FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Reebok Australia Pty Ltd [2015] FCA 83

THE COURT DECLARES THAT:

EasyTone shoe box promotional material

1.    The Respondent (Reebok Australia), between September 2011 and February 2013 by supplying to retailers for sale to consumers “EasyTone” shoes in shoe boxes bearing stickers and containing swing tags, information cards and/or information booklets, with words to the effect that EasyTone shoes:

1.1.    are designed to tone and strengthen key leg and butt muscles while you walk;

1.2.    help tone your hard-earned leg muscles using air pockets to create resistance;

1.3.    help tone your key leg muscles by balance pods built-in under the heel and forefoot of the shoes which are designed to create natural instability with every step which forces your muscles to adapt and encourages toning;

represented to consumers that wearing EasyTone shoes would result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

1.4.    it was a fact that wearing EasyTone shoes would not result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

1.5.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

1.6.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (ACL);

1.7.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

1.8.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

2.    Reebok Australia, between September 2011 and February 2013 by supplying to retailers for sale to consumers “EasyTone” shoes in shoe boxes bearing stickers and containing swing tags, information cards and/or information booklets, with words to the effect that EasyTone shoes:

2.1.    are designed to tone and strengthen key leg and butt muscles while you walk;

2.2.    contain balance ball-inspired technology with moving air which creates micro-instability and is designed to tone and strengthen key leg and butt muscles with every step;

represented to consumers that wearing EasyTone shoes would result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

2.3.    it was a fact that wearing EasyTone shoes would not result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

2.4.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

2.5.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

2.6.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

2.7.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

3.    Reebok Australia, between September 2011 and February 2013 by supplying to retailers for sale to consumers “EasyTone” shoes in shoe boxes bearing stickers and containing swing tags, information cards and/or information booklets, which included the following characteristics:

3.1.    an image of a pair of legs with radiating rings over the gluteus maximus, thighs and calves with the words “28% glutes, 11% thighs, 11% calves” next to the corresponding parts of the body;

3.2.    an image of a pair of legs with radiating rings over the gluteus maximus, thighs and calves;

3.3.    an image of a pair of legs with radiating rings over the gluteus maximus, hamstrings and calves with the words “Benefits. Increases muscle activation up to* 28%, 11%, 11%” next to the corresponding parts of the body and under the picture the statements “*28% Gluteus Maximus, 11% Hamstrings and 11% Calves. Based on tests comparing EasyTone Go Outside to a typical foam based walking shoe:

represented to consumers that wearing EasyTone shoes would result in an increase in the toning and/or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, respectively 28%, 11% and 11% compared to that which would result from wearing a traditional walking shoe, when:

3.4.    it was a fact that wearing EasyTone shoes would not result in an increase in the toning or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, the specific percentage amounts represented compared to that which would result from wearing a traditional walking shoe; and

3.5.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

3.6.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

3.7.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

3.8.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

EasyTone in-store promotional material

4.    Reebok Australia, between September 2011 and approximately December 2012 by permitting continued in-store use of promotional material Reebok Australia had supplied to retailers being EasyTone floor mats, EasyTone posters and EasyTone footwear towers with words to the effect that EasyTone shoes:

4.1.    tone and strengthens key leg muscles;

4.2.    help tone your butt and legs with every step;

4.3.    via moving air balance pods help tone and strengthen key leg muscles with every step;

represented to consumers that wearing EasyTone shoes would result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

4.4.    it was a fact that wearing EasyTone shoes would not result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

4.5.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

4.6.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

4.7.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

4.8.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

5.    Reebok Australia, between September 2011 and approximately December 2012 by permitting continued in-store use of promotional material Reebok Australia had supplied to retailers being EasyTone floor mats and EasyTone footwear towers with words to the effect that EasyTone shoes:

5.1.    tone and strengthen key leg muscles;

5.2.    via moving air balance pods help tone and strengthen key leg muscles with every step;

represented to consumers that wearing EasyTone shoes would result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

5.3.    it was a fact that wearing EasyTone shoes would not result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

5.4.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

5.5.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

5.6.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

5.7.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

6.    Reebok Australia, between September 2011 and approximately December 2012 by permitting continued in-store use of promotional materials Reebok Australia had supplied to retailers being EasyTone floor mats and EasyTone posters which included the following characteristics:

6.1.    words to the effect that moving air balance pods help tone and strengthen key leg muscles with every step. By how much? 28% butt 11% thighs 11% calves;

6.2.    lines marked on a picture of a woman at the place of the gluteus maximus, thighs and calves with the words “up to 28% up to 11% up to 11%” next to the corresponding parts of the body;

represented to consumers that wearing EasyTone shoes would result in an increase in the toning and/or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, respectively 28%, 11% and 11% compared to that which would result from wearing a traditional walking shoe, when:

6.3.    it was a fact that wearing EasyTone shoes would not result in an increase in the toning or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, the specific percentage amounts represented compared to that which would result from wearing a traditional walking shoe; and

6.4.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

6.5.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

6.6.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

6.7.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

THE COURT ORDERS THAT:

Pecuniary Penalties

7.    Reebok Australia pay to the Commonwealth of Australia a total pecuniary penalty of $350,000 in respect of the acts or omissions relating to Reebok Australia’s contraventions of ss 29(1)(g) and 33 of the ACL within 60 days.

BY CONSENT, THE COURT ORDERS THAT:

Injunctions

8.    Reebok Australia be restrained for a period of three years from the date of these orders, whether by itself or its servants or agents or otherwise howsoever, in trade or commerce in Australia, from supplying footwear to retailers with any words, images or pictures that state or convey that use of the footwear offered for sale will improve toning and/or strengthening beyond any improvement which may result from using a traditional footwear of that kind unless Reebok Australia has first obtained written evidence from an expert substantiating that there is a sound scientific basis for making such statements.

Non-punitive Orders

Compliance Program

9.    Reebok Australia will at its own expense:

9.1.    establish, within three months of the date of this order, a Competition and Consumer Law Compliance Program (Compliance Program) which meets the requirements set out in Annexure A and maintain the Compliance Program for 3 years from the date on which it is established; or

9.2.    if it already maintains an existing Compliance Program:

9.2.1.    within 3 months of the date of this order, review the existing Compliance Program and make any amendments necessary to ensure that it meets the requirements set out in Annexure A; and

9.2.2.    maintain this program for at least 3 years from the date on which the amendments referred to in paragraph 9.2.1 are made.

Corrective Advertising

10.    Reebok Australia will:

10.1.    within 28 days of the date of order take all reasonable steps to cause to be published, at its own expense, a corrective notice in the Saturday edition of The Australian newspaper, which is in the form and terms of Annexure B (Newspaper Notice), and take reasonable steps to ensure that the notice:

10.1.1.    is placed within the first 10 pages of the newspaper;

10.1.2.    is at least 28 centimetres by 5 columns in size and / or of a size no less than one quarter of a page in the newspaper;

10.1.3.    has a banner font of sans serif 12 point bold;

10.1.4.    has a headline font of 12 point bold;

10.1.5.    has a body text font of no less than 11 point;

10.1.6.    has the Applicant’s (ACCC) and Commonwealth logos of at least 25 millimetres in height and centred;

10.1.7.    has a baseline text of at least 8 point and centred;

10.2.    within 28 days of the date of order, publish or cause to be published a corrective notice in the form and terms of Annexure B, on its website www.reebok.com/en-au/ (Website Notice), and use all reasonable steps to ensure that the notice:

10.2.1.    is accessible by a prominent one-click link displayed in the top third of the homepage of Reebok Australia’s website entitled “Corrective Notice - Breaches of the Australian Consumer Law” and satisfies the following specifications:

10.2.1.1.    the words “CORRECTIVE NOTICE - BREACHES OF THE AUSTRALIAN CONSUMER LAW” are to be in uppercase, 18 point, bold, black, sans serif font on a white background, centred and in a black bordered box;

10.2.1.2.    the words “Click here for further information” are to be 14 point, black, sans serif font on a white background and centred below the words “CORRECTIVE NOTICE - BREACHES OF THE AUSTRALIAN CONSUMER LAW” in the same bordered box;

10.2.1.3.    the bordered box is to be at least 255 pixels wide by 60 pixels high; and

10.2.1.4.    the bordered box and its contents, including white space, is to operate in the form of a one-click hyperlink to the website notice; and

10.2.2.    is to be substantially the same as the notice in Annexure B, including font and formatting, and:

10.2.2.1.    has a headline font of no less than 12 point, bold, black, sans serif font on a white background;

10.2.2.2.    has a body text font of no less than 12 point, bold, black, sans serif font on a white background;

10.2.2.3.    is of at least 540 pixels wide by 500 pixels high;

10.2.2.4.    has a black border that is 3 pixels wide;

10.2.2.5.    Reebok Australia’s, ACCC’s and Commonwealth logos are to be in colour, centred, and at least 25 millimetres high;

10.2.2.6.    is to be displayed on a stand-alone webpage that is coded in standard “HTML” format; and

10.2.2.7.    is not displayed as a “pop-up” or “pop-under” window; and

10.2.2.8.    is maintained for a period of no less than 90 days from the date of order.

