Two of a Kind: Federal Court Refuses to See Double in Case of Identical Pharmaceutical Products

Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd (No 2) [2020] FCA 724

In 2016, the Federal Court ordered Reckitt Benckiser to pay a revised penalty of $6 million for making misleading representations about its Nurofen Specific Pain products. In that case, the Court found that Reckitt Benckiser had marketed each of the different products in the range as having a specific quality which made them more suitable to a particular kind of ailment. However, in reality, each product contained the same active ingredient in the same amount.

In their joint decision, Jagot, Yates and Bromwich JJ found:

“The objective of any penalty in this case must be to ensure that Reckitt Benckiser and other ‘would-be wrongdoers’ think twice and decide not to act against the strong public interest in consumers being able to making decisions about buying non-prescription medicines free from representations that are liable to mislead and thereby distort their decision-making processes.”

Australian subsidiaries of global pharmaceutical giants GlaxoSmithKline (GSK) and Novartis have recently been hit with a collective $4.5 million penalty for, materially, the same offence.

This time, the pain relief products in question were Voltaren Osteo Gel and Emulgel, which GSK acquired from Novartis in March 2016. Between January 2012 and March 2017, Emulgel was marketed for temporary relief of local pain and inflammation, while Osteo Gel was marketed for relief of osteoarthritis symptoms. The recommended retail price for the Osteo Gel product was 16% higher than Emulgel, despite the products containing the same amount of the same active ingredient. The one material difference between the products was the cap on the Osteo Gel product was designed to be easier to open for a person with osteoarthritis.

GlaxoSmithKline and Novartis apparently learnt from Reckitt Benckiser’s refusal to admit its liability until the 11th hour. They quickly conceded that their conduct was in breach of sections 18, 29(1)(g) and 33 of the Australian Consumer Law (ACL).

Consequently, all that was left for the Court to determine was the penalty. The Court held that as 1.4 million units of Osteo Gel were sold in the relevant period, there were, at a minimum, 1.4 million contraventions, with a theoretical maximum penalty at the time of each contravention of $1.1 million. The Court accepted that the maximum penalty was so large as to be meaningless, instead, considering the following factors to be relevant in formulating an appropriate figure:

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.

In respect of point three, Justice Bromwich drew the following distinctions from the Nurofen case:^[1]

1. GSK had already begun assessing its entire product range and was in the process of changing its Osteo Gel packaging prior to the ACCC first raising its concerns in June 2016;
2. in the Nurofen case, there was no difference whatsoever between the five products, four of which were marketed as the contravening “specific pain” representations, whereas there was at least the material difference of the easy-to-open cap for Osteo Gel;
3. in the Nurofen case, the four contravening products sold for double the standard Nurofen, whereas the markup for Osteo Gel was 11.5% to 16%;
4. consumers were much more likely to be misled by the overtly and expressly false representations in the Nurofen case, compared to the implied representations about Osteo Gel;
5. consumers were at a greater risk of double-dosing in the Nurofen case by using the same product, labelled differently, to treat more than one pain condition at the same time;
6. 5.9 million units of the four contravening products were sold in the Nurofen case with revenue of about $45 million, compared to 1.4 million units of Osteo Gel with a combined revenue of about $20 million;
7. the likely loss to consumers in the Nurofen case was in the order of $26.25 million, much more than for Osteo Gel, with at least some of the sales in the latter case reasonably attributable to the real difference of the easy-to-open cap – there is nothing inherently misleading in charging more for a product that has an identified difference, even if it is not as to the active ingredient;
8. the admissions were made at a much earlier stage in relation to Osteo Gel, compared to the admission on the eve of the trial in the Nurofen case.

His Honour found that despite those distinguishing features which would each contribute to a lesser penalty for GSK and Novartis, “Reckitt Benckiser in the Nurofen case ended up being fortunate that it was dealt with at the tail end of a period of relative penalty leniency for this sort of conduct both by this Court and on the approach then taken by the ACCC. The penalty imposed in that case would probably be considerably greater if it came before this Court now”.^[2]

The Respondents jointly submitted that they should be ordered to pay a pecuniary penalty of $4.5 million in relation to the admitted contraventions of the ACL. They further submitted that this amount should be apportioned between the respondents to reflect the differences in their responsibility for what took place, especially as to duration, volume of sales, number of consumers likely to have been affected, and the overall circumstances in which the conduct took place.

Bromwich J accepted that $4.5 million was a fair penalty and apportioned that amount as follows:

1. Novartis to pay $2 million in respect of the product packaging conduct and $1 million in respect of the conduct on the Voltaren Website and the MyJointHealth Website; and
2. GSK to pay $1 million in respect of the product packaging conduct and $500,000 in respect of the conduct on the Voltaren Website.

There is a significant range of factors that the Court is willing to consider when determining an appropriate penalty for misleading consumers. In particular, damages may be significantly reduced where the party in breach takes swift proactive steps to mitigate the consumer loss, rectify its conduct, and resolve litigation.