Appeal grounds 1 and 2: loss to consumers and causation
59 Grounds 1 and 2 challenge the approach of the primary judge on the issue of loss to consumers in different ways. They may be summarised as follows.
60 Ground 1 asserts that his Honour erred in concluding that any attempt to quantify profits caused by Reckitt Benckiser's contravening conduct and losses suffered by consumers as a result of that conduct would be impossible, so speculative as to be useless, of no assistance and neither necessary nor appropriate (penalty judgment [5], [53] and [66]), and thereby failed to take into account or give adequate weight to the statutory mandatory consideration of losses suffered by consumers in s 224(2)(a) of the ACL.
61 Ground 2 asserts that in considering the losses suffered by consumers, the primary judge should have found not only that that the products were the same, but also that the products were relevantly the same as standard Nurofen, the only difference between them (apart from the specific pain range costing about twice as much as standard Nurofen) being the conduct liable to mislead the public; that is, that the products were specifically formulated to treat, and in fact solely or specifically treated, the particular type of pain specified on the packaging relevant to each product when they were not and did not. Accordingly, this ground asserts that his Honour should have concluded that the contravening conduct was a material (and the primary) contributing cause of consumers choosing to purchase the more expensive products instead of the standard product, with the consequence that a reasonable estimate of the loss suffered was an amount of about half of the retail sales revenue during the contravening period (the sum calculated by the ACCC being some $26.25 million).
62 In the penalty judgment at [51]-[66], the primary judge was critical of the approach taken by Reckitt Benckiser (that it had not profited at all from the contravening conduct) and, to a lesser extent, the ACCC's response of attempting to demonstrate the existence, and calculate the extent, of profit. In relation to the ACCC, his Honour noted that a substantial part of the evidence and submissions on sales, profit and potential losses to consumers and competitors focused upon an "elaborate exercise, based on volumes of evidence" directed to estimating the profit made as a result of the contravening conduct. This produced a result of some millions of dollars, but less than $10 million (penalty judgment at [51]). His Honour described the ACCC as carrying out "a labour of Hercules", impossible to carry out in the absence of expert evidence and even then at best an "extremely rough approximation" and at worst an "informed guess". His Honour accepted a submission by Reckitt Benckiser that any attempt to quantify profits caused by its contravening conduct would be either an impossible task or so speculative as to be useless, one reason being that it involved proof of a counterfactual, it being insufficient merely to show that the contraventions contributed to the profit made. His Honour rejected Reckitt Benckiser's submission that it should be found it had not made any profit from the contravening conduct.
63 We agree with the primary judge that the ACCC's approach, over-complicated though it might have been, rebutted Reckitt Benckiser's proposition that it had derived no financial benefit from the contravening conduct (penalty judgment at [53]). Notably, Reckitt Benckiser continued to propound this proposition in this appeal on the basis that if by reason of error by the primary judge this Court had to determine penalty, it should do so on the basis that Reckitt Benckiser had derived no financial benefit from the contravening conduct. As discussed below, we reject this proposition.
64 An important part of the ACCC's challenge to the reasoning of the primary judge concerned his Honour's finding (at [60] of the penalty judgment), built on the counterfactual approach which his Honour considered was required, that "there may be consumers who were prepared to pay a substantial price premium for the products compared, for example, to standard Nurofen, for reasons such as ease of selection for the relevant condition, product placement, advertising and the like". In this regard, and by way of example, the packaging of the products was brightly coloured and Reckitt Benckiser's marketing provided for the products to be grouped together in prominent and easily accessible locations. We infer that these are the kinds of considerations the primary judge had in mind at [60] of the penalty judgment.
