Grove Laboratories v Federal Trade Commissioner

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No. NG490 of 1996 GENERAL DIVISION ) BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: ON CLINIC AUSTRALIA PTY LIMITED Respondent MEN ONLY MEDICAL CLINIC PTY LIMITED Second Respondent POTENT-C CLINICS (AUSTRALIA) PTY LIMITED Third Respondent CORAM: TAMBERLIN J PLACE: SYDNEY DATED: 15 AUGUST 1996 REASONS FOR JUDGMENT TAMBERLIN J: On 18 June 1996 the applicant ("the Commission") commenced proceedings against the respondents under the Trade Practices Act 1974 (Cth) ("the Act"), under ss52, 53(aa), 53(c), 53(e), 53(g), 55A, 80 and 80A. The misleading conduct is said to arise from assertions made in newspaper advertisements as to the efficiency, cost, comparative advantages of treatment, and advice proffered by the respondents' clinics for men suffering from impotence.

As against the first respondent five misrepresentations are alleged. Specifically, the allegations are that the first respondent, trading as On Clinic and/or Professional Diagnostic Centres has caused advertisements to appear in the print media with the following misrepresentations: (a) (i) "The ONLY Impotence Treatment Ever Proven to Work!"; or (ii)"improve your SEX LIFE with the ONLY impotency treatment EVER proven to work"; (b) (i) "Bulk Billing. (No charge to you only medicare)"; or (ii)"All visits 100% Bulk Billed. Medicare (No cost to you)"; (c) (i) "4 treatment programmes with GUARANTEED RESULTS, in just 2 visits.."; or (ii)"... can be diagnosed and treated by medical doctors in only 2 consultations."; (d) (i) "4 treatment programmes with GUARANTEED RESULTS..."; or (ii)"PROVEN AND GUARANTEED to work"; and (e) "Diagnosis using unique medical equipment." As against the second and third respondents, the allegations are that they have placed advertisements in the print media with misrepresentations substantially similar to those set out in (b), (c)(ii) and (d)(ii) above. Nothing turns on the variations in wording. Each of the respondents is concerned in the treatment of impotence.

Background Evidence discloses that on 2 May 1996 Mr Lewis, an officer in the Commission's Enforcement Support Unit, had a meeting with Dr Pollak and Ms Wilson from a competitor of the respondent, operating under the name of the Men's Medical Clinic ("MMC"), regarding a complaint made on behalf of MMC in relation to the advertising by On Clinic. The initial complaint was directed to advertisements to the effect that the quadrojet treatment is the "only impotency treatment ever proven to work." On 7 May Dr Pollak wrote to the Commission alleging a further misrepresentation by On Clinic namely "Medicare Bulk Billing (no charge to patient)" when in fact customers had to pay for a course of the treatment as distinct from the consultations. On 7 May Mr Lewis wrote to the managing director of the first respondent, Mr Vaisman, referring to the complaint. He raised two matters. The first was the claim about the quadrojet pharmaceutical erection system and the assertion that it was "the only impotence treatment ever proven to work". The complaint was that in fact other treatments had been proven to work. The second matter raised was the claim concerning Medicare rebates namely that there is "100% Bulk Billing Medicare. No cost to you". Another similar advertisement was referred to which read, "Bulk Billing. No charge to you only Medicare". Mr Lewis pointed out that his understanding was that although the consultations were bulk billed in fact there were other treatment costs, including up to $390 for a course of injections, and that this course of treatment was not covered by Medicare. On 15 May the Commission sent a follow up letter. On 17 May, Mr Vaisman telephoned Mr Lewis and indicated that On Clinic wished to "fully co-operate" with the Commission and he undertook to change the advertisements in whatever manner the Commission considered necessary. Mr Vaisman proposed removal of the "ever" and "only" claim and said he would make it clear that "bulk billing" only applied to consultations. Mr Vaisman said that it was too late to cancel the advertisements for the forthcoming weekend but that they would be changed after that. Mr Lewis considered that these proposals were reasonable but that the Commission would need to see the revised advertisements. On the same day a faxed letter was sent to the applicant from the solicitor for On Clinic undertaking on behalf of On Clinic not to publish further advertisements with the offending language. Samples of the proposed new advertisements were enclosed and an indication was given that the client would submit for approval any modified advertisements proposed to be published in the future if required by the Commission. On 28 May 1996 a letter was sent by Dr McMahon, of the Australian Society of Impotence Medicine, making further complaints about the respondents' advertisements. On 4 June 1996 a