the requirements of Federal and State legislation, and of related regulations, is patently helpful to the advertising industry. The reformulation of the law cannot purport to be comprehensive, but it is nevertheless useful, to the day to day production of lawful advertising, that the Codes should act as a trigger alerting operators to the need to look more closely as to whether a proposed advertisement might not be permissible at law in some particular respect. The law involved is voluminous and scattered, and the formulation of the rules operates both to identify and codify the laws; much of the Therapeutic Advertising Code is of this character. The laws are given practical expression in simple English. For instance: "Advertising of goods and services must be for the purpose of genuinely selling those goods or services, and not for the purpose of selling substitute goods or services." - Advertising Code of Ethics, Rule 2.11. ee ere ep 80. The rules are sometimes condensed to the essence of the legal standard, but at other times develop practical tests as to when the law may be in danger of infringement. An example of this task of elaboration is found in the Therapeutic Advertising Code, Rule 2.5B: the rule restricting advertising of hair and scalp treatment. There are also speedy and efficient procedures within the Code system for adaptation of the rules to reflect changes in the law. The pre~publication clearance procedures of print and radio applying to advertisements for products which are subject to the Product Codes, and to all television advertisements, have the effect that the most potentially sensitive advertising material (for sensitive products and for the visually powerful television medium, which is subject to specific regulatory requirements) is scrutinized prior to publication or transmission. The procedures are thus preventative, both of harm to the public and of substantial additional costs that might otherwise occur or be incurred for the amendment or withdrawal of advertisements in the light of complaints being supplied. The procedures, also, are operated with economy and despatch. In the absence of these procedures, less cost efficient checking arrangements might be adopted separately by media companies. The very consolidation of pre-clearance work in the one organization conducted by the relevant arm of the media gives rise to valuable economies of scale. Pre-clearance scrutiny is conducted by experienced and specialized personnel against the provisions of the Codes, and for radio and television against the regulatory requirements. There is ready access to expert advice; including specialized legal advice. re eee eee ea ewe may corre epi 81. Most advertisements are approved very quickly so that commercial imperatives are not disrupted. The availability of advice to advertisers and advertising agencies from clearance bodies during the preparation of advertisements usefully supplements the clearance process, extends its application to certain advertising material for which pre-publication clearance and approval is not obligatory and encourages awareness of requirements of the law and the Codes at an early stage in the development of advertising copy and layout. The Tribunal sees this practice as providing further benefit. Among the breaches of the Codes that invite sanction is failure to follow the requirements for clearance and approval prior to publication and broadcasting. The Media Council's enforcement procedures therefore reinforce the clearance procedures, and in themselves are cost efficient in comparison with alternative legal sanctions. The rules tend to be complied with not only because they distill the law of the land but also because of peer group pressure, There is reinforcement of the requirements of the law through a process of accommodation and acceptance under the self regulatory umbrella. Procedures for interpretation of the rules allow the accumulation of a body of specific rulings or interpretations and shared understanding of current intentions and required standards. The Code system, too, has the capacity to generate information on the working of laws in practice and to enable the development of useful dialogue between governments, regulatory agencies and the advertising industry. FG er rem re ee ee eters ' " ta Mer ee eee rane wore 82. It might be argued that, by drafting and enforcing Codes that do not precisely reflect the relevant laws and regulations, and by restating them in lay language, something is lost and the evident benefit is diminished; indeed, such that the reformulation exercise could go so far as to result in a detriment. The Tribunal is not of this view. On the contrary, we see the transformation of the complexity of laws and regulations under various jurisdictions into an accessible and readily understood form for working use within the advertising industry as constituting a significant benefit. We refer to Federal and State laws; an expression which includes statutes, regulations and other delegated legislation and decisions of the Courts, especially those which interpret statutory law. Ik is difficult, if not impossible, for Codes such as those before us in the present proceedings definitively to encapsulate judgments of the Courts; but to some extent the Codes' seek to do so. The inability of the Code system, with some necessary degree of inherent inflexibility, to reflect accurately judicial decisions is not in our view a detriment provided the Codes do substantially reflect the correct law and have systems moulded to change the Codes in the light of changes to the law from time to time. This transformation of laws, both Federal and State, is predicated on the assumption (as the Codes speak Australia wide) that the laws are uniform throughout Australia. Yet this may not be so with respect to some laws. In the result, the Codes would necessarily apply a uniform standard that is in truth fragmentary. Whilst at First sight this may appear to be a detriment, on balance, we do not so regard it. Rules governing advertising, by the very nature of ween ey tee ee vee eee ee cage cen me? ay ane 83. advertising itself, generally must be structured to have national, not merely local, sway. Hence, we regard this characteristic of the process of transformation as being essentially neutral on the question of benefit or detriment. The costs of implementing the system are quite modest. Both the considerations reviewed above and our scrutiny of relevant figures lead us to conclude that, far from constituting a detriment, the costs of operating the system constitute an aspect of benefit to the public. However, several points must be borne in mind. A private system purporting to reflect or implement the law is in one sense a contradiction in terms. The law is not merely a statement of a statulory or common law prohibition (e.g. the prohibition imposed by s. 52 of the Act Ehat a corporation shall not engage in misleading or deceptive conduct). A body of case law constituted by decisions of the Courts on statutory law is continually evolving. Judges are the interpreters of the law. Hence, it is impossible to say that a private system of self regulation administered by persons who are not Judges is a system which truly reflects the law. But a system of self regulation may be structured and operated to state in clear and simple terms, as best it can, the relevant laws of the land; including judicial interpretation thereof as it evolves from time to time. That system may operate in practice so that its interpretation and enforcement bodies, although not comprised of Judges but of lay persons, may themselves give rulings in particular cases' that interpret the law as closely as possible. To achieve this objective woe ee wet wo ee 84, will involve the ready availability to those bodies of competent legal advice and the presence on those bodies of a person or persons of legal training. The existence of a private system of regulation properly staffed, administered and advised has obvious benefits including speedy rulings as to the permissibility of advertisements, ready understanding by persons at all levels within the system and inexpensive procedures of interpretation, complaint and enforcement. Also, a private regulatory system cannot supplant the legal system. The Courts cannot be deprived of their jurisdiction by private arrangements. Hence, persons affected by the operation of the private system may have recourse to the Courts to remedy a wrong. The two systems are truly complementary to each other. The Media Council's system has capacity to achieve these desirable objectives. However, there are some deficiencies in its Code formulation, interpretation and enforcement systems. We discuss these in detail in Section 14 and shall not repeat here what we say there. The Therapeutic Advertising Code reflects both laws of the land and the opinion, based on assumptions, as to acceptable or desirable health or medical standards of those who formulate the Code. There can be no room for doubt that the laws must have a direct impact on advertising standards. Opinions of health and medical authorities by their nature may be, in varying degrees, controversial and not necessarily accepted as correct by the community or significant sections of it. Yet the rules embodied in this Code reflect both laws sects ee eer 85. and opinions of this kind and together, the rules give them equal and undivided force. They have come, to a degree, to be intermingled with the consequence that the Media Council's system routinely implements and enforces rules of no legal standing and of some controversy, as though they were, the law of the land. This constitutes anti-competitive detriment. If the Codes reflecting the law were to be judged independently of the other Codes, especially the "Soft Codes", we would not see these elements of detriment as exceeding the benefits already mentioned. As we discuss later, however, the Codes must ultimately be viewed as a whole and the detriment embodied in the Therapeutic Advertising Code has other significance. 