Non-party Consumer Redress

11.    Reebok Australia will at its own expense:

11.1.    within 14 days of the date of this order and prior to the publication of the Newspaper Notice and Website Notice:

11.1.1.    establish an email address by which consumers who are responding to the Newspaper Notice or Website Notice can contact Reebok Australia;

11.1.2.    establish a 1800 telephone number by which consumers who are responding to the Newspaper Notice or Website Notice can contact Reebok Australia; and

11.1.3.    appoint a representative or representatives of Reebok Australia (Contact Officer) to deal with any correspondence received by Reebok Australia in response to the Newspaper Notice or Website Notice;

11.2.    maintain the email address, telephone number and Contact Officer for a period that is not less than 150 days from the date of the date of this order; and

11.3.    for each consumer who contacts Reebok Australia within four months of the date of publication of the Newspaper Notice or Website Notice and in response to the Newspaper Notice or Website Notice claims to have suffered loss or damage due to Reebok Australia’s contraventions:

11.3.1.    assess whether the consumer has provided sufficient proof of purchase of EasyTone shoes from an authorised retailer of Reebok Australia during the period September 2011 and February 2013, such assessment to be made within 14 days of the claim; and

11.3.2.    if it is determined that the consumer has a valid claim pursuant to paragraph 11.3.1 above, pay to the consumer $35 for each pair of EasyTone shoes purchased, such payment to be made within 14 days of the date of determination of a valid claim

(Consumer Redress Process).

12.    Reebok Australia will at its own expense:

12.1.    within 180 days of the date of this order, cause a review of the Consumer Redress Process to take place (Consumer Redress Process Review);

12.2.    ensure that the Consumer Redress Process Review is conducted with access to all relevant sources of information in Reebok Australia’s possession or control, including without limitation Reebok Australia’s records of the communications with customers who have responded to the Newspaper Notice or Website Notice;

12.3.    ensure that the findings of the Consumer Redress Process Review are set out in a report to be provided to the ACCC (Consumer Redress Process Review Report), which will provide particular and specific information regarding the scope of the Consumer Redress Process Review and, at a minimum, report on the following:

12.3.1.    the number of consumers who contacted Reebok Australia through the Consumer Redress Process;

12.3.2.    the number of consumers who are given redress; and

12.3.3.    the number of consumers who were denied redress and reasons why any such consumers were denied redress; and

12.4.    Reebok Australia will cause the Consumer Redress Process Review Report to be provided to the ACCC on a confidential basis within 14 days of completion of the Consumer Redress Process Review.

Costs

13.    Reebok Australia pay to the ACCC a contribution towards its costs of, and incidental to, these proceedings in the amount of $45,000 within 60 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    These are reasons for orders made against Reebok Australia, on the application of the ACCC, for false advertising. A significant and unusual aspect of the contravening conduct in question in this case was that it followed similar conduct in the United States of America which had been addressed in that country by a settlement with its Federal Trade Commission (FTC), a circumstance of which Reebok Australia was aware.

2    Reebok Australia admits for the purposes of the proceedings that between September 2011 and February 2013 (Misleading Conduct Period) it made statements regarding the promotion of EasyTone shoes on EasyTone shoe boxes, swing tags attached to the shoes and in information cards and booklets that contravened s 18 and s 29(1)(g) of the Australian Consumer Law (ACL) (being Sch 2 of the Competition and Consumer Act 2010 (Cth) (EasyTone Shoe Box Promotional Material). Reebok Australia also admits that it made statements between September 2011 and December 2012 regarding the promotion of EasyTone shoes on floor mats, posters and footwear towers that contravened s 18 and s 29(1)(g) (EasyTone In-Store Promotional Material). In both cases Reebok Australia admits the representations were liable to mislead the public as to the nature, characteristics and suitability of purpose of EasyTone shoes in contravention of s 33 ACL.

3    The ACCC commenced proceedings WAD 483 of 2013 on 17 December 2013. In its application filed on that date, the ACCC sought, inter alia, a declaration that Reebok Australia, by making the representations, had contravened ss 18, 29(1)(g) and 33 ACL. The ACCC also sought other consequential orders.

4    The parties, for their part, are agreed as to the appropriate penalty and, while recognising that the question of relief remains at the direction of the Court, have asked the Court to:

(a)    make declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA);

(b)    grant injunctive relief pursuant to s 232 ACL;

(c)    order payment by Reebok Australia of a pecuniary penalty in the amount of $350,000 pursuant to s 224 ACL;

(d)    make orders for redress for non-party consumers pursuant to s 239 ACL;

(e)    make a probation order pursuant to s 246 ACL providing for a compliance program for Reebok Australia;

(f)    make publication orders pursuant to s 246 ACL; and

(g)    order payment by Reebok Australia of a contribution to the ACCC’s costs in the amount of $45,000 pursuant to s 43 FCA.

THE KEY FACTS

5    It is agreed that the following facts and matters apply to the period of time between December 2009 and February 2013 (the Entire Period) or the Misleading Conduct Period.

6    In the Entire Period Reebok Australia was:

(a)    incorporated under the Corporations Act 2001 (Cth);

(b)    capable of being sued in its corporate name;

(c)    engaged in trade or commerce within the meaning of s 18 and s 29(1)(g) ACL;

(d)    a licensed supplier of Reebok branded products to retailers in Australia on an exclusive basis;

(e)    a wholly owned subsidiary of True Alliance Pty Ltd, an Australian distributor of clothes and footwear;

(f)    not corporately related to Reebok International Limited, nor any company that formed part of the Adidas Group of Companies, including Reebok Asia Pacific.

7    All employees of Reebok Australia were employed by True Alliance Corporation Services Pty Ltd (True Alliance Corporate), a wholly owned subsidiary of True Alliance. All marketing and promotional activities were undertaken by employees of True Alliance Corporate.

Facts relevant to liability

Promotion and sale of EasyTone shoes in Australia

8     In December 2009, Reebok Australia commenced supplying EasyTone shoes to Australian retailers for sale to consumers in Australia. It supplied EasyTone shoes to various retailers, including Myer, Sports Locker, Rebel Sport, Foot Locker, The Athlete's Foot and Jim Kidd Sports stores.

9    Reebok Australia promoted the sale of EasyTone shoes by supplying:

(a)    EasyTone shoes in boxes which were visible by customers in those retailers' stores where the boxes were stacked in the retail area, or otherwise could be viewed by customers trying on EasyTone shoes prior to purchase;

(b)    EasyTone shoes with swing tags attached which were visible by customers in those retailers' stores where one shoe (or more) was on display on shelves in the retail area, or otherwise could be viewed by customers trying on EasyTone shoes prior to purchase;

(c)    information cards and information booklets in EasyTone shoe boxes which could be viewed by customers trying on EasyTone shoes prior to purchase (EasyTone Shoe Box Promotional Material); and

(d)    sports shoe retailers with promotional floor mats, posters and footwear towers between February 2010 and March 2011 which could be viewed in retailers' stores until December 2012 (EasyTone In-Store Promotional Material).

10    The promotional material used by Reebok Australia included statements about the EasyTone shoes which referred to some or all of the following:

(a)    the wearing of EasyTone shoes toned muscles;

(b)    the wearing of EasyTone shoes strengthened muscles; and/or

(c)    the wearing of EasyTone shoes toned and/or strengthened muscles by, or up to, 28% in the buttocks and 11% in the thighs/hamstrings and calves (20 November 2011 Claim).

Reebok International’s advice to Reebok Australia

11    On 14 January 2011, Reebok International sent an email to various marketing and brand managers at Reebok Australia advising them to check that all quantitative claims surrounding EasyTone shoes had been removed from digital marketing activities. This email was forwarded by Reebok Asia Pacific to Reebok Australia's Marketing and Sales Manager, Ben Kinnaird.

12    On 14 February 2011, Reebok Asia Pacific sent an email to national Reebok distributors in the Asia Pacific region, including Reebok Australia, requesting confirmation that all ‘percentages/numbers’, that is, the 28 November 2011 Claim, had been removed from all marketing materials relating to the EasyTone shoes (February 2011 Email).

13    Reebok Australia took steps to remove the 28 November 2011 Claim from marketing materials relating to the EasyTone shoes by:

(a)    conducting a teleconference in February 2011, shortly after receipt of the 14 February 2011 email, during which Mr Kinnaird instructed Reebok Australia's Queensland, Victorian, New South Wales, Tasmanian and South Australian state managers, and its West Australian commission agent Tony Beers, to ensure that all EasyTone point of sale and in-store promotional material that contained the 28 November 2011 Claim was removed from retailers (February 2011 Teleconference); and

(b)    ceasing distribution of EasyTone In-Store Promotional Material in March 2011, irrespective of whether that material contained the 28 November 2011 Claim or general toning and strengthening claims.

14    Reebok continued to supply the EasyTone shoes containing the EasyTone Shoe Box Promotional Material.

15    On 24 August 2011 Reebok International sent an email to Reebok Australia advising that EasyTone media communications in the future should not contain claims of toning, strengthening, tightening or activating of muscles.

USA Federal Trade Commission’s investigation and settlement

16    On or about 17 September 2011 Reebok International sent an email to Reebok Australia informing it of an investigation being conducted by the Federal Trade Commission (FTC) into the promotion of EasyTone shoes by Reebok International in the USA regarding toning claims. This email was forwarded to Michael Hendler, a director of Reebok Australia, on 19 September 2011.

17    About two days later, representatives of Reebok International discussed the FTC investigation by teleconference with parties including Reebok Australia’s Brand Manager, Karl Pohlman.