65 The primary judge, at [66] of the penalty judgment, considered it was sufficient to refer to the recommended retail prices in evidence before his Honour and the volume of sales over the five year period. This enabled total revenue from the sale of the products for the period 2011 to 2015 (the relevant contravening period, although the products were all sold from 2007 onwards) to be determined as $45 million. His Honour did not take the additional step of subtracting from that figure what the revenue would have been if the same sales had taken place of standard Nurofen. Nor was his Honour invited to do so by the ACCC. That additional step was only taken by the ACCC in further developing ground 2 of this appeal in its reply submissions. Calculations based on this approach produced a figure of aggregate additional sums paid by consumers over the five years of $26.25 million. Reckitt Benckiser did not dispute the accuracy of the calculations. This calculation also accords with the undisputed fact of the impugned products being sold for just over double the price of the standard product.
66 Reckitt Benckiser maintained that the approach advocated by the ACCC on appeal was not open, and there was no error by the primary judge. Reckitt Benckiser made the following three points in support of its position.
67 First, in respect of alleged error by the primary judge, his Honour did not fail to consider consumer loss. Rather, his Honour set out reasons, commencing at [51], why the evidence did not permit him to make any findings about the extent to which consumers had been induced by Reckitt Benckiser's conduct to purchase any of the four products. So much is apparent, Reckitt Benckiser submitted, from the heading before [51] of the penalty judgment which is "Sales and profit from contravening conduct, and potential losses to consumers and competitors" (our emphasis), as well as the primary judge's statement at [66] that:
For these reasons it is neither necessary, nor appropriate, in this case to attempt to engage in an exercise of attempting to quantify any amounts of (i) profit to Reckitt Benckiser from the contravening conduct, (ii) loss to consumers, or (iii) loss to competitors (our emphasis).
68 Second, the underlying premise of the calculation is incorrect. It cannot be assumed that the products are the same as standard Nurofen. This was not part of the contravening conduct found. The products contain 342mg of ibuprofen lysine which is equivalent to 200 mg of ibuprofen. Standard Nurofen contains 200mg of ibuprofen. Nurofen Zavance contains 256mg of sodium ibuprofen dehydrate which is equivalent to 200mg of ibuprofen but is absorbed twice as fast as standard Nurofen. Accordingly, it cannot be assumed that the products are the same as standard Nurofen or other products (for example, of competitors) containing 200mg of ibuprofen which cost less than the purported specific pain range products. This point was related to another submission by Reckitt Benckiser which the primary judge appears to have accepted at [61] of the penalty judgment that:
… it was not alleged and has not been found that any representation was made that, based on the packaging and higher pricing, the Nurofen Specific Pain Range products are more effective than other Nurofen pain relief products.
69 Third, the primary judge was correct at [60] that the counterfactual approach depended on excluding consumer choices based on factors other than the contravening conduct such as "ease of selection for the relevant condition, product placement, advertising, and so on". His Honour was also correct at [60] and [61] to accept Reckitt Benckiser's submission that minor changes to the packaging removed the misleading representations with the consequent conclusion that the contraventions may well have yielded little profit to Reckitt Benckiser.
70 We should reiterate that the ACCC's case before the primary judge focused on Reckitt Benckiser's alleged profit as a result of the contravening conduct and his Honour was not invited to quantify consumer loss in the manner which the ACCC has now identified. The ACCC nevertheless maintained before his Honour that consumers had suffered loss as a result of the contravening conduct and his Honour concluded that the extent of such loss could and should not be assessed (at [66]). For the reasons given below, we consider that the primary judge's approach to consumer loss was in error and, despite the ACCC's focus on profits before his Honour, the error was material to the outcome.
71 It may be accepted that the contravening conduct involved the purported specific pain range, not standard Nurofen or any competitor product containing the equivalent active ingredient (ibuprofen) and dose (200mg). It may also be accepted that the contravening conduct did not involve a misrepresentation that any of the purported specific pain range products was more effective in treating pain than another product. However, these matters do not lead to the outcomes for which Reckitt Benckiser contended.
72 The task under s 224(2)(a) is to have regard to the nature and extent of the contravening conduct and the loss or damage suffered as a result. If the assessment of the loss involves facts other than those comprising the contravening conduct, those facts must be considered. In the present case, the agreed facts and other evidence disclosed that ibuprofen lysine is the chemical equivalent of ibuprofen, the purported specific pain range products contained 342mg of ibuprofen lysine which is the equivalent of 200mg ibuprofen, the active ingredient of standard Nurofen is 200mg ibuprofen, and the purported specific pain range products cost about twice as much as standard Nurofen.
