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Misleading Advertising – Is Nurofen better than Panadol?

Cases about misleading conduct can be enough to give anyone a headache.  In the case of GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser (Australia) Pty Limited (No 2) [2018] FCA 1, we can at lease be confident that the parties came prepared for this.

GlaxoSmithKline is the company that makes and sells Panadol.  Reckitt Benckiser is one of their competitors.  They make and sell Nurofen.  This case involved a claim by GlaxoSmithKline that Reckitt Benckiser had engaged in misleading and deceptive conduct by running ads which suggested that Nurofen was more effective than Panadol for common headaches.  The ads included graphics like this:

 

 

The Court also found that the ads impliedly represented that there was a current adequate foundation in scientific knowledge to support the claims made in the ads.

The Court provided a useful summary of the relevant principles:

  • Conduct is misleading or deceptive if:
    • it has a tendency to lead a person into error, or to believe what is in fact false.
    • there is a real or not remote chance or possibility that it will have that effect
  • The conduct must be:
    • assessed as a whole, viewed in the context of all relevant surrounding facts and circumstances.
    • considered or tested against the ordinary or reasonable members of the class to whom the representation was made or the conduct directed. The question is whether a substantial, or at least a reasonably significant, number of that class is likely to be misled or deceived
  • It is not necessary to prove that the person who made the representations intended to mislead or deceive
  • Where the conduct or representation is in the form of an advertisement, the Court must look at:
    • the “dominant message” or “general thrust” of the advertisement
    • the whole advertisement, because context is or may be important.
    • the external context in which a consumer is likely to view an advertisement. 
  • There are no special principles that apply to comparative advertising. However, a comparative promotion of a product necessarily indicates that the advertisement is not “mere advertising puff”, but involves representations of fact which are either true or false
  • Television commercials “will be seen by the casual but not overly attentive viewer viewing a free-to-air program with only a marginal interest in the advertisements shown between the segments of the program. In that context it will be the first impressions conveyed to that viewer, rather than an analysis of the cleverly crafted constituent parts of the commercial, which will be determinative.”
  • It can be misleading to make a statement which implies that there is an adequate scientific foundation in scientific knowledge to justify it if, when taken in its context the scientific statement quoted does not provide a proper foundation.
  • It can be misleading for a corporation which disseminates information not to put forward sufficient information to avoid the possibility that the recipient may be misled

In this case, Reckitt relied on a clinical trial from 1996 that supported its claims.  However, there had been other studies done since 1996.  Two of those studies, which were also clinical trials, returned inconclusive results. They did not support the 1996 study, but they also did not prove that the 1996 study was wrong.

There were also two “meta-analyses”, where the researchers did not conduct clinical trials, but gathered as much available data as possible to see if there was a clear difference between the two products.  Those “meta-analyses” did not directly contradict the 1996 study, but concluded that the based on the present state of scientific knowledge it was not possible to justify a claim that Nurofen was better than Panadol.

Reckitt argued that the 1996 study was valid and none of the later studies had shown that the conclusions of the 1996 study were invalid or unsupportable. Reckitt claimed that it was not misleading to run ads based on that study.

The Court did not accept that argument, but found that it was misleading to claim that Nurofen was better than Panadol when there was only one study that supported that claim and the balance of the studies did not support it.

 

This case is a reminder that a business cannot make claims in its advertising unless those claims can be supported.  Even if a business can find a study to support its claims, it can still be misleading to refer to just that one study and not other studies that may have reached a different conclusion.  Businesses need to be especially careful when claiming that their product is better than a rival product. If an ad includes any unsupported claim or “half-truth”, there is a serious risk that the owner of the rival product will pursue a claim.

I still do not know whether Nurofen is better than Panadol, but I do know that neither one of these products will cure the headaches that you risk causing for yourself if you run a comparative advertising campaign without running it past your lawyer first.

 

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A mediator’s guide to the AFL trade period

It’s a great time of year for football.  The AFLX, whatever that was, is over.  The AFLW is in full swing, and we are nearly as far as it is possible to get from the horror that is the yearly trade period.

Even for those of us who really like football, the AFL trade period is terrible. It consists of 11 days of waiting for something to happen followed by about four hours where you might see a few trades completed, and then it’s over.

If you follow the trade period each year, I’m sure you always ask yourself the same question as I ask myself, which is “How can we use the lessons we learn from this to improve the way we do mediations?”