18    Later that month on 28 September 2011, Uli Becker, the Global Chief Marketing Officer of Reebok International, stated during a Reebok Global Marketing Meeting in Canton, Massachusetts, USA, that the FTC had objected to both the 28 November 2011 Claim and more general toning and strengthening claims made in respect of the EasyTone footwear on the basis that a study relied on by Reebok International to substantiate the claims had an insufficient sample size. Reebok Australia representatives were present at the meeting, including Mr Kinnaird, Mr Pohlman and Daniel Whittaker, Reebok Australia's Product Manager Reebok Footwear.

19    On the same day Reebok International and the FTC reached a settlement. The terms of the settlement prohibited Reebok International from making representations in connection with the manufacturing, labelling, advertising, promotion, offering for sale, sale or distribution in the USA that:

(a)    EasyTone shoes were effective in strengthening muscles;

(b)    wearing EasyTone shoes would result in quantified percentages of muscle toning or strengthening;

(c)    there were health and fitness benefits of wearing EasyTone shoes, including representations as to muscle tone and/or muscle activation;

unless the representation was non-misleading and Reebok International relied upon reliable scientific evidence substantiating that the representation was true.

20    ln addition, the settlement prohibited Reebok International from misrepresenting any test, study or research in connection with the manufacturing, labelling, advertising, promotion, offering for sale, sale or distribution of EasyTone shoes in the USA. It also resulted in judgment being entered in favour of the FTC in the amount of US$25 million for consumer redress (FTC Settlement).

21    Reebok Australia was not shown nor provided with a copy of the FTC Settlement by Reebok International. The full details of the FTC settlement were, however, published by the FTC on its website and were available to the public from 28 September 2011.

22    On 29 September 2011 Reebok Australia, including its Brand Manager, received an email from Reebok International regarding the FTC Settlement which stated that Reebok International and the FTC had come to a settlement agreement regarding the FTC's allegations that the testing Reebok International conducted was not substantial enough to make certain claims in the USA EasyTone advertising campaign. The email also stated that the FTC was disputing Reebok International's advertising claims and the associated testing methodology used to support those claims, and not the consumer satisfaction with the products, and that consumers were overwhelmingly satisfied with EasyTone and had provided Reebok International with thousands of unsolicited testimonials saying how much they loved the product.

23    On 30 September and 4 October 2011 Reebok Australia was provided with talking points for sales staff and store personnel to cover the most urgent questions and best possible answers in emails from Ingrid Chen, Head of Public Relations for Reebok Asia Pacific, which stated in part that:

(a)    at issue in the FTC Settlement was the advertising claims that Reebok made, not the quality of the product which was a USA issue, and while it may have implications in other markets, the USA was unique in both the way the FTC operates and mandates and is one of the few markets where class action lawsuits exist;

(b)    the consumer redress program that the FTC was managing in the USA was only applicable to USA residents who purchased the footwear in the USA; and

(c)    Reebok International had used established industry testing methods and tested its EasyTone shoes in labs and on consumers including using sway tests, pressure tests, EMG tests and wear tests but the FTC disagreed as to whether the testing adequately supported its claims.

Reebok Australia’s conduct after the FTC Settlement

24    On 4 October 2011 Reebok Australia, through its Brand Manager, Mr Pohlman, emailed all Australian Reebok representatives including its Western Australian commission agent, Mr Beers, the advice it had received from Reebok International regarding its settlement with the FTC. Mr Pohlman’s email said that Reebok Australia:

‘…will have to limit the claims we make about our products in the toning category until new testing is conducted and proven successful. These guidelines have already been communicated to our marketing team.’

25    On 21 November 2011, Reebok Australia, through its Marketing and Sales Manager, Mr Kinnaird, instructed its state managers, commission agents and account management team by email to contact EasyTone retailers and arrange for those retailers to remove point of sale and other in store-advertising material relating to EasyTone shoes that featured the 28 November 2011 Claim (November 2011 Email). In particular, it instructed commission agents to remove EasyTone floor mats from all accounts and ‘make removal of all EasyTone 28 November 2011 communication from consumers eyes their #1 priority.’ Reebok Australia took no other action and no steps to verify that the material was removed.

26    In January 2012 Reebok Australia sold approximately 11,000 EasyTone shoes to Jim Kidd Sports stores at a price of $26 per pair.

27    By letter on 7 November 2012 Reebok Australia offered to the ACCC, to resolve the ACCC's concerns communicated to Reebok Australia on 29 August 2012 and without any admission of liability, to remove or over-sticker all material in Jim Kidd Sports stores containing any EasyTone benefit messages, including on product swing tags, in box brochures and in box stickers.

28    Six days later Reebok Australia's Brand Manager, Mr Pohlman, sent an email to Reebok Australia's Product Manager for Reebok footwear, Mr Whittaker, requesting he cease the sale of all EasyTone shoes.

29    In or around December 2012, in relation to Jim Kidd Sports' various premises in Western Australia, Reebok Australia orally instructed its Western Australian commission agent, Mr Beers, to over-sticker all 28 November 2011 Claims and any toning and strengthening claims on EasyTone shoe boxes, and to remove and destroy all other EasyTone shoe box advertising material including swing tags, information cards and information booklets which contained any of those references.

30    Mr Beers made arrangements for contractors to undertake this removal work in December 2012. The process of applying over-stickers and removing all other EasyTone Shoe Box Promotional Material was not completed in Jim Kidd Sports stores until some time in February 2013. EasyTone shoes remained available for purchase from Jim Kidd Sports stores in EasyTone shoe boxes as described below until February 2013.

31    By email on 19 December 2012, Reebok Australia recommended to 11 other retailers who Reebok Australia believed may hold small stocks of EasyTone shoes and sandals that they remove any EasyTone swing tags and shoe boxes containing statements about the toning benefits of EasyTone shoes. The email also recommended that EasyTone products be removed from any packaging before handing the product over to the consumer.

32    By this time Reebok Australia had removed from its factory shops all EasyTone Shoe Box Promotional Material containing either the 28 November 2011 Claim or other toning and strengthening claims.

33    The EasyTone shoes offered for sale in Australia by Reebok Australia were the same type of shoes as some of the EasyTone shoes which were the subject of the FTC Settlement.

34    The Easy Tone shoes supplied by Reebok Australia to retailers in Australia prior to the FTC Settlement remained available for purchase by consumers after the FTC Settlement.

35    Further, after the FTC Settlement and until 3 May 2012, Reebok Australia supplied 16,448 pairs of EasyTone shoes to retailers in Australia for sale to consumers in Australia which contained or may have contained the EasyTone shoe box statements. This included supplying Jim Kidd Sports stores with 14,669 pairs of EasyTone shoes between 29 September 2011 and 3 May 2012, and 1,430 pairs of EasyTone shoes to Rebel Sports stores.

EasyTone Shoe Box Promotional Material

EasyTone shoe box statements

36    The EasyTone shoes supplied by Reebok Australia to retailers both before and after the FTC Settlement were supplied to it by Adidas International Trading BV, part of the Adidas group of companies, in shoe boxes with EasyTone Shoe Box Promotional Material designed by Reebok International.

37    Reebok Australia regarded the EasyTone shoe boxes, swing tags, information cards and information booklets as packaging and not as advertising or other promotional material, and supplied the packaged shoes to retailers without regard to that packaging. Reebok Australia now accepts that the shoe boxes displayed and contained material that constituted advertising or promotional material.

38    During the Misleading Conduct Period, in eight of the Jim Kidd sports stores located in Western Australia, shoe boxes containing sports shoes, including the EasyTone shoe boxes, were displayed in stacks on the shop floor with one of each pair of the type of shoe placed on top of the stacked shoe boxes. The shoe boxes, shoes and any swing tags attached to the shoes were all visible to customers of those stores.

39    In the Sports Locker sports store in Prospect, South Australia, EasyTone shoe boxes were from time to time displayed in a stack on the shop floor with one of the pair of the type of shoe placed on top of the stacked EasyTone boxes. The EasyTone shoe boxes and EasyTone shoes were from time to time both visible to the consumer.

40    In other retail stores it is unknown if the EasyTone shoe boxes or any of the swing tags, information cards or information booklets were visible to customers prior to or at the point of sale. When a customer asks to try on a pair of shoes, the retailer commonly brings the shoe box to the consumer so they can try on the left and right shoes, in which case the consumer would have the opportunity to see any promotional material on and inside the shoe box.

41    The EasyTone shoes were supplied in five different types of shoe box.

42    The first type of EasyTone shoe box had a sticker on the outside of the box which had the statement ‘Tone and strengthen key leg muscles while you walk. It's as easy as that’ and an image of a pair of legs with radiating rings over the gluteus maximus, thighs and calves with the words ‘28% glutes, 11% thighs, 11% calves’ next to the corresponding parts of the body.

43    The second type of EasyTone shoe box had the same sticker as on the outside of the first type of shoe box and an additional sticker which had the statement ‘Tones and strengthens key leg muscles’ and a picture of the sole of the EasyTone shoe.

44    The third type of EasyTone shoe box had a sticker on the outside of the shoe box which had the statement ‘Tone and strengthen key leg muscles with every step. It's as easy as that’ and an image of a pair of legs with radiating rings over the gluteus maximus, thighs and calves.

45    The fourth type of EasyTone shoe box had a sticker on the outside of the shoe box which had the statement ‘Better butt and legs with every step’ and a picture of the sole of the EasyTone shoe.

46    The fifth type of EasyTone shoe box was plain.

47    The extent to which each specific EasyTone shoe box was supplied, if at all, during the Misleading Conduct Period is unknown.

Swing tags

48    In some of the EasyTone shoe boxes (from the first to the fourth type), the box contained a pair of shoes with a swing tag attached of one of two designs.

