Introduction

The Australian Competition and Consumer Commission (ACCC) has had significant wins in the Federal Court in the latter days of April 2016 against the suppliers of two of the most common products in the average Australian’s shopping basket: pain relief medicine and laundry detergent. Given the staple status of these products, the resulting orders and penalties imposed against Reckitt Benckiser (Australia) Pty Ltd (Reckitt Benckiser) and Colgate-Palmolive Pty Ltd (Colgate) in relation to a pain-specific range of Nurofen tablets and ultra-concentrate laundry detergents, respectively, also represent a big win for consumers.

While the backgrounds to each of the proceedings share limited similarity, both cases serve as a timely reminder of the consequences that may follow from a successful prosecution by the ACCC for a breach of the Competition and Consumer Act 2010 (Cth) (Act) or the Australian Consumer Law (ACL) contained therein. The orders made by the Federal Court as a result of the proceedings have also renewed debate as to the adequacy of the maximum penalties that may be imposed for a breach of certain prohibitions contained in the competition and consumer laws, particularly those by large companies with financial standings that may leave them indifferent to any such orders. Furthermore, the Colgate case is a reminder of the protections available to contravening parties who choose to step forward proactively and admit to anti-competitive conduct and undertake to assist the ACCC in their subsequent investigations and prosecutions.

Reckitt Benckiser proceedings

Background

Many readers will be familiar with Reckitt Benckiser’s range of pain-specific Nurofen over-the-counter medicines that were marketed as specially formulated for the treatment of common sources of pain. The relevant products in the proceedings were explicitly promoted in their marketing and packaging as being particularly effective in, respectively, the treatment of back pain, period pain, migraine pain and tension headaches (Nurofen Pain Range).

Initial ACCC proceedings

Regrettably for Reckitt Benckiser, the ACCC decided to delve further into the representations made in the promotion of the Nurofen Pain Range, from at least January 2011 to the date of the proceedings, regarding their particular effectiveness against specific types of pain. In March 2015, these investigations culminated in the ACCC initiating proceedings in the Federal Court alleging that Reckitt Benckiser had, in the packaging and marketing of the Nurofen Pain Range, engaged in conduct that was:

  1. Misleading and deceptive, or likely to mislead or deceive (in contravention of s 18 of the ACL); and
  2. Liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of the products comprised in the Nurofen Pain Range (in contravention of s 33 of the ACL).

While each of the four products in the Nurofen Pain Range may have indeed been able to deliver on its promoted promise of relieving one of four identified types of pain, the allegation was that Reckitt Benckiser had made representations on both the Nurofen website and on the products’ packaging that each respective product had been specially formulated to treat a specific type of pain and not other types of pain generally. ACCC’s own investigations had also found that the retail prices of the products in the Nurofen Pain Range were significantly above that of other comparable general pain relief medicines, and specifically almost double the cost of standard Nurofen pain relief products.

Given that each of the Nurofen Pain Range products contained the same active ingredient and the exact same amount of that active ingredient (342 milligrams of ibuprofen lysine) and, as Justice Edelman remarked in His reasoning ‘none of the four products [were] any more or less effective than the others in treating any of the particular symptoms,’1 the writing was on the wall for Reckitt Benckiser. After an adjournment early in the proceedings, Reckitt Benckiser admitted to contraventions of both ss 18 and 33 of the ACL.

In a judgment dated 11 December 2015, Justice Edelman ordered, in addition to the declarations sought by the ACCC that the contraventions had occurred, that Reckitt Benckiser cease any further distribution or sale of the Nurofen Pain Range and that the company be restrained from selling any product within the Nurofen Pain Range using the contravening packaging or which included representations to the effect that the products had been specifically formulated to treat a specific type of pain.2 Reckitt Benckiser was also ordered to publish a corrective notice on both the Nurofen website and in The Australian newspaper and to introduce and continually ensure compliance with a ‘Consumer Protection Law Compliance’ program as specifically prescribed within the judgment. The company was also ordered to pay the ACCC’s costs in the proceedings up to the date of judgment.

Penalty hearing

The initial judgment in December 2015 did not set out or prescribe the quantum of the penalty to be imposed on Reckitt Benckiser for its contravention of s 33 of the ACL, that is, for its conduct that was found to have misled the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose and/or the quantity of the products in the Nurofen Pain Range.