Here’s three things I think we can learn from past trade periods that might be useful next time you need to negotiate a settlement. I apologise in advance for using a whole bunch of examples involving the Collingwood football club, but those are the only trades I really care about.

 

It’s possible to find a win-win solution

On a good day (usually around 1pm on the last day of the trade period) it’s possible to spot a good outcome.  Perhaps the best one in recent history was the Heath Shaw/Taylor Adams trade in 2013.

Collingwood had a rare talent in Heath Shaw (we will never forget that smother in the 2010 Grand Final replay) but it seemed pretty clear that he was no longer happy at the club and he needed a fresh start. Meanwhile, Collingwood seems to have taken the view that  that the premiership window had closed much sooner than they expected so it was time to recruit some younger players.

Taylor Adams for Heath Shaw was a great deal for both clubs.  GWS got a talented, experienced player who could provide leadership for their developing group.  Sure, it is sometimes painful to watch Heath Shaw in All-Australian form and possibly playing the best football of his life for the Giants, but we all know he wouldn’t be playing like that if he was still at Collingwood.

Meanwhile, Collingwood picked up a solid midfielder and future leader who will, one day, probably play in a Grand Final.

Comparing apples and oranges is never a good idea, and it’s almost equally hard to compare Taylors and Heaths.  However, you will get much better outcomes in mediations if you worry less about a direct comparison between the value of what you get and what you give away, and more on how the agreement directly benefits you.

 

Don’t judge the outcome too soon

In 2014, Dayne Beams needed to get back to Brisbane for family reasons.  There was no point in trying to force him to play out his contract, knowing he wanted to be elsewhere, so really, Collingwood had an awful bargaining position and just had to make the best of it.  In that situation, picking up draft picks 5 and 25 wasn’t a bad outcome, but they also picked up young midfielder Jack Crisp.

At the time, reaction to this trade was not particularly kind to Crisp, with the term “steak knives” getting thrown around a fair bit.  However, at the end of his first season at Collingwood, Crisp finished third in the Club’s best and fairest, with more votes than anyone expect Dane Swan and Scott Pendlebury.

Meanwhile, Collingwood traded pick 25 for Levi Greenwood and used pick 5 to recruit Jordan De Goey.  At the time of writing, Levi Greenwood is battling injury and Jordan De Goey has managed to get himself suspended again, this time indefinitely.

In hindsight, picking up Jack Crisp in that trade was a great outcome.

It’s not always so clear cut.  Injuries aside, Levi Greenwood has clearly been an asset to Collingwood.  Meanwhile, North Melbourne used the draft pick they received for Greenwood to recruit Daniel Nielson.  I only know this because I looked it up while I was writing this article.  It turns out Daniel Neilson has played seven games for North Melbourne since making his debut in 2017.  Is he better than Greenwood?  It’s far too early to say.

It’s important to accept that in any mediation, there will be some degree of uncertainty.  If you will only accept a deal when you can unequivocally say that it is better than the alternatives, the deal will not get done.  However, if you use your best judgment at the time, there’s a pretty good chance that the eventual outcome will turn out to be better than the alternatives, even if it’s not for the exact reason as you initially thought.

 

Focus on key goals, not trivial side issues

The main reason why I hate trade week is that it can take forever for really obvious deals to get done. I can’t really say why this happens, but I suspect that it’s often because both parties are trying to get a few extra concessions so they can say that they “won” the trade.  Often, those concessions are actually worthless.

Adam Treloar’s trade to Collingwood was described in The Age as the most prolonged and acrimonious of the 2015 trade period.  In the end, Collingwood got Treloar and pick 28 in exchange for pick 7, a first round pick for the following year, and pick 65.  What did the Giants do with pick 65?  Nothing. As far as I can tell, they literally did not use it.

There are many more examples of absurdly high draft picks being traded to get a deal done.  I didn’t even mention that the Dayne Beams trade also involved Collingwood giving Brisbane Pick 67, because it really didn’t matter. For the record, Brisbane used it to recruit Josh Watts, who never played a senior game for them.

I don’t have any data on how many trades have fallen over because people were arguing about late round draft picks.  It does seem like a lot of big trades get held up until the last possible minute, which probably means other deals can’t get done before the deadline.  The whole process could be improved if less time was spent on trading draft picks that will probably never make any difference to the club that receives them.