13. BENEFIT AND DETRIMENT FOR OTHER CODE RULES The previous Section concluded that, of the numerous rules in the Media Council Codes, those rules that reflect the law are clearly of benefit in their effect and, subject to certain qualifications, result in no significant detriment. The remaining rules stipulate further matters that go beyond the requirements of law. These rules are claimed by the Media Council to result in benefit because they reflect and give force to community expectations as to the form and content of responsible advertising. These "other" rules (as we characterize them here for convenience) must be complied with by relevant advertisements before publication or broadcasting will be permitted. A breach invites sanction under the enforcement procedures of the Media Council's system just as for rules reflecting the law. ee ~ epee 86, The Tribunal does not accept the ACA's argument that the Codes do little more than restate the requirements of the law. On the contrary, we conclude that the other rules supplementing the law comprise a significant element of the Codes. We conclude also that, for these other rules, a separate examination of benefit and anti~competitive detriment is required because benefit and detriment in practice arises in ways, and to an extent, that distinctively differ from those which we have determined for Code rules that reflect law. The requirements of law as reflected in the Code rules and the further requirements that are claimed to represent community standards are not clearly distinguished in the drafting of the Codes. The Tribunal examined in particular the application of the other rules in the Advertising Code of Ethics, the Therapeutic Advertising Code, the Cigarette Advertising Code and the Alcoholic Beverages Advertising Code. As already noted, the matters predominantly in issue between the parties related to the rules within these Codes, other than rules reflecting the law. We have pointed earlier to the need, in our examination of benefit and anti-competitive detriment, for us to examine the effect of particular rules and classes of rules because the effect of the Codes in generating benefit and detriment is neither uniform nor global. The Tribunal does not contemplate conducting this review by a detailed examination of, and a determination of a balance of benefit and detriment for, individual rules. Such a process would be unwieldy and erroneous. The Codes and their component rules exist as a corpus and derive force and effect accordingly. Further, they are pore we capes 87. administered through a system of institutions that contribute the benefit of efficiency resulting from common procedures and_ the aggregation of administration. They could also generate anti-competitive detriment resulting from the manner in which they are conducted. Rather, the Tribunal will consider a number of key issues which emerged as the hearing progressed. 13.1 The issue of private regulation The Codes before the Tribunal in these proceedings are constituted by the Advertising Code of Ethics as the central statement although amplified for certain classes of product by the more detailed and particular Product Codes. The Tribunal accepts the principle that the advertising industry might reasonably and properly develop and make known an ethical code setting out rules of good practice which pay regard to the values and expectations of the community at large with respect to advertising. The Tribunal is not necessarily troubled that the advertising industry has for convenience combined an ethical code with working rules that remind members of their industry about the requirements and implications of the law. Nor is there necessarily any difficulty in the fact of the advertising industry seeking to exercise discipline and discourage wrongdoing in both these respects. However, the Tribunal is concerned when Code rules, which go beyond reflecting the law, are enforced by an exercise of market power as a private regulatory system. Our potential concern is reinforced when the conduct in issue serves to reduce the capacity of BT re te se ee er re ee ot 88. advertisers to communicate to their market in such manner as they might choose and serves to apply some extra-legal censorship to commercial speech. To the extent that the Media Council's Codes seek and achieve effect beyond the requirements of the law, the Tribunal must be satisfied that the other rules are of real and significant public benefit, and that they will be administered scrupulously so as not to generate significant anti-competitive detriment. 13.2 The issue of "grave offence" Rule 2.4 of the Advertising Code of Ethics prohibits any advertising content that "... in the light of generally prevailing community standards is likely to cause grave offence to the community or a significant section of the community". The Media Council claimed in argument that this requirement is self evidently in the public interest and in anti-competitive effect serves only to eliminate the inherently vicious. The Tribunal accepts the potential for this rule to achieve the claimed balance of benefit and detriment, but in our opinion whether this balance is achieved in practice will depend on the interpretation of the generally expressed language of the rule. The terms "generally prevailing community standards", "grave offence" and "significant section of the community" permit such a variety of meaning in an adjudication with respect to a particular advertisement as to allow results that might represent clear benefit or serious detriment or some balance of the two. meses Ao tee SOT TnI eae meee gr te 89, We observe also that the terms of Rule 2.4 of the Advertising Code of Ethics might be variously interpreted according to the standards of values applied to them: for example, as to whether a new strand of expressed social concern, such as a concern with sex stereotyping or with adolescent smoking, is a matter of possible "grave offence" and as to whether complaints in those respects can be represented as reflecting the views of "a significant section of the community". This observation does not imply that we see generally expressed rules as being necessarily unsatisfactory. Rather it explains our conclusion that, in assessing the validity of the Media Council's claims with respect to this Rule, we must closely examine particular applications that might exemplify its effect in practice and must reach a view as to the likely effectiveness and balance of the Advertising Standards Council in performing its chartered role to interpret the Codes, to advise on deficiencies and, in particular, to adjudicate on their application so that acceptable standards of advertising are maintained in a society where diverse values exist and are tolerated. 13.3. The issue of the advertising industry's "collective wisdom" As noted in Section 6, the Media Council's case relied in part on argument that the three arms of the advertising industry involved in the conduct of the Media Council's system are peculiarly able to recognise the substance, the nuances and the trends of community attitudes as a necessary by-product of successful commercial eos pe ae oy e- meee wae wee we 90. activity. Advertisers are concerned to recognise community preferences for specific products, advertising agencies must necessarily be skilled in capturing favourable attention among potential buyers of products and the media must be more generally aware of what the community feels and wants if their publications and transmissions are to win wide community interest, as reflected in readership and ratings. It follows, we were told, that the advertising industry's knowledge of community attitudes - the "collective industry wisdom" ~ ensures that the scope and substance of the Codes is appropriate and will remain up to date. Since the Codes and sound procedures to administer them are consistent with the industry's interest and aspirations, it suffices that the conduct of the system is broadly limited to members of the industry. Short-sighted and foolish decisions by particular members of the industry are efficiently dealt with within the industry. The alternative perspective, put to us by the ACA, is that advertising by its nature has secondary effects bearing on the public interest and that members of the advertising industry must be expected to place commercial interest above concern for the community interest when the two interests do not run in parallel. The ACA claims in effect that the exercise of market power