Directors beware – selling unregistered therapeutic goods with exaggerated claims lead to significant penalties

By Ian Bloemendal, Chloe Hogan
23 Dec 2021
Businesses should take care to ensure that product representations are backed by true science (not pseudoscience) and the necessary regulatory approvals are obtained from the Therapeutic Goods Administration before they are offered for sale.

"Oxymed and Mr Hooper are not the internet equivalent of the local tea shoppe with a hand written sign in the window spruiking the benefits of peppermint tea…"

So said Federal Court Justice Helen Rofe after finding that the Victorian clinic Oxymed had advertised unregistered medical devices (intended to administer hyperbaric oxygen therapy) and made prohibited and restricted representations on Facebook and other social media platforms, to people with chronic illnesses, in breach of the Therapeutic Goods Act 1989.

The Therapeutic Goods Administration (TGA) alleged that Oxymed and Mr Hooper had collectively contravened the Act 1,851 times – leading it to request a penalty of $5 million to $10 million against Oxymed and $500,000 to $750,000 against Mr Hooper. While the company ultimately fared better with a $2m penalty, the court imposed a larger penalty against the director Mr Malcolm Hooper than that sought by the TGA – $1 million – because of the extent of his involvement in the contraventions and the need for deterrence.

In addition to ordering them to pay the TGA's costs of the proceedings, the court also issued a series of injunctions against them (including an injunction for seven years preventing Oxymed and Mr Hooper from advertising hyperbaric oxygen therapy devices that are not listed on the ARTG). Oxymed and Hooper were given 30 days to pay the penalties.

The regulation of therapeutic goods advertising in Australia

The Therapeutic Goods Advertising Code (TGAC) governs the advertising of therapeutic goods, including advertising of therapeutic goods that are not directed exclusively to health professionals or that is not part of a public health campaign. Section 10 of the TGAC prohibits various conduct including representations that exaggerate product efficacy or performance or encourage inappropriate use of therapeutic goods or represent that the goods are effective in all cases of a condition etc.

The TGA's Advertising Compliance Unit (TGA ACU) monitors advertising of therapeutic goods to ensure that they do not promote unregistered therapeutic goods or contain prohibited or restricted representations in breach of the TGA. Its first approach to an infringer may be to issue an educational obligations notice (outlining identified concerns of non-compliance). If a business and its directors ignore the warning and fail to take comprehensive steps to remedy the non-compliance, the do so at their peril. They each risk multiple infringement notices or, if proceedings are required to issue, injunctions and a maximum penalty of 5,000 penalty units for an individual and 50,000 penalty units for a body corporate for each contravention.

Oxymed's HBOT practices and representations – and the TGA's views

Oxymed is an alternative therapies clinic based in Victoria, which advertised hyperbaric oxygen therapy (HBOT) and devices intended to administer hyperbaric oxygen therapy (HBOT Devices) on its website and social media pages. The company promoted the HBOT and the HBOT devices as a treatment for panoply of disorders including Alzheimer's disease, Autism spectrum disorders, cancer, cerebral palsy, Crohn’s disease, COVID-19, concussion, dementia, HIV/AIDS, stroke, and post-traumatic stress disorder.

Unsurprisingly, the HBOT devices were not registered on the Australian Therapeutic Goods Register (ATGR), nor did they have any exemption. The company's director Mr Hooper did not have any formal qualification, nor even an Australian First Aid certificate, and the claims were not supported by any valid scientific evidence.

The TGA expressed concerns that the company's practices were "intended to engender in the unscientifically trained and vulnerable reader a perception of credibility" which they did not possess. The website and Facebook Page include links to many pseudo-scientific articles, testimonials from clients and Mr Hooper’s speaking engagements.

In May 2018, the TGA ACU wrote to Mr Hooper/Oxymed in response to a complaint about Oxymed’s advertising of HBOT devices. Mr Hooper denied any contravention. His response failed to allay the TGA's concerns; it escalated its response, ultimately issuing an “Immediate Notice to Cease and Desist” which warned of penalties and enclosed five infringement notices addressed to Oxymed and Mr Hooper, each imposing a penalty of $12,600.

Mr Hooper confirmed, amongst other things, that he had instructed Oxymed’s web manager to remove content from the Website, including references to the HBOT Device and sections on COVID-19, HIV AIDS, cancer support and PTSD. The response was inadequate and led to a “Final Notice to Cease and Desist” because the contravening representations were still there; the Final Notice also set out a longer list of the serious diseases, conditions or disorders that remained on the Website.

Mr Hooper then wrote to the TGA ACU stating that Oxymed had “(hopefully) removed all links and URL’s [sic] from [the Website]”, as well as “all photographs and blogs from the [Facebook Page]”. His solicitors requested that the Infringement Notices be withdrawn on the basis that the material had been taken down. The TGA refused, noting “the seriousness of the breaches and the potential harm to public health and safety”.

The TGA subsequently wrote to Mr Hopper, noting that prohibited advertising continued to be displayed on the Oxymed website, and further web content had been added containing restricted and prohibited representations. The TGA threatened to withdraw the Infringement Notices and commence proceedings against Oxymed and Mr Hooper if all references to restricted and prohibited representations were not promptly removed from the website. Mr Hooper's response sought to argue that Oxymed’s conduct was either lawful, or was not serious in nature.

