The case stems from a media release in October titled "Corporate paedophilia - sexualising children by advertising and marketing", which announced the launching of a discussion paper. The release named retail chains such as David Jones and Myer as having "jumped on the bandwagon" in eroticising children in the interests of the bottom line. It said: "When family department stores show no conscience on these issues, or are inured to the effects of their behaviour, the situation is very unhealthy."

In a statement of claim filed with the Federal Court in December, David Jones said it had suffered "loss or damage" as a result of the actions of the institute and Dr Hamilton. It said the institute had refused to issue a corrective news release or to remove the David Jones advertisements from the electronic appendix attached to the discussion paper. The statement said the retailer did not eroticise children to obtain profits, and was not responsible for portraying children in an exploitative way: "David Jones does not knowingly cause the publication of material which can be used by paedophiles for their sexual gratification." Brian Walters, SC, the author of Slapping on the Writs and vice-president of Free Speech Victoria, said it was becoming more common for powerful corporations to sue people who criticised them, which was distorting the democratic system.

"Corporations are able to defend themselves in the court of public opinion," he said. "For the institute it will be hugely expensive to defend itself in the Federal Court and it will involve massive costs in time," he said. But the chief executive of David Jones, Mark McInnes, has said the institute accused it of "something that we regard as abhorrent. We will not be used by them to further their agenda."

Catharine Lumby, a University of Sydney media academic, told ABC TV in October that using a term such as "corporate paedophilia" was irresponsible. It was a "huge stretch" to link child sexual assault to marketing or advertising, she said. It is not the first attempt by a large organisation to use the Trade Practices Act against a critic. In a case yet to be resolved, Australian Wool Innovation has taken People for the Ethical Treatment of Animals to court over its criticism of mulesing and live sheep exports. The actions have been brought under Section 52, outlawing misleading or deceptive conduct, which is the part of the act dealing with consumer protection.

The publication of the discussion paper, Corporate Paedophilia, Sexualisation of Children in Australia, and its electronic version, caused a storm of controversy. It included images in which children were "only mildly sexualised" to illustrate how the phenomenon was spreading and allegedly habituating adults to the new way of representing children. Of the David Jones advertisements, the study said the boys were "smiling, looking like fairly natural children". But four of the six girls were "pouting" or had "sultry expressions".

Dr Hamilton said then the research was undertaken in response to widespread concern about the issue. Yesterday he said he and the institute would defend its validity.