73 In particular, the agreed facts included these paragraphs:
7. The active ingredient of all Nurofen products is ibuprofen or chemical equivalents of ibuprofen (for example, ibuprofen lysine and sodium ibuprofen dehydrate).
8. Ibuprofen is a non-steroidal anti-inflammatory drug that acts to inhibit pain causing chemicals (prostaglandins) responsible for tissue pain and inflammation. Inhibition of prostaglandin occurs at both peripheral sites in the body and in the central nervous system. Pain originates when locally-elevated concentrations of these prostaglandins sensitise the nerve endings found in tissue and trigger pain signals to the central nervous system. By blocking the production of prostaglandins, ibuprofen inhibits the sensitisation of nerve endings and prevents the transmission of signals.
74 As noted, the evidence included the packaging of the products in the purported specific pain range which contains the statement "equiv. ibuprofen 200mg". The evidence also included the standard Nurofen packaging which identifies the only active ingredient of that product as ibuprofen 200mg. Reckitt Benckiser submitted that chemical equivalence did not mean that the active ingredients were the same. Literally, this must be true. But what is relevant for present purposes is that, at least insofar as the purported specific pain range products and standard Nurofen are concerned, the agreed facts and packaging demand the inference that they are relevantly the same, in that all of the products provide in the body a dose equivalent to 200mg of ibuprofen .
75 Contrary to Reckitt Benckiser's submissions, the different chemical formulation of Zavance does not suggest any relevant difference between the purported specific pain range products and standard Nurofen. There is no evidence about how Zavance is absorbed more quickly than standard Nurofen but it is apparent the chemical formulation of the equivalent active ingredient is different from both standard Nurofen and the purported specific pain range products. Moreover, unlike Zavance, there is no suggestion on the packaging of the purported specific pain range products that they are anything other than equivalent to 200mg of ibuprofen or have any qualities (such as a faster rate of absorption) different from standard Nurofen. In any event, in the face of the agreed fact of chemical equivalence between the purported specific pain range and 200mg of ibuprofen, it was a matter for Reckitt Benckiser to call evidence to establish any proposition to the contrary. It did not.
76 The fundamental difficulty we have with the primary judge's conclusion about the impossibility of assessing the extent of consumer loss is that it involved an implicit acceptance of the conceptual framework established by Reckitt Benckiser's contravening conduct. In short, how can it be concluded that consumers might have been willing to pay a price premium for the purported specific pain range products "for reasons such as ease of selection for the relevant condition, product placement, advertising, and so on" without implicitly accepting that the products were different from each other (when they were not, the foundation of the contravening conduct) and relevantly different from standard Nurofen (when they were not, the foundation of any assessment of consumer loss)? There was, in truth, no "selection" involved. There was no "relevant condition" involved. The concepts of "selection" and "relevant condition" are constructs created by the contravening conduct. There was no difference between the products and thus, absent the contravening conduct, no rational reason for the different marketing to which his Honour referred. The marketing differences in the present case were part and parcel of the misleading character of the conduct.
77 Reckitt Benckiser submitted that the absence of any representation that the purported specific pain range products were more effective than any other ibuprofen product meant that there was no rational reason for a consumer to purchase the purported specific pain range products rather than any other product. We disagree. In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [55] French CJ, Crennan, Bell and Keane JJ said:
It has long been recognised that, where a representation is made in terms apt to create a particular mental impression in the representee, and is intended to do so, it may properly be inferred that it has had that effect. Such an inference may be drawn more readily where the business of the representor is to make such representations and where the representor's business benefits from creating such an impression.