under the guise of the public interest will produce serious anti-competitive detriment unless the relevant Code system procedures countervail this possibility. The ACA denies that "collective industry wisdom" provides a sufficient platform of knowledge of community attitudes to support the or, Oe ee 91. conclusion of requisite benefit. The ACA argued that a system of codes and of procedures to enforce them will not respond, readily or in timely fashion, to new concerns of the community that may require further constraints on advertising practice unless certain procedures of the Media Council's system are changed to allow representation of consumer and community interests. Evidence for the Media Council described procedures by which the knowledge of the advertising industry of community attitudes is supplemented by external inputs. The extensive 1983 review of the Codes, with comment invited from people and interests outside the industry, was described. Regular advertising since then has invited public comment and complaint about advertisements. We heard also of the Formation of CASA with a brief for continuing review and revision of Codes and the charter of ASC to advise the Media Council (and specifically CASA) on matters of concern in the Codes that are seen to require attention. We note the formation of the three advisory councils under CASA (for cigarettes, alcoholic beverages, and therapeutic products) and the appointment of a representative of the Commonwealth Department of Health to a working party under TAC. We note the revised system of Codes for which authorization is sought in these proceedings as the product of this effort to respond to changing needs. However, despite this program of institutional improvement which is designed to allow and encourage a proper responsiveness to changing needs, the Tribunal heard much contrary evidence. There were numerous instances of complaints about particular advertisements; the outcome of which fell short of the Tribunal's view of what might ae re ey tee eee ; rraen ep eee ae = as-y - -~e 92. reasonably be expected from a system of self regulation which claims unusual sensitivity to community attitudes and expectations. We note also that certain constructive institutional changes, namely, provision for public health representation in working parties advising on cigarette and alcohol advertising, as well as on therapeutic advertising, had not been advanced to the obvious and necessary conclusion despite three years of consideration. The Tribunal understands and accepts that members of the advertising industry who work within the Media Council's system of Codes will not speak with one voice. Indeed, their diversity of opinion will contribute to healthy questioning of the Codes and relevant procedures. We accept also that the interests involved will exhibit a proper protective concern for the well-being of an industry that is subjected to constant criticism, often without intelligent regard for the legitimate commercial role of advertising in society. However, the Tribunal also accepts that community attitudes, in particular community expectations, as to proper advertising behaviour are at least as diverse as opinions held within the advertising industry and that significant and legitimate streams of opinion will not necessarily be reflected in the membership of the Media Council and advertising industry committees. We do not see Australian community attitudes as a single recognisable body of opinion held fairly generally, with a few aberrant minorities on the outskirts to whom no regard need be paid. On the contrary, we see Australians as sharing a few important and fundamental values but otherwise exhibiting a healthy diversity of attitude and opinion on DN tee ae ere so eee ce a5 Gn 93. matters that affect them, including advertising. Among the shared community values, in the Tribunal's view, is a deep belief that no narrow group has a monopoly of wisdom. The Tribunal concludes that a system of advertising codes that, in its substance, reaches beyond the provisions of the law must, if it is to result in public benefit, be well founded in a balanced, sufficient and current understanding of the diverse and evolving pattern of community values and of the shifting expectations as to proper advertising behaviour that at any time are derived from them. We conclude that the necessary basic understanding of public attitudes is not satisfied by the advertising industry's "collective wisdom", unless leavened by significant and varied outside inputs and involvements. 13.4 The issue of generally expressed rules and their interpretation We have already noted that many rules are expressed in very general terms and that these "soft" rules are especially directed to the control of advertising deemed to be harmful and offensive. Generally expressed rules that go beyond the requirements of law and that are enforced through a system of private regulation pose difficulties for the Tribunal in assessing benefit. For benefit to be found, the Tribunal must be satisfied that such rules genuinely reflect community attitudes and expectations and do not unnecessarily deny other significant and legitimate viewpoints. Further, because the interpretation of generally expressed rules within a system of private regulation has evident pitfalls, the Tribunal must be a wy 94, satisfied that the Media Council's Code system will interpret, apply and enforce the rules in an equitable and scrupulous manner and not so as to generate overriding anti-competitive detriment. We concluded in Section 13.3 above that the perceptions of the advertising industry as to community attitudes do not sufficiently ensure that community values and expectations are adequately reflected in the Codes as formulated and therefore, need to be supplemented by significant and varied outside inputs and involvements. This conclusion has special force in relation to the application of generally expressed rules. Certain rules do little more than avow an evident community expectation and presumably are intended to remind the reader rather than to provide a practical basis for determining breach and enforcing sanctions. Rule 1.1 of the Cigarette Advertising Code is an example. Some other rules and parts of rules prohibit conduct in general terms that are nevertheless capable of ready interpretation and enforcement. Examples of these are the Advertising Code of Ethics, Rule 2.13; Cigarette Advertising Code, Rule 2.4; and the Alcoholic Beverages Advertising Code, Rule 2.4; all of which are directed to the protection of children. Such rules appear likely to conform to community expectations and to allow some benefit. Code rules that limit the application of the Codes to "a reasonable person in the class to whom the advertisement is directed" introduce serious difficulty for the Tribunal and are considered in detail in Section 13.5. Such rules as these also illustrate the point that, where "soft" rules have force beyond the requirements of law and an 95. where their drafting allows a very wide range of interpretation, the consequent demands on the adjudicative processes, if public benefit is to be realized, are very great and may be unreasonable. Also, the scope for deficiencies and inconsistencies in interpretation represents a signficant anti-competitive detriment. As to the reformulation, application and enforcement of "soft" rules the Media Concil's system includes processes of Code review, screening prior to publication or broadcast and adjudication of complaints by tribunals. These are conducted with evident cost efficiency and (except with regard to Code review and reformulation) avoidance of undue delay. Generally expressed rules are intended, in their application, to discipline the behaviour of advertisers and advertising agencies in generating specific advertisements. The Tribunal accepts that members of the advertising industry will normally behave responsibly and professionally with an eye to the guidance available in the Codes. However, we also note that advertising is a rivalrous activity directed to competition among products. Advertisements and the work of advertising agencies are inevitably judged commercially for originality and for distinctive impact on potential buyers. We do not doubt that the designers of advertisements in reaching for commercial advantage explore the boundaries of meaning of the terms of generally expressed rules, and sometimes seek to blur those boundaries. It therefore falls to those who formulate "soft" rules and those who interpret them to perform their duties with a clear and constant regard for that aspect of the public interest that justifies Leerssen ay Ae peter oo --- vee 96. the existence of the rule. The formulation of "soft" rules to avoid harm and offence and the adjudication of complaints that these rules have been infringed, requires sensitive and timely interpretation of community attitudes and values. The capacity of CASA and its various committees and of the ASC to perform what is required of them in this respect is pivotal to the generation of benefit from the application of these rules. Their relevant capacity, in the Tribunal's view, will be related in some degree to the membership of these bodies and their responsiveness to external inputs. The issue of outside participation in the Media Council system is considered in Section 13.6. 