***

I strongly suspect that the 2018 trade period will play out exactly like every other trade period before it, and this article would make no difference to this even if every club in the AFL reads it.   However, I hope that if you go into your next mediation knowing what you want and what it’s worth to you, keeping an open mind about the potential benefits of a deal, and determined to focus on what really matters, your mediation experience will be better, and quicker, than an AFL trade period.

 

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The Franchising Code – Penalties for Non-Disclosure

The current Franchising Code came into effect on 1 January 2015.  The first case involving a penalty for breaching the current Code was decided on 10 November 2017.  The case is known as ACCC v Morild Pty Ltd [2017] FCA 1308.

This case is a useful guide to the penalties that may be imposed for breaching the Code, and the issues that the Courts will consider when deciding what the penalty should be.

The case involved the “Pastacup” franchise system, which operates a chain of pasta restaurants in Western Australia and New South Wales.  Morild Pty Ltd is the current franchisor. Stuart Bernstein co-founded the Pastacup franchise in 2008 and remains involved in the promotion and management of the franchise.

Mr Bernstein was previously a director of two other companies (SSP Holdings and Pastacup Australia) which acted as franchisors for the Pastacup franchise. Those companies both ended up insolvent.

A Disclosure Statement provided to potential franchisors in 2014 did not disclose that Mr Bernstein had been a director of those other companies, or that those companies had become insolvent while acting as franchisors for Pastacup.  The Disclosure Statement was amended in 2016 to state that the two previous franchisors were associates of Morild Pty Ltd and that they were externally administered companies, but the updated Statement failed to disclose Mr Bernstein’s role in those companies, and failed to disclose that the companies had become insolvent while acting as franchisors for the franchise.

The first franchisor, SSP Holdings, entered into a creditor’s voluntary winding up in December 2013 after a general meeting resolved that it could not meet its debts as and when they fell due.  SSP Holdings was reported as owing $1,667,238 to its unsecured creditors when it went into liquidation.

Pastacup Australia took over as franchisor but it was wound up in insolvency after an application made by the Deputy Commissioner of Taxation in July 2014.  The administrator’s initial report estimated that Pastacup Australia owed $2,006,176 to its unsecured creditors. This estimate was later revised to $2,430,441.

The administrator’s report stated that Pastacup Australia had failed due to a lack of financial management, the failure of several franchised stores,  poor record keeping, poor cash flow and trading losses and insufficient capital to provide for the initial set up costs.

The Court found that the failure by Morild and Mr Bernstein to disclose such matters meant that prospective franchisees lost, at least, the opportunity to make a fully informed decision as to whether to commit significant time, money and resources to a Pastacup franchise.  The Court also noted that if the franchisor became insolvent, franchisees would lose the right to use the Pastacup intellectual property, which would cause them loss.

Morild and Mr Bernstein admitted that they had breached the Code.

The Court ordered that Morild and Mr Bernstein must include relevant information regarding the previously franchisors and Mr Bernstein’s involvement in those companies in future disclosure statements.  This requirement will continue until December 2023 for information about SSP Holdings, and until October 2024 for information about Pastacup Australia.

As this was the first decision about penalties under the current Franchising Code, the Court set out the various arguments about penalties and it’s reasoning in detail, in the hope that this would avoid the need for parties to “reinvent the wheel” in any future cases.

The relevant considerations included:

  • The whole course of conduct
  • The nature and extent of:
    • the act or omission
    • any loss or damage caused and
    • impact on the market and innocent third parties
  • Circumstances in which the act or omission took place
  • Any previous contraventions or similar conduct
  • Involvement of senior management and whether the conduct was deliberate
  • Whether the conduct comprised isolated conduct or occurred over a period of time
  • Corporate culture
  • Size and financial position of the respondents,
  • The deterrent effect of the penalty
  • Whether the respondent company has improved or modified its compliance systems since the contraventions
  • Whether the respondents have cooperated with the ACCC

The Court also ordered Morild to pay a fine of $100,000 and Mr Bernstein to pay a fine of $50,000, and ordered them to pay costs of $12,000 to the ACCC.

Every case is different so it will always be difficult to to predict the amount the likely penalty.  If you are concerned that there may have been a breach of the Code’s requirements, it would be best to seek legal advice immediately.