The Federal Court has recently handed down a $4.5 million penalty against Novartis Consumer Health Australasia Pty Ltd (Novartis) and GlaxoSmithKline Consumer Healthcare Pty Ltd (GSK), the makers of pain relief product, Voltaren Osteo Gel1: $3 million imposed on Novartis – the original owners of Voltaren – and $1.5 million imposed on GSK, who acquired the Voltaren products from Novartis in May 2016.
This penalty judgment follows on from an earlier judgment as to liability.
The facts were these:
From January 2012 to March 2017, Novartis and GSK had marketed Voltaren Osteo Gel as being “specifically formulated”, and “more effective”, than Voltaren Emulgel, for osteoarthritis related pain. Further, the product was often sold at a price premium to Voltaren Emulgel, with both products available side-by-side on shelf. Given that the products contained the same active ingredient and had the same formulation, the Federal Court determined that the claims were misleading and in breach of section 29(1)(g), section 33 and section 18 of the Australian Consumer Law.
The claims on the product were revised by GSK in March 2017 to include the words “same effective formula as Voltaren Emulgel”. The Federal Court held that this amended claim did not convey the representations of the earlier marketing and thus these were not in breach of the Australian Consumer Law.
In the penalty judgment, the Federal Court has provided some important learnings on the assessment of civil penalties under the Australian Consumer Law.
Specific and general deterrence is a general principle associated with the imposition of penalties under the Australian Consumer Law. In Trade Practices Commission vs CSR2 Justice French stated that the penalty should:
“put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act.”
Justice French then went on to set out some considerations the court should take into account when determining a penalty. These came to be known as the “French Factors” and they required taking into account the size and market power of the company, the deliberateness of the conduct and whether the company had co-operated with the ACCC. These factors have been expanded in more recent case law and in section 224(2) of the Australian Consumer Law to include considerations of past conduct of the company concerned, whether the company demonstrates a culture of compliance, and loss or damage to the market from the conduct.
In the case against Novartis and GSK, Justice Bromwich had regard to the joint submissions of the parties as to the appropriate penalty to be imposed for the contravening conduct. He accepted that there was a need to send “a strong message to the pharmaceutical industry’”, particularly in light of the judgement in the Nurofen case which involved a similar set of circumstances and outcome3. There is no doubt that it was very unfortunate for GSK, being at the tail end of a long running series of litigation by the ACCC against pharmaceutical companies in relation to false and misleading claims. In any event, there are some lessons that can be learned from the case on the issue of penalties.
You’re in breach – now what?
- Stop using the claims, and where possible, remediate
In relation to specific deterrence, the court noted that GSK had ceased selling the product and that the penalty imposed would have needed to be higher if the company was still actively marketing and selling Osteo Gel. GSK’s action in ceasing sale of the product demonstrated how committed the company was to comply as the fix came complete with a commercial impact – well past simply varying the language on the packaging. This is an important lesson: taking active steps to prevent any future breaches will assist to limit any penalty ultimately imposed.
- Improve processes for compliance and admit past wrongdoing
GSK implemented improvements to its system of compliance. It also formally admitted that it had made mistakes. Making any admissions of breach is not to be taken lightly but when the conduct concerned is clearly in breach of the Australian Consumer Law, the court looks favourably on timely “mea culpa”.
- Limit “courses of conduct”
Whether a misleading representation is found to be a single contravention or part of a chain of events depends on each fact and circumstance. Justice Bromovich found that there were not millions of contraventions of the Australian Consumer Law, despite the fact that 1.4 million units of Osteo Gel had been sold in the relevant period. Instead, the contraventions were classified as part of three courses of conduct, each course of conduct to be found in the following places:
- on the Voltaren website;
- on the MyJointHealth website; and
- on the Voltaren Osteo Gel packaging.
- The fact that the responsible entity changed from Novartis to GSK did not alter this as the corporate entity selling Osteo Gel made no practical difference to the consumer. Ultimately, in the event that a company discovers apparent breaches of the Australian Consumer Law, that company could easily and very rapidly limit the penalties by removing the misleading representations from their websites, many months before any changes to packaging are able to be implemented.
Increase in penalties
Remember that since this conduct occurred, penalties have been significantly increased for contravening conduct under the Australian Consumer Law. We expect to see this flow through to the courts in judgments to come. Although the best advice is always to avoid any misrepresentations or any other actions that breach the Australian Consumer Law, companies should be aware that the way that they deal with breaches and the steps they takes as soon as they discovers a breach will have a material impact on the quantum of penalties that may be imposed by a court.
1.  FCA 724
2.  FCA 762
3. You can read more about the Nurofen case in our case notes:
Liability limited by a scheme approved under Professional Standards Legislation.
© ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice.