Key Points:

Reforms are a turning point in the enforcement of Australian consumer laws. Regulators are being given increased powers and easier enforcement avenues.

The Trade Practices Amendment (Australian Consumer Law) Bill 2009 was introduced into Federal Parliament on 22 June 2009. The Bill was referred to the Senate Economics Legislation Committee which reported to the Senate on 7 September 2009, recommending that the Bill be passed. Assuming that the Bill passes, it is possible that the commencement date will be as early as 1 January 2010.

The advertising and promotion of pharmaceutical and medical devices - both to medical practitioners as well as direct to consumer advertising in the case of OTC products and unbranded campaigns (which mention diseases and treatments without specifying any actual brand or company name) - are subject to the prohibition on misleading conduct and false representations in sections 52 and 53 of the Trade Practices Act 1974 (Cth) (TPA). In addition, under the TPA, the Australian Competition and Consumer Commission (ACCC) has the power to ban unsafe goods. As such, these reforms are of potential significance to the pharmaceutical and medical device industries.

One aspect of the Bill is the reform of the enforcement and remedies under the TPA - and these reforms are significant indeed, giving the ACCC (and, in time, State regulators) superpowers. The reforms include the introduction of a fast-track means of investigation (by service of a substantiation notice on a company), a reduction in the regulators' burden of proof (from the criminal to the civil standard) and a significant shortcut for the regulators (that is, the ability to issue an infringement notice rather than proceedings).

While the precise impact of these reforms on the pharmaceutical and medical device industries is not yet known, we suggest that this is a watershed moment in the enforcement of Australian consumer laws. This is because the Bill, when enacted, would remove a significant barrier to the ACCC's ability to enforce the law, that is, the need for lengthy and expensive legal proceedings to establish contraventions to a standard of proof of beyond reasonable doubt. The Bill also gives regulators increased powers and easier avenues for enforcement.

The reforms

In summary, the Bill introduces the following reforms:

Civil penalties: the Bill gives the courts additional powers to impose civil penalties on corporations and individuals for breaches of certain consumer protection provisions of the TPA of up to $1.1 million for a corporation and $220,000 for an individual. For a civil penalty to be imposed by a court, the regulator will only need to prove its case on the balance of probabilities and not the criminal standard of beyond reasonable doubt.

Disqualifying orders: depending upon the nature of the offence, the Bill gives the courts the power to make an order disqualifying a person from managing a corporation, if the person has been "involved in a contravention".

Non-party redress orders: the Bill allows a court, on the application of the ACCC, to make an order against a company to redress the loss or damage suffered by third parties and consumers. A redress order may require, for example, the refund of money, the return of property, the repair of goods, or the resupply of services.

Substantiation notices: the Bill empowers the ACCC to issue a notice requiring a party to provide information and/or documents to substantiate claims in relation to the supply of goods and services.

Infringement notices: the Bill gives the ACCC the power to issue an infringement notice to companies and individuals within 12 months after an alleged contravention of certain unfair competition and consumer protection provisions, imposing fines of up to $6,600 for a company and $1,320 for an individual.

Public warning powers: the Bill allows the ACCC to issue a public warning notice if it has reasonable grounds to suspect that certain conduct may contravene certain provisions of the unfair competition and consumer protection provisions of the Act or if a person refuses or fails to comply with a substantiation notice.  

Implications

The reforms introduce a number of measures that are likely to have a significant impact on the enforcement of Australian consumer laws. Most importantly, companies lose a number of practical strategic advantages they have had in the past. The reforms mean that the ACCC will no longer have to bring lengthy and expensive legal proceedings and establish contraventions to a standard of proof of beyond reasonable doubt.

Budgetary constraints have meant that the number of proceedings the ACCC has been able to commence in the past have been limited by resources. Infringement notices ("on the spot" fines) will give the ACCC a way of punishing offences which until now have not been pursued. Although the penalties for infringement notices initially might appear quite small compared to the civil penalties, it is not unusual for a number of potential offences to flow from the same factual breach. Multiple penalties are not only possible but seem likely if our experience of the practice of other regulators provides a guide.

The introduction of civil penalties mean that the ACCC no longer needs to prove contraventions to the criminal standard - that is, beyond reasonable doubt - instead only needing to prove contraventions to the lower, civil standard of the balance of probabilities. Other than the burden of proof, there is no material difference between a civil pecuniary penalty and a fine.

In addition, the reforms if enacted will allow the regulator to issue substantiation notices, which effectively shifts the burden of proof to companies to prove the accuracy of their claims. While, in our experience, sponsors of pharmaceuticals and medical devices will, as a matter of routine practice, hold substantiation for the claims made in advertising due to the regulatory environment they operate in, this may not always be readily accessible at short notice - for example, in respect of a global advertising campaign where the substantiation is held by a foreign related entity. Given the short time period allowed to respond to a substantiation notice (21 days, with a possible extension), companies may find it timely to revisit their compliance procedures to ensure that substantiation is held locally for all claims made in advertising.

Further, the ACCC will be given the right to claim non-party redress for consumers. The absence of this power in the past has meant that the regulator has been restricted in the remedies it could seek in litigation in the past and it may have been deterred from bringing a significant number of class actions on behalf of consumers in the consumer protection area. Will this now change?

At this stage it is impossible to say what the precise impact of these reforms on the pharmaceutical and medical device industries will be. However, it is fair to say that these reforms remove some of the obstacles that exist in relation to the ACCC's enforcement powers. As such, we can expect to see the ACCC becoming a more active regulator following the enactment of the Bill.