49    The first said ‘What is EasyTone? An innovative footwear solution designed to tone and strengthen key leg muscles with every step’ or the variant ‘… every step you take’ and had an accompanying picture of part of the sole of the EasyTone shoe.

50    The second type of swing tag design contained the statement:

‘This shoe can help tone some of your hard-earned leg muscles. How? Using pockets of air in the shoe. EasyTone activates certain muscles in your legs more than a traditional walking shoe. The air pockets also absorb energy when you walk to create resistance, requiring more energy in every step.’

Information cards and information booklets

51    In some EasyTone shoe boxes (from the first to the fourth type), there was an information card of either of two designs and/or an information booklet of either of two designs.

52    The first type of information card featured a three dimensional image of the EasyTone shoe and an image of the sole of the EasyTone shoe, with arrows pointing from the forefront and heel of the image of the sole, to the forefront and heel of the three dimensional image, and featured the following statement:

‘How does EasyTone Work? Balance ball-inspired technology with moving air creates micro-instability and is designed to tone and strengthen key leg and butt muscles with every step.’

53    The second type of information card featured a three dimensional image of the EasyTone shoe and a magnified image of the forefront of the shoe with lines from the magnified image, to the forefront and heel of the three dimensional image and the statement:

‘This shoe can help tone some of your hard earned leg muscles. How? Using pockets of air in the shoe. EasyTone activates certain muscles in your legs more than a traditional walking shoe. The air pockets also absorb energy when you walk to help create resistance, requiring more energy in every step.’

54    The first type of information booklet contained the following images and statements:

(a)    ‘Reetone. EasyTone. Take the gym with you’;

(b)    ‘EasyTone helps tone key leg muscles. How? Balance pods built-in under the heel and forefoot of the shoes. The balance pods are designed to create natural instability with every step which forces your muscles to adapt and encourages toning’;

(c)    an image of the sole of the EasyTone shoe with the statement ‘Take the gym with you’ on the bottom of the sole and arrows pointing to the forefront and heel of the sole. Next to the arrows, there appears an image of the balance pod and the statement ‘Balance pods are designed to act like stability balls under your feet’;

(d)    an image of a pair of legs with radiating rings over the gluteus maximus, hamstrings and calves with the words ‘Benefits. Increases muscle activation up to* 28%, 11%, 11%’ next to the corresponding parts of the body. Under the image are the following statements ‘*28% Gluteus Maximus, 11% Hamstrings and 11% Calves. Based on tests comparing Easy Tone Go Outside to a typical foam based walking shoe (Reebok Expresswalk). Testing does NOT include EasyTone sandals’;

(e)    ‘When would I wear my EasyTone shoes? EasyTone shoes are designed with style in mind, so they can be worn for all your daily activities- from work to school to shopping to walking-everything you would normally do in a day. They help tone key leg muscles and the added benefit is that they look great!’;

(f)    ‘What muscles do my EasyTone shoes tone? Key leg and butt muscles, how great is that?! Anatomically speaking targeted areas include key muscles in the gluteus maximus, hamstrings and calves’;

(g)    ‘How long do I need to walk to benefit from my EasyTone shoes? EasyTone shoes work to improve muscle activation as an additional percentage over what you would normally achieve from traditional foam-based shoes. So the more steps you take, the more benefits you receive’; and

(h)    ‘What are the other benefits from my EasyTone shoes? We've found in weartests that people enjoy the experience, which helps promote longer duration of activity (shopping), which puts you on your way to a firmer butt and tighter hamstrings and calves.’

55    The second type of information booklet contained similar statements and images.

EasyTone In-Store Promotional Material

56    Prior to the FTC Settlement and until March 2011, Reebok Australia supplied EasyTone In-Store Promotional Material to retailers, including floor mats, posters of different designs and footwear towers.

57    After the FTC settlement, unbeknownst to Reebok Australia, EasyTone In-Store Promotional Material remained on display in some retailers' stores and were able to be viewed by those stores' customers. For example, an EasyTone floor mat, an EasyTone poster and an EasyTone footwear tower remained on display in a Jim Kidd Sports store in Perth until late February 2012 or early March 2012. At a Jim Kidd Sports store in Fremantle, an EasyTone floor mat, an EasyTone poster and an EasyTone footwear tower remained on display until about December 2012.

58    Aside from the above examples the extent to which EasyTone In-Store Promotional Material remained on display in other retailers' stores after the FTC Settlement is unknown. Following the February 2011 Teleconference and the November 2011 Email referred to above, Reebok Australia assumed that EasyTone In-Store Promotional Material would be removed.

EasyTone floor mats

59    The EasyTone floor mats contained the statements ‘EasyTone. Tones and strengthens key leg muscles’, ‘Moving air balance pods help tone and strengthen key leg muscles with every step. By how much? 28% butt 11% thighs 11% calves. Experience it for yourself’ and an image of part of the soles of a pair of EasyTone shoes.

EasyTone posters

60    One type of poster design featured a picture taken from behind of a woman from the waist down wearing EasyTone shoes whilst talking on the telephone, and the statements ‘Reetone’ and ‘EasyTone. EasyTone shoes help tone your butt and legs with every step.’

61    The second type of poster design featured a picture taken from behind of a woman from the waist down wearing EasyTone shoes whilst walking a dog on a leash with lines on the picture of the woman at the place of the gluteus maximus, thighs and calves with the words ‘up to 28% up to 11% up to 11%’ next to the corresponding parts of the body, ‘Reetone. Take the gym with you’ and ‘EasyTone. Increases muscle activation with every step.’

EasyTone footwear towers

62    The EasyTone footwear towers contained on most occasions a three dimensional image of the EasyTone shoe and an image of the sole of the EasyTone shoe, with arrows pointing from the forefront and heel of the image of the sole, to the forefront and heel of the three dimensional image, and the statement:

‘Reebok Toning… Featuring moving air technology. What is moving air technology? Moving air technology with Balance Ball-inspired toning pods create micro instability. Designed to tone and strengthen key butt and leg muscles.’

Representations by Reebok Australia

63    In the Misleading Conduct Period, by making the statements referred to above, Reebok Australia represented to consumers that wearing EasyTone shoes would result in an increase in the muscle tone of the wearer's buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe (Toning Representations).

64    In the Misleading Conduct Period, by making the statements referred to above, Reebok Australia represented to consumers that wearing EasyTone shoes would result in an increase in the strength of the wearer's buttocks, thighs, hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe (Strengthening Representations).

65    In the Misleading Conduct Period, by making the statements referred to above, Reebok Australia represented to consumers that wearing EasyTone shoes would result in an increase in the toning and/or strengthening of the wearer's buttocks, thighs, hamstrings and calves by, or by up to, respectively 28%, 11% and 11% compared to that which would result from wearing a traditional walking shoe (Percentage Representations).

66    Each of the Toning, Strengthening and Percentage Representations were made in trade or commerce.

67    The Toning, Strengthening and Percentage Representations were made in circumstances where wearing EasyTone shoes would not result in an increase in the toning or strengthening of the wearer's buttocks, thighs/hamstrings and calves by, or by up to, the specific percentage amounts represented compared to that which would result from wearing a traditional walking shoe and Reebok Australia had no reasonable grounds for making the Toning, Strengthening and Percentage Representations.

Other considerations

Whether conduct deliberate and period over which conduct extended

68    The admitted conduct occurred over approximately 18 months from September 2011 to February 2013 and was spread across all of Australia. Reebok Australia supplied 16,448 pairs of EasyTone shoes to retailers for sale to consumers following the FTC Settlement and up to 3 May 2012, including the supply of 223 pairs to retailers in Queensland, 694 pairs to retailers in New South Wales, 591 pairs to retailers in Victoria, 18 pairs to retailers in Tasmania, 75 pairs to retailers in South Australia, 14,791 pairs to retailers in Western Australia, 13 pairs to retailers in the Northern Territory and 43 pairs to retailers in the Australian Capital Territory.

69    Reebok Australia made credence claims regarding the EasyTone shoes for consumers to rely on when deciding to purchase the shoes in circumstances where the consumers were unable to readily verify those claims.

70    The statements made in the EasyTone Shoe Box Promotional Material and EasyTone In-Store Promotional Material were developed by Reebok International and Reebok Australia had not conducted testing to substantiate the claims. The tests relied upon by Reebok International to substantiate the Toning, Strengthening and Percentage Representations made on advertising or promotional material measured muscle activation at a point in time and were insufficient to substantiate such claims and representations.

71    Issues concerning the accuracy of the Toning, Strengthening and Percentage Representations regarding the EasyTone shoes were brought to Reebok Australia's attention as follows:

(a)    in February 2011, Reebok Australia was made aware of issues concerning the 28 November 2011 Claim;

(b)    on or about 17 September 2011, Reebok Australia was made aware of the FTC Investigation;

(c)    on 28 September 2011, Reebok Australia was made aware of the FTC Settlement; and

(d)    on 29 September 2011, Reebok Australia was made aware that the claims made by Reebok International in the USA related to the Toning, Strengthening and Percentage Representations.

72    Additionally, the ACCC first raised concerns with Reebok Australia on 29 August 2012 about the conduct. Contraventions in relation to the EasyTone Shoe Box Promotional Material continued until February 2013 whilst Reebok Australia undertook voluntary over-stickering and removal of the EasyTone Shoe Box Promotional Material. Contraventions in relation to the EasyTone In-Store Promotional Material continued until about December 2012. Further, Reebok Australia responded to ACCC correspondence and compulsory investigative notices, but Reebok Australia continued to deny liability up until May 2014.