The TGA filed proceedings against Oxymed and Mr Hooper (as a person who allegedly aided, abetted, counselled or procured Oxymed's contravention of the TGA – as he was responsible for all content that was published, and had oversight and authority over what was included or excluded on the Website and Facebook Page).

On 21 August 2020, the Website was taken down with no admission as to liability and posts from the Facebook Page were removed on 28 September 2020. Orders were made preventing the Website being put back online without the prior written consent of the Secretary of the Department of Health. Remarkably, the Website went back on line some time later, and the AGS had to write to the respondents' solicitors to have it taken down again on 20 January 2021.

There was no dispute at hearing that the HBOT devices were therapeutic goods, or that the advertisements constituted "prohibited representations". However, it took a cease and desist letter, five infringement notices and a final cease and desist letter and then proceedings to get to that point. The question was the penalty.

Assessing the penalty for a course of conduct

Section 42Y of the Therapeutic Goods Act requires the Court to have regard to four matters when determining pecuniary penalty:

            (a) the nature and extent of the contravention;

            (b) the nature and extent of any loss or damage suffered;

            (c) the circumstances in which the contravention took place; and

            (d) whether the person has previously been found to have engaged in similar conduct.

These matters are not exhaustive. Justice Rofe assessed each of the matters set out in section 42Y and adopted a course of conduct analysis in considering penalty.

Her Honour did not consider there was sufficient difference between Oxymed's website and its Facebook page to treat them as separate courses of conduct. Instead, she judged there were three courses of conduct that were relevant, based on the three types of contraventions the parties agreed had occurred:

  • advertisements referring to the unregistered HBOT devices;
  • advertisements containing restricted representations; and/or
  • advertisements containing prohibited representations.

In considering the nature and extent of the contravention, the Court had regard to the TGA's role in protecting vulnerable consumers and the characterisation of Oxymed's business. Mr Hooper and Oxymed had published a "deluge of posts" linking articles, testimonials and Mr Hooper's own speaking engagements to support the credibility of their claims. Her Honour also referred to the "community anxiety" which had built up as to the COVID-19 pandemic and noted that Mr Hooper and Oxymed had used this anxiety to promote their products to a vulnerable audience, using "pseudo-scientific" articles to support their claims. The fact that Mr Hooper had previously been punished for advertising the use of HBOT was also relevant.

This led her Honour to remark that "it is extraordinarily cavalier to maintain an ignorance as to the applicable statutory scheme and regulatory regime whilst operating a clinic providing HBOT to patients using therapeutic goods."

Justice Rofe observed that:

  • Mr Hooper had a "zealous enthusiasm for HBOT" that may tempt him to continue engaging in the contravening conduct,
  • expert medical evidence was that there was a risk of harm to consumers who might not pursue the orthodox treatment for their condition;
  • there was no evidence in this case that HBOT presented a high risk of adverse effects or that it posed an unacceptable risk or direct danger to physical health from undergoing the therapy, as opposed to a more indirect, but still significant risk of harm from missing out on orthodox treatment for the condition. She therefore agreed with the respondents’ submission that in terms of direct harm to patients, the provision of HBOT was at the lower end of the scale;
  • there was nevertheless a potential for significant harm if patients with conditions such as cancer or HIV/AIDS deferred or avoided orthodox evidence-based treatment in favour of pursuing HBOT; and
  • there was also a risk of substantial financial harm to patients ($129.59 per hour), if they continued to engage in HBOT treatments.

The Court added that there was a need in this case for general deterrence to ensure that others are not tempted to engage in similar conduct by posting advertisements on social media, and to send a message that companies, and those in control of their conduct, will not be able to profit from their wrongdoing.

In considering the three courses of conduct identified above, the Court assessed combined penalties of:

  • $4 million against Oxymed; and
  • $2 million against Mr Hooper for his role in aiding and abetting the contraventions,

Having regard to the totality principle, these penalties were reduced to $2 million against Oxymed and $1 million against Mr Hooper. They were also restrained for a period of seven years from advertising HBOT devices without first entering those devices on the ATGR or obtaining permission under section 42DK of the TG Act. They were also ordered to pay legal costs of the Department of Health.

Key takeaways for advertising therapeutic goods

The TGA is responsible for assessing the efficacy of goods that may be used to treat a range of conditions, and businesses should take care to ensure that the necessary regulatory approvals are obtained before they are offered for sale. Strict compliance with the TGAC is also required. This will necessitate ensuring that independent expert scientific evidence is available to support product claims and that any representations made do not exaggerate product efficacy or performance, or encourage inappropriate use or represent that the goods are effective to treat conditions when the consensus of expert medical opinion in Australia and in the scientific literature does not support that.

Directors and officers of companies involved in a contravention also need to pay close attention, because the Court will not hesitate to impose significant individual penalties to serve as a deterrent when they fail to ensure that posts and publications which they are involved in publishing do not mislead the vulnerable non-scientific public readers – particularly when they involve pseudo-scientific articles.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.