13.5 The issue of "directed" advertising The application of the Codes is subject to the overriding effect of Rule 1.3 of the Advertising Code of Ethics which states: "The conformity of an advertisement with this Code will be assessed primarily in terms of its probable impact taking its context as a whole upon a reasonable person within the class of those to whom the advertisement is directed." It was said in evidence that this provision has practical value in that an advertisement cannot be reasonably assessed except in the context of its target audience and in the context in which it is published. In the opinion of the Tribunal this alleged justification Must be balanced against the obvious defect of the provision that it ae ew perenne ek 97. greatly narrows the grounds for finding breach of the Codes by allowing and potentially excusing advertising that might otherwise be found to be contrary to a specific rule or to the evident intent and spirit of the Codes. We heard evidence that in practice advertising can be focused in the direction of the reasonable member of a targeted group, but that it is not practicable to confine the impact of advertising to that group as there is invariably some "spillover" to others. The Tribunal accepts that in the normal practice of advertising, advertisers require that advertisements should appeal especially to the class of consumers that constitutes the prospective purchasers of the product. In advertising parlance, the advertisement is "directed" to its "target" market. Furthermore, in normal advertising practice, the fact that mass media "broadcast" the advertisement more widely than to the target audience is irrelevant, except as a possible inefficiency. [In some cases, cost effectiveness will demand that the advertisement be placed in specialized media rather than in mass media, but where mass media are used the advertiser accepts that the advertisement will be seen and noted by many who are outside the target audience. If unexpected buyers might be reached, that would be commercially beneficial. The context of these proceedings is quite different. In the Codes, the concept of "directing" advertising is applied so as to exclude advertising impacts of any advertisement outside the alleged target audience from the application of the Codes on grounds of public 98. interest or public offence, unless another specific Rule applies. The effect of this is generally to exclude the "spillover" effects of advertising from the force of the Codes, a concept which clearly might be adverse to the public interest in some circumstances. In this context private interest does not necessarily coincide with public benefit. This issue was sharpened in evidence and there was argument about certain cigarette advertisements for "Alpine" and "Peter Jackson" cigarettes tendered by the ACA as evidence of faulty adjudication of complaints. These products are commonly advertised with a claimed target audience of young adult smokers in accordance with Rule 2.1 of the Cigarette Advertising Code: "The content of cigarette advertisements shall be directed only to adult smokers and only intended to effect or deter a change of brand." The advertisements rely on strong visual images of young adult smokers in pleasant and active social situations. Sometimes those images depict young adult smokers in scenes displaying varying degrees of sexual intimacy. A diverse society like ours tolerates some degree of sexual display in advertising. However, when appeal is made to the young, including those at the stage of puberty, by sexual overtones coupled with the smoking of cigarettes with evident acceptance by their peer group, it makes nonsense of the claim that' cigarette advertisements are directed only to adult smokers. These advertisements are protected by Rule 1.7 of the Cigarette Advertising Code which is in similar terms to and reinforces the application of Rule 1.3 of the Advertising Code of Ethics. Rule 1.7 of the Cigarette 99. Advertising Code states: "The conformity of an advertisement with this Code will be assessed primarily in terms of its probable impact taking into account its content as a whole upon a reasonable person within the class of those to whom the advertisement is directed." The acceptability of these advertisements in relation to the Codes and to the wider public interest was argued at length before the Tribunal. Particularly in issue was the ACA's contention that these advertisements plainly have strong appeal to adolescents and might be expected to encourage them to commence smoking and thus clearly contravene Rule 1.1 of the Cigarette Advertising Code: "In essence, advertisements for cigarettes shall not encourage people, particularly the young, to start smoking or encourage existing smokers to increase their consumption." This contention was supported by evidence that the advertisers may themselves have had the intention to appeal to young potential smokers in that similar advertisements had been placed in magazines narrowly targeted to adolescent audiences. Many of the matters argued before us in respect of cigarette advertising warrant no conclusion by the Tribunal. It is possible, as the advertisers argued, although the Tribunal finds it barely believable, that advertising of cigarettes is effective only in encouraging or deterring a change of brand and has no effect in encouraging smoking. The Tribunal notes the reality of professional public health tee erg oe 100. concern about smoking as a hazard to health. It accepts the imperative of public policy reflected in legislation which includes the prohibition on advertising of tobacco products on radio and television and the recognition that the young should not be encouraged to smoke. We note the explicit recognition of that imperative in Rule 1.1 of the Cigarette Advertising Code. The application of Rule 1.7 of the Cigarette Advertising Code with respect to the "direction " of advertising is nowhere explicitly countervailed in the Codes so as to apply an overriding prohibition of advertising of cigarettes that has a strong and evident appeal to children and adolescents, whatever the reputed "direction" of the advertising. This is an obvious deficiency in the Codes. The Tribunal concludes that Code rules limiting the application of the Codes to reasonable people "within the class of those to whom the advertisement is directed" seriously diminish any benefit that is potential in the Codes as a whole. In particular, the Tribunal sees the application of Rule 1.7 of the Cigarette Advertising Code, as presently drafted, as harmful. 13.6 The issue of outside participation in Code revision and Code interpretation The ACA submitted certain recommendations for changes to the Media Council's Code system which were substantially directed to formal representation of public health bodies, consumer and other special interest organizations in the membership of CASA and the ASC. In effect, such representation was argued to be necessary if te mtn neat t sop ee ~rewer 101. sufficient benefit is to be realized otherwise the procedures for Code review and revision and for interpretation and adjudication would not adequately reflect community attitudes. In Section 13.4 above, the Tribunal stated its conclusion that the necessary basic understanding of public attitudes is not satisfied by the advertising industry's "collective wisdom" and that a leavening of significant and varied outside inputs and involvements is required. We are concerned about the ASC as presently constituted while readily accepting certain aspects of its membership and procedure. In the Tribunal's view the current level of effective outside contribution to the review and revision of Codes and to _ the adjudications of the ASC is patently deficient and must be remedied if the Codes are to be authorized. The concluding section of this determination amplifies this conclusion. The Tribunal has doubts as to the merits of solving these problems by the appointment of persons as strict representatives of certain organizations. Various options are available to the Media Council to modify its present rules and practices with respect to this matter. The Tribunal notes and accepts the view expressed by industry witnesses in evidence that direct representation of specific organizations could be disruptive and harmful to the smooth operation of the regulatory procedures and that alternative methods of assuring sufficient public inputs are available. 