May 2020

Premium claims in the climate of covid-19

While COVID-19 has had disastrous effects on the Australian economy, it has also sparked a tremendous increase in the number of businesses manufacturing and selling personal protection and health-related products such as hand sanitisers and face masks. With this rise in demand and increase in competition, there seem to be more businesses trying to get a competitive advantage by making inaccurate, false, misleading or deceptive premium claims to promote the alleged benefits of their products and taking advantage of consumer desperation.

Premium claims have long been on the radar of the Australian Competition and Consumer Commission (ACCC) and in respect of therapeutic products, the Therapeutic Goods Administration (TGA). While not specifically legislated against in the Competition and Consumer Act 2010 (Cth) nor expressly set out in the Therapeutic Goods Advertising Code (No 2) 2018 (Cth), both the ACCC and TGA have successfully stopped businesses relying on inaccurate, false, misleading or deceptive premium claims in advertisements and on product packaging.

What are premium claims?

Premium claims give the impression that a product has some added benefit when compared to similar products or services and go beyond a generic description of the product.

Common premium claims include claims about:

  • the nature, characteristics, suitability or quantity of the products

  • the standard, quality, value, grade, composition, style or model of the products

  • the history or particular previous use of the products

  • any sponsorship or approval of the products

  • the performance characteristics of the products

  • the accessories available with the products

  • the uses or benefits of the products

  • the place of origin of the products.

More recently, we have seen premium claims that state a product will kill, prevent, fight against or treat COVID-19. Given there is currently no known vaccine or cure for COVID-19, businesses must be particularly cautious when making any claims about the benefits of their products.

What is the big deal?

Businesses relying on inaccurate premium claims ultimately take advantage of the informational inequality consumers face. That is, consumers are often not in a position to verify the accuracy of these claims and instead place their trust in the seller, particularly when it comes to claims about health, therapeutic or safety benefits.  

The making of inaccurate or unsubstantiated premium claims will be taken seriously by the ACCC, TGA and the courts as they pose a serious risk to the health and safety of the public.

Consequences of getting it wrong

The consequences of making an inaccurate or unsubstantiated premium claim will depend on whether there has been a breach of the Australian Consumer Law or the Therapeutic Goods Advertising Code or both.  The remedial action may include having to make corrective advertising, which can cause significant damage to a brand or business reputation.  In addition, financial penalties include:

Australian Consumer Law

Companies face the greater of:

  • $10 million;

  • three times the value of the benefit of the conduct received; or

  • where the benefit of the conduct cannot be calculated, 10% of the annual turnover of the company for the preceding 12 months.

Individuals face a maximum of $500,000 for each breach

Therapeutic Goods Advertising Code

Infringement Notices:

  • individuals: $2,520

  • companies: $12,600

Multiple infringement notices may be issued, depending on the number of non-compliances

Criminal offences:

  • individuals: up to 5 years imprisonment or $840,000, or both;

  • companies:  $4.2 million

Penalties for breaches of the Australian Consumer Law were increased at the end of last year. For more information on why they changed, see our article New ACL Penalties: no longer just the cost of doing business.

Examples

What not to do

It is simple, don’t make claims about a benefit or quality of a product without actual evidence to substantiate the claim.

What you should do

  • Be accurate: ensure all claims about the benefit or quality of the product are accurate - don’t overstate any benefits.

  • Substantiate your claims: a claim that a product has a particular benefit or quality must be substantiated with adequate evidence. Particularly in respect of claims relating to a medicinal or therapeutic benefit or quality, the ACCC and TGA will be looking for evidence of testing and clinical trials given these products have the potential to pose a health and safety risk to consumers.

  • Register medical device or therapeutic goods before advertising: If you are advertising products to be for therapeutic use, the product must be listed on the Australian Register of Therapeutic Goods (unless it is an exempted or excluded good).

Conclusion

Premium claims are not necessarily bad. To the extent they are accurate and can be substantiated, premium claims:

  • are an excellent advertising tool providing businesses with a competitive advantage

  • help consumers make difficult purchasing decisions, including the benefits of competing products.

Just make sure you use them wisely and accurately. 

In the current environment, most businesses are genuinely wanting to help and assist the public. But extra care needs to be taken to verify any claims about COVID-19 related personal protection and health products, to ensure that consumers are not put in danger.

Authors: Michael Cossetto, Sam Harmer and Lucinda Borg

See also Sam Harmer's short video on this article.

[1] Australian Competition and Consumer Commission (ACCC) v Willesee Healthcare Pty Ltd (No 2) [2011] FCA 752.

[2] Australian Competition and Consumer Commission v Homeopathy Plus! Australia Pty Ltd [2014] FCA 1412.

[3] Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4)  [2015] FCA 1408.

[4] Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) [2016] FCA 424.

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

[6] Secretary, Department of Health v Peptide Clinics Australia Pty Ltd [2019] FCA 1107.