78 The contravening conduct was apt to create in a consumer the impression that the purported specific pain range product had been formulated to and did in fact treat the specific pain type nominated. It must be inferred that Reckitt Benckiser engaged in the contravening conduct for its commercial benefit, encouraging consumers suffering from the nominated pain types to purchase one or more of the purported specific pain range products rather than a cheaper equivalent product. As such, why should it not be inferred that a consumer acted in accordance with the impression the contravening conduct was apt to create in a consumer's mind? Contrary to Reckitt Benckiser's submission, if suffering from back pain, it is rational for consumers to purchase a product that purports to treat back pain, without even turning their mind to concepts such as equivalent effectiveness.
79 For these reasons we do not accept another submission of Reckitt Benckiser that the primary judge's orders with respect to liability mean that the products are liable to mislead the public only if considered as part of the purported specific pain range, and not if considered in isolation from one another. We do not consider that the ACCC's case or his Honour's findings and orders were confined in this way. It is apparent from the ACCC's fast track statement that the contentions relate to each product within the so-called Nurofen Specific Pain Range. It was alleged that each product in that range contravened, relevantly, s 33 because of the "Packaging Statements" which were defined as statements made on each product. The primary judge's orders also referred to each product in the so-called "Nurofen Specific Pain Range". The words "in combination" or any like formulation do not appear. This said, it is true and apparently not disputed that the combined effect of the four types of packaging enhanced, and to that extent aggravated, their liability to mislead.
80 Test Reckitt Benckiser's submission this way. Assume the only product on the market was the Nurofen migraine pain product. The packaging of that product included the following:
MIGRAINE PAIN
NUROFEN
MIGRAINE PAIN
FAST TARGETED RELIEF FROM PAIN
81 The primary judge's orders included that Reckitt Benckiser, in carrying out the conduct of marketing and selling the so-called Nurofen Specific Pain Range, had represented that each product in that range was specifically formulated and solely or specifically treated the particular type of pain relevant to that product when it was not. Can it be maintained, as Reckitt Benckiser would have it, that if (contrary to the fact) only one product had been sold, the packaging of that product would not have represented that it was specifically formulated and solely or specifically treated the particular type of pain relevant to that product when it was not? The only possible answer to this question is "no". Nor does anything in the liability judgment suggest this to be so. To the contrary, at [36] his Honour said this, which confirms the conclusion we have reached:
…the Packaging Representations which were admitted, and which I found had been made, concerned each product in the Nurofen Specific Pain Range. Nurofen's representations were relied upon by the ACCC, and found by me to be contraventions, not merely for their character as representations on each of the four products but for their character as representations over the range of four products.
82 Accordingly, the fact that Reckitt Benckiser marketed four products which were all liable to mislead the public in the same way, and the ACCC's fast track statement and primary judge's orders reflect this fact, do not mean what Reckitt Benckiser apparently (and, it must be said, disturbingly) still maintains that there was nothing wrong with the packaging of each product considered in isolation.
83 Contrary to Reckitt Benckiser's submission, these conclusions do not involve any expansion of the contravening conduct. The penalty is to be determined for the contravening conduct but the facts relevant to penalty (if agreed or proved) are not confined to the contravening conduct. Nor does this involve an assumption that, but for the contravening conduct, the products would not have existed at all. It does involve, however, acceptance of the proposition that one consequence of the contravening conduct was the illusion that the products involved a range specifically targeted to certain pain types when, in fact, they did not. This proposition, in our view, is a necessary consequence of the contravening conduct. And a necessary consequence of this proposition for the assessment of consumer loss is that consumers would have been induced to buy the products purporting to be specifically formulated to treat the type of pain from which they were suffering in preference to a product, such as standard Nurofen, which did not purport to be so specifically formulated.
84 For these reasons it is impossible to see how any features such as ease of product selection for the relevant condition, product placement, advertising and the like may be extracted for separate consideration from the misleading nature of the packaging representations, let alone be given any real weight. Each was part and parcel, or the result, of the contravening conduct. But for the contraventions, there was no range to inform the branding, advertising or placement of the products. The very notion of product selection is at the heart of the misleading character of the conduct and itself an illusion because all of the products, including standard Nurofen, were relevantly the same. The four products liable to mislead were identical.