13.7 The issue of the Therapeutic Advertising Code woes pene ee weyee eee sae mega nee epee Ao 102. The Therapeutic Advertising Code exhibits a complex intermingling of requirements that are founded in Commonwealth or State law with other requirements that are not. The Code is founded on an established body of law and administrative practice as advised by some medical authorities and purports to be directed to the public interest by limiting therapeutic advertising claims that are dangerous, poorly justified or that may encourage treatments that are best conducted under medical supervision. The Broadcasting and Television Act (s.100) provides that no medicine shall be advertised except with the approval of the Secretary of the Commonwealth Department of Health. State legislation varies, but in substance controls the distribution and advertising of medicines and _ the advertising of certain therapeutic goods as prescribed by regulation from time to time. The Therapeutic Advertising Code simplifies and extends the reach of these laws and applies a highly detailed list of prohibitions and qualified prohibitions to all medicines and other therapeutic goods and not just to medicines and certain prescribed therapeutic goods as required by law. It is this significant and often rigorous extension of the ambit of application of law through the operation of the Therapeutic Advertising Code that is of concern to the Tribunal as to its benefit and anti-competitive detriment. The Tribunal is further troubled by evidence of the working of appeal procedures as exemplified in the case of Bionic Products Pty. Limited. Bionic Products Pty. Limited ("Bionic Products") is a Sydney hoe A i poco 7 y on 103. company which distributes negative ion generators. It submitted evidence claiming, in effect, that the operation of the Therapeutic Advertising Code unfairly prevents the company from advertising a product which is permitted by law to be produced and sold. It also claimed that adequate procedures for appeal from the relevant decision are not available. It advertised its product for several years until the advertising was forbidden under Rule 2.12 of the Therapeutic Advertising Code relating to testimonials which provides: "Use of testimonials will not be approved except where exemplary evidence can be given to support them, in that the person giving the testimonial did indeed use the product over the period claimed and achieved the results so claimed, and where accepted medical evidence is not in conflict with the testimonial given." Bionic Products sought to publish some testimonials as to its product from persons with qualifications and experience other than conventional medical qualifications. It is not the place of this Tribunal to rule as to the merits of the matter in dispute. However, the claims and the evidence adduced on behalf of the Media Council to refute them aroused some disquiet in the Tribunal relevant to the assessment of benefit and anti-competitive detriment resulting in practice from the Therapeutic Advertising Code. It appears to the Tribunal that the relevant appeal body within the Media Council's system chose to rely on advice from the Commonwealth Department of Health and that subsequent direct discussions between Bionic Products and the Department were conducted as if the Department were the body determining the matter under s.100 of the Broadcasting and Television Act. A further appeal to the 104. Minister for Communications, as if the product were covered by the provisions of the Broadcasting and Television Act (which 1t plainly is not), did not advance the matter. Further reference to the Commonwealth Ombudsman elicited his conclusion that "an advertiser can ba deprived of an opportunity to advertise a product by adverse decision of the Department of Health, against which he has no effective review" and said further that "if (the Department) wishes to continue to accept responsibility to censor advertisements about goods for therapeutic use, other than medicines, it is desirable for it to seek statutory authority to do so". In the view of the Tribunal the Bionic Products case calls seriously into question the benefit resulting from the application of the Therapeutic Advertising Code in so far as it restricts advertising claims that neither transgress the law nor offend public propriety and illustrates also the scope for anti~competitive detriment arising from its application. The capacity of the Media Council's system of private regulation to abdicate its adjudicative responsibility to a department of government, however professional and well-advised, and without appeal for the affected advertiser except in effect to the same department, does not accord with the Tribunal's view of sound and equitable practice. We give further consideration to the issues raised by the Bionic Products experience at Section 13.8.2. 13.8 The issue of impacts on the markets for advertised products The ACA submitted that an "unduly restrictive interpretation of impermissible advertising claims", and "an unduly conservative interpretation of the taste and decency constraints", can "constitute er pens - 105. a clog upon enterprise" and upon the entry of new firms. It was said that there was some evidence to support such fears, with particular reliance placed upon the Bionic experiences. The Media Council and the interveners supporting its case disagreed with these submissions of the ACA and submitted: While the Codes restrict the type of message an agency may create for a client, the creativity of advertising agents minimizes the practical effect of any restriction: strong rivalry between advertisers remains, albeit taking a different form. There is no dampening of competitive activity by restrictions being imposed upon comparative advertising. Only unfair and misleading disparagement is prohibited. The Alcohol and Cigarette Codes do not raise barriers to entry against new entrants. While, for example, in the Alcoholic Beverages Advertising Code Rule 2.3 states that "Advertisements for alcoholic beverages shall be directed only at increasing brand or beverage share of existing markets, rather than promoting any increased consumption of alcoholic beverages." This is not interpreted as preventing the entry of new beverages or brands. The Code has in fact been amended to ensure appropriate advertising of lower alcohol beverages. It is true that for some products which would fall within the noe Pant Y yeoce 106. Therapeutic Advertising Code, the rules do present a significant barrier to entry. But the restrictions are designed in the public interest to eliminate unsubstantiated claims and to prevent the entry of products into the market place that would be harmful or dangerous; either by their very use or by the encouragement to self medication; that is, without resort to medical advice from properly qualified medical practitioners. In the case of the negative ion generator, Bionic Products was not prevented from competing as it could advertise its product; although not by publishing testamonials which were unsupported by accepted medical evidence. Bionic Products has no cause for complaint as its case was carefully reviewed by the existing appeal committees to ensure that the product was treated in accordance with Therapeutics Advertising Code Rule 2.12. There is no evidence of widespread complaint by business persons, whether they be advertisers or agencies. The media are motivated to implement only those restrictions upon advertising that have widespread public support. In the Tribunal's view much of the evidence and argument that was directed to the issue of anti-competitive detriment was inappropriately directed, as too much attention was given to possible impacts upon the markets for advertised products and too little to the market for advertising messages itself. In our view, the major 107. anti-competitive detriment of the Codes lies in their impact upon the content or quality of advertising itself, as we discuss elsewhere. Whether or not advertisers or agencies object to the rules is then at times besides the point, as is the mere existence of rivalry between them. It is not the fact of rivalry that is important but its form; that is, the precise content of advertising messages that may be permitted. It is true that, in so far as the Codes change advertising content, they may to a degree affect the demands of consumers for advertised products and hence the very shape of the economy. They need not necessarily raise barriers to entry to particular product markets or enhance the market power of existing participants in those markets. Thus, the Codes need not necessarily give rise to direct anti-competitive detriment in the markets for advertised products. The anti-competitive effects would then be of an indirect and flow-on character with distortions stemming from the direct impacts of the Code system upon the market for advertising messages. Nevertheless, there is evidence of a direct anti-competitive detriment resulting from the impact of the Codes upon the markets for advertised products. We review the evidence under three headings. 13.8.1 Comparative advertising and disparagement The ACA and some of its witnesses were inclined to argue that the Codes unduly inhibit comparative advertising and thus protect the entrenched positions of existing suppliers. We have examined the evidence on this point carefully, especially that relating to the work sata 108. of the JcDC, and find that the criticism is not supported by the evidence. We note that the Charter of the JCDC restricts that body to adjudication on a "specific identifiable, misleading and/or unfair disparagement of a particular product or service provided by a competitor". Further, the provisions of Part V of the Trade Practices Act offer an alternative forum which may be open to any particular advertiser who might feel aggrieved by his competitor's conduct. We have examined the confidential record relating to twenty-four recent complaints and have been impressed by the responsible approach demonstrated therein and the robust attitude to any relative advantage that might ensue to the successful party. Of the twenty-four complaints, twelve were dismissed, five were upheld, two were resolved by the parties, four were outside the Charter and one was withdrawn in favour of legal action. We accept the contention that the JCDC is a quick and inexpensive forum for the resolution of disputes between competitors regarding fundamental honesty in advertising (that is, the prevention of misleading claims or emotive and comparative references with no factual basis). The Code rules and the Committee exist in the first instance to protect the reputable producer. However, the evidence supports- the conclusion that they also operate to protect the consuming public. 