ACCC brings misleading and deceptive conduct charges against Apple

The product in question – Apple’s new iPad 4G LTE

On 16 March 2012 Apple introduced the highly-anticipated new iPad 4G LTE (new iPad), with consumers having a choice between two select configurations of the device. The first model that could be chosen was a straight Wi-Fi version, while the second was advertised as being capable of Wi-Fi and 4G connectivity. The second model garnered a great deal of attention in particular, with its capacity to provide the consumer with internet access via a 4G network in the absence of a usable Wi-Fi connection.

For example, imagine sitting down with your new iPad, full of lofty expectations of using it to keep in real time contact with your boss when travelling interstate, review last month’s meeting minutes in a busy café between appointments, and make online bookings for a quiet dinner on Friday night with your loved ones, all by using your new iPad in conjunction with your provider’s handy 4G network. Now imagine your shock that your new iPad is not capable of connecting to your network or any other Australian network, despite what Apple has led you to believe.

Essentially, this product runs into difficulty in the Australian market because of its limited capacity for connectivity. Presently, the only 4G network available in Australia is operated by Telstra and the new Apple iPad is not capable of working with that network.

This consumer confusion and dissatisfaction was at the crux of the Australian Competition and Consumer Commission’s (ACCC) recent proceedings against Apple in the Federal Court of Australia [Apple Proceedings]; Australian Competition and Consumer Commission (ACCC) v Apple Pty Ltd [2012] FCA 646. In this case, the ACCC claimed that Apple had breached sections 18, 29 and 33 of Australian Consumer Law¹, by engaging in misleading and deceptive conduct, and making false or misleading representations, about the new iPad’s capabilities.

How has the product been advertised in Australia?

Apple’s campaigns have reached something of an iconic status on the global stage. Many of these campaigns are used across the international market, with little to no modification for the specific local market in question.

Although the new iPad is capable of 4G connectivity in countries such as the US, Apple failed to expressly state on its product, its packaging or on its website that the new iPad is not currently capable of 4G operation in Australia.

In order to address widespread consumer confusion regarding the capabilities of the New iPad, on 28 March 2012 the ACCC commenced the Apple Proceedings in the Federal Court of Australia. By doing so, the ACCC sought to make Australian consumers aware of the tablet’s limited connectivity capabilities, to seek injunctions and a penalty, and to seek orders that Apple refund those consumers who had been affected.

Apple undertook a number of measures to remedy the situation before the formal proceedings had even commenced. These included stipulating on its webpage that the new iPad is not currently compatible with Australian 4G networks, sending emails to customers to inform them of the machine’s limited connectivity and offering to refund all customers affected by its advertising campaign.

The decision in Apple Proceedings

Before Bromberg J of the Federal Court of Australia, the ACCC argued that further restrictions should be imposed on Apple to clarify the limitations of the new iPad and asked Justice Bromberg to approve the imposition of a $2.25 million fine on Apple for its misleading and deceptive conduct. Apple argued that no loss had been suffered by consumers given that Apple had agreed to refund all affected customers and that accordingly the proposed $2.25 million penalty should be reduced.

On 21 June 2012, the Apple Proceedings came to a head when Bromberg J imposed the proposed $2.25 million penalty on Apple, along with an order for the company to pay $300,000 towards the ACCC’s legal costs.

The Court drew attention to the need for multi-national businesses to carefully consider Australia’s consumer laws when determining how to appropriately advertise their products in that market. In particular, the Court stated that global campaigns need to go beyond a simple adherence to existing Australian competition and consumer law, but instead “need to be attuned to the understandings and perceptions of Australian consumers”.²

The imposition of the $2.25 million penalty (although less than the maximum $4.4 million that may be imposed) was intended to make an example of Apple’s conduct, particularly given the Court’s finding that “Apple’s desire for global uniformity was given greater priority than the need to ensure compliance with Australian Consumer Law”.³

Lavan Legal comment

The findings in the Apple Proceedings have a profound impact for multinational businesses operating in the Australian market place. These businesses will need to seek advice when adjusting their advertising in order to avoid exposure to litigation and public scrutiny and will also need to develop a better understanding of the expectations and knowledge of Australian consumers.

Firstly, the Apple decision has demonstrated that the ACCC will take action to ensure the protection of Australian consumers who deal with international companies. Equally, the decision has also shown the willingness of the Federal Court to make an example of companies who engage in misleading and deceptive conduct through the imposition of significant penalties and other invasive measures.

Secondly, the Apple litigation itself has thrust the company’s marketing and advertising practices into the limelight, embroiling the launch of the new iPad, both in Australia and abroad, in controversy. The decision should serve as an important and sobering reminder for multinational corporations that although any fine imposed on them may be of limited significance to them financially (particularly given that Apple is estimated to make $7 million an hour⁴), the potential impact of bad publicity can be wide ranging and damaging in the long term.

Finally, the Apple Proceedings serve as a key precedent for global advertising campaigns in the Australian marketplace. Businesses need to take measures to ensure that global campaigns are appropriately modified to comply with Australian consumer protection laws. Some of the means by which multinational businesses can seek to protect themselves include:

• getting legal advice to ensure that their advertising complies with the applicable laws of that jurisdiction;

• making sure prior to release that their product or service is capable of fully operating in Australia; and

• conducting investigations to familiarise themselves with the Australian market and the understanding consumers may have of a particular product.

Although the cost of modifying global marketing schemes may prove considerable, seeking advice and making the necessary changes is a worthwhile undertaking for businesses who wish to avoid exposure to expensive litigation, severe damage to brand image, and wider consumer scrutiny.