This is an HTML version of Graham Greenleaf's final submission on ADMA's code.

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Faculty of Law

Graham Greenleaf

Professor, Faculty of Law

University of New South Wales

Sydney 2052 Australia

Phone (+61) 02 9697 2233 (UNSW)

Phone (+61) 02 9569 5310 (Home)

Fax (+61) 02 9385 1175 (UNSW)

Fax (+61) 02 9569 8384 (Home)

e-mail g.greenleaf

December 18, 1998

Mr JP O’Neill

Senior Assistant Commissioner

Adjudication Branch

Australian Competition and Consumer Commission

FAX: 6243 1211

Dear Mr O’Neill,

Submission concerning proposed Authorisation of ADMA Code

The purpose of this submission is to expand on two aspects of my verbal submissions at the Conference.

The significantly anti-competitive nature of ADMA’s Code

Neither ADMA’s submission nor the Draft Determination (Part 5) address sufficiently the anti-competitive detriment of ADMA’s Code, because they ignore the most important adverse effect.

Members of ADMA compete (using methods of direct marketing) in a number of markets to supply goods and services that are or could be in close competition. Numerous markets are relevant, wherever more than one direct marketer sells the goods or services that may be in close competition. It is not possible to enumerate these markets, as the technique of direct marketing can be used to sell any type of goods or services. In each case the market is comprised of the competing direct marketers and the recipients (consumers or businesses) of direct marketing approaches.

ADMA members compete in those markets inter alia by virtue of differences in the nature and quality of the direct marketing methods that they use. One of those differentiating factors is the extent of privacy protection provided by the direct marketing techniques that are used. Consumers may choose to buy products or services in part because of the direct marketing techniques used to sell them. This includes the way in which the direct marketer deals with aspects of their privacy, such as the intrusiveness of the communication and the way in which their personal information is used or misused.

My submission is that an effect of ADMA’s code is that it will discourage competition in the provision of different standards of privacy protection as part of direct marketing, and in particular will have the effect of discouraging the provision of standards of privacy protection which are higher than those contained in the ADMA code. This is a detrimental effect of the anti-competitive nature of the code.

ADMA’s code will have at least the following anti-competitive effects:

  1. The content of any Code which receives ACCC authorisation as being in the public interest is therefore legitimated as ‘all that the public has a right to expect’.
  2. Direct marketers will therefore be encouraged to think of this as ‘the industry standard’, and as all that needs to be offered. They will be indirectly encouraged to not provide any higher standard of privacy protection.
  3. Consumer demand for higher standards of protection from businesses will be blunted. There will be a tendency for consumer complaints to companies or regulators about the standard of privacy protection provided by ADMA members to be dismissed by references to ACCC approval, with the likely effect that consumers will not pursue such complaints. In the absence of a code, there is likely to be more persistent consumer demand for higher standards, resulting in less [Did Graham mean to say "more"? I will find out. - Robin.] competition to provide such higher standards.
  4. If uniform standards are set for privacy protection in all forms of direct marketing, this will discourage different levels and forms of protection being provided for direct mail, telemarketing and e-commerce, even though these three different contexts may justify different forms of protection. Such uniform standards will therefore lessen competition between actual or potential providers of similar goods and services in these different contexts. The ADMA code proposes such uniform standards.
I submit that the ACCC should give significant weight to these anti-competitive detriments and should take the view that they can only be outweighed for the purposes of s90 by privacy-protective provisions which provide a high a level of protection, as high a level of protection as consumers could reasonably expect.

Robin Whittle’s comments and examples in his submission of 16 December give examples relevant to these arguments.

Example: opt-in direct marketing

One crucial example of this problem is clauses 9.1 - 9.3 of ADMA’s Code, which encourage ‘opt out’ rather than ‘opt in’ as the basis of direct marketing. As other submissions have stressed, ‘opt in’ provides a far higher standard of consumer protection, and ‘opt out’ is a very contentious and dubious general standard for consumer protection in direct marketing.

Clause 9.1 means that where a consumer would ‘reasonably expect’ the use of personal information for direct marketing, the consumer need not even be given the subsequent option to ‘opt out’ on first contact provided for in 9.3. (This arises from the interpretation by the Privacy Commissioner of clauses 2.1(a) and (c) in the NPPs as ‘independent alternatives’, contrary to what some participants in the NPP discussions believed was intended.) In such cases, consumers do not explicitly opt-in, nor are they offered any explicit opt-out.

