ACCC v Apple: penalty for misleading advertising

In Australian Competition and Consumer Commission v Apple Pty Limited [2012] FCA 646 the Federal Court of Australia declared that Apple Pty Ltd (Apple) by its use of the product designator “iPad with WiFi + 4G” in each of the following ways:
(i) online on Apple’s webpage at the URL and other webpages linked to that webpage, and on the Apple online store at the URL;
(ii) in signage contained on demonstration units of iPads at retail stores operated by Apple;
(iii) in promotional and marketing material provided to Apple resellers by Apple, for use in retail stores operated by those resellers; and
(iv) in promotional and marketing material subject to the control of Apple on websites operated by resellers of Apple,
impliedly represented that an “iPad with WiFi + 4G” (“the Device”) could connect directly to the Telstra LTE mobile data network in Australia, which it could not do, and thereby, in each case, engaged in conduct that was liable to mislead the public as to a characteristic of the Device, in contravention of s 33 of the Australian Consumer Law.

By consent of both parties, Apple was ordered to pay $2.25 million in civil pecuniary penalties and $300,000 towards costs.

In his reasons for judgment as to the appropriate penalty , Justice Bromberg considered that Apple’s conduct was “not trivial” and “serious and unacceptable” and stated that :

The most concerning aspect of Apple’s contravention of s 33, is the deliberate nature of its conduct. Apple does not seek to deny the deliberateness of its conduct and there are no facts before me which seek to excuse or explain the conduct, other than that the conduct occurred at the behest of Apple’s parent company, the second respondent (“Apple Inc”).
The promotional campaign for the “iPad with WiFi + 4G” was settled and deployed by Apple Inc. Apple Inc provided marketing material to Apple for the campaign to market the “iPad with WiFi + 4G” in Australia. Those materials were then provided by Apple to its various resellers in Australia. The same campaign was used worldwide by the Apple group of companies.
The controlling hand of Apple Inc may also be discerned from the fact that, despite the ACCC and others having raised their concerns with Apple regarding its conduct on a number of occasions from 15 March 2012, Apple did not desist in its use of “iPad with WiFi + 4G” until 12 May 2012, when the product designator was changed globally.
Apple was aware that the “iPad with WiFi + 4G” was not compatible with the Telstra LTE network. That matter was raised with Apple as early as 8 March 2012.
In my view, the risk of a contravention of s 33 of the ACL was reasonably obvious, and must have been recognised as substantial by those within Apple familiar with the Australian market’s understanding of the term “4G”. In that context, and in the absence of any other explanation, the facts to which I have just referred, suggest that Apple’s desire for global uniformity was given a greater priority than the need to ensure compliance with the ACL.
Conduct of that kind is serious and unacceptable.
Multi-national corporations who (through their subsidiaries or otherwise) operate in and profit from the Australian market, must respect that market and the laws which serve to regulate it and protect its participants. Those who design global campaigns, and those in Australia who adopt them, need to be attuned to the understandings and perceptions of Australian consumers and ensure that representations made by such campaigns will not serve to mislead. The penalty imposed in this case, needs to make that message clear.

In deciding whether to accept the penalty proposed by the parties, Justice Bromberg said:

“In this case, the parties have proposed an agreed penalty based on four contraventions of s 33 of the ACL. Each of the categories of conduct …has been treated as constituting a single course of conduct. By that route, and with the maximum penalty of $1.1 million set for a corporation by s 224(3) of the ACL in mind, it was submitted that the maximum penalty that could be imposed is $4.4 million…

The proposed penalty is neither manifestly inadequate nor manifestly excessive. The conduct concerned was deliberate and very serious. It exposed a significant proportion of Australian consumers of tablet devices to a misleading representation. A strong message through a substantial penalty is required. I harbour a concern that the size and financial strength of Apple diminishes the meaningfulness of the penalty proposed. However, I do not perceive any further transgressions by Apple to be likely. The fact of the litigation and the media attention which it has drawn, will no doubt be a sober reminder to Apple, and others who rely on their brand image that, as well as a penalty, there will likely be an intangible cost involved in a contravention of the ACL.

The impact of the undertaking given by Apple, together with the absence of any evidence of loss or damage and the significant cooperation shown by Apple, all mitigate against the imposition of a harsher penalty than that agreed to.

I have also arrived at my conclusion, in light of the regulator’s view that the agreed penalty is appropriate. Further, there is a public interest in courts exercising restraint in overly scrutinising proposed settlements, so that settlements may be encouraged and potentially lengthy and expensive litigation avoided. “

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