05 Aug 2021

One-two punch: ACCC issues Lorna Jane with $5m penalty after TGA issues $40K in infringement

Dean Gerakiteys and Natalie Coulton

The Lorna Jane case is not only a reminder of the significant penalties associated with misleading and deceptive conduct but also a warning that advertising therapeutic claims may attract the attention of more than just the TGA.

The Federal Court has ordered Lorna Jane to pay $5 million in penalties and declared the company had contravened the Australian Consumer Law after the company admitted that it made a number of false and misleading representations to consumers in the promotion of its LJ Shield Activewear range. The Court also ordered that the company publish corrective advertising, enter into a compliance program and be restrained from engaging in similar conduct. This comes after the TGA had already fined the company approximately $39,960 for the same advertising campaign.

In this article we take a look at how Lorna Jane came unstuck and the double whammy of regulatory punches the company faced for its misleading advertisements.

Lorna Jane's Anti-Viral Activewear

In July 2020 Lorna Jane advertised its LJ Shield Activewear range of athletic leggings that it represented had the ability to eliminate, stop the spread and protect wearers against viruses including the COVID-19 virus. Lorna Jane had represented that its fabric was capable of making "transferral of all pathogens to your Activewear… impossible by eliminating the virus on contact with the fabric".

Lorna Jane's advertising campaign comprised social media posts, media releases, advertising on the Lorna Jane website, electronic direct marketing to consumers and in-store advertising. Examples of those advertisements are extracted below.

Lorna Jane Shield 1

 

Round 1: the Therapeutic Good Administration (TGA)

From the outset of the pandemic the TGA made its views on COVID-19 advertising clear. On 7 February 2020, a public warning was issued to advertisements on the dangers of claiming products could treat or prevent coronoavirus. This was followed by a more pointed warning on 24 March 2020, which flagged the fact that the TGA was already alive to certain advertisers taking advantage of the situation by advertising products that claimed to prevent or cure COVID-19.

It was therefore only a matter of weeks before the regulator cracked down on these claims, which it considered "could have detrimental consequences for the Australian community" with one spokesperson from the Department of Health expressing concern that such activity could create "a false sense of security" and lead "people to be less vigilant about hygiene and social distancing".

But how did Lorna Jane's fashion leggings end up squarely in the TGA's sights? The answer lies in the representations made about the uses of the garments.

While the TGA is only responsible for regulating the supply, import, export, manufacturing and advertising of "therapeutic goods", those are very broadly defined to include a range of things that can be categories as medicines, biologicals, medical devices as well as "other therapeutic goods" such as tampons and disinfectants.

Here, the TGA determined that by representing the LJ Shield Activewear as "anti-virus activewear", Lorna Jane was representing that the products were for a therapeutic use and were therefore therapeutic goods. The result of this is that advertising for these products was subject to the regulatory framework that applies to therapeutic goods, administered by the TGA.

A total of 3 infringement notices, totalling $39,960 were issued to Lorna Jane for the COVID-19 related advertisements, with the TGA explaining that these penalties covered the following contraventions on the part of Lorna Jane:

  • Advertising therapeutic goods that were not included on the Australian Register of Therapeutic Goods (ARTG);
  • Use of a restricted representation (any reference to COVID-19) in the promotion of these goods; and
  • Promoting therapeutic goods as being safe, harmless or without side-effects, in breach of the Therapeutic Goods Advertising Code (No. 2) 2018 (Cth) (Advertising Code).

Round 2: the Australian Competition and Consumer Commission (ACCC)

In December 2020 the ACCC filed proceedings in the Federal Court alleging that the advertisements above were misleading or deceptive in contravention of the Australian Consumer Law by giving the false "impression that the Covid-19 claims were based on scientific or technological evidence when this was not the case." This was despite the fact Lorna Jane had ultimately caving to backlash from consumers and medical practitioners and pulled the majority of its advertising for the LJ Shield in late July 2020.

As noted by the ACCC in its 2021 Compliance and Enforcement Priorities "while these issues also sit within the responsibility of the Therapeutic Goods Administration, the ACCC considered that there was a significant public interest in taking action against Lorna Jane for alleged false or misleading claims about its ‘Anti-virus Activewear’".

Those proceedings were concluded in late July 2021, after Lorna Jane admitted the alleged contraventions and agreed with the ACCC to pay $5 million in penalties in addition to $370,000 in costs as well as to declaratory relief, injunctive relief, corrective advertising and entry into a compliance program. While those orders had been agreed it remained necessary for the Court to consider whether the penalties proposed were appropriate, which it did.

In doing so the Court noted that:

  • the most significant factors in this case were the nature and seriousness of the contraventions, the need for deterrence, and Lorna Jane's admissions and agreement to the proposed orders;
  • the advertising campaign was conducted at a time of considerable uncertainty, fear, and concern amongst the public about the consequences and spread of COVID-19 which Lorna Jane sought to exploit through the use of misleading, deceptive, and untrue representations about the properties of LJ Shield Activewear.
  • such behaviour could only be described as exploitative, predatory, and potentially dangerous and must be regarded as very serious contraventions of the Australian Consumer Law;
  • there was therefore a need to impose a substantial penalty to reflect the seriousness of the conduct and demonstrate that such exploitative conduct "will not pay"; and
  • the making of the representations was directed by and emanated from a very high managerial level within the company.

These were notwithstanding that the ACCC did not allege that Lorna Jane actually knew the representations were false. Consideration was, however, given to the fact that the company had not been shown to have actually profited from its conduct, or that the contraventions had actually caused harm and an allowance was made for the fact that the company had admitted the contraventions and agreed the orders proposed.

Key takeaways

The decision illustrates the significant penalties that misleading and deceptive advertising attracts, particularly where the conduct in question is exploitative, predatory and potentially dangerous, even where a business might not actually have profited from its conduct or be shown to have actually caused harm.

It is however also an important reminder to regulated industries that their advertising to consumers can fall within the purview of more than one regulator. In particular, sponsors of therapeutic goods who can lawfully advertise their goods to consumers must be wary of not focussing solely on ensuring technical compliance with the applicable therapeutic goods regulatory regime but also the Australian Consumer Law.

Further, the TGA's own enforcement powers and penalties mirror those which assist the ACCC in securing significant penalties of the kind set out above. Though the TGA has been slow to flex these powers, the growing number of infringement notices issued and court cases instigated by the TGA show that is changing.

Please contact Clayton Utz if you have any questions about the implications of the decision, or would like to discuss how you can ensure your businesses advertising is compliant.

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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.