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[In-depth article] BioLIEgi: Unpacking the recent Biologi court findings and what it means for the cosmetics industry

by | Nov 15, 2023 | Business, Compliance/Legislation, Legal, Marketing Claims | 0 comments

The beauty industry has been abuzz in the past fortnight after the initial judgment was handed down in a landmark Federal Court case between Lisa Carroll from Native Extracts and Ross Macdougald, along with his associated businesses including Plant Extracts, a manufacturer of plant extracts, and Biologi, a skincare retail brand.

This legal verdict confirmed the suspicions long held by many industry insiders, and it’s only fair that consumers are now fully informed too.

This is the biggest thing to ever happen in the Australian skincare industry – or at least in the 8 years I’ve been in it!

It’s not an isolated case, but indicative of a widespread issue within the industry where false claims and misinformation run rife – often at the expense of the consumer.

In this article, I’ll delve into the reactions to these court findings, the impacts and lessons learned, and ponder what it all means for the future of Australia’s cosmetics industry.

 

Background of the 3-year Federal Court case

On 31 October 2023, Lisa Carroll issued a press release through the Native Extracts mailing list, announcing a court ruling that required Plant Extracts and Biologi to publish eight corrective notices to correct various misleading claims.

These included false representations about:

  • Independent analytical testing being completed for its products (various Certificates of Analysis belonging to Native Extracts were modified by Plant Extracts);
  • Organic certification (Biologi had previously used the Organic Food Chain logo of Native Extracts);
  • High levels of Vitamin C content (no Vitamin C was found in the Bf and Bk serum products);
  • Products being ‘pure plant’ and single ingredient (Biologi’s products were found to also contain glycerin and be diluted);
  • Being the first company to stabilise natural Vitamin C (Native Extracts had previously done so); and
  • The existence of a compound named Byangelican (which was found not to exist).

Full details can be read in the judgment: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2023/2023fca1265.

Late in the court proceedings, Ross Macdougald, Biologi and Plant Extracts amended their defence, admitting many of the allegations and agreeing to the corrective actions.

Lisa and Ross, once both in a personal and business relationship, co-created Native Extracts in 2012, but in 2016 Lisa purchased Ross’s shareholdings and he resigned as Director. The terms of sale were contained in a Deed of Settlement, including commercial terms and a restraint of trade prohibiting Ross from competing with Native Extracts. Plant Extracts was founded in 2016.

While some might view this as a personal vendetta or competitive sabotage, this lawsuit goes beyond personal motives. Few would invest three years and a reported $2 million in a legal battle without attempting to seek meaningful change. This is about taking a stand to safeguard customers and stockists, and advocating for fairness, honesty and transparency.

Following an Instagram story I posted on the day of the media release, my DMs were flooded with industry peers and former Biologi employees expressing their support for Lisa and the court’s findings.

 

Summary of the court order

The court order issued on 19 October 2023 mandates corrective measures by Biologi and Plant Extracts to ensure customers are aware of the false and misleading claims and prevent further misrepresentations being made by the companies.

Justice Downes emphasised the urgency, noting “I was particularly concerned…that the corrective advertising occurs as soon as possible” as consumers “were likely being misled”. For this reason, the court order was issued immediately at the trial’s conclusion, without waiting for the final judgment.

Corrective notices with detailed findings on the misleading and deceptive conduct were required to be published by November 2 (within 14 days of the date of the order) on various digital platforms of Plant Extracts and Biologi, including their websites, social media, and YouTube (see Annexures at the end of the judgment for the corrective notices: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2023/2023fca1265)

Plant Extracts and Biologi are also prohibited from repeating the misleading and deceptive claims identified in the case. The court ordered a total of $447,886 to be paid to Native Extracts by the other companies for compensatory damages, additional misrepresentation payments, and breach of the settlement agreement after Ross departed from Native Extracts.

There is a final judgment pending on the outstanding aspects of the case (not related to the false and misleading claims), including the final amount to be paid to Native Extracts in addition to these orders. But to be very clear, the orders published to date around the false and misleading claims are final and no further evidence can be submitted.