The authors note that no pecuniary penalty could be imposed for Reckitt Benckiser’s contraventions of s 118 (prohibition on engaging in misleading and deceptive conduct) as only s 33 is a pecuniary penalty provision.3

Determination of penalty

One of the central issues between the parties during the penalty hearing was how the profits achieved by Reckitt Benckiser from its contravening made were to be considered in the determination of the penalty.4 It was argued by Reckitt Benckiser that the profit calculations submitted by the ACCC should include a deduction for any profits that would have been made had it not committed the contraventions. While it was conceded that ‘any attempt to quantify profits caused by [Reckitt Benckiser’s conduct] would be either an impossible task or so speculative as to be useless,’5 Justice Edelman rejected Reckitt Benckiser’s unambiguous denial that the company had made no profit as a result of the contraventions.

Acknowledging that being able to confirm or refute this denial by reference to verifiable figures was virtually impossible, Justice Edelman stated that an important consideration was that the company had put in place ‘marketing processes which involved considerable thought and strategy … and the labelling of its products was a choice motivated in part by an intention to profit… [and] in this case, the marketing processes were part of an intention to make substantial profits.’6

In determining the value of the pecuniary penalty, the Federal Court considered these circumstances against the relevant matters prescribed within s 224(2) of the ACL, as well as a list of factors compiled from various cases cited in the Federal Court’s penalty hearing subsequent to the ACCC’s successful prosecution of Woolworths7 earlier in 2016.8 These factors included, non-exhaustively:

  1. The size of Reckitt Benckiser;
  2. The deliberateness of the contraventions;
  3. The period over which the contraventions extended;
  4. Whether the contraventions arose out of senior management of Reckitt Benckiser or at some lower level;
  5. Whether Reckitt Benckiser had co-operated with the ACCC in the enforcement of the Act and ACL in relation to the contraventions;
  6. Whether Reckitt Benckiser had engaged in similar conduct in the past;
  7. Reckitt Benckiser’s financial standing;
  8. Whether the contravening conduct was systematic, deliberate or covert; and
  9. Whether Reckitt Benckiser engaged in the contravening conduct with an intention to profit from it.9

Thorough consideration of the above factors is evident within the judgment, with Justice Edelman even explicitly acknowledging within his reasoning that ‘very few penalty hearings ever descend into this level of detail’.10 Ultimately however, determination of the pecuniary penalty relied most heavily on the nature and extent of the contravening conduct and the profit Reckitt Benckiser experienced as a result of that conduct (as well as the resultant loss consumers were expected to have suffered). The need to impose a penalty which encouraged both general and specific deterrence from similar conduct was also acknowledged.

Notwithstanding these considerations, mitigating circumstances in favour of Reckitt Benckiser, including a lack of covertness or mindful disregard for the law and its ‘commendable and significant cooperation’11 with the ACCC in the investigations and the subsequent proceedings, were given sufficient enough weight for Justice Edelman to debase the ACCC’s submissions arguing that the pharmaceutical supplier be handed a penalty of at least A$6 million. An acknowledgment by the ACCC that Reckitt Benckiser had never previously breached a provision of the Act (or its predecessor, the Trade Practices Act 1974 (Cth) (TPA)) nor been the subject of an enforceable undertaking ultimately led to a pecuniary penalty of A$1.7 million.

Justice Edelman also remarked that the quantum of the penalty was moderated by the fact that each product, while misleading in its advertising, was effective in treating each specific type of pain and that consumers did not suffer physical harm as a result of the contravening conduct.

The penalty covered the contraventions involving the Nurofen Pain Range’s physical packaging (A$1.2 million) as well as the representations made on the Nurofen website in respect of the products (A$500,000), which were of course in addition to the earlier non-monetary orders imposed on Reckitt Benckiser within the initial proceedings.

Colgate proceedings

Background

Just one day prior to the Nurofen penalty hearing, the Federal Court gave effect to a settlement reached between the ACCC and Colgate following investigations and subsequent proceedings involving alleged cartel conduct in the retail laundry detergent market in breach of the restrictive trade practice prohibitions in s 45(2) and Division 1 of Part IV of the Act.