73    After being made aware of these issues by Reebok International, in response Reebok Australia conducted the February 2011 Teleconference, which was only in relation to the 28 November 2011 Claim, and ceased the distribution of EasyTone In-Store Promotional Material. Reebok Australia then took no further action until the November 2011 Email and, following that, took no steps to enquire into whether the claims continued to be made in the marketplace until after it was contacted by the ACCC. Reebok Australia did not at any time provide instructions in relation to the EasyTone In-Store Promotional Material which made the Toning and Strengthening Representations because it expected that no such material was on display by 19 September 2011, but it had no procedures to verify that its expectation was correct.

74    In December 2012, after the ACCC expressed concerns, Reebok Australia first undertook specific action in relation to the EasyTone Shoe Box Promotional Material which it had continued to use in the sale of the EasyTone shoes. It instructed its Western Australian commission agent to over-sticker all EasyTone shoe boxes and remove and destroy all other EasyTone Shoe Box Promotional Material which contained the Toning, Strengthening or Percentage Representations in Jim Kidd Sports stores. This process was not completed until February 2013. On 19 December 2012, it also recommended to 11 other retailers in Australia who Reebok Australia believed may hold small stocks of EasyTone shoes and sandals that they remove any EasyTone swing tags and shoe boxes containing Toning Representations. By 19 December 2012, Reebok Australia had also removed all EasyTone Shoe Box Promotional Material from its factory shops.

Size and financial position of Reebok Australia

75    Reebok Australia is a small company with three directors and is the wholly owned subsidiary of True Alliance. All employees of companies that form part of the True Alliance Group of companies are employed by True Alliance Corporate, another wholly owned subsidiary of True Alliance.

76    There was no division or business unit of Reebok Australia which was responsible for the marketing and promotion of EasyTone shoes. All marketing and promotion activities in relation to EasyTone shoes were undertaken by employees of True Alliance Corporate. True Alliance Corporate has eight management staff.

77    At all relevant times, True Alliance was a large marketing company distributing a significant range and number of well-known branded clothing and footwear products in Australia. The current annual turnover of True Alliance is more than $200 million.

78    For the 2012 and 2013 financial years, Reebok Australia's total revenue and losses from the sale of all Reebok branded products was as follows:

79    As at 30 June 2014, Reebok Australia's total assets were valued at $3,195,936 and its total liabilities at $3,000,897.

80    Reebok Australia considers that its business will remain viable after the application of the proposed penalty.

Loss and damage

81    The loss and damage to consumers cannot be quantified but would include damage associated with consumers purchasing EasyTone shoes due to Reebok Australia's misleading conduct.

82    During the 2012 financial year and excluding online retailers, Reebok Australia received estimated revenue of $526,398 from the sale of EasyTone shoes to retailers. 4.65% of its total revenue was derived from the sale of EasyTone shoes. In the 2013 financial year, Reebok Australia made a loss from the sale of EasyTone shoes to non-online retailers, however retailers continued to sell EasyTone shoes which contained EasyTone Shoe Box Promotional Material to consumers up until February 2013.

Deliberateness of the contraventions

83    Despite becoming aware of the FTC Settlement on 28 September 2011, Reebok Australia continued to import and supply to retailers the EasyTone shoes and EasyTone Shoe Box Promotional Material without making attempts to establish whether the statements made were true.

84    Reebok Australia did make attempts to remove EasyTone In-Store Promotional Material, although this only related to Percentage Representations.

Involvement of senior management/employees

85    During the Entire Period Reebok Australia's senior management included:

(a)    Karl Pohlman, Brand Manager;

(b)    Ben Kinnaird, Marketing and Sales Manager; and

(c)    Daniel Whittaker, Product Manager for Reebok footwear.

86    These managers were all involved in correspondence and discussions with Reebok International regarding the FTC Investigation and the FTC Settlement and also issued directions following the FTC Settlement regarding the removal of EasyTone promotional material. These three managers all attended the Reebok Global Marketing Meeting. The contraventions arose with the express knowledge of Reebok Australia's senior management.

87    Further, one of the directors of Reebok Australia, Mr Hendler, was made aware of the FTC Investigation on 19 September 2011.

Culture of compliance and corrective measures taken in response to contravention

88    Reebok Australia did not have a compliance program.

89    Furthermore, following the FTC Settlement Reebok Australia continued to sell EasyTone shoes with the EasyTone Shoe Box Promotional Material and did not take any remedial action to remove it until December 2012, subsequent to being approached by the ACCC, and did not take adequate remedial action to remove EasyTone In-Store Promotional Material.

90    Reebok Australia was put on notice about concerns with the statements made in the promotion of EasyTone shoes both prior to and following the FTC Settlement by various sources, and was aware that the shoes offered for sale in Australia by Reebok Australia were the same as those which were the subject of the FTC Settlement.

91    Despite this, it continued to import and supply the EasyTone shoes following the FTC Settlement without regard to whether there were any statements on the shoe boxes or any other EasyTone Shoe Box Promotional Material in the shoe boxes, and thus did not at any time make an attempt to verify itself that there was a scientific basis for the statements made. Reebok Australia did not consider the EasyTone Shoe Box Promotional Material to be advertising or other promotional material.

92    Except for the November 2011 Email, Reebok Australia did not follow up directions it had given to its agents to remove EasyTone In-Store Promotional Material in relation to the 28 November 2011 Claim to ensure such directions had been carried out, and otherwise did not have procedures to ensure that such in-store material had been removed following the FTC Settlement.

93    The steps taken by Reebok Australia to comply with the ACL were not sufficient to prevent contraventions of the ACL and it was complacent with regard to its compliance with the ACL. Reebok now acknowledges that:

(a)    it should have taken prompt and effective action to cause, and confirm, the removal of the in-store promotional material;

(b)    the shoe boxes displayed and contained material that constituted advertising material;

(c)    it should have known at the time of selling the EasyTone shoes that the shoe boxes displayed and contained material that constituted advertising material; and

(d)    it should not have sold the Easy Tone shoes with the EasyTone Shoe Box Promotional Material.

Co-operation with the ACCC

94    Following notification of the ACCC’s investigation on 29 August 2012, Reebok Australia co-operated with the ACCC by providing information and documents sought by the ACCC. However during the investigation and following commencement of the proceedings, Reebok Australia continued to deny any liability up until May 2014.

95    Since May 2014, Reebok Australia has co-operated with the ACCC in admitting the contraventions and agreeing to these facts and the remedies and penalties proposed in the joint submissions, and negotiating a statement of agreed facts, proposed orders and the joint submissions to seek by consent to finalise these proceedings. Reebok Australia's cooperation has avoided the need for any further interlocutory steps and a fully contested hearing in the matter, which would have consumed the time and resources of the Court and the ACCC.

96    Additionally of significance is the fact that the cooperation of Reebok Australia has meant that affected retailers and consumers have not had to attend Court to give evidence and submit to cross-examination.

Whether prior contravention of the ACL

97    Reebok Australia has not previously been found by a Court to have contravened any provision of the ACL or to have engaged in similar conduct to this instance.

STATUTORY FRAMEWORK

98    By s 131 of the Competition and Consumer Act, the ACL applies as a law of the Commonwealth to the conduct of corporation and in relation to contraventions of Chs 2, 3 and 4 ACL by corporations (other than in relation to financial services). Section 138  of the Competition and Consumer Act confers jurisdiction on this Court in relation to any matter arising under the ACL in respect of which a civil proceeding has been instituted. Jurisdiction is also conferred as a result of s 39B(1A) of the Judiciary Act 1993 (Cth).

99    The three provisions concerned, ss 18, 29(1)(g) and 33 ACL, relevantly provide as follows:

18    Misleading or deceptive conduct

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

(2)    Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).

…

29    False or misleading representations about goods or services

(1)    A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

…

(g)    make a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits…

…

33    Misleading conduct as to the nature etc. of goods

A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods.

Note: A pecuniary penalty may be imposed for a contravention of this section.

APPLICATION OF THE AGREED FACTS

100    The parties submit, and I accept, that by engaging in the conduct set out above, in trade or commerce Reebok Australia:

(a)    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 18 ACL;

(b)    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of s 29(1)(g) ACL; and

(c)    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of s 33 ACL.

RELEVANT PRINCIPLES

General considerations concerning orders proposed by agreement

101    There is a well-recognised public interest in the settlement of cases under the ACL.

102    French J (as he then was) observed in Australia Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 (at 86):

The Court has a responsibility to be satisfied that what is proposed is not contrary to the public interest and is at least consistent with it … Consideration of the public interest, however, must also weigh the desirability of non-litigious resolution of enforcement proceedings.

103    I am satisfied that this Court has the power to make the orders proposed and that the orders are appropriate given that the parties are both legally represented and able to understand and evaluate the desirability of the settlement which has been put before the Court. The authorities make clear that judicial restraint is desirable.

104    As I previously said in Australian Competition and Consumer Commission v Mandurvit Pty Ltd [2014] FCA 464 (at 82), there is no doubt that there is substantial public interest for litigation under the ACL to be concluded in the shortest timeframe that is consistent with justice being done between the parties.

Declarations

105    The Court has a wide discretionary power to make declarations under s 21 FCA. In the present situation, there is no doubt that the question concerned is real and not hypothetical or theoretical as the declarations made relate to conduct that contravenes the ACL. It is in the public interest to have the ACCC to seek to have the declarations made, and Reebok Australia is a proper contradictor.