 

Responses to the court order

Interestingly, leading up to the deadline for publishing the mandated corrective notices, Biologi’s social media predominantly promoted a brand-new body scrub launching on November 1.

Shortly after, Biologi issued a letter to stockists about the court orders claiming to ‘have evidence refuting the claims’ and emphasising their ‘commitment to transparency and compliance’.

The corrective notices were eventually published on November 4, past the court’s specified due date. On Biologi’s main Instagram account, the corrective notices were included in a carousel post with a shadowy leaf in the first image. The five notices were combined in the second image, resulting in the text being noticeably reduced in size. The remaining three images included Biologi’s responses to each notice in clear text, which questionably ranged from admissions, disputes and attributions to mental health issues and past marketing staff.

The corrective notices were only published on the Biologi homepage on November 10, positioned just above the footer. Previously, from November 5, there was a less prominent link also just above the footer labelled ‘An update on Court Orders’, leading to a separate page with the notices and Biologi’s responses.

Plant Extracts took the same action on their website and social media. At the time of writing, no corrective notices appear on the Biologi YouTube and Biologi Russia Instagram pages as mandated by the court order.

Have these actions fulfilled the intent and requirements of the court order to sufficiently inform customers about the false and misleading claims? My honest opinion is no – the approach comes across as shady as the leaf concealing the corrective notices on Biologi’s Instagram feed. But I’ll leave that to the court (and you) to decide.

Lucy Kuper, Ross’s recent ex-wife and former Managing Director who left Biologi in July 2023, took to LinkedIn on November 9 to claim she was ‘blindsided’ by the court order and its findings, despite her heavy involvement in daily operations.

 

Impacts on the industry and consumers

The ripple effect of this court case cannot be underestimated. I initially learned about Lisa’s media release through a student in my Label Launchpad course. Several students felt disheartened, unsure of who to trust in the industry and how to compete with other brands making false and misleading claims. These are concerns which are no doubt shared across the skincare and beauty industry, including brand owners using Plant Extracts in their own products.

Biologi stockists, facing the busiest sales period of Black Friday and Christmas, find themselves in a particularly challenging situation. Responses have varied: Biome has chosen to stop selling the Biologi range until issues of ingredient transparency and honesty are resolved. Others still stock Biologi, awaiting further guidance, while some, disillusioned, have chosen to discontinue the brand.

Customers who have purchased Biologi products based on these misrepresentations over the years specified in the court order have every right to feel deceived in my opinion. However, due to limited media coverage and the manner in which the corrective orders were published, many would still be oblivious to the Federal Court’s findings.

 

Further developments to watch for

Several key questions remain that are likely to be addressed in the coming weeks and months:

  • What will be the fate of Biologi – will they be cancelled or will their loyal customers continue to support them?
  • Will Biologi’s customers, stockists, and brands that use Plant Extracts ingredients be compensated?
  • The lack of widespread media coverage is curious – will there be more articles published to ensure customers are adequately informed?
  • Will there be any repercussions for Biologi and Plant Extracts if they are found to have not complied with the court order?
  • Will Biologi and Plant Extracts file an appeal against the Federal Court’s decision and if so, can they provide the supposed evidence they hold to refute the claims?
  • Will the Australian Competition and Consumer Commission (ACCC) intervene with actions such as imposing fines for violations of the Australian Consumer Law?

 

Lessons for the cosmetics industry

Public court cases and regulatory fines should always serve as pivotal learning opportunities for the industry to evolve and improve moving forward. This case demonstrates the potential consequences of non-compliance with consumer laws and the importance of ethical practices in business.