13.8.2 Therapeutic claims We are less reassured by the evidence relating to therapeutic claims. We accept the submission of counsel for the Commission that wees et eee en ee vo esr were patsy e I rn ye 109. the Therapeutic Advertising Code operates as a significant barrier to entry for some products falling within the Code. Moreover we are not persuaded that the restrictions imposed in the non-legislated area of the Code are overall in the public interest. The difficulties encountered by Bionic Products in using testamonial advertising in support of claims for which there is some scientific support, albeit an absence of conventional medical evidence, are troubling to us. We think the issues posed by Bionic Products" treatment extend beyond the question of whether' the controversial advertisements offend an existing rule. There is the issue of whether the rule itself should not be changed to reflect more than conventional medical opinion. There is the more fundamental issue of whether there is a justification for the very existence of therapeutic rules extending beyond the extensive legislative requirements. There is the question of the role of the Department of Health as to whether it might not be acting beyond its statutory powers. These questions are important and concern us; but the material presently before us does not enable us to answer the questions. This absence of satisfaction on our part is a further reason why we are not persuaded that the restrictions imposed in the non-legislated area of the Code are overall in the public interest. Also, we are satisfied that the existing appeal structure is inappropriate as the TAC is entirely lacking in consumer or general public input since it is constituted by a mix of advertising industry and trade association representatives. 13.8.3 The committee structure and barriers to new competition rm ee et 110. We summarize the structure and membership of the self regulation committees elsewhere. When we consider possible anti-competitive detriment in relation to the markets for advertised products. There are two sets of committees that require scrutiny. These are the Code formulation bodies (CASA, the ABAC, the TPAC, and the TAC and its Working Party) and the prior clearance appeal bodies (the APB Review Panel with Final Appeal to the Chairman of the ASC, the FACTS/CAD Appeals Committees, the Codes Committee of FARB, and the TAC for some types of therapeutic appeals). What is both striking and disquietening is the almost complete lack of representation of the general consuming public or of persons standing quite apart from the system. In the whole array of committees listed above, there is only public representation at two points; the Final Appeal body against print clearance decisions (constituted by the Chairman of the ASC) and the sub-group Working party of the TAC (which includes a Department of Health member and has access to a medical adviser). There are, it is true, some industry representatives on TAC (4), ABAC (3) and TPAC (1), but in the nature of the case these represent well-established companies and established industry structures. The concern under this topic is with the risk, identified in Section 11.3, of the unjustified suppression of advertising claims. We see that detriment to the public may arise in two ways. First, the individual advertiser, as the ACA claimed, may be faced with an unduly restrictive interpretation of permissible advertising claims 'with no truly independent avenue of appeal. We think this is unjust. No safeguards have been designed into the system to prevent the arbitrary wore semen 111. and unfair treatment of individual persons and companies. Secondly, over and above the injustice that may arise from the treatment of individual claims, there is a certain inbuilt bias in design against the new entrant, the small advertiser and the novel product. We do not, however, attribute to members of these committees unfair motives. What we say is that wider representation of the public could result in a fresh, less conservative approach and sharpen the awareness of the consequences that could flow from the suppression of advertisements bearing on the entry of new firms, the introduction of new products, and the growth of small and medium-sized firms. Our concern is especially directed to aspects of the Therapeutic Advertising Code. The media are motivated to maintain and expand the flow of profitable advertising, but we do not think that they will necessarily always be alert to the public interest in publication of novel claims regarding new products of smaller enterprises. 14. THE FUTURE OF THE MEDIA COUNCIL'S SELF REGULATION SYSTEM There are obvious benefits in the rules of the Codes in so far as they reflect Australian law. We have specified those benefits earlier and need not repeat them in detail. These rules enable the broad content of the law to be expressed in plain language, readily understood by those within the Media Council system and the public and, generally speaking, they keep abreast of most of the relevant changes in the law from time to time. The real difficulty lies with the other rules, especially rules in the "soft" Codes which are primarily the Cigarette op eee v sere cee ee ee 112. Advertising Code, Alcoholic Beverages Advertising Codes and the Advertising Code of Ethics. Rules which restate in language of the layman the effect of the law and nothing more are readily susceptible to the element of public benefit. The Codes, however, go beyond this because they (especially the "soft" Codes) represent to a large extent a conglomeration of rules reflecting the law and rules reflecting the paternalistic, no doubt sometimes benevolent, attitudes of the Media Council, its instrumentalities, organizations and associations. They enter the field of judgement in respect of social mores, morals and ethics. They determine what advertisements, in the opinion of the relevant authorities within the system, each of us in the Australian community should read, hear and see. The law tends to reflect community attitudes and it was not so very long ago that the law imposed severe censorial constraints upon what people in the community could read, hear and see. The liberalization of thought and the development of democracy has diminished government intervention in these matters. Yet, there still is a fairly large area of government control or regulation in this area. It is in the field of electronic media that government intervention is at its highest, and this is embodied particularly in the Broadcasting and Television Act, as well as in the rules, regulations, directives and standards of the Australian Broadcasting Tribunal. Literature has been less prone to government intervention. Why should committees or bodies of men and women constituting the ASC or the other bodies of the Media Council system tell us what it is right for us to read, hear and see? These considerations are at the heart of the subject matters of this proceeding. os ay wwe ome pa 113. There is, we think, a powerful argument to support the view that there 1s no room for intervention of a voluntary system in the control of advertising matter beyond that which the law prohibits. If this view were accepted it would follow that a considerable content of the Codes before us for review would fail to meet the statutory tests prescribed by the Act. However, this very observation is itself controversial in our society. There are those who believe in no censorship, those who believe in strict control and those, probably most people, who believe in some balance between the two extremes. It was said by counsel for the Media Council that, to the extent that the Codes prohibit or restrict conduct beyond that which is proscribed by law, all they do is prevent the advertising of material which all Australians or the great majority of us would regard as offensive or harmful. Some of the rules or parts of rules do prohibit the advertising of matter which we think all or most people would regard as legitimately the subject of restraint. For example, advertising matter which stresses extreme violence or unduly plays upon superstition or fear (Advertising Code of Ethics, Rule 2.8). But the interpretation and enforcement of rules, even of this kind, rests toa degree upon the judgement of various bodies within the Media Council system; especially the ASC and CASA. To the extent that Code rules truly reflect prevailing community attitudes to which few, if any, would take exception we think they are capable of being for the