106    The declarations made in the present situation are appropriate as they:

(a)    record the Court’s disapproval of the contravening conduct;

(b)    vindicate the ACCC’s claim that Reebok Australia contravened the ACL;

(c)    assist the ACCC to carry out the duties conferred upon it by the Competition and Consumer Act;

(d)    inform consumers of the dangers arising from Reebok Australia’s contravening conduct; and

(e)    deter other corporations from contravening the ACL.

107    In particular, Reebok Australia has admitted contraventions of important consumer protections against misleading conduct and false or misleading representations in the field of the health and wellness industry, which is a significant and growing industry in Australia.

108    I am satisfied that there is sufficient factual basis for making the declarations.

Injunctions

109    The Court is empowered by s 232 ACL to grant the injunctive relief. Injunctive relief is appropriate in this proceeding as it is not vague or imprecise and does not require supervision by the Court. The injunction is appropriate to deter repetition of the conduct.

Pecuniary penalty

110    Sections 224(1)(a)(ii) and (a)(iv) ACL came into force on 1 January 2011, and relevantly empower the Court in respect of contraventions of provisions of Div 1 of Pt 3-1 ACL (which includes s 29 and s 33) to order the contravener to pay such pecuniary penalty in respect of ‘each act or omission’ as the Court determines to be appropriate. Penalties are not provided in the ACL for contraventions of s 18.

111    Section 224 ACL was preceded by s 76E of the Trade Practices Act 1974 (Cth) (TPA). The principles applicable to determining pecuniary penalties which have been applied by this Court in determining penalties under s 76E TPA are the principles which have been applied in determining pecuniary penalties under s 76 TPA for contraventions of restricted trade practices provisions, unless the context of the infringements makes plain that it cannot be so: Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 per Perram J (at 624-625). Perram J’s reasoning in this regard was not disturbed by the Full Court on appeal and was cited with approval by the Full Court in Global One Mobile Entertainment Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 134 (at [119]).

112    The principal purpose of imposing civil penalties under s 224 ACL is deterrence. French J observed in Trade Practices Commission v CSR Ltd (1990) 13 ATPR 41-076 (at 52, 152) the ‘primacy of the deterrent purpose in the imposition of penalty’ and described deterrence, both specific and general, as the ‘principal, and I think probably the only, object of the penalties’.

113    This approach has been consistently followed and has been reinforced by numerous subsequent decisions: see for example Australian Competition and Consumer Commission v High Adventure Pty Ltd (2006) ATPR 42-091 (at [11]); and Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2007) 161 FCR 513 (at [60]).

114    By s 224(2) ACL in determining the appropriate pecuniary penalty the Court must have regard to all relevant matters including: (a) the nature and extent of the act or omissions and of any loss or damage suffered as a result of the act or omission; (b) the circumstances in which it took place; and (c) whether the person has previously been found by a court in proceedings under Ch 4 or Pt 5-2 ACL to have engaged in any similar conduct. Other relevant factors set out with approval by the Full Court in Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 (at [37]) include: (a) the size of the contravening company; (b) the deliberateness of the contravention and the period over which it extended; (c) whether the contravention arose out of the conduct of senior management of the contravener or at some lower level; (d) whether the contravener has a corporate culture conducive to compliance with the Competition and Consumer Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; (e) whether the contravener has shown a disposition to cooperate with the authorities responsible for the enforcement of the Competition and Consumer Act in relation to the contravention; (f) the financial position of the contravener; and (g) whether the contravening conduct was systematic, deliberate or covert.

115    The process to be applied in arriving at a particular penalty figure was considered by the High Court in Markarian v The Queen (2005) 228 CLR 357 in the context of criminal sentencing. That process has been consistently applied to the assessment of pecuniary penalties under s 76 and s 76E TPA and equivalent provisions of the Competition and Consumer Act and ACL: Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2005) ATPR 42-070 per Gyles J (at [68]); Mandurvit (at [67]).

116    This Court has applied the process in arriving at a particular penalty as set out by the High Court in Markarian where Gleeson CJ, Gummow, Hayne and Callinan JJ held:

(a)    assessment of the appropriate penalty is a discretionary judgment based on all relevant factors (at [27]);

(b)    careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick (at [31]);

(c)    it will rarely be appropriate for a Court to start with the maximum penalty and proceed by making a proportional deduction from that maximum (at 31]);

(d)    the Court should not adopt a mathematical approach of increments or decrements from a predetermined range, or assign specific numerical or proportionate value to the various relevant factors (at [37] citing Wong v The Queen (2001) 207 CLR 584 per Gaudron, Gummow and Hayne JJ (at [74]-[76]);

(e)    it is not appropriate to determine an ‘objective’ sentence and then adjust it by some mathematical value given to one or more factors such as a plea of guilty or assistance to authorities (at [37] citing Wong (at [74]-[76]);

(f)    the Court may not add and subtract item by item from some apparently subliminally derived figure to determine the penalty to be imposed (at [39]); and

(g)    since the law strongly favours transparency, accessible reasoning is necessary in the interests of all, and, while there may be occasions where some indulgence in an arithmetical process will better serve that end, it does not apply where there are numerous and complex considerations that must be weighed (at [39]).

117    When the penalties have been agreed by the parties, in my view, the correct approach remains that described by the Full Court in Minister for Industry, Tourism and Resources v Mobil Oil Australia Ltd (2004) ATPR 41-993 per Branson, Sackville and Gyles JJ (at [51]):

51    The following propositions emerge from the reasoning in NW Frozen Foods:

(i)    It is the responsibility of the Court to determine the appropriate penalty to be imposed under s 76 of the TP Act in respect of a contravention of the TP Act.

(ii)    Determining the quantum of a penalty is not an exact science. Within a permissible range, the courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another.

(iii)    There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy. Accordingly, when the regulator and contravener have reached agreement, they may present to the Court a statement of facts and opinions as to the effect of those facts, together with joint submissions as to the appropriate penalty to be imposed.

(iv)    The view of the regulator, as a specialist body, is a relevant, but not determinative consideration on the question of penalty. In particular, the views of the regulator on matters within its expertise (such as the ACCC’s views as to the deterrent effect of a proposed penalty in a given market) will usually be given greater weight than its views on more “subjective” matters.

(v)    In determining whether the proposed penalty is appropriate, the Court examines all the circumstances of the case. Where the parties have put forward an agreed statement of facts, the Court may act on that statement if it is appropriate to do so.

(vi)    Where the parties have jointly proposed a penalty, it will not be useful to investigate whether the Court would have arrived at that precise figure in the absence of agreement. The question is whether that figure is, in the Court’s view, appropriate in the circumstances of the case. In answering that question, the Court will not reject the agreed figure simply because it would have been disposed to select some other figure. It will be appropriate if within the permissible range.

118    The Full Court made some additional observations (at [53], [54] and [58]), including:

53    First, the rationale for giving weight to a joint submission on penalty is said by the Court to be the savings in resources for the regulator and the Court, as well as the likelihood that a negotiated resolution will include measures designed to promote competition. As Jeremy Thorpe points out, a related advantage is that the savings in resources can be used by the regulator to increase the likelihood that other contraveners will be detected and brought before the courts. This has the effect of increasing deterrence which is one of the principal justifications, if not the only justification for imposing civil penalties under the TP Act or the Sites Act: J Thorpe, “Determining the Appropriate Role for Charge Bargaining in Part IV of the Trade Practices Act” (1996) 4 Comp & Cons LJ 69, at 72-74. Of course the arguments in favour of negotiated settlements have to take account of the fact that it is the Court that bears the ultimate responsibility for determining the appropriate penalty.

54    Secondly, the sixth proposition drawn from the reasoning in NW Frozen Foods does not mean, in our opinion, that the Court must commence its reasoning with the proposed penalty and limit itself to considering whether that penalty is within the permissible range. A Court may wish to take that approach. However, it is open to a Court, consistently with the reasoning in NW Frozen Foods, first to address the appropriate range of penalties independently of the parties’ proposed figure and then, having made that judgment, determine whether the prepared penalty falls within the range.

…

58    Fifthly, there is nothing in NW Frozen Foods that is inconsistent with any of the following propositions:

(i)    The Court, if it considers that the evidence or information before it is inadequate to form a view as to whether the proposed penalty is appropriate, may request the parties to provide additional evidence or information or verify the information provided. If they do not provide the information or verification requested, the Court may well not be satisfied that the proposed penalty is within the range.

(ii)    If the absence of a contradictor inhibits the Court in the performance of its duties under s 76 of the TP Act, s 13 of the Sites Act, or similar legislation, it may seek the assistance of an amicus curiae or of an individual or body prepared to act as an intervenor under FCR, O 6 r 17.

(iii)    If the Court is disposed not to impose the penalty proposed by the parties, it may be appropriate, depending on the circumstances, for each of them to be given the opportunity to withdraw consent to the proposed orders and for the matter to proceed as a contested hearing.