further letter was written by the Commission to Mr Vaisman and the other respondents in relation to the assertions. This complaint was more detailed and related to claims referring to the "only proven treatment", "bulk billing", "only two consultations", "the guarantee" that the treatment would work and the reference to "unique diagnostic equipment". The substance of the assertions is set out earlier. The Commission required, by Friday 7 June 1996, undertakings that these assertions would cease and that there would be corrective advertising in a form acceptable to and approved by the Commission. On 7 June 1996 solicitors for the second and third respondents contacted Mr Lewis and informed him that their clients had just received the letter of 4 June and were working on a response. It was then agreed that it would be acceptable for the response to be provided by 11 June 1996. The Commission, not having received any satisfactory response to the letter of 4 June 1996, commenced these proceedings on 18 June 1996. Questions for Determination During the course of the proceedings the dispute narrowed substantially. In opening, counsel for the respondent adopted the position that of the five complaints against On Clinic alleged in the application, the first, which was to the effect that the only impotence treatment ever proven to work was that offered by the first respondent, was "exaggerated and unsatisfactory". I take this to be an acceptance, couched in felicitous language, that it was misleading. The words "only" and "ever" are quite unequivocal and admit no exceptions. On the admitted facts this assertion was clearly misleading. As to the other four representations, the position taken was that they were ambiguous and that if read one way they were true, but if read in another way, although they had "a core of truth", they had "a misleading aspect to them". Ambiguity Language which can reasonably suggest either a true proposition or a false one can come within the ambit of misleading conduct. It has been held, for example, that a statement that a product will relieve pain will be misleading if it relieves only one type of pain but not another: see Grove Laboratories v Federal Trade Commissioner (1969) 418 F2d 489. A number of other United States cases to similar effect are referred to in Heydon, Trade Practices Law, Volume 2, at para 11.710. See also the remarks of Hill J in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations (1992) 38 FCR 1 at 50, where his Honour said:

"Where, as in the present case, the advertisement is capable of more than one meaning, the question of whether the conduct of placing the advertisement in a newspaper is misleading or deceptive conduct, must be tested against each meaning which is reasonably open. This is perhaps but another way of saying that the advertisement will be misleading or likely to mislead or deceive if any reasonable interpretation of it would lead a member of the class, who can be expected to read it, into error: Keehn v Medical Benefits Fund of Australia Ltd (1977) 14 ALR 77 at 81 per Northrop J and cf the approach taken by Mason J in Parkdale." In relation to the representation concerning bulk billing, it was said that if the representation was read as relating to the cost of consultations only, then it was correct, but if it was read to include the cost of the course of treatment, in addition to consultations, then it was false. In my view, a reasonable and indeed the more likely construction of the words "without any charge to the patient" or "at no cost" would be that the total treatment is at no cost to the patient. There is no suggestion that the clinics' services are partly "at no cost". The words "no cost" like the word "free" have a certain allure and will almost always attract a strong favourable attention to a product or service. It is said the same observations apply in relation to the claims that impotence is capable of effective treatment in just four programs, with guaranteed results after only two visits; and the further claims that it could be successfully treated by medical doctors in only two consultations. The reference to "guaranteed" strongly connotes the certainty of a positive result and the assertion that successful treatment can be effected in "only" two consultations reinforces this message. While there is a large component of truth in these assertions, they are nevertheless capable of being read in such a way as to be misleading and deceptive. If it is sought to attract public attention and custom by the use of unqualified assertions of fact, then such assertions should be true as a matter of fact, if they are not to mislead and contravene the norms of conduct prescribed by the Act. Similarly, in relation to the representation in (d) (as set out earlier) to the effect that the results are guaranteed with respect to obtaining or sustaining an erection. The evidence indicates that in a high percentage