It was alleged that Colgate had reached an understanding with competitors Unilever Australia Limited (Unilever) and PZ Cussons Australia Pty Ltd (Cussons) from as far back as April 2009 that each of Colgate, Unilever and Cussons would:

  1. Gradually transition from standard detergents to ultra-concentrate detergents and ultimately cease supplying standard detergents; and
  2. Market and sell the ultra-concentrate detergents with identical ‘per wash’ prices as those applicable to standard detergents while each agreeing not to pass on any portion of the resultant cost savings to consumers (these costs savings were due to ultra-concentrates being cheaper to produce, store and transport to retailers).

It was also alleged that the scheme involved the sharing of price sensitive information, with the involved directors alleged to have gone as so far as to engage in the collusion under the ominously titled codename ‘Project Mastermind’. Detergent brands affected under the arrangements included Colgate’s Dynamo and Cold Power, Unilever’s Omo and Spree, and Cussons’ Radiant and Duo.

Initial proceedings and immunity application by Unilever

Following a tip off from Unilever, the ACCC commenced proceedings against Colgate and Cussons in December 2013. Woolworths was also named in the proceedings on the basis that the supermarket giant was alleged to have been knowingly concerned with the arrangements between the suppliers.

In raising the white flag, Unilever applied for immunity under the ACCC’sImmunity Policy for Cartel Conduct (Immunity Policy) and consented to being named as the ‘immunity applicant’ in the proceedings.12 Identifying the secretive, deceptive and therefore difficult-to-detect nature of cartel conduct, the preface of the Immunity Policy summarises the rationale for such a policy that may in some circumstances be relied upon by corporate wrongdoers to obtain immunity from prosecution:

‘An immunity and cooperation policy that provides incentives to businesses and individuals to disclose illegal behaviour is … a powerful disincentive to the formation of cartels, as potential participants will perceive a greater risk of ACCC detection and court proceedings … It encourages insiders to provide information and enables the ACCC to penetrate the cloak of secrecy.

[The policy] does not offer a reward to ‘good corporate citizens’ …. It is a detection tool designed to deliver benefits to all Australians by identifying, stopping and taking action against harmful and illegal behaviour.’13

The ACCC maintains a discretion as to whether a corporation seeking civil immunity under the Immunity Policy will be successful in their application. In assessing the corporate applicant’s eligibility for immunity, the ACCC will assess the circumstances against the following eligibility criteria:

  1. The corporation is or was a party to a cartel, whether as a primary contravener or in an ancillary capacity;
  2. The corporation admits that its conduct in respect of the cartel may constitute a contravention(s) of the Act;
  3. The corporation is the first person to apply for immunity under the Immunity Policy in respect of the cartel;
  4. The corporation has not coerced others to participate in the cartel;
  5. The corporation has either ceased its involvement in the cartel or indicates to the ACCC that it will cease its involvement in the cartel;
  6. The corporation’s admissions are a truly corporate act (as opposed to isolated confessions of individual representatives of the corporate applicant);
  7. The corporation has provided full, frank and truthful disclosure, and has cooperated fully and expeditiously while making the application, and undertakes to continue to do so, throughout the ACCC’s investigation and any ensuing court proceedings; and
  8. At the time the application is made, the ACCC has not received legal advice that it has reasonable grounds to initiate proceedings in relation to at least one contravention of the Act arising from the conduct of the cartel.14

In this case, the ACCC found that the circumstances of Unilever’s involvement in the suspected cartel conduct satisfied the eligibility criteria and accordingly its application was accepted and conditional immunity from prosecution granted. Continuance of the immunity was conditional upon Unilever providing full disclosure and cooperation on an ongoing basis throughout the ACCC’s investigations.

While the authors do not intend to provide commentary or opinion on the appropriateness and eligibility criteria of the Immunity Policy and whether large corporate organisations such as Unilever should be entitled to relieve themselves from penalty in reliance upon it, it would be shown that Unilever’s assistance drastically improved the ACCC’s prosecution of the other parties involved in the cartel conduct.

Consent orders and determination of penalty

Recognising the strength of the case against it and the assistance being provided by Unilever, Colgate eventually made limited admissions in respect of two of the four allegations of anti-competitive conduct and made a joint submission, with the ACCC in agreement, that it be ordered to pay a total penalty of A$18 million. This amount was comprised of a A$12 million penalty for the contraventions involved in the mutual understanding to transition to ultra-concentrate detergents while ceasing to sell standard detergents, with the balance of A$6 million being the penalty for the sharing of price sensitive information.15 Colgate was also ordered, by consent, to update and maintain its consumer law compliance program and to contribute A$450,000 towards the ACCC’s costs.