public good provided the machinery adopted by the Media Council's system properly creates them, alters them from time to time as the need arises and effectively interprets, administers and enforces them. ycaeee ew ee 114. There is another class of rules which in our view cannot be supported. They are rules which suffer from uncertainty, ambiguity, internal inconsistency or are on their face unable to work properly in the public interest. There are rules which are capable of ready interpretation and which probably reflect the views of most members of Australian society. Some of these rules may also reflect in part laws of the community. An example is in the general Advertising Code of Ethics, Rule 2.9 which states: "Scientific, statistical or other research data quoted in advertisements shall be neither misleading nor irrelevant." There are some rules which, although on their face reflecting views which most Australians would probably endorse, depend for their interpretation and application upon judgemental considerations. They ultimately rest on formation of judgement or opinion of the relevant committees within the Media Council's system. Rules of this kind are, in our view, essentially in the public interest provided the Media Council's system of formulation, interpretation and enforcement of the rules works properly and effectively. Examples of rules of this kind are Rules 2.4, 2.7, 2.13 and 2.15 of the Advertising Code of Ethics, Rules 2.4, 2.7, 2.9 and 2.10 of the Cigarette Advertising Code, Rules 2.2, 2.4, 2.5, 2.8 or 2.10 of the Alcoholic Beverages Advertising Code, Rules 2.10 and 2.13 of the Slimming Advertising Code, and Rules 2.1.1.3, 2.1.1.4 and 2.6.1.3 of the Therapeutic Advertising Code. We dealt in earlier sections with the Therapeutic Advertising cere eee ye ee 115. Code. To the extent that it reflects the law it is in principle desirable. Some of its rules suffer from the defects of rules in other Codes to which we have referred. The Therapeutic Advertising Code, by the very nature of the products with which it is concerned, requires representation on relevant Code formulation, interpretation and enforcement bodies of persons with particular specialized knowledge and experience. We deal with this question a little later. The Tribunal is conscious of the need for close control of the advertising of goods for therapeutic use. The Therapeutic Advertising Code prohibits absolutely certain statements or references to large numbers of specified diseases, ailments, defects or injuries in persons: see Rule 2.2.2 and Rule 2.5.13. It prohibits, with some exceptions, certain statements or references to other specified diseases, ailments, defects or injuries in persons: see Rule 2.3 and Rule 2.4. This Code contains other rules, for example, Rules relating to Claims (2.9), Treatment (2.10), Professional Recommendation (2.11), Testimonials (2.12), Advertising Phrases (2.13), Disparagement (2.14) and Samples (2.15). Many of these are prohibitory in character and are based on assumptions that advertisements of certain kinds are undesirable. Some of the rules prohibiting, absolutely or partially, advertising of goods for therapeutic use or claims with respect to them are plainly desirable in the public interest; the benefit is self-evident. Others are not so evident or not evident at all. Some of the rules are plainly contentious in our community. We are not satisfied in all the circumstances that the sent Sn ener nn ee a 116. requisite degree of public benefit exists with respect to the Therapeutic Code except in so far as its rules reflect the law. As we propose to adjourn this proceeding our lack of satisfaction may (or may not) be removed by further evidence. It is possible that many of our reservations would disappear if the relevant bodies within the Media Council's system relating to this Code are restructured to include wider representation than they presently do. Thus, some Code rules should be abandoned, while others require reformulation. Some Codes as a whole require critical re-examination; namely, the Cigarette and Therapeutic Advertising Codes. In earlier sections we expressed misgivings about various components of the Media Council's system including its committees and councils. This is a critical aspect of our review. There is a need for wider public input (both as to participation and consultation) into the work of the Codes' formulation and complaint and appeal bodies within the system: the ASC, CASA, TAC, ABAC, TPAC, AMAA, appeal bodies and the Media Council itself. The representation of the media on the various bodies is disproportionate to other vital interests including advertisers, advertising agents and the public. There is a need for greater involvement within the Media Council's system of advertisers and advertising agencies. There is a real need for input from bodies concerned with consumer affairs and the welfare of children and adolescents and a need for an input from health authoritie&S over the whole range of Codes. Advertising vitally concerns and affects all people in the community, yet public representation is plainly inadequate. Public confidence must exist in woe pee a 117. a system of regulation that so vitally appeals to the public. There is a clear need for the Media Council and its constituent and affiliated organizations to look closely at the Code system and restructure its various committees and councils. The membership of these bodies within the Media Council's system should reflect the diversity of Australian society in matters such as age, sex, background, ethnic origins, colour and regionalism. We refer to regionalism because Sydney appears to be the predominant influence on the Media Council's bodies. Doubtless this reflects the fact that until recently Sydney was the headquarters of the major media interests. This is no longer the case. We refer to two of these bodies only. The Advertising Standards Council. There are, at present, industry and public members of the ASC. The public members are in the majority. Although we have not heard from the AANA in this matter serious consideration should be given to whether the interests of advertisers are sufficiently represented on the ASC. Without, in any way, seeking to detract from the quality, ability or integrity of the members of the ASC, the manner in which public members are selected (that is by the Chairman), without the necessity for any conditions of eligibility of membership, will not be productive of public confidence. In the regulation of an industry that so vitally affects consumers, where the regulation is done largely by the industry itself and purports to serve the community as a whole, public confidence in the system must exist. Spee a tee es poceee 118. The vigorous complaints that have been launched against the system by the ACA and supported by others suggests to us that the Media Council should itself, together with its affiliated bodies, look closely at the constitution of the ASC and reshape it and its rules so that, so far as public members are concerned, they include some persons knowledgeable of the interests of the public; including the young. One point we see as important in any restructuring of the ASC's membership is that properly to reflect changing community attitudes temporal limits should be placed upon membership of the ASC thus ensuring limited duration of office. Whether this is done by amendment to the ASC's Constitution to provide for rotation of membership or by some other amendment is not a matter which we propose to consider. The ASC and other relevant bodies should attend to that. Whether appointment of the ASC's members should be by its Chairman, the ASC itself or others is not a subject on which we propose to express any views. The appointing person or body should at least consult, and be required by its rules to consult, appropriate public interest bodies including those concerned with public health, consumer affairs and the welfare of young children and adolescents. We would add that we see considerable benefit in the Chairman of the ASC being a person with legal training and experience such as the present Chairman and his predecessor. The Codes and Standards Authority. We generally make _ the same comments with respect to CASA and its Advisory Councils as we ee res eee error st ostps s oag merre ae oe 119. have with the ASC. In addition, serious attention should be given to increasing the degree of consultation on questions of revising and implementing the MCA's Codes between CASA and representatives of appropriate health and consumer organizations and bodies concerned with the welfare of children and adolescents. We see considerable force in the suggestion of the ACA that CASA should furnish to the Commission a report to be placed on its public register which describes the consultations to which we have just referred and their results. We mentioned in earlier sections that existing rights of appeal within the Media Council system are inadequate. The Media Council should provide a clearly expressed, well defined and fair appellate structure, to include membership of outsiders, within its Code system. It falls short at present. Outdoor and cinema advertising have characteristics and effects different from other advertising. Outdoor advertising may be