of cases, the treatment is successful. Nevertheless, the reference to the treatment being "guaranteed" travels beyond the truth and is therefore false and likely to deceive or mislead. The final representation relates to the use by the first respondent of the expression "unique medical equipment". It is pointed out that if this is read to mean unique medical equipment in an unqualified sense, then it is false because the equipment known as the "duplex doppler" is to be found in most radiology practices or vascular diagnostic laboratories to which patients may be referred for testing. However, if it is construed to mean "unique" to impotency clinics, then it is said that the representation is true. The word "unique" on its ordinary meaning denotes exclusivity and, in my view, it is therefore likely to deceive or mislead if read in a fair and reasonable manner. Although, the statement appears in an advertisement concerning impotency clinics, nevertheless it asserts that these clinics have some equipment which is not otherwise available. There is no qualification nor is there anything in the language used to vary the literal meaning. It would have been a simple matter to qualify the advertisement but, no doubt, this would detract from its efficiency in attracting attention. Accordingly, the applicant has made out its case that each of the misrepresentations is misleading and deceptive on a fair and reasonable reading. Respondents' Position The respondent has adopted a pragmatic approach to this matter which is to be commended and is that there is little point in spending time analysing and resolving the complex scientific medical questions underlying the claims when considering the accuracy or otherwise of the statements where the claims can be amended to accord with the true position. This practical approach is appreciated by the Court. It does not mean that the statements are not misleading or deceptive but the conduct of the respondents in this respect is a matter which I have taken into account in considering the form of relief. At the outset of the proceedings counsel for the respondents indicated that they would not oppose the injunctions sought with the proviso that the injunction should only restrain them from the specific representations alleged and should not extend to the more general constraint sought in respect of any "promotional material which contains material which is false, misleading or deceptive or likely to mislead or deceive". I think this approach is appropriate and I will make orders restraining the representations referred to in the fourth, seventh and tenth paragraphs of the Statement of Claim as against the relevant respondents but not in the general form sought by the Commission in its Application. It was submitted that this is not an appropriate case in which to make declarations in relation to the representations but simply to grant injunctive relief. I do not accept this approach. Having found that the representations alleged are misleading or deceptive in the ways indicated above, I think it appropriate to make declarations to that effect. Leaving aside the question of injunctive relief the other issues raised relate to corrective advertising, the grant of compensation to persons affected by the misleading statements; allowing the applicant's officers access to the records to ensure that any compensation order is complied with, and developing and instituting a trade practices act corporate compliance program. Corrective Advertising The purpose of corrective advertising is to protect the public interest. See Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 12 ATPR 41-030 at 51,477 to 51,478. Corrective advertising is intended to dispel incorrect or false impressions which may have been created as a result of deceptive or misleading conduct. It is not intended to be punitive. In any matter concerning corrective advertising the timing of such corrective advertising is of course important, as was pointed out by Morling J in Hospitals Contribution Fund Australia Pty Ltd v Switzerland Australia Health Fund Pty Ltd (1988) 10 ATPR 40-846 at 49,117. There is no principle that any particular period is appropriate as a point beyond which corrective adverting is not warranted. In the context of advertising it is necessary to examine the nature, extent and intensity of the advertising and the media in which it has been released with a view to deciding whether there could reasonably be any current misapprehension as a result of the advertisements. In the present case, I consider that some limited corrective advertising is warranted and in so doing I take the following matters into account:

• The widespread nature of the advertisements. The representations have been extensively and regularly advertised in publications including national and state newspapers with wide circulations.
• The advertisements have been substantial in size and prominent in character.
