Optus misleading advertising penalty reduced

In Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20 the Full Federal Court reduced Optus’ civil pecuniary penalties in relation to advertising for the ‘THINK BIGGER’ and ‘SUPERSONIC’ broadband internet plans from $5.26 million ordered originally (see here) to $3.61 million.

The Full Court concluded that the severity of the penalty imposed by the trial judge was based on an error of fact that lead the judge to conclude that Optus did not take its obligations under the Act seriously. Nevetheless, the Full Court concluded Optus’ conduct was very serious.

The Full Court rejected Optus’ argument that it was excessive to impose a penalty apt to strip Optus of profits not shown to stem directly from the contravention.

“There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by that offender or others as an acceptable cost of doing business. The primary judge was right to proceed on the basis that the claims of deterrence in this case were so strong as to warrant a penalty that would upset any calculations of profitability. The purpose of Optus’ conduct was to generate sales, and hence, profits. The advertising deployed by Optus was calculated to win business from its rivals. The same share of business might not have been attracted by a more balanced presentation of the advantages of the plans. There is no reason to doubt that Optus knows its business sufficiently well that it is safe to proceed on the footing that its course of conduct in the campaign reflected informed calculation. While one cannot isolate the profits attributable to the campaign, it is necessary and desirable to impose a penalty which is apt to affect in a substantial way the profitability of Optus’ misconduct.

Generally speaking, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention. The primary judge did not engage in a surgical exercise calculated to deprive Optus of the profits referable to the increase in business generated by the campaign. It cannot seriously be suggested that this Honour was concerned to engage in an exercise in “profit stripping”. To so describe his Honour’s approach is to distract from the legitimate claims of deterrence in a case like the present.

In the present case the sheer magnitude of the advertising campaign, and its likely effect in the market, mean that a penalty which did not substantially affect the profitability of Optus’ campaign could not reasonably be countenanced. We would, therefore, reject Optus’ argument under this heading…

In exercising afresh the discretion, this Court should proceed on the footing that Optus’ conduct was very serious. The contraventions were on a grand scale. They were also unexplained. They were certainly not sufficiently explained on the evidence as a failure of diligence on the part of the lawyers in its in-house legal department. … It remains the case, however, that there is simply no satisfactory explanation for these contraventions.

At first instance, Optus advanced the suggestion that whether the advertisements contravened the Act was a case of mere error of judgment on which reasonable minds might differ. …The primary judge was entitled to reject the explanation proffered by Optus for the contravention. We too reject that explanation.

Optus cannot be regarded as a “first offender”. It failed to observe the requirements of the Act, and not for the first time. The absence of a satisfactory explanation for the contraventions and the evident laxity in its internal compliance program mentioned by the primary judge mean that Optus has given the Court no reason to be confident that, in the absence of a very substantial penalty, it will not regard as acceptable the risk of a fine for contravention. The Court must fashion a penalty which makes it clear to Optus, and to the market, that the cost of courting a risk of contravention of the Act cannot be regarded as acceptable cost of doing business.

It is also a circumstance of concern that a misleading advertising campaign is apt to increase the market share of the contravenor at the expense of law-abiding competitors. In this case Optus’ conduct was contrary to the undertaking in which Optus and its competitors had joined with the express intention of improving advertising standards in the telecommunications industry.”

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