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ACCC Reminds Companies of Misleading and Deceptive Conduct Penalties

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In February 2015 the Australian Competition and Consumer Commission obtained judgment against Reebok Australia Pty Ltd in ACCC v Reebok Australia Pty Ltd [2015] FCA 83 in what was a stark reminder to Australian businesses of the costly effects of making false and misleading representations in relation to their goods and services in contravention of the Australian Consumer Law.

What any prudent business person ought to know is that false or misleading representations about goods and services is provided for under the Australian Consumer Law (which is schedule 2 of the Competition and Consumer Act 2010 (Cth)) at section 29.

False or misleading representations in relation to goods and services will occur when a business, in trade or commerce, makes a false or misleading representation that their goods or services are of a particular quality, that they are new when they are not, that a person has agreed to acquire particular goods or services, about the place of origin of the goods or services, about a testimony of a person in relation to the goods or about a contractual right, warranty or guarantee.

The facts of the case of ACCC v. Reebok Australia were as follows:

  • in 2011 the American Fair Trade Commission obtained a judgment against Reebok International in the amount of $25 Million for consumer redress in relation to the Reebok EasyTone brand of footwear and marketing claims that it improved muscle tone and strength;
  • following the American Judgment, Reebok International forwarded to its Australian counterpart a statement that it ought remove all the promotional material in relation to the EasyTone product;
  • Reebok Australia was displaying, at the time, promotional material in relation to the EasyTone footwear which was displayed in a number of retailers across Australia. That promotional material included, statements on the EasyTone shoebox, SwingTags attached to the EasyTone shoe, information cards and booklets, in-store mats, posters and towers;
  • these promotional products were found to represent that wearing the EasyTone footwear would increase muscle tone and in the wearer’s calves, thighs, hamstrings and buttocks by 11%, 11% and 28% respectively. These statements contained no scientific grounding and were found by the Court to be unsubstantiated; and
  • despite being advised by Reebok International and despite advising the marketing team to remove the promotional material from retailers, Reebok Australia failed to actually remove the promotional material.

As a consequence of not removing the promotional material containing the false and misleading information the Australian Competition and Consumer Commission was awarded:

  • punitive damages in the amount of $350,000.00;
  • an injunction restraining Reebok Australia for three years from supplying footwear to retailers which claimed any strengthening or toning qualities without proper scientific backing by an expert;
  • that it correct the advertising by posting a redress in The Australian newspaper;
  • it establish an ACCC compliance program in order to meet the requirements of the Australian Consumer Law for its products;
  • it establish a contact service where consumers could contact Reebok Australia for a refund of $35 dollars if they proved loss or damage suffered from purchasing the EasyTone footwear; and
  • that Reebok Australia pay $45,000.00 towards the ACCCs legal costs in addition to its own legal costs.

While there have been three cases through the Federal Court of Australia this week alone in relation to False and Misleading Representations pursuant to section 29 of the ACL, namely Director of Consumer Affairs Victoria v The Good Guys Discount Warehouses (Australia) Pty Ltd [2016] FCA 22, ACCC v Clinica Internationale Pty Ltd (No. 2) [2016} FCA 62 and TM25 Holding BV v Redac International Pty Ltd [2016] FCA 113 the Reebok Australia case serves as a costly reminder of the damage that unsubstantiated statements about a company’s products can cause when there exists no scientific grounds which prove or back them.

It may be prudent to appoint a lawyer to review your company’s marketing material in relation to the products it sells for any compliance issues in relation to the ACL and other consumer law.