• They are calculated, not unnaturally, to catch the attention of the reader.
• The advertisements have appeared over a substantial period of time extending beyond six months or so.
• The advertisements have appeared, in many instances, in the first few pages of the newspapers where they are likely to be readily noticed. For example, on page 3 of the Sunday Telegraph or Sun Herald.
• The subject matter of the advertisements is emotive and of a highly sensitive and delicate nature and therefore the claims made are likely to be impressed strongly in the consciousness of persons suffering from or in fear of impotence. In the course of argument reference was made to the likely number of readers who might be influenced or misled by the advertisements. It is clear both from the nature of the advertisements, their prominence and the extent of the advertising campaign using the misleading statements that they are likely to have come to the attention of a significant number of members of the community. It does not matter greatly whether any particular percentage can be assigned to this sector of the community. It is sufficient for the applicant's case to persuade the Court, as it has done, that the advertisements are likely to have reached a substantial number of persons in the community. Although some weeks have expired since the last advertisement, I consider that limited corrective adverting would perform a useful function. The Commission has sought an apology. In the present case, having regard to the co-operative conduct of the respondents, I do not consider that the form of apology sought is appropriate, but I consider that the respondents should express their regrets "to any person who may have been misled" by the earlier assertions. The Commission seeks to have corrective advertising inserted on five separate occasions, in each newspaper and magazine in which the material, the subject of the complaint was published. The circumstances of the present case do not warrant such extensive corrective advertisement. In my view, there should be publication on two separate occasions in the "Sun Herald", "Sunday Telegraph" and the Saturday edition of "The Australian" newspaper and corresponding newspapers in other States. This corrective advertising should appear on page 3, if possible, of each of the newspapers. The advertisements should be prominent and of the same size as the offending advertisements. Due to the limited publication of the reference to "unique diagnostic equipment", I do not consider that the corrective advertising need cover this representation. The terms of the relevant advertisement to be inserted by the respondents should:
• Refer to this proceeding and the decision of the Court.
• Set out the misleading representations and the respects in which they were incorrect or could be read incorrectly.
• Be in similar form to the first four bullet points of the form handed to the Court by the Commission.
• Express the respondents' regret at any misleading impressions; and
• Offer to refund any payments made by dissatisfied customers as a result of the advertisements and provide an 1800 freecall number for making such claims. The precise terms can be settled, in the event of disagreement, when the proposed short minutes are presented to the Court. The Commission has sought publication of advertisements offering to compensate patients who have suffered loss or damage as the result of responding to the advertisements. It also seeks that a system to be set up to receive and investigate claims and to pay claimants who have established loss or damage for amounts they have suffered. It seems to me that this is unwarranted in the present case. An offer of a refund indicated in the corrective advertising will suffice. I do not think there is any necessity for Order 4 sought in the Application, namely, to allow the officers of the Commission free access to the respondents' records in order to verify that the compensation requirement has been fulfilled. This is unduly onerous. No doubt any dissatisfied claimants for a refund will make their complaints known in the event of non payment. Conclusions Accordingly, for the above reasons, I propose to make declarations and grant injunctions in the form indicated earlier. There should be corrective advertising and the precise wording can be settled when formal orders are made. Tear sheets of these advertisements should be furnished to the Commission within seven days of publication to verify compliance. In relation to a compliance program this is a matter for negotiation and discussion between the parties. I do not propose to make any order in this regard. There is no dispute as to costs. The respondents are prepared to pay the costs of the Commission. I direct the parties to being in short minutes to give effect to these reasons. I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Tamberlin. Associate: Date: 15 August 1996 Counsel for Applicant: Mr D E Grieve QC Mr D G Staehli Solicitor for Applicant: Australian Government Solicitor Counsel for Respondents: Mr J D Heydon QC Mr R Cobden Solicitor for Respondents: Tress Cocks & Maddox Date of Hearing: 25 July 1996 Date Judgment Delivered: 15 August 1996