119    There are several cases in which the Court has imposed penalties different from those agreed by the parties, but in most cases the penalty sought by consent or agreement between the parties has been accepted by the courts. The Full Court in Mobil Oil followed the observations of Sheppard J in Trade Practices Commission v Allied Mills Industries Pty Ltd (No 4) (1981) 37 ALR 256 where his Honour said (at 259):

It is, of course, true that the penalty has been suggested to me by the agreement of the parties. Uninformed of their agreement, I may have selected a different figure, but I am satisfied that it would not have been very different from theirs. There is from time to time, amongst members of the profession and amongst the public, discussion concerning plea bargaining. Sometimes it is suggested that it involves disreputable conduct. It is my opinion that that is so if it at all implicates the court in private discussions as to what the court's attitude will or would be likely to be if a particular course is taken. In this case nothing of that kind has occurred. The parties have made their own agreement and put it to the court for approval, not knowing what its attitude was likely to be. That was the course adopted, perhaps in a less positive way, in a customs prosecution heard in the original jurisdiction of the High Court: Chipp (Minister for Customs) v. Campbell Beaumont Trading Pty Ltd (22 December 1969, unreported). The court there accepted the parties' view of the matter. This, of course, is not a criminal case; the liability is civil only. But, even in the most serious criminal cases, it is not unusual for the prosecution to accept a plea to a lesser charge, subject always to the approval of the court. I have said what I have only to explain that the course which the parties have adopted is both proper and not uncommon, even though perhaps novel in the comparatively new field of trade practices.

120    In the recent decision of Barbaro v The Queen (2014) 88 ALJR 372 the High Court, by majority, held that it was not the role or duty of the prosecution in criminal matters to make submissions on the available range of sentences for an offence, being the upper and lower limits outside of which a criminal sentence would be subject to appellable error.

121    This principle was applied to penalties in the context of the Competition and Consumer Act in Australian Competition and Consumer Commission v Flight Centre Limited (No 3) [2014] FCA 292. However, in Australian Competition and Consumer Commission v Energy Australia Pty Ltd [2014] FCA 336, Middleton J held (at [140] – [152]) that Barbaro does not implicitly overrule NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 or Mobil Oil and does not preclude the regulator from making submissions as to the quantum of penalty of appropriate deterrent value. I took a similar view in Mandurvit (at [37]-[80]) as did Davies J in Tax Practitioners Board v Dedic [2014] FCA 511 (at [3]). (This approach was also applied in Legal Profession Complaints Committee v Love [2014] WASC 389 by the Full Court (at [74]).

Maximum penalties in one transaction / one course of conduct principle

122    The maximum penalty for a body corporate for each act or omission that contravenes a provision of Div 1 Pt 3-1 ACL, which includes s 29, is $1.1 million by virtue of item 2 of s 224(3) ACL. The maximum penalty is important, firstly, because the legislature has prescribed it. Secondly, it invites comparison between the worst possible case and the case before the Court at the time of imposing a penalty. Additionally, it provides a yardstick taken and balanced with all of the other relevant factors. It is relevant to take into account in the present situation, in my view, the ‘one transaction’ or ‘one course of conduct’ principle as discussed by the majority of the Full Court in Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 per Middleton and Gordon JJ (at [39] and [41]) (citations omitted):

39    As the passages in Williams explain, a “course of conduct” or the “one transaction principle” is not a concept peculiar to the industrial context. It is a concept which arises in the criminal context generally and one which may be relevant to the proper exercise of the sentencing discretion. The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is “the same criminality” and that is necessarily a factually specific enquiry. Bare identity of motive for commission of separate offences will seldom suffice to establish the same criminality in separate and distinct offending acts or omissions.

…

41    ... In other words, where two offences arise as a result of the same or related conduct that is not a disentitling factor to the application of the single course of conduct principle but a reason why a Court may have regard to that principle, as one of the applicable sentencing principles, to guide it in the exercise of the sentencing discretion... It is a tool of analysis which a Court is not compelled to utilise...

Totality principle

123    In determining the appropriate penalty, the Court should take into account the ‘totality’ principle.

124    In Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 (at 40,169) Burchett J considered that the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved. In Australian Competition and Consumer Commission v Safeway Stores Pty Ltd (1997) 145 ALR 36 Goldberg J considered the application of the principle of totality in the civil penalty context in the following terms per Goldberg J (at 53) (citations omitted):

The totality principle is designed to ensure that overall an appropriate sentence or penalty is appropriate and that the sum of the penalties imposed for several contraventions does not result in the total of the penalties exceeding what is proper having regard to the totality of the contravening conduct involved. But that does not mean that a court should commence by determining an overall penalty and then dividing it among the various contraventions. Rather the totality principle involves a final overall consideration of the sum of the penalties determined.

…

It is explicit in this statement that a sentencer or penalty fixer must, as an initial step, impose a penalty appropriate for each contravention and then as a check, at the end of the process, consider whether the aggregate is appropriate for the total contravening conduct involved.

125    As the Full Court in Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 held (at [7]), the totality principle, as expounded by Goldberg J in Safeway Stores ‘has been applied since then in civil penalty cases too numerous to mention’. In particular, this approach is to be contrasted with the inappropriate approach of pointing to a single global total penalty and dividing it among the individual contraventions in order to derive separate penalties.

126    The facts and admissions establishing the particular conduct which Reebok Australia admits gave rise to two courses of conduct and six contraventions of the ACL, together with other matters relevant to penalties.

application of relevant principles

Nature, extent and duration of the contravening conduct

127    The conduct in relation to EasyTone Shoe Box Promotional Material took place over about 18 months between September 2011 and February 2013. The conduct in relation to the EasyTone In-Store Promotional Material took place over about 16 months between September 2011 and December 2012. The conduct was Australia-wide, although the sales of the EasyTone shoes in the relevant period were predominantly to retailers in Western Australia.

128    It is important in the significant and fast developing health and wellness industry in Australia that consumers have confidence that the goods they purchase have performance characteristics, benefits or uses and are suitable for their purpose. The conduct in the context of this industry is particularly serious because consumers are willing to pay a premium for those goods on the basis of those attributes when compared to the price for similar goods without those attributes, and are unable to readily verify whether those goods have those attributes. Despite this, the statements made in the EasyTone Shoe Box Promotional Material and EasyTone In-Store Promotional Material were developed by Reebok International, and Reebok Australia had not itself conducted testing to substantiate the claims. The tests relied upon by Reebok International to substantiate the toning and strengthening claims and Percentage Representations made on advertising or promotional material were insufficient to substantiate such claims and representations.

129    In both instances the conduct is limited to the period following Reebok International's settlement with the FTC of the USA in September 2011. After the FTC Settlement was brought to the attention of Reebok Australia in September 2011, Reebok Australia continued to sell the EasyTone shoes in Australia in significant quantities and using the promotional material which made representations that were the subject of the FTC Settlement.

130    Similar considerations apply to the EasyTone Shoe Box Misleading Conduct and the EasyTone In-Store Misleading Conduct.

131    In relation to the latter, on 21 November 2011 Reebok Australia instructed its commission agents by email to contact EasyTone retailers and arrange for those retailers to remove EasyTone In-Store Promotional Material relating to EasyTone shoes that featured the Percentage Representations. No instructions were given in relation to EasyTone In-Store Promotional Material concerning the Toning Representations or the Strengthening Representations.

132    Reebok Australia did not at any time provide instructions in relation to the EasyTone In-Store Promotional Material which made the Toning and Strengthening Representations, because it assumed that no such material was on display by 19 September 2011, although it had no procedures in place to verify that its expectation was correct. By the February 2011 Teleconference with various managers, Reebok Australia contacted its Queensland, Victorian, New South Wales, Tasmanian and South Australian state managers and its Western Australian commission agent, and requested they remove all EasyTone In-Store Promotional Material containing Percentage Representations from retailers who sold EasyTone shoes.

133    However, an EasyTone floor mat, poster and footwear tower remained on display in a Jim Kidd Sports store in Perth up to late February 2012 or early March 2012 and an EasyTone floor mat, poster and footwear tower remained on display in a Jim Kidd Sports store in Fremantle until or about December 2012. Aside from those examples the extent to which in-store promotional material remained on display in other retailers’ stores after the FTC Settlement is unknown.

134    Reebok Australia’s failure to verify that all EasyTone In-Store Promotional Material was no longer on display in retailers stores was careless given that the ACCC also raised concerns with Reebok Australia regarding this conduct in August 2012. Reebok Australia has now agreed that its conduct in relation to the Misleading Conduct Period should not have occurred and was complacent in relation to compliance with the ACL.

Size of contravener and its financial position

135    Section 224 does not include a provision such as that incorporated into s 76(1A) of the Competition and Consumer Act, which measures maximum penalty by reference to 10% of the annual turnover of the company in the relevant period, as an alternative to assessing the pecuniary benefit to the company flowing from the contravention. It is, nonetheless, relevant to consider the level of the penalty necessary to achieve deterrence in relation to a company of a particular size. While capacity to pay any penalty imposed can be a relevant factor, it cannot be relied upon to reduce the penalty below the amount necessary to secure deterrence, particularly general deterrence.

136    In High Adventure the Full Court (at [11]) emphasised that the importance of general deterrence was such that it may require the imposition of a penalty which would lead to the financial ruin of a contravener.

137    Reebok Australia is a small company and although it made losses from the sale of all Reebok branded products for the 2012 and 2013 financial years, it is the wholly owned subsidiary of True Alliance, which has an annual turnover of more than $200 million.

Amount of loss caused and profit gained

138    The loss and damage to consumers cannot be quantified, but would include the costs of consumers purchasing EasyTone shoes due to Reebok Australia's misleading conduct.

