Ouch! Federal Court of Australia imposes $4.5 million-dollar penalty for misleading marketing of pain-relief products

The Federal Court has handed down a significant $4.5 million penalty over misleading claims made with respect to the over-the-counter muscular pain relief products, ‘Voltaren Osteo Gel’ and ‘Voltaren Emulgel’.  The decision in Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd (No 2) [2020] FCA 724 makes it clear that the penalty is intended to serve as a “strong message to the pharmaceutical industry” to ensure claims made in marketing are not misleading.

The Australian Competition and Consumer Commission (ACCC) alleged that GlaxoSmithKline Consumer Healthcare Australia Pty Ltd (GSK) and its predecessor (in relation to these products) Novartis Consumer Health Australasia Pty Ltd (Novartis) made misleading representations to consumers that conveyed that there were material differences between the Voltaren Osteo Gel and Emulgel products, despite the fact the products had the same formulation.

GSK and Novartis’s liability for the misrepresentations was determined in a prior decision by the Federal Court (see Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd [2019] FCA 676; 371 ALR 396), following admissions by GSK and Novartis that representations made in relation to the Voltaren Osteo Gel products were misleading, in contravention of the Australian Consumer Law (ACL) (Liability Judgment).  The matter went again to the Federal Court to determine penalties, and the Court ultimately imposed a $1.5 million penalty to GSK and $3 million penalty to Novartis, based on their responsibility for the misleading claims.

Background

In March 2016, GSK acquired from Novartis its portfolio of Voltaren products, including the Osteo Gel and Emulgel products.  During the period from January 2012 to March 2017, Emulgel was marketed for temporary relief of local pain and inflammation, while Osteo Gel was marketed for relief of osteoarthritis symptoms.  At the relevant time, the Osteo Gel and Emulgel products both contained the same formulation, including the same quantity of the active ingredient, diclofenac diethylammonium.

The recommended retail price for the Osteo Gel product was up to 16% higher than Emulgel, and the cap on the Osteo Gel product was designed to be easier to open for a person with osteoarthritis.

The ACCC alleged that claims made in relation to the Osteo Gel and Emulgel products on the product packaging, the Voltaren website and  on the ‘My Joint Health’ website conveyed to consumers the impression that there were material differences between the products and their use, when in fact they were identically formulated and equally effective in treating local pain and inflammation associated with mild forms of osteoarthritis.  GSK and Novartis admitted making these implied representations and accepted they were false and misleading.

In March 2017, the Osteo Gel packaging was amended to include the wording: “Same effective formula as Voltaren Emulgel”.  The ACCC alleged that this representation was still misleading pursuant to sections 18, 29(1)(g) and 33 of the ACL.  In the Liability Judgment, the Federal Court found by a narrow margin that the amended packaging did not convey the representations of the earlier marketing and therefore GSK was not in contravention of the ACL from March 2017.

Following the Liability Judgment, the parties made joint submissions to the Federal Court in relation to the appropriate penalties for the admitted contravening conduct during the period from January 2012 to March 2017.

Decision

Justice Bromwich confirmed that the Court may make orders in accordance with a penalty agreed between the parties if it is satisfied that it is appropriate in the circumstances.  His Honour followed the principles established in previous decisions of the Full Federal Court[1] and the High Court of Australia[2] which acknowledge that while determining the quantum of a penalty is not an exact science, there is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy.  Accordingly, the parties may present the Court with a statement of facts and opinions as to the effect of those facts, together with joint submissions as to the appropriate penalty to imposed.  However, these principles also recognise that it is ultimately the Court’s responsibility to determine the appropriate penalty to be imposed.  So, where material is presented to the Court, these should be scrutinised carefully in order for the Court to be satisfied that the agreed penalty is appropriate and that the Court is not undertaking a “rubber stamp” exercise.  Justice Bromwich also noted that in assessing the appropriateness of an agreed penalty, the Court should take into account the principal purpose in imposing civil penalties is the capacity to deter so as to promote the public interest in compliance.  This is a matter to be determined case by case.