Clause 9.2 defines consent as including ‘’failure to opt out’ (note 7), thereby undercutting even an apparent choice between opt-in and opt-out as standards, by turning both into opt-out.

Clause 9.3 endorses opt-out use of information even if an individual ‘would not reasonably expect the information to be used for this purpose’ (note 8). The scope of 9.3 is also unclear, particularly as to whether it only applies to a business communicating with its own customers. If it has a broader meaning, as seems likely, then opt-out assumes even greater importance.

Because the ADMA code so comprehensively encourages ‘opt out’ (or less) as the industry standard, direct marketers will be discouraged from competing in the area of consumer protection by offering the higher standard of opt-in, and consumers will be discouraged from demanding it.

In addition, ADMA’s code makes no distinction, in relation to opt-in or opt-out as the appropriate standard, between direct mail, telemarketing and e-mail (electronic commerce). The contexts are different, and there are different considerations as to when opt-in rather than opt-out should be provided if consumers are to be satisfied with the level of privacy protection provided. For example, opt-out may be generally acceptable in relation to direct mail, opt-in the only acceptable standard for e-mail, and for telemarketing a default in favour of opt-in but with significant exceptions where opt-out is acceptable. The ADMA code will discourage the making of such distinctions in different marketing contexts, and therefore discourage those competing to sell the same goods and services (and therefore in the same market) through those different techniques from competing in providing different and appropriate levels of privacy.

On this key issue in direct marketing, the Code is anti-competitive. Unless a Code sets a sufficiently high standard, such as a more extensive opt-in requirement, there is no public benefit to overcome this anti-competitive detriment. I submit that there is more public benefit in intrusive direct marketing remaining contentious, not legitimated, as this contentiousness will encourage competition.

‘’National Privacy Principles’ and the public interest

At the Pre-decision Conference I made submissions as to why, in formulating the NPPs, the Privacy Commissioner was not explicitly concerned to determine the public interest or public benefit, but was more oriented to finding consensus, and how the informal procedures used by her provided no mechanism for public interest issues to be tested. As a result, I submitted, the ACCC must undertake for itself the very difficult task of determining what privacy standards are in the public interest, with only limited assistance provided by the existence of the NPPs.

Since the Conference there is now a major new development, with the Government’s announcement that privacy legislation will be extended to cover the private sector. As part of this process the Parliament will set privacy standards for the private sector. These are likely to be based on the NPPs, according to the Government’s announced intentions, but of course Parliament may see fit to make some modifications, and no doubt various submissions will be made to Parliament concerning this.

The relevance of this development is that there will soon be a Parliamentary process underway which will determine by legislation the standard of private sector privacy protection that Parliament considers to be in the public interest.

Furthermore, there will be a statutory procedure whereby proposed codes of conduct such as ADMA’s code can be tested in terms of their compliance with the statutory standard and authorised if satisfactory. Such a statutory procedure may result in ADMA’s code requiring alterations either in relation to its principles or its procedures.

Under these circumstances I submit that, if the ACCC is minded to give authorisation to ADMA’s code, it should only do so as an interim authorisation under s91(2)(d). It seems that this could be done under s91(2)(a) to allow the ACCC to give due consideration to these evolving developments, or under s91(2)(c) which in providing for interim authorisations to be made ‘’for any other reason’, makes allowance for such situations, In addition, the ACCC could consider making the authorisation only for a specified period of time, under s91(1).

The making of an interim authorisation (if submissions opposing any authorisation are not accepted) would be a means of recognising the following: (i) the incomplete status of the NPPs as a guide to public benefit in privacy protection; (ii) the likelihood of the need for variations to any authorisation once these legislative developments unfold; and (iii) the current level of uncertainty in Australian public policy on what constitutes an appropriate level of privacy protection in the private sector. An interim authorisation would simply indicate that the ACCC will need to give due consideration to these ongoing developments concerning privacy before it can reach a final determination of these matters. This would also be a way by which the ACCC could to some extent ‘uncouple’ the uncertainty concerning the privacy aspects of ADMA’s code from other aspects which may have more obvious public benefit.

Yours sincerely,

Graham Greenleaf