Australia: Misleading product promotion results in significant fines ordered by Federal Court of Australia

Alert - 31 July 2015
Last Updated: 5 August 2015
Article by Brett Bolton and Matthew Jeffrey

In ACCC v Reebok Australia Pty Ltd [2015] FCA 83, the Federal Court of Australia fined Reebok Australia the sum of $350,000 for false advertising in connection with the sale of footwear to Australian consumers. The company also consented to restraining orders, corrective advertising orders, and an order requiring it to pay $45,000 in legal costs to the ACCC. An unusual feature of the case was that it followed similar conduct in the USA by Reebok Australia's parent (Reebok International) which had been investigated and dealt with by the Federal Trade Commission (the US equivalent of the ACCC). Reebok Australia was aware of the US investigation and its outcome, but, in the Federal Court's view, was complacent in its implementation of the steps necessary to bring the false advertising to an end in Australia.

Here, Special Counsel Brett Bolton and Solicitor Matthew Jeffrey discuss the lessons to be drawn from this case by businesses when they advertise their goods and services for sale.

The Facts

  • Reebok Australia imported "EasyTone" footwear from Reebok International.
  • In September 2011, Reebok International settled with the Federal Trade Commission of the United States of America (FTC) for making unsubstantiated claims regarding the "EasyTone" footwear, including claims that the footwear improved muscle tone and strength. As part of the settlement, a judgment in favour of the FTC for US$25million for customer redress was entered against Reebok International.
  • Reebok International subsequently advised Reebok Australia to remove all promotional material for the "EasyTone" footwear in Australia. The promotional material included stickers, swing tags, information and information booklets that contained:
    • pictures of the lower body with illustration that stated "28% glutes, 11% thighs, 11% calves"; and
    • statements that "EasyTone" footwear would increase the strength and tone of legs, calves and buttocks.
  • However, Reebok Australia continued to supply "EasyTone" footwear containing that promotional material to retailers between September 2011 and February 2013.
  • On 29 August 2012 the ACCC contacted Reebok Australia and expressed concerns about its continued importation and supply to Australian retailers of the footwear containing the promotional material.
  • On 17 December 2013, the ACCC commenced proceedings in the Federal Court of Australia seeking, amongst other things, a declaration that Reebok Australia contravened the Australian Consumer Law.

The Decision

The court determined that Reebok Australia had made statements without reasonable grounds about the footwear that were likely to mislead or deceive customers. The basis for the court's determination included the following points:

  • Tests with comparative footwear showed that "EasyTone" footwear did not provide muscular increases by, or up to, the increases that the promotional material indicated.
  • Upon becoming aware of the settlement with the FTC, Reebok Australia made no attempts to conduct its own testing.
  • Reebok Australia made limited attempts to remove the misleading promotional material.
  • Reebok Australia did not have a competition and consumer law compliance program.
  • The senior management of Reebok Australia were all aware of the outcome of the FTC case and knew about the contraventions.
  • The court found that the damage suffered by consumers would be difficult to quantify, but accepted that consumers suffered a loss as a result of the misleading conduct.

Factors that worked in Reebok's favour included:

  • It cooperated with the ACCC and provided information and documents that were requested.
  • Reebok Australia's previous clean record.

Having regard to all the circumstances the court determined that Reebok Australia had been too complacent and that its attempts to remove the promotional material were not enough to avoid breaching the Australian Consumer Law. As a result, Reebok Australia:

  • was fined $350,000 and has to pay $45,000 towards the ACCC's costs;
  • is restrained for 3 years from supplying footwear which convey that use of the footwear will improve toning/or strengthening;
  • must establish a competition and consumer law compliance program;
  • must publish a corrective notice in The Australian newspaper and on its website; and
  • must establish a consumer redress process, including setting up an email address and 1800 telephone number, to enable consumers to obtain a refund on the EasyTone shoes.

The Reebok Australia case serves as a timely reminder that businesses must accurately promote their products to Australian consumers, and ensure that any statements or claims made in relation to the products are reasonable and justifiable. Businesses should also make every attempt to remove material that may mislead customers as soon as they become aware of it. Having in place an Australian Consumer Law compliance program can also minimise the risk of a breach of these laws.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions