FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Global One Mobile Entertainment Limited [2011] FCA 393

THE COURT ORDERS THAT:

1.    The parties are to submit an agreed form of proposed orders to give effect to these reasons by 12 May 2011.

2.    If the parties are unable to agree on proposed orders, the parties are each to submit proposed orders, together with short written submissions in support of these proposed orders, by 12 May 2011.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    By its Fast Track Statement dated 20 October 2010, the Australian Competition and Consumer Commission (the Commission) alleges that, in the course of the promotion and supply of mobile telephone premium content services (mobile telephone ringtones, quizzes and video games), the respondents, Global One Mobile Entertainment Limited (Global One) and 6G Pty Limited (6G) have engaged in conduct in contravention of ss 52, 53(aa), (c) and (e) of the Trade Practices Act 1974 (Cth) (the Act). The Act was replaced by the Competition and Consumer Act 2010 (Cth) (the CCA) from 1 January 2011 by operation of the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) (the Amendment Act). However, pursuant to s 7(1) of Schedule 7 of the Amendment Act, the Act continues to apply to these proceedings.

2    By order of the Court made 7 December 2010, the present hearing is concerned with both issues of liability and penalty.

3    Global One and 6G are related entities which promote and supply mobile telephone premium content services to consumers. Global One and 6G are known as content service providers. Global One and 6G are wholly owned subsidiaries of MobileActive Limited (MobileActive). MobileActive is an Australian based company that develops, aggregates, markets and distributes a diverse range of mobile entertainment and services, including video games, videos and quizzes.

4    There are four separate television advertisements which are the subject of the proceeding:

1.    an advertisement by which consumers can obtain the song “One Time” by Justin Bieber as a mobile phone ringtone (the Justin Bieber Advertisement). The Justin Bieber Advertisement was published by Global One from 14 February 2010 to 22 May 2010;

2.    two advertisements which promote a mobile phone quiz game and represent that a consumer can win $100,000 in cash and weekly prizes (the Quiz Advertisements). The two versions of the Quiz Advertisements differ in respect of the quiz question posed during the advertisement. The first version (the Water Quiz) was published by 6G from 7 March 2010 to 17 April 2010. The second version (the Ship Quiz) was published by 6G from 30 May 2010 to 12 July 2010;

3.    an advertisement representing that a consumer can receive the Space Invaders game on their mobile phone (the Space Invaders Advertisement). The Space Invaders Advertisement was published by 6G from 21 March 2010 to 24 April 2010; and

4.    an advertisement representing that a consumer can receive the Doodle Jump game on their mobile phone (the Doodle Jump Advertisement). The Doodle Jump Advertisement was published by 6G from 25 May 2010 to 12 July 2010,

(together, the Advertisements).

5    The purpose of the Advertisements was to initiate a subscription service based upon the product being advertised. In each case, if the viewer accepted the service, he or she had to pay an initial sign-up fee and an ongoing subscription fee. In the case of the Justin Bieber Advertisement, there was an initial sign-up fee of $13.20 with a subscription fee of $6.50 per six days. For the Quiz Advertisements there was an initial sign-up fee of $4.50 and subscription fee of $9.00 per week. For both the Space Invaders Advertisement and the Doodle Jump Advertisement, there was an initial sign-up fee of $7.00 and subscription fee of $3.50 per day.

6    The Advertisements appeared on both free-to-air and subscription television channels, including GO! and Fox8. Some of the timing of the Advertisements was at the direction of Global One and 6G. Some of the Advertisements were placed by the broadcasters at a time of their choosing as free advertising. Although there were some differences in the screening times for the Advertisements, they regularly appeared during children’s and family programs.

THE ADVERTISEMENTS

Preparation

7    Mr Robertson is the head of marketing and licensing for Global One. He was the person responsible for approving the Advertisements and their placement.

8    Mr Robertson created each of the Advertisements. He says that he used Global One and 6G templates, which included the terms and conditions, the shortcode and the pricing information that were to be used for the particular advertisement, depending on the nature of the specific information to be included in that advertisement. Mr Robertson directed the in-house graphic designer at Global One to create the imagery for the Advertisements. Upon Mr Robertson’s approval, the Advertisements were sent to Global One’s media buying agency, Mediarology, which then sent the Advertisements that were to be screened on free-to-air television to Commercials Advice Pty Ltd (CAD) at Free TV Australia for approval.

9    The fact that Mr Robertson sent the Advertisements to CAD does not absolve Global One and 6G of the responsibility to ensure there is no contravention of the Act. CAD provides classification services for television commercials under the Commercial Television Industry Code of Practice, which contains a detailed classification system that is designed to ensure that only material which is suited for a particular classification zone is broadcast in that zone. As stated in the FreeTV Commercials Advice Classification Handbook, CAD does not provide legal advice. The handbook states that it is the responsibility of each advertiser and/or its advertising agency to ensure that the commercial complies with all relevant laws and regulatory requirements, including the Act and relevant voluntary codes and guidelines, such as the Advertiser Code of Ethics and ACCC Advertising and Selling Guidelines. This would also include the Mobile Premium Services Code (the Code), which is discussed below.

The Justin Bieber Advertisement

10    The Justin Bieber Advertisement was primarily broadcast outside of school hours or during school hours during the school holiday period. It was broadcast primarily on Fox8 but also on Arena. It was also apparently shown on Channel V and Music Max. It was shown during a variety of shows that included “The Simpsons” and “American Idol”, as well as during shows such as “The Gilmour Girls” and “Sex in the City”.

11    The Justin Bieber Advertisement is approximately 15 seconds long and contains a video clip of Justin Bieber singing the song “One Time”. During the commercial a voiceover states:

Subscribe for One Time ringtone. Text one to 194888. Get Justin Bieber’s new hit on your mobile today. Text one to 194888. Get mobile active.

12    For the duration of the Justin Bieber Advertisement, the following words appear in small print towards the bottom of the screen:

Subscription $6.60 x 2 ($13.20) to join + $6.60 per six days inc. GST.

13    Below those words are the following words in small print:

To cancel text stop to 194888. Related offers sent via SMS, to opt out text stop to 19721122. You get access to music, videos, games plus more. Minimum three content items per charge period. 15 yrs + only and must have bill payers permission. Ensure WAP enabled. Normal carrier data and messages charges may apply. Access varies carrier/plan. www.mobileactive.com. For help ph 1300556761.

14    The word “MobileActive” appears on the screen during the whole of the Justin Bieber Advertisement.

15    It is not in dispute that Justin Bieber is a very successful young singer who, at the time of the Justin Bieber Advertisement, was approximately 15 years old and who was and is extremely popular with young girls in the 13 to 15 year old age group.

16    Mr Robertson was adamant that, for him, the target audience for the Justin Bieber Advertisement was women in the 18 to 24 year old age group. Mr Robertson says that he was conscious of Global One’s policy that advertisements cannot target children under the age of 15 years. Mr Robertson says that he asked a representative at Mediarology to ensure that the Advertisements were placed appropriately in order to avoid subscriptions being taken up by children under 15 years of age.

17    Mr Robertson accepted, however, that the Justin Bieber song One Time would appeal to under 15 year olds. Bearing in mind the acknowledged appeal of Justin Bieber to under 15 year olds and the timing of the Justin Bieber Advertisement, it is inconceivable that Mr Robertson would not have been aware of the likelihood that under 15 year olds would be watching when the Justin Bieber Advertisement was broadcast and would be attracted by the prospect of having a Justin Bieber ringtone on their mobile phones. Whether or not his target audience was 18 to 24 year olds, Mr Robertson must have appreciated that the audience that would want a Justin Bieber ringtone would likely be under 18 and most likely under 15 years old.

18    The voiceover for the Justin Bieber Advertisement commences with the word “subscribe”. The writing at the bottom of the screen states that the offer is of a subscription and that the subscription results in access to music videos, games and more. It also states that the offer is for those 15 years old and over, with the bill payer’s permission. The writing is on the screen for a sufficient time for a person who wished to read it to do so. However, it is in small text and is difficult to read. At the same time that the writing is on the screen, the Justin Bieber Advertisement shows Justin Bieber singing and young girls responding. The voiceover is distracting. The first time that a person viewed the Justin Bieber Advertisement, that person’s attention would inevitably be drawn to the images on the screen, which include Justin Bieber, and listening to the voiceover. It would be easy to miss or disregard the writing on the bottom of the screen. Even if the viewer was aware of or noticed the writing it is, in my view, highly unlikely that the viewer would read it rather than watch everything else on the screen.

19    This would be the case for an adult viewer. It is, in my view, highly unlikely that a person under the age of 18, let alone under the age of 15, would notice, read or concentrate sufficiently to be able to read the writing.

20    The Justin Bieber Advertisement, as a whole, is directed to providing an incentive for, and introduction to enable, a person to note the methodology by which the ringtone could be obtained. That is by texting the correct response to the number provided. Without reading the small print, or appreciating the purport of the word “subscribe”, there was no indication to the viewer that the ringtone could be obtained only by way of a subscription for that ringtone together with other services, rather than as a one-off purchase of the ringtone alone, or even a purchase at an ongoing price that related only to that ringtone and not to other services. The use of the word “subscribe”, in my view, was totally inadequate to inform the adult viewer, let alone a viewer under the age of 18, that what was being offered was a subscription to a broader service.

21    The representation to the consumer was that by responding to the Justin Bieber Advertisement and by sending an SMS message at a standard SMS cost to the number provided in the Justin Bieber Advertisement, he or she would purchase a one-off service, namely, a Justin Bieber ringtone at a one-off cost, rather than requesting access to a subscription service charged at premium rates.

The Quiz Advertisements

22    The Quiz Advertisements were broadcast on the free-to-air channel GO! and apparently on the subscription television channels Ch111, Comedy, Fox8, Fuel and V. They were shown mainly during the day but also in the late afternoon and early evening during programs such as “Seinfeld”, “The Nanny”, “The Jetsons” and “Frasier”. At least some of the shows were family television shows. Part of the time during which the Quiz Advertisements were shown was a school holiday period, during which children could reasonably be expected to be watching.

23    The Quiz Advertisements are approximately 30 seconds long and contain a voiceover that states:

Subscribe and you could win $100,000.

24    A person on screen then states:

Want to win $100,000 cash? Grab your mobile phone and play the mobile gold super quiz. Play for your chance to win $100,000 cash plus fantastic weekly prizes. It s easy. Here is your first question.

25    In the Water Quiz, a voiceover then states:

What does H2O stand for? Water or Gold? Text your answer to 191919. Text water or gold to 191919 and you could win $100,000. South Australian and Victorian residents no quiz, content subscription only.

26    In the Ship Quiz, the voiceover states:

The Titanic was a ship or train? Text your answer to 191919. Text ship or train to 191919 and you could win $100,000. South Australian and Victorian residents no quiz, content subscription only.

27    The Quiz Advertisements contain small print towards the bottom of the screen which changes during the course of the screening of the Quiz Advertisements. For approximately the first 15 seconds, the following words appear on screen:

Entrants subscribe to the MobileGold Mobile content service. Quiz open to AUS Residents except SA and VIC. 18+ with bill payer's permission. Major prize runs 07/03/10 – 04/09/10. Promoter Global One Mobile Entertainment Pty Ltd. Authorised under Permit No NSW: LTPS/10/01477 ACT: TP/10/00365.1 Full terms and conditions at www.mobilegold.net.au. Related offers sent via SMS, to cancel send stop to 19721122.

28    After approximately 15 seconds the following words appear on screen:

By entering this promotion you subscribe at a cost of $4.50 join fee + $4.50 x 2 per week ($9.00).

29    Below those words are the following words:

Minimum three content items per charge period. To cancel reply stop to 191919. SMS max cost $0.55. Customer service 1300886503. Normal carrier and data messages may apply. Service Provider 6G.

30    The Quiz Advertisements contain information and a series of instructions, which includes:

    the fact that there is a quiz;

    the question which is being asked;

    deciding which of the alternative answers is correct; and

    taking note of the number to which the SMS is to be sent or entering that number into a mobile phone.

31    Again, the writing is present on the screen for sufficient time to enable a person who wished to do so to read it. However, unlike the Justin Bieber Advertisement, the written information relating to the subscription service is not on the screen for the duration of the Quiz Advertisements. Further, the type face of the printed words is small and difficult to read, as well as being surrounded by distracting, colourful images. At the same time as the writing is on the screen, the viewer is asked to text the answer to the quiz question to a number. The quiz number would need to be written down or entered into a mobile phone. In my view, it is highly unlikely that a first time viewer of the Quiz Advertisements would not only notice the writing but also be distracted from the primary message of the Quiz Advertisements in order to read and absorb what the writing conveys. Some concentration would be required to focus on the writing rather than to view the more prominent matters on the screen to which attention is directed by the voiceover.

32    Although the word “subscribe” is stated at the beginning of the Quiz Advertisements, it is in the context of a person on the screen explaining the way in which a consumer can win $100,000 and in circumstances in which the viewer is told to find a mobile phone to enable a text message to be sent. The words are spoken quickly and the Quiz Advertisements concentrate the viewer’s mind on how to win $100,000. The voiceover does not make it clear that the offer is for an ongoing subscription service with ongoing costs until terminated.

33    I am not sure that a viewer would even understand that a cost was involved, over and above the cost of sending the SMS. However, based on the ACCC’s pleaded case, I will assess the Quiz Advertisements by reference to the assertion that what is being offered is a one-off service at a one-off cost.

34    The reference to “subscribe” in the initial part of the voice-over and the written reference to “subscription” at the bottom of the screen do not dispel the dominant impression of the whole of the Quiz Advertisements, which is that they are for a one-off service at a one-off cost. The Quiz Advertisements are a representation by 6G that a consumer responding by sending an SMS message at standard SMS costs to the premium number 191919 would purchase a one-off service, namely one entry into a quiz game promoting the chance to win $100,000, at a one-off cost.

The Space Invaders Advertisement

35    The Space Invaders Advertisement promotes a video game called “Space Invaders”, which the parties agree was a game popular some time ago. By today’s standards it is not a complex game. The Space Invaders Advertisement was broadcast on free-to-air television channel GO!, predominantly during school hours and often during family television shows such as “Frasier”, “Seinfeld” and “The Nanny”. However, it was also shown out of school hours during shows such as “The Flintstones” and the “The Marvellous Misadventures of Flapjack”. It was also shown in the daytime during the school holiday period.

36    The Space Invaders Advertisement is approximately 15 seconds long and contains a voiceover that states:

Space Invaders is back. Subscribe and get the world’s most famous video game on your mobile. Text S17 to 191919. Get the game that started it all. Space Invaders on your mobile. Text S17 to 191919.

37    For the duration of the Space Invaders Advertisement, the following words appear in small print towards the bottom of the screen:

Subscription $3.50 x 2 ($7.00) to join + $3.50 per day inc. GST.

38    Below those words are the following words in small print:

To cancel text stop to 191919. Related offers sent via SMS, to opt out text stop to 19721122. You get access to music, videos, games plus more. Minimum three content items per charge period. 15 yrs + only and must have bill payers permission. Ensure WAP enabled. Normal carrier data and message charges may apply. Access varies carrier/plan. For help ph 1300556761.

39    The voiceover refers only to a single video game. It does not state that the offer is for an ongoing subscription service with ongoing charges until terminated. Again, the word “subscribe” is used at the beginning of the voiceover. Again, it is in the context of visual images taken from the game, spoken words and directions to text to the premium number 191919.

40    In the context of the graphics, the voiceover, the small size of the writing and the need to note the number to which the text is to be sent, an adult viewer would not take particular notice of the writing, nor have his or her attention drawn to the writing. A fortiori this applies to a person under the age of 18 years. It is highly unlikely that an adult, let alone a person under the age of 18 years would, in context, understand what is encompassed by the words “subscribe” or “subscription”. The use of these words would not, in context, dispel the representation that by simply text messaging the premium number, the viewer would obtain a one-off service, namely the Space Invaders game, for a one-off cost.

The Doodle Jump Advertisement

41    The Doodle Jump Advertisement was broadcast on the subscription television channels Fox8, Ch 111, Fuel, Comedy and V and on the free-to-air television channel GO!. It was predominantly screened during the day, that is during school hours, although the dates that it was screened included the school holiday period. It was also shown late at night – that is, after 10.00 pm. It was shown during family shows which might be considered as children’s shows, such as “The Simpsons”, and other family shows such as “America’s Next Top Model” and “Friends”, for which the audience may include under 18 year olds.

42    The Doodle Jump Advertisement is approximately 15 seconds in length. At the start of the Doodle Jump Advertisement a voiceover states:

Jump Jump Jump. Subscribe to Doodle Jump the mobile game. Text jump to 191919. Doodle Jump the addictive game hundreds of thousands of fans play. Get it on your mobile now. Text jump to 191919.

43    For the duration of the Doodle Jump Advertisement, the following words appear in small print towards the bottom of the screen:

Subscription $3.50 x 2 ($7.00) to join + $3.50 per day inc. GST.

44    Below those words are the following words in small print:

To cancel text stop to 191919. Related offers sent via SMS, to opt out text stop to 19721122. Minimum three content items per charge period. 15 yrs + only and must have bill payers permission. Ensure WAP enabled. Normal carrier data and message 15 charges may apply. Access varies carrier/plan. For help ph 1300556761. Content provider is 6G Pty Ltd.

45    The word “MobileActive” appears on the screen for part of the Doodle Jump Advertisement, although not clearly.

46    The comments made at [39]-[40] above apply equally to the Doodle Jump Advertisement.

LEGAL PRINCIPLES

47    The Commission alleges contravention of ss 52, 53(aa), (c) and (e) of the Act.

Section 52

48    Section 52 relevantly provides:

(1)    A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

49    A convenient summary of the relevant principles in relation to s 52 can be found in Telstra Corp Ltd v Cable & Wireless Optus Ltd [2001] FCA 1478 at [21]–[25] per Goldberg J as follows:

    when considering an advertisement through the eyes of a reasonable consumer the Court must take into account that an advertisement published to the world at large is designed and calculated to be seen and read by a wide range of persons;

    the range of persons will include the shrewd and the ingenuous, the educated and the uneducated, the experienced and inexperienced in commercial transactions. It will include the astute, the informed, those who are sceptical and read the small print, those who are intelligent and those who are well informed. It will also cover many who do not possess those characteristics, those who are less informed and those with average intelligence;

    the question whether or not an advertisement is misleading or deceptive is to be tested by the effect on the class of persons who are likely to consider the advertisement;

    the Court is not entitled to assume that the reader will be able to supply for himself or herself omitted facts or to resolve ambiguities. An advertisement may be misleading even though it fails to deceive more wary readers.

50    Relevantly, in determining the representation made in an advertisement:

    the advertisement should be considered in its entirety (Telstra v Optus at [24]);

    the Court should consider the context of the advertisement (Australian Competition and Consumer Commission v Woolworths Ltd (2002) ATPR 41-889); and

    a qualifying statement must be sufficiently prominent and clear to prevent a primary statement from being misleading or deceptive (Australian Competition and Consumer Commission v Singtel Optus Pty Ltd [2010] FCA 1177 at [25], [33] and [39] (ACCC v Singtel Optus)).

51    In Telstra Corporation Ltd v Optus Communications Pty Ltd (1996) 36 IPR 515 at 523, in determining whether a television advertisement was in contravention of s 52, Merkel J adopted the approach that had been taken by Lockhart J in Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161. Justice Lockhart had observed at 163 that considerable weight must be placed on the importance of the first impressions conveyed by the advertisement, as these impressions would most closely approximate the impact of the advertisement on the viewer. Justice Lockhart also observed at 164-5, however, that it is necessary to take into account that the public is accustomed to the kind of exaggeration that may take place in advertising. In addition, Merkel J referred to Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1, in which Sheppard J said at 4 that it is not appropriate to take part of an advertisement and endeavour to isolate or consider in isolation the meaning of each of the critical words or phrases which is used. The veracity of the message relied upon must be read in context. Justice Sheppard observed that it may also be necessary to take account of ‘the fact that many readers would not make a close study of the advertisement but would read it fleetingly and absorb its general thrust’.

52    A representation is misleading if it would lead one astray in action or conduct or lead one into error; and it is deceptive if it will cause one to believe what is false: Weitmann v Katies Limited (1977) 29 FLR 336. It is likely to mislead or deceive if it may, or may be expected to, or has a capacity or tendency to, mislead or deceive (McWilliams Wines Pty Limited v McDonald’s System of Australia Pty Limited (1980) 33 ALR 394 at 411 per Northrop J), where likelihood suggests a real and not remote chance or possibility of having this effect: Australian Securities Commission v Nomura International PLC (1998) 89 FCR 301.

53    As was stated by Perram J in Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 3) [2010] FCA 1272 at [7], it is important to recognise the transient nature of television advertisements and the fact that frequently there is low attention paid by consumers to them. Television advertisements are seen by the casual but not overly attentive viewer during a program, with only a marginal interest in the advertisement shown between the segments of the program. As his Honour noted, television advertisements ‘may not be ideal for delivery of complicated information’. Justice Perram’s observations about the advertisement as a vehicle for the delivery of complicated information are apposite to the Advertisements. There are, moreover, some differences between an advertisement imparting information where no action is required and the Advertisements, where a response to the Advertisements requires active absorption of the information followed by action.

Section 53

54    Section 53 relevantly provides:

A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:

...

(aa) falsely represent that services are of a particular standard, quality, value or grade;

...

(c) represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have;

...

(e) make a false or misleading representation with respect to the price of goods or services.

55    To make out section 53(e), it is not necessary that the impugned representation be made with the knowledge that it was false: Darwin Bakery Pty Ltd v Sully (1981) 36 ALR 371 at 376; Australian Competition and Consumer Commission v Boost Tel Pty Limited [2010] FCA 701 at [52].

The Code

56    The Code was developed through a working committee comprising representatives from the telecommunications industry and consumer groups. It has been registered with the Australian Communications and Media Authority (ACMA) pursuant to s 117 of the Telecommunications Act 1997 (Cth) (the Telecommunications Act) and has effect from 1 July 2009. As stated in the Code, s 112 of the Telecommunications Act sets out the intention of the Commonwealth Parliament that bodies and associations representing sections of the telecommunications industry develop industry codes relating to the telecommunications activities of participants in those sections of the industry. The Code applies to the activities of suppliers in relation to mobile premium services. The stated objective of the Code is to establish appropriate community safeguards and customer service requirements for mobile premium services. The parties accept that the Code applies to Global One and 6G’s services as advertised. The relevance of the Code is not to the alleged contraventions of the Act but to orders consequential on a proven contravention.

57    The Code sets out the rules for advertising mobile premium services. If the writing and the word “subscribe” are taken into account, the Advertisements have, strictly speaking, included the information required by the Code to be included in advertisements. However, clause 3.1.2(a) provides that a content supplier must include ‘clear, prominent and legible information in plain language’ as to the fact of the service being a subscription service, any sign-up cost and relevant charges. It cannot be said that these matters are clear and prominent in the Advertisements. Further, at clause 3.1.11, the Code specifically provides that a content supplier ‘must ensure that advertisements for mobile premium services are not confusing, misleading or deceptive, having regard to the intended audience’.

58    The Code provides that a subscriber can at any time, by text message, cancel the subscription. Clause 3.3.3 of the Code provides that a content supplier must ensure that advertisements or a premium message subscription service ‘clearly state’, inter alia, the details of the “STOP” message and how to opt-out. Importantly, under clause 4.4.1(e), the Code requires that a consumer who sends an SMS message in response to an advertisement receives a subsequent SMS message including information on any sign-up cost and the basis for calculating charges under the subscription service and instructing the consumer to send a further message in order to confirm a subscription to the service. This is referred to as the “double opt-in” procedure.

DOUBLE OPT-IN PROCEDURE

59    Once a customer text messaged the required phrase to the number stipulated in the Advertisements, a “double opt-in” message was sent to the mobile telephone number from which the customer sent the text message from. For example, the double opt-in message for the Justin Bieber Advertisement stated:

FreeMsg: Hi! Reply YES 2 get ur order + get top games, apps tones & more! MobileActive subscription Help 1300886534. $6.60/6 days 2 x $6.60 to join. Unsub: reply out

60    To subscribe to the relevant service, the customer then had to text ‘Yes’ in reply. The double opt-in message does not repeat the information contained in the written text at the bottom of the Advertisements that persons under 15 years of age need the bill payer’s permission to subscribe to the service.

61    It is not in dispute that as at the time when the double opt-in message is sent to the intended subscriber, that person is given an explanation of the nature of the subscription service. If he or she were misled up to that point, for example, had understood that the prospective purchase was of a one-off service, that would no longer be the case; that is, the double opt-in procedure would remove that misapprehension.

CONSIDERATION

62    Global One and 6G submit that the Advertisements do not mislead the consumer because before any subscription can be purchased, the double opt-in procedure ensures that the information that appeared in writing in the Advertisements is conveyed to the consumer, who then understands the nature of the service to which he or she seeks to subscribe. The submission is that the conduct should be seen in its totality, which includes the airing of the Advertisements and the sending of the confirmatory text by Global One or 6G immediately upon receipt of the text from the consumer in accordance with the particular advertisement. That is, the whole of the conduct includes the double opt-in procedure.

63    Global One and 6G submit that if the whole of that conduct is taken into account, the consumer is not misled or deceived. Global One and 6G rely on Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, where the High Court found, in circumstances where a consumer had the opportunity to inspect the label of furniture that looked the same as the desired furniture, that there was no contravention of s 52 of the Act. Global One and 6G point out that Gibbs CJ observed at 199 that the conduct of a defendant must be viewed as a whole and that it is wrong to select some words or act which alone would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. Global One and 6G say that the consumer has a chance to “inspect the label” because of the double opt-in procedure so that, before finally subscribing, the consumer either understands the nature of the acquisition of the subscription service or does not proceed further. The system in place was not, Global One and 6G say, merely the production of the Advertisements but also included:

    the instructions for the Advertisements to be aired within defined parameters, which included that the Advertisements should not be directed to under 18 year olds;

    the establishment of a computerised network which sent a message upon receipt of the initial text from the consumer and only activated the subscription if the double opt-in response was received; and

    the ability to terminate the subscription by texting “stop”.

64     Global One and 6G contend that any confusion arising from the Advertisements is inchoate. There is, they say, no justification for focussing on only part of their conduct to see if, on its own, that part created a misleading impression. This is particularly so, they contend, where the component relied upon by the Commission had no commercial relevance and cannot, in a commercially sensible manner, be divided out of the totality of the arrangements necessary to obtain the subscription. To divide the conduct into component parts is, Global One and 6G submit, commercially unrealistic.

65    A comparable submission was considered by Tamberlin J in Trade Practices Commission v Optus Communications Pty Ltd and Another (1996) 64 FCR 326. His Honour said at 340 that he was not persuaded that any or all of the post-broadcast steps that had to be taken before a contract was entered into would dispel the impression generated by the misleading message in the television broadcast. His Honour said that the viewer would be ‘enticed into the marketing web’ by the particular advertisement. Justice Tamberlin referred to what had been said by Beaumont J in TEC & Thomas (Australia) Pty Ltd v Matsumiya Computer Co Pty Ltd (1984) 1 FCR 28 at 38: ‘What is relevantly induced is the dealing or the negotiations, as distinct from the subsequent purchase itself.’

66    In Australian Competition and Consumer Commission v Dell Computers Pty Ltd (2002) ATPR 41-878, Jacobson J rejected the contention that subsequent disclosure to the customers when they made contact with the maker of the particular advertisement meant that there was no contravention of s 52 of the Act (at 45,021). His Honour observed that there was ample authority to the contrary of that contention, in particular, St Lukes Health Insurance v Medical Benefits Fund of Australia Ltd (1995) ATPR 41-428 at 40,823, where Northrop J concluded that misleading or deceptive conduct occurs at the time of the publication of the advertisement and that a subsequent explanation of the effect of an offer does not overcome misleading or deceptive conduct which had occurred at an early stage when a member of the public, seeing the advertisement, takes steps to enter into a contract. In ACCC v Singtel Optus at [26], Perram J rejected a similar submission and held that it is necessary to consider the initial inducement the advertisement provides; the fact that there is a subsequent action required is not sufficient to overcome misleading representations.

67    It is clear from these cases that conduct can contravene s 52 of the Act even if, ultimately, the consumer becomes aware of the true situation. However, each case must be looked at according to its facts. This is not a case where a consumer would be expected to examine the label of a product he or she was considering purchasing by reason of the identity of the manufacturer of that product. Here, the relevant conduct is the broadcast of each of the Advertisements in their totality. It is true that a prospective purchaser would be disabused of any misunderstanding by the double opt-in procedure but, if the Advertisements are misleading, that person would have already been misled.

68    The person to whom the representations are taken to have been directed is as set out in Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [103]. Where there is no identified individual to whom a particular misrepresentation has been made but the advertisements are directed to members of a class, the inquiry is as to a hypothetical individual being the reasonable member of the class to whom the representation was directed. In the present case the relevant class is the general public. It is accepted by the parties that according to ACMA the number of mobile phone services in operation in Australia, as at June 2009, was 24.22 million. The relevant inquiry is what the Advertisements would have conveyed to members of the class (Campomar) and whether a significant number of this class is likely to have been misled or deceived (TV – am plc v Amalgamated Television Services Pty Ltd (1988) 12 IPR 85).

69    It follows from Campomar at [103] that the question is whether the misconception alleged to arise or be likely to arise is properly to be attributed to the ordinary and reasonable members of the class of prospective purchasers of the offered service. The Commission emphasises that a number of such prospective purchasers are under the age of 18 and, in particular in the case of the Justin Bieber Advertisement, under the age of 15.

70    The class ordinarily includes the inexperienced as well as the experienced, and the gullible as well as the astute. I propose to consider the effect of the Advertisements on a reasonable adult watching the Advertisements. If such a person is likely to have been misled it follows, in the absence of evidence to the contrary, that someone under the age of 18 would also be misled.

71    Common to each of the Advertisements is:

    the fact that the word “subscribe” is only used at the commencement of the Advertisements;

    background music;

    moving images;

    the information that a number or word needs to be texted;

    the number to which the text message must be sent;

    the voiceover referring only to one specific ringtone, quiz or game, rather than to an ongoing subscription service with an initial sign-up fee and a daily or weekly subscription fee which is not terminated until the consumer sends a subsequent “stop” SMS;

    the small size on the screen of the written text containing the subscription information;

    the ephemeral nature of a television broadcast, which does not enable the consumer to re-read the material as in a printed advertisement. Apart from a reference to a help phone number and (for some of the Advertisements) a website in the small written text, there is no other source presented to the consumer to obtain more information about the nature of the service and reconsider the contents of the Advertisements prior to sending the text message;

    the duration of the Advertisements being insufficient to enable the viewer to listen to the voiceover and have regard to the strong visual images and then to consider the smaller written text. That is, the viewer is unable to do all of these things in a single viewing; and

    the “visual clutter” on the screen, which makes it unlikely that the viewer of the Advertisements would notice or concentrate on the words in small print at the bottom of the screen.

72    As I have already indicated and in light of these factors, I do not accept that the existence of a double opt-in procedure means that the consumer was not relevantly misled. Before the confirmatory opt-in procedure, the consumer had made a decision to enter the quiz, purchase the ringtone, or purchase the game. The fact that the consumer did not ultimately suffer damage upon receiving the confirmatory text does not mean that that consumer was not misled in the first place. In order for the double opt-in procedure to operate, the misled person has taken action of a substantive nature, whether or not it ultimately caused significant detriment or financial loss. The double opt-in procedure did not necessarily provide a panacea for the consequences of a misunderstanding of the nature of the cost for obtaining the service, or indeed the fact that it was an ongoing service that was being obtained.

73    Global One and 6G point out that each of the Advertisements states explicitly in the written text at the bottom of the screen that the offer is not for those under 15 years of age. They say that the appeal of the Advertisements to children is a collateral consequence and not the intended consequence of the screening of the Advertisements. Global One and 6G point out that they have a complaints procedure in place and that if a child does sign up for a subscription and a complaint is made, an instant refund is given.

74    However, the information contained in the double opt-in message does not repeat the information that the subscriber must be 15+ or that the bill payer’s permission is required. The evidence is that some under 18 year old consumers did pass through the double opt-in procedure and accept the subscription. The fact that, on complaint, the money was immediately refunded does not answer the fact that under 18 year olds were misled in the first place. The double opt-in procedure is not the answer, as asserted by Global One and 6G, to the problem of viewers responding to the Advertisements and subsequently obtaining services for which they did not intend to apply. This is made clear by the complaints from people, including those under 18 years of age, who passed through the double opt-in procedure and only then, presumably when they were billed, appreciated the extent of their financial commitment.

75    Global One and 6G rely on Knight v Beyond Properties Pty Ltd (2007) 242 ALR 586 where the Full Court said at [58] that, in characterising a course of conduct as misleading or deceptive, the practical consequences or impact which the conduct is likely to have must be taken into account so that, if the conduct only produces the effect of misleading a person for a transient period and to an insubstantial extent, it is not likely to be misleading or deceptive in any commercially significant sense.

76    However, as Global One and 6G accept, each case must be considered on its own facts and in context. While there is no evidence as to the economic consequences or impact on the viewers of the Advertisements, or indeed as to any disappointment that may have been suffered by a consumer who wished to obtain the ringtone or game and then declined to do so when he or she understood the cost, it is relevant that the consumer took a positive step as a result of the Advertisements. That is, he or she texted the required message to the premium service number.

77    Global One and 6G submit that there is no correlation between the present case and those where one of the effects of the advertising campaign was to draw the consumer into a sales process or to establish brand and product awareness generally, that is, to draw the consumer into a “marketing web”. They say that the ephemeral nature of the Advertisements puts out of consideration a building of brand awareness or a predisposing of the consumer towards purchasing other products of Global One and 6G. It is true that there is not necessarily a “marketing web” in this case. The nature of the service being offered in the Advertisements means that, notwithstanding the reference to a help phone number and, for some of the Advertisements, a website in the small written text at the bottom of the screen, the only source of information available to the consumer before making the decision to send the text message was contained in the Advertisements themselves. That is, unlike the “marketing web” cases, there was no store for the consumer to visit, nor even any method of contact available to the consumer to find out more about the service. Given that the reasonable consumer would be unlikely to have written down the help number or the website in the written text in the time available during the screening of each of the Advertisements, this is not a factor that assists Global One and 6G.

78    Global One and 6G further submit that the reasonable consumer is a person interested in acquiring the service and that such a person will be interested in the cost. That person would, they say, then look to the Advertisements to find out explicitly what the cost is. He or she would then have ample time to read the writing in order to ascertain that fact and that would, in turn, tell the consumer about the subscription service. Global One and 6G submit that it is obvious that consumers could not reasonably have expected to receive the relevant content for nothing more than the cost of a text message. They point out that:

    there can have been no contravention of s 53(e) of the Act, which relates to misrepresentations as to cost, when there is no identification of a one-off cost in the Advertisements;

    the Commission does not identify what the cost in each of the Advertisements was represented to be;

    because of the double-opt in procedure, the consumer would not receive or have to pay for the relevant content immediately upon texting the relevant number;

    the reasonable consumer would expect to pay something for the ringtone or game;

    at no point did the Advertisements state that there would be a one-off cost;

    there was nothing whatsoever in the Advertisements which would allow the consumer to nominate a one-off cost; and

    the consumer who wished to determine what the cost was would note the initial joining cost and ongoing subscription fee.

79    These submissions ignore other possible interpretations of the Advertisements, which include that:

    the cost of entering the quiz or obtaining the ringtone or games was the cost of the text message. This is admittedly most plausible in relation to the cost of entering the quiz; or

    if the consumer did consider what the cost would be, he or she would assume a reasonable cost for a one-off provision of a product or service – not that it was a subscription service with a sign-up fee and a daily or weekly fee that is not commensurate with the cost of the offered product or service alone.

80    Further, as the Commission points out, there is a likely class of people who are misled by the Advertisements but do not text the number and therefore do not receive the subscription request message. They are, therefore, not disabused of any misapprehension engendered by the Advertisements. There is no evidence as to the time lapse between the sending of an initial text and the subscription request message sent by Global One or 6G, so it is not clear for how long such a misapprehension continued. Further, the Advertisements do not prescribe a time limit for response.

81    I accept that, with the possible exception of the Quiz Advertisements, the viewers of the Advertisements would ordinarily have appreciated that the ringtones and games were not being provided for free. However, it is unlikely that they would have appreciated that, if they sent the SMS, the cost incurred was not simply a cost for the provision of the ringtone or game but a recurring cost, that cost being not just for the provision of that content but to sustain a subscription for that content and other services (cf Australian Competition and Consumer Commission v Teracomm Ltd [2009] FCA 903 at [23] per Moore J).

82    I accept that if the written text were read and understood by the consumer, there would be no relevant misrepresentation. The point is, however, that a consumer would be unlikely to read any of the text, let alone all of it, in the time of the Advertisements in circumstances where the size of the text was small and the consumer’s attention would be focussed on the visual images and the voiceover. The inclusion of a written disclaimer does not dispel the effect of the voiceover and the general nature of the Advertisements, which convey a clear message that a one-off text will purchase the offered product or, in the case of the Quiz Advertisements, put the viewer in a position of being able to win the offered prize. A first time viewer is unlikely to have regard to the writing at all. A repeat viewer, or one that is more astute, would have sufficient time to read the writing, which is legible and capable of being read, but this would require concentration and a disregarding of all the other messages, both visual and aural, being conveyed by the Advertisements. That is unlikely unless the viewer’s attention were directed to the written disclaimer. Such a viewer or one who was already aware of the possibility that more than the quiz/ringtone/game was being offered, or who was particularly astute, might read the writing and ignore the other messages. A reasonable viewer would not, in my view, do so.

83    Even if a particular consumer were aware and noticed the words “subscribe” or “subscription” in the Advertisements, a reasonable consumer in those circumstances would, in my view, still understand that he or she was paying for a specific product rather than for an ongoing subscription service for additional ringtones or games and other products. This is perhaps most clear in relation to the Quiz Advertisements. It is highly unlikely that a reasonable viewer would consider that the one-off chance of entering into a quiz would give rise to an open-ended subscription service. A person entering the quiz does not understand from the Quiz Advertisements that any opportunity is being offered other than that single opportunity to win the $100,000 prize. Further the Justin Bieber Advertisement makes no reference to a consumer receiving any ringtone other than Justin Bieber’s song One Time, or any other service. The voiceover in the Doodle Jump Advertisement says ‘subscribe to Doodle Jump, the mobile game’. It does not suggest that the consumer will receive any other product. The voiceover in the Space Invaders Advertisement states ‘subscribe and get the world’s most famous video game on your mobile’. It too does not suggest the consumer will receive any other product.

84    My observations at [79]-[83] apply to a consideration of ss 52, 53(aa), (c) and (e).

85    By reason of the observations that I have made in relation to each of the Advertisements, each is misleading and likely to mislead the viewer, which is in contravention of s 52.

86    The Advertisements represent that a consumer responding to the Advertisements by text message will be charged no more than a one-off cost for a single mobile phone ringtone, video game or quiz. The fact is that the consumer who does respond and who moves through the double opt-in procedure signs up to a subscription service and is then charged an initial subscription fee and a weekly or daily subscription fee which is not terminated until the consumer sends a subsequent SMS.

87    The representation in each of the Advertisements is that the price, although unstated, will only relate to the provision of one service when in fact the price relates to the provision of numerous services throughout the subscription. By reason of the observations that I have made in relation to each of the Advertisements, the making of this representation is false, or at the least misleading, and constitutes a contravention of s 53(e).

88    However, I am not satisfied that Global One and 6G have contravened ss 53(aa) and (c) of the Act. These subsections are not, in my view, applicable to the representation made in the Advertisements.

RELIEF

89    The Commission seeks the following relief:

1.    declarations;

2.    injunctions;

3.    pecuniary penalties;

4.    a compliance program; and

5.    costs.

The Commission did not press for corrective publication orders.

Declarations

90    The Court has the power under s 21 of the Federal Court Act 1976 (Cth) to make the declarations sought: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97 per Sheppard J. The remedy is discretionary. Factors to be taken into account include:

    the marking of the Court’s disapproval of particular conduct engaged in contravention of the Act;

    whether the proceeding involves a matter of public interest;

    whether a declaration will have any utility (Tobacco Institute (No 2) at 99–100).

91    Global One and 6G do not submit that, in the event of contravention, it is inappropriate to make declarations, subject to questions of wording.

92    It is, in my view, appropriate to make declarations as to the contravention of the Act. The proceedings involve an issue of public interest, namely the protection of consumers from misleading conduct. While the Advertisements strictly comply with clause 3.1.2 of the Code, in that the information as to the subscription service is present in the Advertisements, the Advertisements do not comply with clause 3.1.11 of the Code. The declarations provide a means of ensuring that other content service providers are aware that such purported compliance is not sufficient and that similar advertisements may also be in contravention of the Act. The declarations will, therefore, have a useful and beneficial purpose in the enforcement of the law (Australian Competition and Consumer Commission v Star Promotions Club Pty Ltd [2010] FCA 139 at [32]–[33]).

93    I will give the parties the opportunity to agree on the form of the declarations to be made.

Injunctions and the implementation of a compliance program

94    The Court has the power under s 232 of the Australian Consumer Law (ACL), which is Schedule 2 of the CCA, to grant injunctions. The Amendment Act addresses transitional matters in relation to the ACL. Section 7(2) of Schedule 7 of the Amendment Act provides that proceedings for an injunction under s 80 of the Act which commenced before the commencement of the Amendment Act are taken to be proceedings for an injunction under s 232 of the ACL. This applies here.

95    The Commission seeks orders to restrain Global One and 6G from continuing to make the representations the subject of this proceeding in contravention of the ACL.

96    Section 232 of the ACL relevantly provides that:

(1) A court may grant an injunction, in such terms as the court considers appropriate, if the court is satisfied that the person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:

(a)    a contravention of a provision of Chapter 2, 3 or 4.

97    Chapter 2 includes s 18 of the ACL which is relevantly in the same terms as s 52 of the Act. Chapter 3 includes s 29 of the ACL which is relevantly in the same terms as s 53 of the Act.

98    It is not in dispute that the considerations relevant to granting an injunction under s 80 of the Act are applicable to s 232 of the ACL.

99    The remedy is discretionary and granted on such terms as the Court determines to be appropriate. The discretion is to be exercised by reference to the scope and purpose of the Act: OD Transport Pty Ltd v WA Government Railways Commission (1987) 13 FCR 500 at 508. Part V of the Act (which is now repealed, but which contained ss 52 and 53) is concerned primarily with the protection of the public interest in fair treatment of consumers. The power can also be exercised to deter a person from further contraventions by attaching to the repetition sanctions for contempt of court: ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248 at 268.

100    There are three limitations to the exercise of the power: first, the injunction must be designed to prevent a repetition of the conduct for which the relief is sought; secondly, there must be a sufficient nexus between the contravention and the injunction; and thirdly, the injunction must relate to the controversy the subject of the proceeding: Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 203-204.

101    The Commission submits that the Court should grant the injunction sought in order to protect consumers from further conduct of the type the subject of these proceedings and in order to stop Global One and 6G from continuing to engage in the conduct. The Commission accepts that the Advertisements are no longer broadcast, so there can be no question of enjoining the Advertisements. Global One and 6G contend, and is not in dispute, that they have not conducted any television advertising of their mobile content subscription services since 1 November 2010. They submit that the injunctions as sought by the Commission are in general terms and not tied to the Advertisements. In circumstances where there is no evidence of any threat that Global One or 6G will continue to contravene the Act, Global One and 6G submit that it is not appropriate to make the orders sought.

102    The Commission is also pressing for orders that Global One implement a compliance program. It is not in dispute that the Court is entitled under s 86C of the Act to order the respondents to implement a trade practices compliance program (Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [25]). There is no suggestion that Global One or 6G have a compliance program in place.

103    Global One and 6G submit that a compliance plan order is not warranted and that if one is warranted, it is not of the kind proposed by the Commission. The Commission seeks orders that include:

    the appointment of a compliance officer and compliance adviser;

    the undertaking by the compliance adviser of a risk assessment with a risk assessment report to follow;

    the establishment of a compliance policy communicated in writing to all employees ‘or other persons involved in the respondents’ business regarding Trade Practices compliance’;

    the establishment, maintenance and administration of a trade practices complaint handling system;

    training for all relevant personnel;

    external review by an independent reviewer; and

    supply of documents evidencing the implementation of the policy to the Commission.

The detail of the proposed compliance program covers some pages.

104    Global One and 6G point to the MobileActive annual report which refers to the Code and relevant regulations and says that they have resulted in MobileActive having ‘one of the most stringent and complex regulatory environments’ globally. The implementation of the regulatory requirements has, it is there asserted, had a marked impact on group revenue, as well as having increased compliance costs by an estimated $260,000 for the year ended 30 June 2010. There is no evidence of the objects of this spending.

105    The Commission submits that there is no evidence of any program having been implemented by Global One or 6G, nor that senior executives were aware of the Act or the Code, nor that there is a mechanism in place to ensure that there will be no further contraventions of the ACL. The Commission also submits that, in the absence of an injunction, a compliance program is the only way to ensure that there is no risk of repetition. This provides the link between those proposed sets of orders.

106    These proposed orders, as alternatives, were shortly discussed at the hearing. As agreed, I will give the parties the opportunity to make further submissions as to the appropriateness of those particular orders after publication of these reasons.

Pecuniary Penalty

107    As the Commission points out, this is one of the small number of matters in which the Court has been asked to order a pecuniary penalty under s 76E(1)(a)(ii) of the Act where the level of penalty has been contested. The parties have made submissions on the appropriate penalty for any contravention by reference to the well-known lists of factors in TPC v CSR Ltd (1991) ATPR 41-076 at 52,152–52,153 per French J (as he then was) and NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 292-294.

108    The Commission submits that the principles that have been applied by the Court in determining penalties for contraventions of Part IV of the Act under s 76 should, to a significant extent, also be relied on in setting a penalty under s 76E of the Act for contraventions of s 53(aa), (c) and (e). Section 76E does not apply to the contraventions of s 52 of the Act (s 76E(1)(a)(ii) of the Act). It is to be noted that under s 76E(2) the Court must have regard to all relevant matters including:

1.    the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission;

2.    the circumstances in which the act or omission took place; and

3.    whether the person has previously been found by the Court in proceedings under Part VC or Part VI to have engaged in any similar conduct.

These are relevantly the same non-exhaustive mandatory considerations as set out in s 76(1) of the Act.

109    The parties have addressed:

    the size of the contravening company;

    the degree of market power it has as evidenced by market share and ease of entry into the market;

    the deliberateness of the contravention and the period over which it extended;

    whether the contravention arose out of the conduct of senior management or at a lower level;

    whether the company has a corporate culture conducive to compliance with the Act;

    whether the company has shown disposition to co-operate with the Commission;

    whether the contravening company has engaged in similar conduct in the past;

    the effect on the functioning of the market and other economic effects of the conduct;

    the financial position of the contravening company; and

    whether the conduct was systematic, deliberate or covert.

110    In Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) [2011] FCA 382, Perram J considered the relevant factors for a civil penalty pursuant to s 76E(1)(a)(ii) of the Act for a breach of s 53(q) of the Act. Justice Perram examined the requirements of s 76E and considered whether the principles applicable to a penalty under s 76 of the Act, imposed for a contravention of Part IV, were applicable. Noting that Jagot J had proceeded in Australian Competition and Consumer Commission v Gourmet Goodies Family Restaurant Pty Ltd [2010] FCA 1216 on the basis that the same approach applied, his Honour concluded at [68]–[69] that, in principle, the same approach should be applied to s 76E as to s 76, apart from the question of turnover. As Perram J observed, both Part IV on one hand and Parts VC and VI on the other are concerned with matters of public interest. Both ‘reflect concerns about the regulation of markets: one seeks to ensure the market is fair; the other that it is fully informed’ (at [68]).

111    I am of the view, as was Perram J, that not all of the well-known factors from TPC v CSR and NW Frozen Foods are applicable, namely, the degree of market power of the contravener and the effect on the functioning of the market and other economic effects of the contravening conduct. While these could ‘conceivably have some bearing on matters arising from breaches of Part V’ (MSY Technology at [69]), Part V is not substantially concerned with matters of that kind. This does not mean, however, that losses incurred by a consumer and financial benefits to a contravener are irrelevant to the consequences of contravention of Part V.

112    At [71], Perram J accepted as applicable to penalties imposed under s 76E what had been said by French J in TPC v CSR, to the effect that the principal purpose of penalties imposed under s 76 is deterrence. That deterrence is both specific to the actual contravener and general for others who may engage in similar conduct. His Honour reviewed the authorities at [72]–[73] and accepted that a penalty imposed under s 76E must be pitched at a sufficiently meaningful level to ensure that the penalty is not seen as merely a cost of doing business.

113    It is now necessary to turn to a consideration of the relevant factors.

Relevant factors for consideration

Size of the contravening company

114    Despite earning revenue of $10,157,269, Global One made a loss for the year ending 31 December 2010 of $358,194. Its net assets as at 31 December 2010 were $2,961,193. Global One employs 42 people.

115    6G made a loss of $518 for the year ended 31 December 2010. 6G’s net assets as at 31 December 2010 were $510. 6G does not employ any people. Any revenue or expense of 6G is made or borne by Global One.

116    Global One and 6G are wholly owned subsidiaries of MobileActive. MobileActive is, according to its Annual Report, ‘Australia’s leading independent mobile phone content, interactive services and technology company across business to consumer, business to business and production and licensing’. MobileActive is identified in the Justin Bieber Advertisement by reference to its website. In the Quiz Advertisements there is reference to MobileGold. The name MobileActive appears on the screen in the Justin Bieber Advertisement and in the Doodle Jump Advertisement. MobileActive owns or has a shareholding interest in ten subsidiary companies including Global One and 6G. The Commission points out that the CFO and Company Secretary of MobileActive, Mr Jeronimo, is also the CFO of Global One and 6G, while the CEO of MobileActive, Mr Thorpe, is a director of both Global One and 6G.

117     MobileActive’s revenue in the financial year ending 30 June 2010 was over $12 million and its net assets as at 30 June 2010 were $1,809,826.

118    The Commission focuses upon MobileActive. It submits that the size of the parent is relevant where, as here, the evidence is that MobileActive, through its ownership of the subsidiaries and its involvement in the affairs of the subsidiaries, bore some responsibility for the relevant conduct. Global One and 6G accept that MobileActive is the parent company but submit that whether or not MobileActive can pay the fine of its subsidiaries is irrelevant.

119    The size of a parent is relevant to a subsidiary’s capacity to meet its substantial pecuniary penalty (Schneider Electric (Australia) Pty Limited v Australian Competition and Consumer Commission (2003) 127 FCR 170 at [49] per Merkel J, with whom Black CJ and Sackville J agreed), unless it can be shown, as in that case, that the parent had no involvement in the contraventions, that there was no issue of the capacity of the subsidiary to pay the penalty and that the subsidiary operated a substantial business in its own right. These factors were not set out as the defining factors for the responsibility of a parent company. In any event, whether or not Global One is a substantial business in its own right, MobileActive was involved by use of its name and by the actions of its officers in the contravention.

120    While the punishment is not imposed on the parent, the size of the parent cannot be ignored when assessing the penalty that should be imposed upon its subsidiary (Australian Competition and Consumer Commission v ABB Transmission & Distribution Limited Ltd (No 2) (2002) 190 ALR 169 at [40] per Finkelstein J). His Honour observed that ‘if the position were otherwise, corporations could easily organise their affairs so that if found guilty of criminal conduct, the penalty would be kept to a minimum’. Although Finkelstein J was dealing with cartel conduct, the observations are apposite.

121    While MobileActive states in its Annual Report that it complies with the Code and has a culture of compliance, the Advertisements do not comply with the Code. The Advertisements variously refer to MobileActive, directly and indirectly, by name and by reference to its website. The services the subject of the subscription are there described as mobile services.

122    In my view, the size of MobileActive should be taken into account in assessing the appropriate penalty to be imposed on its subsidiaries Global One and 6G, both for the purposes of deterrence and for MobileActive’s ability to pay in circumstances where, as will be detailed below, the financial position of the subsidiaries indicates that both of those companies may not have the direct ability to pay a substantial penalty.

The deliberateness of the contravention and the period over which it extended

123    There is no evidence to suggest Global One and 6G deliberately contravened the Act.

124    The period over which the contraventions extended was between 14 February 2010 and 12 July 2010, although each of the Advertisements did not run continuously throughout this period but rather in blocks of up to fourteen weeks. This is, however, a considerable time.

125    Except for the free screening of the Advertisements over which he had no control, the timing of the Advertisements was at the direction of Mr Robertson. The Advertisements were generally aired during times when children or younger viewers would be expected to be watching television. That is before and after school, on weekends and during the day in the school holiday period.

126    The Commission submits that the Advertisements were ‘particularly egregious’ because they were aimed at “young consumers”. In particular, the Commission points to the Justin Bieber Advertisement and the mobile telephone games. The Commission points out, and it is not disputed, that the channels on which the Advertisements were broadcast attract a large youth audience. The television programs during which the Advertisements were broadcast were shown during a time when young people are likely to watch television and those programs.

127    Global One and 6G point out that the Commission’s Fast Track Statement does not plead misrepresentation to a particular class of consumer but rather relies upon the inherent effect of the Advertisements. That inherent effect must, however, take into account the subject matter and its attraction to different segments of the viewing public.

128    Global One and 6G submit that there is no evidence that any consumers were misled, let alone any consumers under the age of 18. That may be the case but there is also evidence that a substantial proportion of the complaints, though the total number was small, was in respect of purchases by under 18 year olds. Global One and 6G accept that the Advertisements would have been seen by at least some children under 15 years of age. In relation to the Justin Bieber Advertisement, even if I accept Mr Robertson’s evidence that the target audience was 18 to 24 year olds, Mr Robertson accepted that a Justin Bieber ringtone would also be of appeal to younger viewers. The Justin Bieber Advertisement depicts girls apparently under 18 years of age. Justin Bieber is generally known and accepted as appealing to that age group.

129     Global One and 6G rely on the evidence of Mr Robertson to the effect that it was not his intention to target under 18 year olds. Counsel for Global One and 6G said that such targeting would be ‘commercially self defeating’, as a complaint by such persons results in a refund as a matter of policy. The evidence does not establish that Global One and 6G deliberately targeted younger viewers. However, Global One and 6G knew or reasonably ought to have appreciated the impact of the Advertisements, and the Justin Bieber Advertisement in particular, on young consumers. While I accept that television advertisements are likely to be seen by all age groups at any hour, it is worth noting that the screening times of the Advertisements, other than perhaps the Quiz Advertisements, were at a time when school age children would be likely to be watching television.

Whether the contravention arose out of the conduct of senior management or a lower level of management

130    The Advertisements were arranged and approved by Mr Robertson, the head of marketing and licensing for Global One.

Whether the company has a corporate culture conducive to compliance with the Act

131    There is no evidence as to whether or not either Global One or 6G has a corporate culture conducive to compliance with the Act.

Whether the company has shown disposition to co-operate with the Commission

132    Global One and 6G co-operated with the Commission, providing the Commission with all information sought in the initial correspondence forwarded by the Commission to Global One and 6G. Upon receipt of this information, the Commission commenced these proceedings. Global One and 6G are entitled to defend the proceedings and the fact that they have done so does not show a disposition not to co-operate with the Commission.

Whether the contravening company has engaged in similar conduct in the past

133    There is no evidence to suggest that Global One, 6G or MobileActive have engaged in similar conduct in the past.

Other economic effects of the conduct

134    While broader economic effects in the market are not relevant to the consideration of orders under s 76E, the financial effect on the consumer and the contravener are relevant.

135    There is no evidence that a consumer suffered any loss by reason of the conduct of Global One or 6G. There is no evidence that any of the consumers who subscribed to the services following the double opt-in procedure were dissatisfied or asserted loss or damage. Those who complained had their subscription fees refunded. Accordingly, the actual amount of any loss or damage caused by the contravening conduct cannot be quantified. The Commission submits that the absence of loss or damage or an inability to quantify accurately the extent of loss or damage is not a mitigating factor in the imposition of a penalty, relying on Trade Practices Commission v ICI Australia Operations Pty Ltd (1991) 105 ALR 115 and Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809. Justice Perram in MSY Technology examined a similar submission and rejected it as not arising from TPC v ICI or Roche Vitamins as a matter of general application. In a case involving the misleading of consumers, Perram J observed at [79] that where no evidence was led of any harm suffered by reason of the contravening conduct, respondents are entitled to be sentenced on the basis that the conduct has not caused harm. As Perram J said, this conclusion is “commonsense”. I agree, although it may not be the case where loss or damage is established but the extent of it cannot be quantified accurately. In the present case, the Commission has not led evidence of any loss or damage on the part of any consumer.

136    Global One and 6G generated $58,064.50 in revenue in response to the Advertisements. The Commission presented, and Global One and 6G did not dispute, the following table which sets out the number of subscribers to the Advertisements, the average number of days that consumers subscribed to mobile telephone premium content services and the number of occasions on which consumers were successfully billed for the services.

137    Global One and 6G point out that the costs of the creation of the Advertisements and the broadcasting of the Advertisements meant that no profit was made by them from the subscriptions. However, the Commission submits, and I accept, that the fact that there was no financial gain by Global One and 6G is not a sufficient reason for avoiding a penalty. It is, however, a relevant factor in the assessment of penalty.

The financial position of the contravening company

138    Global One and 6G contend that:

    6G has no capacity to pay any pecuniary penalty.

    Global One is not in a strong financial position.

139    Although Mr Jeronimo provided several affidavits in the proceedings, there is no evidence that either Global One or 6G would be unable to pay any penalty imposed, other than the contention that 6G cannot directly make any payment from its own resources.

140    The Commission submits that it is not relevant that 6G has effectively no assets and that an appropriate penalty should be imposed whether or not it would “ruin” the company. In Australian Competition and Consumer Commission v High Adventure Pty Ltd (2006) ATPR 42-091, the evidence did not indicate that the company would be forced into liquidation provided it was given time to pay but the Full Court said that, in any event, an appropriate penalty should be imposed by reference to the need to deter future contraventions rather than by focussing on the detriment to the respondent. The possibility of liquidation ‘must not prevent the Court from doing its duty for otherwise the important object of general deterrence will be undermined’ (at 44,564).

141     In any event, in light of my comments about the parent company of Global One and 6G, the financial position of MobileActive should be taken into account in assessing the penalty to be imposed on Global One and 6G and their ability to pay such a penalty.

Whether the conduct was systematic, deliberate or covert

142    There is no evidence to suggest that the conduct was systematic, deliberate or covert.

Quantum of penalty

143    The maximum potential penalty is $1.1 million per contravention. Both parties treated each of the Advertisements as a single contravention for the purpose of penalty (the Quiz Advertisements are treated as one contravention). In my view, that is appropriate. It follows that the maximum possible penalty is $4.4 million. The Commission does not submit that the appropriate penalty is at the upper end of that amount but submits that it is appropriate that each of the Advertisements incurs a penalty of approximately 10% of the maximum amount; that is in a range from $100,000 to $125,000 per contravention. The Commission submits that anything less than $100,000 per contravention would be meaningless to a company the size of MobileActive and potentially meaningless to Global One and 6G. The Commission emphasises that the penalty must be a deterrent.

144    The thrust of Global One and 6G’s submissions on penalty is that there is no suggestion, nor is there evidence to suggest, that Global One and 6G deliberately set out to mislead the public. Further, there was nothing incorrect in the Advertisements. The fact that the relevant information was not sufficiently prominent to impress itself on the mind of the viewer is, they say, a matter of judgment. Global One and 6G also point to the transient nature of any misapprehension on the part of the consumer, between seeing the Advertisements and receiving the text message which explained the actual nature of the subscription service being offered. This, Global One and 6G contend, would be no more than a few minutes. They point to the fact that no actual detriment has been established and that there is no suggestion of any impact on any business competitors. The gross figures are small and neither Global One nor 6G made a profit. That is, Global One and 6G contend that they received no benefit. They submit that there is no reason to believe that either company would engage in similar conduct in the future, a factor which should be taken into account for the purposes of penalty as well as the need for a compliance program and any injunction.

145    The Commission points out that the conduct took place at a time when there was a strong focus on improving advertising practices in the telecommunications industry; they occurred a time when numerous public statements were made by the Commission warning providers of the need to ensure that advertisements for premium subscription products were not misleading and of the importance of compliance with the Code. Indeed, in its 2010 Annual Report, MobileActive stated that it supported the development of the Code.

146    On 13 March 2009 the Chairman of the Commission, in a speech, emphasised that advertisements that featured busy, distracting visuals and hard to read fine print raised significant concerns in the industry and tend to confuse consumers about what they are getting when they send in their text message. Warnings by the Commission with respect to misleading advertisements were also the subject of press releases during the time that the Advertisements were being screened. The Commission submits that public announcements in relation to other proceedings brought by the Commission in respect of alleged misleading advertisements and the introduction of the Code are matters to which the Court should have regard in determining the appropriate penalty.

147    The Commission submits that it is necessary to impose a significant penalty to send a message not only to Global One and 6G but also to MobileActive and to other participants in the industry. The message is that such conduct will not be condoned and that the double opt-in procedure does not mitigate a provider’s responsibility not to run false, misleading or deceptive advertisements. The Commission submits that a total penalty in the range of $400,000 to $500,000 is consistent with the totality principle and ensures that the aggregate penalty to be imposed is just and appropriate.

148    I have taken into account all of the above matters. It is important that Global One and 6G and other providers understand that “technical compliance” by the provision of required information may still result in advertisements that are false, misleading or deceptive, or are likely to mislead or deceive. The obligation is on the provider properly to consider the content of the advertisement. That is what the Code requires. It may, as Global One and 6G submit, be a matter for judgment but, in my view, it is not reasonable to assume that the viewers of the Advertisements would have understood that they were being offered a subscription service rather than the purchase of the product at a one-off cost. It was not reasonable to rely on the writing in the Advertisements in the context of the small size of the writing, the length of time that each of the Advertisements was shown, the visual images, the voiceover and the subject matter. This is particularly so when the viewers of the Advertisements were likely to be under 18 years of age.

149    As to the position of Global One and 6G, I note that 6G submits and the Commission does not dispute that it does not have the means itself to pay any substantial penalty. However, no such submission has been made for Global One. While it is not appropriate to penalise the parent company MobileActive, it is the case that Global One and 6G are wholly owned subsidiaries of a substantial company. In any event, it is appropriate to impose a penalty that takes into account the nature of the contraventions and the importance of general deterrence not only for the purposes of these companies but also for others to whom the Code applies.

150    The Justin Bieber Advertisement is, in my view, the most egregious of the Advertisements. Clearly it was of appeal to under 18 year olds, including under 15 year olds. In the case of the Justin Bieber Advertisement, I will impose a penalty of $150,000 on Global One. In the case of the Quiz Advertisements, the Space Invaders Advertisement and the Doodle Jump Advertisement, I will impose a penalty on 6G of $75,000 for each. This amounts to a total penalty for 6G of $225,000. Global One and 6G should pay the Commission’s costs of the proceedings.

151    I will give the parties the opportunity to submit an agreed form of orders or to make further submissions on the proposed form of orders in light of these reasons, including the wording of the declarations, any injunctions and orders as to a compliance program.

Associate:

Dated:    21 April 2011