Thinking | 20 May 2016
Federal Court penalty decision brings no pain relief
ACCC v Reckitt Benckiser (Australia) Pty Ltd (No 7)  FCA 424
On 29 April 2016, Justice Edelman of the Federal Court of Australia ordered Reckitt Benckiser to pay a pecuniary penalty of $1.7 million for engaging in misleading conduct. Specifically, a $1.2 million penalty was ordered in relation to misleading representations on product packaging and the $500,000 balance was ordered in respect of representations on a website.
This order followed the Federal Court of Australia’s decision on 11 December 2015 in which declarations were made, by consent, that Reckitt Benckiser had contravened section 33 of the Australian Consumer Law (ACL) for making misrepresentations on the packaging of Nurofen Specific Pain Relief products and on the Nurofen website.
Section 33 of the ACL prohibits conduct that is likely to mislead the public regarding the nature of goods, their characteristics, manufacturing process or suitability for a specific purpose.
Reckitt Benckiser has marketed and sold a range of Nurofen Specific Pain Relief products in Australia since 2007. The products include Nurofen Migraine Pain, Nurofen Tension Headache, Nurofen Period Pain and Nurofen Back Pain.
The ACCC argued, and Reckitt Benckiser conceded, that Reckitt Benckiser engaged in misleading conduct by representing on product packaging and on the Nurofen website that each of the products was designed to relieve a specific type of pain, and that each product only treats a particular type of pain.
Each product in fact contained the same ingredient: ibuprofen lysine 342mg. This ingredient treats various pain conditions and is not targeted to treat any specific type of pain or symptom.
Under section 224(1) of the ACL, pecuniary penalties can be imposed for contravening section 33 of the ACL. In determining what would be an appropriate pecuniary penalty, Justice Edelman considered the relevant factors under section 224(2) of the ACL. These factors include:
- the duration of the contravening conduct;
- whether the conduct was deliberate; and
- the contravener’s cooperation with the ACCC.
When assessing the appropriate penalty, the Court considered that the lengthy (five year) period during which the relevant representations were printed on packaging, and the period of approximately 17 months during which the relevant representations were published on the Nurofen website, were of particular significance.
His Honour also considered that the misleading representations were made by a popular, well-known brand and that the products were available at thousands of pharmacies and retail outlets, thus making the representations accessible and recognisable to the wider public. There was also prominent advertising containing the misleading representations which consumers were likely to consider when deciding which pain relief product to purchase.
While the ACCC had not, prior to this proceeding, taken action against Reckitt Benckiser in relation to contraventions of the ACL or other consumer legislation, the ACCC submitted that the Court should have regard to two 2012 decisions in the Federal Court in which Reckitt Benckiser had been found (in private litigation) to have made misleading representations in breach of the ACL, to suggest a pattern of contravening conduct. Although the Court took this previous litigation into account, the circumstances of that conduct were sufficiently different in nature to limit its relevance.
Of particular importance to Justice Edelman’s decision-making was the extent to which Reckitt Benckiser cooperated with the ACCC, made admissions, and consented to court orders, such as corrective advertising and modifying its compliance program. In Justice Edelman’s view, these were significant acts of cooperation by Reckitt Benckiser. Admitting liability saved costs and the burden on the parties and the Court of being involved in complex litigation. Nonetheless, the Court noted that the compliance program Reckitt Benckiser had implemented suffered from a major problem in that the program did not make any reference to the requirements of the ACL.
The penalty Justice Edelman imposed for the contravening conduct was not as severe as it might have been. This is because the contravention was unintentional and there was no evidence that Reckitt Benckiser engaged in reckless conduct. Justice Edelman proportionally assessed the two contravening courses of conduct and concluded that the products were effective in treating the pain they were held out to treat, however they did not only treat the specific type of pain or symptom stated on the product packaging or on the Nurofen website.
The ACCC had submitted that Reckitt Benckiser ought to pay a pecuniary penalty of $6 million, whereas Reckitt Benckiser submitted that the appropriate penalty should be $1.1 million. The large difference in the figures put forward by the parties as appropriate is attributable to the absence of prior decisions to inform the tariff or range of appropriate penalties for breaches of section 33 of the ACL. Justice Edelman was therefore required to assess what would be an appropriate penalty having regard to the relevant factors outlined above.
Take home points
In ordering pecuniary penalties against a company that has engaged in misleading conduct, a court will consider a range of factors including:
- the need for specific and general deterrence;
- whether the contravener updates its compliance programs and makes an effort to minimise contravening conduct in the future; and
- the extent to which the contravener cooperates with the ACCC, such as implementing corrective action.
This decision serves as a reminder of the significant penalties that can apply for contraventions of the ACL, specifically where a company engages in conduct by way of marketing and advertising that has the potential to mislead the public in relation to the company’s products. The decision also reinforces the need for entities to ensure their compliance programs remain up-to-date and relevant.
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