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.

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