As the penalty order was handed down by consent and the Federal Court was not tasked with delivering a written judgment, it is difficult to comment on the appropriateness of the A$18 million penalty agreed between the parties against what the Federal Court would have arrived upon if asked to do so within a later penalty hearing. The ACCC and Colgate did however base the calculation of the penalty on the relevant provision of the Act which would have been applied by the Federal Court in a penalty hearing, with that provision stating that the maximum penalty for cartel conduct is the greater of:

  1. A$10 million;
  2. Three times (3.0x) the financial gain ‘reasonably attributable’ to the cartel conduct; or
  3. Where the financial gain cannot be ascertained, 10% of the contravening corporation’s turnover in the preceding 12 months.16

The parties in this case relied upon the third alternative, calculated by reference to Colgate’s annual turnover attributable to its Australian operations, and allowed an undisclosed discount for the company’s cooperation in the investigations and proceedings.

Discussion

The successful prosecution of Reckitt Benckiser and the consent orders made against Colgate have both been lauded as significant wins for the ACCC as it continues to specifically target misleading and deceptive conduct and anti-competitive behaviour.

In respect of the Nurofen proceedings, the orders made against Reckitt Benckiser demonstrate that the ACCC is also making good on its promise to monitor the advertising and promotional activities of retail suppliers in the health and medical sectors. Truth and transparency in these sectors were identified as a key area of priority in the ACCC’s Compliance and Enforcement Policy for 2015 (as noted in the February 2015 Corporate Newsletter ‘Beware of the ACCC: ACCC announces its Compliance and Enforcement Policy for 2015’).

The resulting penalty against Reckitt Benckiser has however reignited concerns over whether the current maximum penalty of A$1.1 million per contravention is adequate for very large and often highly-resourced corporations. The Chairman of the ACCC confirmed in a press release following the Nurofen penalty hearing that the ACCC will continue to lobby Parliament to increase the maximum penalty for contraventions of certain provisions of the Act and the ACL.17 This perceived inadequacy is emphasised in cases where the Federal Court shows an inclination to treat a prolonged course of contravening conduct as a single contravention, therefore limiting the maximum aggregate amount that may be imposed.

The penalty imposed against Colgate was exponentially greater than that imposed against Reckitt Benckiser due to breaches of the Act’s cartel prohibitions not being subject to the A$1.1 million limit applicable to most ACL contraventions and is instead determined by reference to the highest of the three quantum alternatives outlined earlier. While Colgate’s penalty was the third highest penalty ever ordered for a breach of the Act, behind only those ordered against packaging company Visy in 2007 (A$36 million) and Qantas in 2008 (A$20 million), the penalty in this case has too received criticism for its inadequacy in the face of corporations that may not be deterred by the risk of being ordered to pay such amounts and will instead view the financial risk as little more than simply the cost of doing business on such a large scale. To this extent, the risk of another participant in the wrongdoing relying on the Immunity Policy and providing assistance to the ACCC in their investigations may be seen as a greater deterrence tool when compared to a compliance and enforcement regime with often only insignificant financial disincentives at their disposal.

It is also important to note that the ACCC’s proceedings against Cussons and Woolworths are ongoing and there may yet still be an opportunity for the Federal Court to arrive at a determination of a penalty where it is found that either or both parties engaged in the cartel conduct. In addition to penalty orders, the ACCC is also seeking declarations, injunctions, compliance programs and cost orders against both Cussons and Woolworths. The hearing is scheduled for June 2016.

The authors also note that the ACCC filed a notice of appeal to the Federal Court on 23 May 2016, confirming that they believe the penalty ordered against Reckitt-Benckiser in the Nurofen proceedings was insubstantial and not an adequate deterrent to others from engaging in similar conduct. It is expected that the ACCC will argue for the penalty to be increased to an amount closer to the A$6 million figure put forward in the regulator’s earlier submissions, which was calculated on the basis of the profits they estimated had been derived from the sale of the Nurofen Pain Range.