visible from some directions or places and not others. The impact may be momentary (e.g. visible for seconds to drivers of cars). Cinema advertising has a highly captive audience unlike some forms of advertising. Little evidence was given about these forms of advertising. When considering any revision of its Codes, the Media Council should have regard to any special or peculiar problems or needs of these two forms of advertising. For example, should a special rule exist for outdoor or cinema advertisements for cigarettes as to the health warning (presently Rule 2.5 of the Cigarette Advertising Code)? There is a strong case for saying that the health warning generally, but especially for outdoor and cinema advertising, 120. should be in print or writing relative, in some specified proportion, to the size of the print or writing of the advertisement itself. Although we are satisfied that some elements of the Codes (e.g. rules which only reflect the law), if viewed in isolation from other elements, would satisfy the statutory tests of public benefit it is ultimately impossible to sever the elements. We are not satisfied that the Codes under review would be likely to result in overall benefit to the public. Nor are we satisfied that such benefit as does exist would outweigh the detriment to the public constituted by any lessening of competition that would be likely to result from the implementation of the Codes. The tests propounded by sub-ss. 90(6) and (8) of the Act have not been satisfied. However, the Media Council's Code system is capable of satisfying these tests if its house is put in order. This task should be undertaken by the Media Council and its constituent and affiliated organizations in the light of our findings. It is best done, at least initially, in-house. We propose to allow a reasonable time for this to be done and to adjourn the proceeding for this purpose. There is a final observation which we propose to make. This is the first occasion on which the Media Council's self regulation system has been comprehensively reviewed by a public body which has taken evidence and had the benefit of argument from interested persons. The Media Council's system has now been in operation for many years and perhaps it is not surprising that as time passed the st eee ——_——. 121. system has shown evidence of some degree of parochialism and unresponsiveness to changes in community attitudes and values. Yet the system of self regulation has intrinsic worth; but it should be less wide and indiscriminate in its coverage. We see the role for self regulation as being smaller, although sharper. It should give particular attention to misleading and deceptive advertising, the spillover effects of advertising said to be directed to certain sections of the community and to the impact upon children and adolescents. The central issue posed by this proceeding is whether it is possible for a private regulatory process, whose enforcement is an exercise of market power, to be sensitive to and reflective of community standards and values so that its decisions contribute to the welfare of our society. The present Code system cannot be so characterized. Whether it is possible to amend the Code rules and the system of their implementation so as to satisfy this criterion remains to be seen. We think there is sufficient present benefit and prospect of future benefit to make the attempt very worthwhile. When our findings have been considered by the Media Council the matter may be restored for any further hearing on the question of the imposition of conditions on authorization. It may be that the changes required to give effect to our findings are so extensive that conditional authorization would be inappropriate. In that event it may be necessary for the Media Council to seek fresh authorization to its amended Code system. However, it is to be hoped that, so far as possible, these questions may be satisfactorily resolved on a resumed hearing and, to the extent that the Tribunal is able to offer guidance we wep oS Cc) may _ 7 ee ee - a ~ ef rr is re an . ". a mite a et oe ee eee ne ee A te De Ne . 122. to the Media Council with respect to any proposed changes, we shail do SO. SCHEDULE A WITNESSES - OCCUPATIONS Allan James Asher: George Patrick Auld: Belinda Jan Boden: Simon Fenton Chapman: William George Childs: Bruce Donald Cormack: Peter Cullen: Michael Matthew Daube: John Anthony Dollison: Roland George Muir Everingham: Desmond Lionel Foster: John Michael Furlong: Brian George Gapes: John Alfred Gilder: Former Public Affairs Manager, Australian Consumers' Association. Executive Director, Media Council of Australia. Administrative Secretary, Advertising Standards Council. Director of Health Promotions Services, South Australian Health Commission. Director of Broadcast Practices, FACTS. Federal Director and Chief Executive Officer, Advertising Federation of Australia Ltd. Consultant in Government - retained by Bionic Products Pty. Ltd. Executive Director of Health Promotion and Education Services, Health Department W.A.. Chief Executive Officer and Company Secretary, Tobacco Institute of Australia Ltd. Deputy Assistant Director, Australian Federation of Consumer Organizations. Federal Director, Federation of Australian Media Broadcasters. Secretary, Australian Publishers' Bureau. Advertising Administrator, Australian Cinema Advertising Council - Outdoor Advertising Association of Australia. Chairman, Joint Committee on Disparaging Copy. Martin Joseph Hartcher: Richard Clarance Kirby: Paul Christopher Magnus: Brian Antony Monahan: Carmel Josephine Niland: Maynard Rye: Garwin William Rutherford: Brian Leonard Sallis: Ruth Elizabeth Shean: Andrea Joy Shoebridge: Paul Burcher Toose: Peter Samuel Vogel: Richard Ewan McDonald: Diana Hardwick Wyndham: 2. Dxecutive officer, Federation of Australian Radio Broadcasters. Former president of Commonwealth Conciliation and Arbitration Commission. Former Chairman of Advertising Standards Committee. Medical Associate to the Director, National Heart Foundation. Chairman, Monahan Daymen Adams Ltd.; Chairman, Advertising Federation of Australia. President, Anti-Discrimination Board (NSW). Deputy Manager, Australian Consumers' Association. Chief Executive, Broadcasting Station 25M. Group Managing Director, Advertising Newspapers Ltd. Director, Australian Council on Smoking and Health. Education and Research Officer, Alcohol Advisory Council W.A. Incorporated. Former Justice of the N.S.W. Supreme Court; Chairman, Advertising Standards Council. " Director of research and development of an electronics company. Assistant Secretary, Wilson Therapeutic Goods Compliance Branch of Dept. of Health, Canberra. Member of the Women's Electoral Lobby, NSW; Head of Research and Information, Australian Film and Television School. a a a AAIC AANA ABAC ABT ACAC AFA AFCO AMAA AMPA APB ASC CAD CASA CCAC FACTS FARB JCDC Media Council OAAA TAC TPAC SCHEDULE B Abbreviations Australian Advertising Industry Council. Australian Association of National Advertisers. Alcoholic Beverages Advisory Council. Australian Broadcasting Tribunal. Australian Cinema Advertising Council. Advertising Federation of Australia Limited. Australian Federation of Consumer Organizations. Australian Media Accreditation Authoruty. Australian Magazine Publishers Association. Australian Publishers' Bureau. Advertising Standards Council. Commercials Acceptance Division (FACTS). Codes and Standards Authority. Commercials Clearance Appeals Committee (FACTS). Federation of Australian Commercial Television Stations. Federation of Australian Radio Broadcasters. Joint Committee on Disparaging Copy. Media Council of Australia. Outdoor Advertising Association of Australia (Inc.). Therapeutic Advertising Council. Tobacco Products Advertising Council. gee arr, r COUNSEL AND SOLICITORS Counsel and Solicitors for Australian Consumers' Association Counsel and Solicitors for the Media Council of Australia, the Federation of Australian Commercial Television Stations, the Federation of Australian Media Broadcasters, the Australian Publishers Bureau, the Australian Media Accredition Authority, the Australian Cinema Advertising Council and the Outdoor Advertising Association of Australia. Counsel and Solicitors for The Trade Practices Commission Counsel and Solicitors for the Advertising Standards Council Solicitor for the Advertising Federation of Australia Solicitor for Rothmans of Pall Mall Australia Limited Solicitors for Phillip Morris of Australia Limited Solicitor for the Tobacco Institute of Australia Limited Dates of Hearing: Date of Decision: I certify that this and the (2&— preceding pages are a true copy of the Reasons for Decision of his Honour Mr. Justice Lockhart, President, Professor M. Brunt, Dr. B.I. Aldrich. - 21334 M. Blakeney instructed by Messrs. Yandells Dennis & Co. R.P. Meagher Q.C. with J.D. Heydon instructed by Messrs. Dawson Waldron P. Comans instructed by Australian Government Solicitor. M.J. Slattery instructed Messrs. Barwick & Co. G.Q. Taperell of Messrs. Baker & McKenzie. J.W. Lees of Messrs. Clayton Utz. J.P. Vohralik & J.B. Pender of Messrs. Sly & Russell. A.R. Anisimoff of Messrs. Anisimoff Davenport & Co. 19, 20, 21, 22, 25, 27, 28, 29 August 1986 2, 3, 4, 5, 9, 10, 11, 12, 16 and 17 September 1986. 31 March 1987. we pe ee