In considering the importance of deterrence, the parties and Justice Bromwich referred to the cases previously brought by the ACCC against Reckitt Benckiser which also involved identically formulated products being marketed in a way that conveyed they were different[3] (Nurofen case).  A $6 million penalty was imposed in the Nurofen case, although it was noted that there were some material differences between the matters which made the Nurofen case considerably more serious.

The Court considered the mitigating steps taken by GSK following the decision in the Nurofen case, including assessing its entire product range and already being in the process of changing its Osteo Gel packaging prior to the ACCC first raising its concerns in June 2016.

Justice Bromwich considered that a contravening misleading representation took place each time the Osteo Gel product was examined on retail display or information about the product was viewed on the relevant product websites, not just each time a unit of the product was sold.  As it was determined that there were at least 1.4 million contraventions, with a theoretical maximum penalty of $1.1 million for each contravention, the Court accepted that the maximum penalty was so large as to be meaningless.  Instead, His Honour considered that the appropriate focus should be on the following (at paragraph [30]):

    1. which of the contraventions relate to the same conduct;
    2. whether there were courses of conduct, and if so, how many;
    3. comparative penalties; and
    4. to the extent it is needed, totality.

Justice Bromwich also considered the damage caused by the misleading conduct, as well as the relative financial position of the respondents.  The parties jointly submitted that it is likely that the misleading representations caused loss to consumers and harm to GSK and Novartis’ competitors.  The Court also noted that an important consideration is whether the contravening company had an effective compliance regime, which may ultimately lessen the need for specific deterrence.  The Court acknowledged the steps GSK had taken to improve its compliance following the Nurofen case.

The parties jointly submitted that GSK and Novartis should pay a joint penalty of $4.5 million, which is to be apportioned between the companies to reflect the differences in their responsibility.  In consideration of the above principles, the Court was satisfied with the penalty amount, and agreed to apportion the penalty for GSK at $1.5 million and Novartis at $3 million.

Implications

As noted above, the ACCC’s action against GSK and Novartis was the second case of its kind relatively recently involving claims made in relation to identically formulated pharmaceutical products that were found to be false and misleading.  It is clear from the penalty imposed on GSK and Novartis in this case and the substantial penalty imposed on Reckitt Benckiser in the Nurofen case, that Courts are prepared to impose very significant civil penalties when it is considered to be appropriate.

While the quantum of the penalty imposed will be determined on a case by case basis, it is notable that both Justice Bromwich in this case and the Court in the Nurofen case agreed with the importance of sending a “strong message to the pharmaceutical industry” to be cautious about representations made on product packaging, websites and other forms of marketing.

In addition to this strong focus on deterrence, these decisions reinforce the importance of other factors that will be taken into account by the Court in determining penalties.  These include the duration of the contravening conduct, whether the relevant party had in place an appropriate framework for regular review of marketing materials and compliance with regulatory requirements and assessment of the accuracy of claims made in relation to its therapeutic products.

Also significantly for these cases is that the contravening claims were in the nature of implied representations brought about by what Justice Bromwich described as “differential marketing that was not sufficiently careful, as opposed to flagrant deception”. It would therefore be prudent for pharmaceutical companies to take into account not only the above factors but heed the following observation made by His Honour (at [45]):

The lesson to be learnt is to tread carefully in such circumstances, because of the inherent risks involved; lack of care may even support an inference that an implied contravening representation was intentional in some cases.

[1] NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; 71 FCR 285; Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; 54 ACSR 395 at [51].

[2] Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482.

[3] Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181

This article was prepared by Kim O’Connell and Veg Tran with assistance from Louisa Dimarco.

About the Author

Veg Tran
Veg is a Special Counsel in the Sydney IP - Dispute Resolution team. When she is not satisfying her addiction to "true crime" television shows and following the NHL hockey season, Veg enjoys pursuing her morbid curiosity in patent law. Armed with her formative training in biotechnology, Veg dedicates many of her working hours reviewing gruesome patent specifications and advising clients in a wide range of life science sectors.
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