Key lessons for skincare and beauty brand owners include:

  • Always be transparent and honest – it goes without saying that companies should act with their customers’ best interests at heart and act with integrity. However, for many businesses, financial gains often overshadow ethical considerations. Ethical practices shouldn’t solely be a tick-the-box exercise for compliance – they should be embedded in a company’s operations, values and culture, with the tone set from the top. Not just a line in a company statement when things go pear-shaped. A lack of genuine commitment to honesty and transparency can erode trust not only in the individual company but across the entire industry.
  • Prioritise regular compliance checks – upholding integrity in business practices is vital, but it’s also essential to regularly review your compliance. Ethical behaviour plays a big role in compliance, but even with the best intentions, inadvertent oversights can occur. Having regular independent compliance checks and audits conducted by an expert helps ensure you’re not accidentally violating any laws or regulations. Keep in mind that business dynamics change, so ask yourself: when was the last time you reviewed your compliance status?
  • Play fair – don’t seek an unfair competitive advantage by making false or misleading claims. It should be a level playing field. It’s also not fair to customers who expect you to be doing the right thing by them.
  • Take accountability – senior managers and directors have a duty to thoroughly understand their company’s operations and decisions. This means they must take accountability for shortcomings and failures instead of shifting blame. Accountability at the top is a necessity for maintaining ethical standards.
  • Be prepared to handle a PR crisis – how a company responds to legal issues and communicates them on social media platforms can greatly influence public opinion and brand loyalty – often more than the crisis itself! Address the issues head-on and take responsibility. Engage openly with enquiries and concerns, rather than avoiding or deleting unfavourable comments, to uphold your commitment to transparency. Develop a crisis management strategy with key messages ready to be executed with your PR team if needed.

Beyond the lessons for brand owners, there are some broader issues that warrant mentioning:

  • More regulator attention is needed – this case highlights the desperate need for more stringent enforcement of consumer law. While legal action is an option for addressing non-compliant practices, it often turns into a lengthy and expensive affair, impacting individuals and companies adversely. Regulatory authorities, such as the ACCC, need to take a more visible and active role in upholding consumer laws to ensure fair competition and protect the public. The last major fine for false and misleading claims in this industry, about $40,000 against Gaia Naturals in 2018, contributes to the perception that brands can make unsubstantiated claims with little consequence. Specific industry guidance and education around how to avoid making false and misleading claims would also be of value. There is a pressing need for the ACCC to expand its scope beyond just tackling greenwashing, to address a wider range of misleading claims within the cosmetics industry. This case might very well be the impetus for such change, a move that would be welcomed by both brand owners and regulatory consultants.
  • Consumer awareness and education is also much-needed – whilst consumers should be able to trust a brand’s claims, unfortunately this case highlights a growing need for consumer education about product claims and ingredients to empower customers to make more informed choices. As a consumer, remember that if something seems to be too good to be true it probably is! Ask questions to get the facts you need to guide your purchasing choices.

In summary, the widespread problem of skincare and beauty brands making false and misleading claims needs to be tackled from all angles – brand, regulator and consumer – to effectively address and resolve it over time.

 

What now?

The industry is at a crossroads, divided into three distinct camps.

Some in the industry will view this situation with a sense of apathy and resignation, thinking ‘It’s always been this way and always will be (darling).’ However, I strongly challenge this complacency! Should we really accept such low standards, both as industry professionals and as consumers ourselves?

Some brand owners out there will no doubt justify their non-compliance with, ‘Everyone’s doing it, so why should I stop?’. But that’s really NOT a valid excuse for being non-compliant for the reasons I explain in this popular LinkedIn post.

Others demonstrate a genuine commitment to ethical and compliant practices, with some going above and beyond the minimum compliance requirements to elevate industry standards and foster trust within their community.

Which camp do you sit in?

If you’re reading this thinking, ‘I want to do the right thing, but I’m not 100% sure if I’m compliant,’ then you’re my kind of person and you’re in the right place. My goal is to ensure you don’t find yourself in a legal bind like Biologi!

Avoiding false and misleading claims might seem straightforward:

  1. Refrain from making statements that could mislead your customers.
  2. Ensure you have solid evidence to support your claims.

(In summary – be a good human).

But navigating these areas isn’t always black and white, so I’m here to help you navigate the grey.

If you’re interested in how I can give you peace of mind you’re compliant, reach out and we can have a chat!

My DMs are also always open if you have any comments about this article.

I’ll keep you up-to-date with any significant developments as they arise.

Jen

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Jen28Apr22-191

Hi, I'm Jen

Founder of Skincare Business Foundations, I help ambitious beauty entrepreneurs to confidently launch, market and grow their brands (without the compliance wobbles).

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