85 Apart from the considerations which Reckitt Benckiser put forward and the primary judge accepted being tainted by the contravening conduct, any part they might have had to play in any purchase decision by a consumer, at best, was speculative. There was no material difference between the products and standard Nurofen. The obvious and expected consequence of the contravening conduct was to entice consumers to pay more for the products. Without compelling evidence to the contrary, there was no rational reason to speculate in favour of Reckitt Benckiser that consumers might have been willing to pay twice as much for the same product but for the contravening conduct. The same conclusion applies to the possibility that some consumers may not have cared about price. This is mere speculation by Reckitt Benckiser. The obvious, compelling inference, absent evidence to the contrary, was that the contravening conduct and its consequences for the branding and marketing of the products were the material reason that consumers - or at least the vast majority of consumers - purchased those products rather than standard Nurofen. Reckitt Benckiser's contrary approach, largely accepted by the primary judge, assumes the existence of the range and of difference between the products, when this is the essence of the misleading character of Reckitt Benckiser's contravening conduct.
86 We also do not consider that concepts such as elasticity of demand or cross-elasticity, which concerned the primary judge at [57]-[58] of the penalty judgment, were necessary components of the analysis in the circumstances of this case. The ACCC's approach, as his Honour noted at [57], assumed in favour of Reckitt Benckiser that every person who purchased one of the purported specific pain range would otherwise have purchased another form of Nurofen. His Honour was concerned, however, that there were 50 different types of Nurofen so it was mere speculation to conclude that any person would have purchased any particular type. We disagree. The evidence was that these 50 types of Nurofen included different dosages, dosage forms, and different combinations of active ingredients. Within those types, it is the purported specific pain range and standard Nurofen (as well as Zavance, which is differentiated by apparent speed of absorption) which involved a dosage equivalent to 200mg of ibuprofen (for standard Nurofen whether it be in tablet, caplet or capsule form).
87 Again, absent compelling evidence to the contrary, the obvious and compelling inference, and also the inference most advantageous to Reckitt Benckiser, was that if not enticed to purchase the purported specific pain range product by reason of the contravening conduct, in the ordinary course a person would have purchased one of the standard Nurofen products. In the particular (and unusual) circumstances of this case, where the contravening conduct created the illusion of a range and thus a choice which did not exist, expert evidence about cross-elasticity in the market was unnecessary.
88 Nor do we accept that the lack of any representation that the products were more effective than any other Nurofen product was material to the assessment of consumer loss. The essence of Reckitt Benckiser's contravening conduct as pleaded is not found in concepts of efficacy, but of different products for the purposes of different pain types when the products were the same and were, in terms of action within the body, indifferent to pain type or location. For these reasons Reckitt Benckiser's submission, that no person could have purchased one of the specific pain range products believing the product to be more effective than standard Nurofen, is immaterial.
89 Insofar as Reckitt Benckiser relied upon the submission that minor changes to the packaging would mean that the packaging was no longer liable to mislead the public in contravention of s 33 of the ACL, which the primary judge accepted at [60]-[61], two additional problems arise.
90 First, at [60] his Honour referred to a "concrete example" which, he said, "illustrates the significance of this point to the impossibility of calculating profit from contraventions". The example was Reckitt Benckiser's new packaging (achieved by affixing a sticker on the products) which it had agreed as an interim arrangement with the ACCC after the liability judgment on 11 December 2015 and which enabled the existing stock to continue to be sold. However, the packaging which his Honour described was not the new packaging to which the ACCC agreed as an interim measure. It was the packaging which Reckitt Benckiser had put to the ACCC during the course of the investigation as a possible solution, but which the ACCC had rejected. It must be inferred that the ACCC rejected the proposal on the basis that it considered that the packaging continued to be misleading and deceptive or likely to mislead and deceive, or at least liable to mislead.
91 Contrary to Reckitt Benckiser's submission, and for reasons set out more fully in respect of ground 3 below, this mistake was material. The terms of [60] and [61] of the penalty judgment confirm that the primary judge considered the new packaging to be important is plain. But there are material differences between the packaging proposal the ACCC rejected and the new packaging which it accepted as an interim measure. The latter did not bear a sticker at the top saying "suitable for general pain relief". It bore a sticker beneath the nominated pain type, in equally prominent type, saying "equally effective for [all of the other nominated pain types] and general pain". The differences between the agreed interim packaging and the contravening packaging are not minor.
92 Second, there was no evidence about the effect of the agreed interim packaging on consumer behaviour. It is not apparent why it would be inferred in favour of Reckitt Benckiser that the changed packaging had no effect on consumer behaviour when the change went to the heart of the branding of the purported specific pain range - that the products within the purported range were all the same and they were equally effective for all kinds of pain.
93 Accordingly, and contrary to the submissions made on behalf of Reckitt Benckiser, the mandatory consideration of consumer loss did not require precise causation or mathematical precision. It never required evidence from consumers on a "but for" basis or expert evidence. The primary judge was constrained by what was before him, but was required to do the best that he could with what was available, applying the orthodox "common sense" approach to causation of consumer loss which "requires no more than that the act or event in question should have materially contributed to the loss or injury suffered" (Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [61] per Gaudron J citing Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525).
94 Considered other than through the distorting prism created by Reckitt Benckiser's contravening conduct, the only reasonable inference available on the evidence was that a substantial number of the sales of the purported specific pain range products was caused by the contravening conduct but for which, at best for Reckitt Benckiser, consumers would have purchased a standard Nurofen product at half the price.
95 If not for the matters discussed above, in particular the implicit adoption of the concept of the products being formulated for and treating different pain types when they did not, it is unlikely that the primary judge would have concluded that the extent of the loss to consumers was beyond meaningful assessment.
96 Our final observation is that there is perhaps an easier way of looking at the problem of loss. With the benefit or advantage of conduct liable to mislead the public, namely by way of marketing representations that were deliberately made (putting to one side the issue of state of mind), 5.9 million packets of the purported Nurofen specific pain range were sold. As we have said, those representations were the only apparent reason for any rational consumer to buy the products at twice the price of standard Nurofen. The ordinary and predictable consequence of the conduct is not a circumstance of aggravation which the ACCC had to prove. Rather, if Reckitt Benckiser wished to have the Court accept that any of those 5.9 million sales were not substantially, if not overwhelmingly, influenced by the contravening conduct in a material way, the argument is one in mitigation which Reckitt Benckiser had to prove. There was no such evidence.
97 The primary judge started down the relevant path when he observed at [55] of the penalty judgment that Reckitt Benckiser engaged in its marketing and packaging of the purported specific pain range products, "with the intention of increasing profits". Thereafter, his Honour's acceptance of Reckitt Benckiser's submissions also involved both an implicit acceptance of the concepts which gave rise to the contraventions and speculation about consumers' behaviour. As a result, the primary judge was diverted from the drawing of obvious inferences which the evidence made compelling in the circumstances.
98 For these reasons, we consider that the primary judge erred on the question of loss to consumers. In our view, there was ample evidence to infer a direct causal relationship for sales of the more expensive four identical products. In the circumstances, that inference had to be drawn. No other reasonable inference could be drawn in the absence of evidence to rebut it. There was no reason not to draw that inference. In particular, there was no credible alternative explanation for the sales, or at least the vast bulk of them, taking place. Accordingly, a finding ought to have been made that a substantial proportion of the difference between the sales price of 5.9 million packages of the impugned products and of the equivalent number of sales of standard Nurofen had been lost to consumers as a result of Reckitt Benckiser's contraventions of s 33 of the ACL between 2011 and 2015. Whether that be $26.25 million (as the ACCC has now calculated) or another amount (based on some refinement of the calculations), the loss was in the order of 50% of the total revenue from the sale of the impugned products, being $45 million.