139    During the 2012 financial year, excluding online retailers, Reebok Australia received estimated revenue of $526,398 from the sale of EasyTone shoes to retailers and total revenue from Reebok branded footwear sales of $11,302,528. That represents 4.65% of total revenue from the sale of EasyTone shoes. In the 2013 financial year, Reebok Australia made a loss from the sale of EasyTone shoes to non-online retailers, however retailers continued to sell EasyTone shoes which contained EasyTone Shoe Box Promotional Material to consumers up until February 2013.

140    In Singtel Optus, the Full Court accepted that, in specified cases, namely those where it is easy to imagine detriment to consumers, the absence of evidence of loss or damage to consumers constitutes a factor in mitigation of penalty (at [58]-[59] approving MSY Technology at [77]-[80]). However, the inability to quantify financial loss caused to the consumers by the contraventions does not mean that no loss or harm has been suffered: see Australian Competition and Consumer Commission v Global One Mobile Entertainment [2011] FCA 393 per Bennett J (at [135]).

141    Given the false and misleading representations were likely to be a significant factor in consumer decisions to purchase the shoes, it is highly likely that Reebok Australia obtained sales it would not otherwise have obtained from its conduct, although the extent of these sales is unknown.

142    In relation to loss or damage caused to competitors, the Full Court in Singtel Optus said (at [69]):

‘It is also a circumstance of concern that a misleading advertising campaign is apt to increase the market share of the contravener at the expense of law-abiding competitors.’

143    The damage to fair and open competition in the footwear market in Australia cannot be quantified, but it is likely that the conduct had a significant effect because some consumers were misled into purchasing the EasyTone shoes on the basis of credence attributes which they could not readily verify, and where they would not otherwise have made such a purchase had they known the shoes did not have such attributes.

Whether Reebok Australia has engaged in similar prior conduct

144    Reebok Australia has not previously been found by a court to have engaged in any similar conduct or to have contravened the ACL or the Competition and Consumer Act or its predecessor, the TPA.

The deliberateness of the contravening conduct

145    In relation to shoe box promotional material, Reebok Australia continued to import and supply to retailers the EasyTone shoes and EasyTone Shoe Box Promotional Material despite becoming aware of the FTC Settlement and without itself establishing whether the statements made were true. It was not until December 2012 that Reebok Australia made attempts to remove this material from retailers' stores.

146    Reebok Australia did make attempts to remove EasyTone In-Store Promotional Material, although it took some two months to do this from the time it became aware of the FTC Settlement and this only related to Percentage Representations. It took some four months following the FTC Settlement for Reebok Australia to make attempts to remove in-store promotional material from retailers in Western Australia who sold EasyTone shoes. Reebok Australia did not at any time attempt to verify that all in-store promotional material was no longer on display in retailer’s stores.

147    The factors in the preceding two paragraphs are significant.

Involvement of senior management / employees

148    Reebok Australia’s senior management, Mr Pohlman, Mr Kinnaird and Mr Whittaker, all received communications from Reebok International regarding the FTC Settlement and also issued directions following the FTC Settlement regarding the removal of EasyTone promotional material. These three managers all attended the Reebok Global Marketing Meeting held between 24 September 2011 and 28 September 2011 which immediately preceded the FTC Settlement. The contraventions arose with the express knowledge of Reebok Australia's senior management.

Culture of compliance and corrective measures in response to contravention

149    Reebok Australia did not have a compliance program. Furthermore, following the FTC Settlement Reebok Australia continued to sell EasyTone shoes with the EasyTone Shoe Box Promotional Material and did not take any remedial action to remove it until December 2012 after it was approached by the ACCC, and did not take adequate remedial action to remove EasyTone In-Store Promotional Material.

150    Reebok Australia was put on notice about concerns with the statements made in the promotion of EasyTone shoes both prior to and following the FTC Settlement by various sources, and was aware that the shoes offered for sale in Australia by Reebok Australia were the same as those which were the subject of the FTC Settlement. Despite this, it continued to import and supply the EasyTone shoes following the FTC Settlement without regard to whether there were any statements on the shoe boxes, or any other EasyTone Shoe Box Promotional Material in the shoe boxes, and did not at any time make an attempt to verify itself that there was a scientific basis for the statements made. Reebok Australia did not consider the EasyTone Shoe Box Promotional Material to be advertising or other promotional material.

151    Except for an email sent in November 2011, Reebok Australia did not follow up with directions it had given to its agents to remove EasyTone In-Store Promotional Material in relation to the 28 November 2011 Claim to ensure such directions had been carried out, and otherwise did not have any procedures to ensure that such in-store material had been removed following the FTC Settlement.

152    The steps taken by Reebok Australia to comply with the ACL were not sufficient to prevent contraventions of the ACL. Reebok Australia was complacent with regard to its compliance with the ACL, in relation to both the EasyTone In-Store Promotional Material and EasyTone Shoe Box Promotional Material but especially more so in relation to the shoe box promotional material, as it continued to sell the shoes using that material in significant volumes, did not take any action to remove that material until some 14 months after the FTC Settlement and did not even consider that the shoe box promotional material was advertising.

153    Reebok Australia now acknowledges that:

(a)    it should have taken prompt and effective action to cause, and confirm, the removal of the in-store promotional material;

(b)    the shoe boxes displayed and contained material that constituted advertising material;

(c)    it should have known at the time of selling the EasyTone shoes that the shoe boxes displayed and contained material that constituted advertising material; and

(d)    it should not have sold the EasyTone shoes with the EasyTone Shoe Box Promotional Material.

154    The parties agree that the admitted contraventions occurred as a result of those failures and that complacency.

Co-operation and contrition / discount

155    Following notification of the ACCC's investigation in August 2012, Reebok Australia co-operated with the ACCC by providing the information and documentation sought by the ACCC and voluntarily over-stickering the EasyTone Shoe Box Promotional Material between December 2012 and February 2013. However, during the investigation and following commencement of the proceedings, Reebok Australia continued to deny any wrongdoing up until May 2014.

156    Since May 2014, Reebok Australia has co-operated with the ACCC in admitting the contraventions and agreeing to these facts and the remedies and penalties proposed in the joint submissions, and negotiating a statement of agreement facts, proposed orders and the joint submissions to seek by consent to finalise these proceedings. This is a mitigating factor in favour of Reebok Australia. Reebok Australia's cooperation has avoided the need for any further interlocutory steps and a contested hearing in the matter, which would have consumed time and resources of the Court and the ACCC.

157    Additionally, of significance is the fact that the cooperation of Reebok Australia has meant that affected consumers have not had to attend Court to give evidence and submit to cross-examination.

158    The proposed penalties include a discount for voluntary acknowledgement of liability and co-operation. Had Reebok Australia not cooperated and had liability been established following a contested trial, the ACCC would have sought significantly higher penalties.

Identifying the penalties for particular courses of conduct and contraventions

159    For penalty purposes, the contraventions of s 29(1)(g) and s 33 ACL for EasyTone Shoe Box Promotional Material, and EasyTone In-Store Promotional Material respectively, are so interrelated and overlapping, and occurred over the same time period and through the same mediums, that it is appropriate for the Court to exercise its discretion to group Reebok Australia's contraventions of these sections of the ACL into one course of conduct. The effect of all the conduct was to lead the consumer to believe that the EasyTone shoes had added attributes when compared with traditional walking shoes.

160    As the passage from Cahill makes clear, using this tool of analysis to group contraventions does not convert the maximum penalty for one contravention into the maximum penalty for the course of conduct as a whole. Nonetheless, the statutory maximum of $1.1 million for each separate contravention operates as a guide to the seriousness with which Parliament regards wrongdoing of that kind.

161    Having regard to all of the factors discussed above, the parties submit that a penalty of:

(a)    $280,000 for conduct in relation to the EasyTone Shoe Box Promotional Material in the shoe box misleading conduct period would be one of appropriate deterrent value; and

(b)    $70,000 for conduct in relation to the EasyTone In-Store Promotional Material in the Misleading Conduct Period would be one of appropriate deterrent value.

162    Such a penalty involves a significant mark of disapproval for the associated wrongdoing. It also makes appropriate allowance for the mitigating features discussed above.

Deterrence

163    It is necessary for the penalty to be of a sufficient magnitude for general deterrence in the health and wellness industry, which is a significant and growing industry in Australia and in industries promoting toning technology, which continues to gain popularity in Australia.

164    It is also necessary for the penalty to be of a sufficient magnitude for specific deterrence, that is, the penalty for Reebok Australia needs to be set sufficiently high to deter repetition. The parties submit that the proposed penalties, together with the other proposed orders, do so.

165    The proposed approach to penalties outlined above amply accommodates the overlap between the various instances of wrongdoing. The total amount of $350,000 does not exceed what is proper having regard to the wrongdoing as a whole. Accordingly, the penalties already being just and appropriate, there is no need for any modification to the penalty for totality reasons.

Conclusion as to the appropriate penalty

166    In all these circumstances, taking into account the factors relevant to setting a penalty of appropriate deterrent value as well as applying the totality principle, the parties submit that the total pecuniary penalties for Reebok Australia of $350,000 is appropriate and within the permissible range for the contraventions admitted.

167    I accept this submission and note that a factor of particular significance, in my view, in setting the appropriate penalty figure is the inadequacy of the response, in all the circumstances, by Reebok Australia to the settlement with the FTC.

Non punitive relief for non party consumers

168    Section 239(1) ACL provides for the making of orders to redress loss or damage suffered by non-party consumers.

169    The agreed facts show that there is a class of non-party consumers that may have suffered loss as a result of Reebok Australia's conduct. This class consists of consumers who would have not purchased the EasyTone shoes had Reebok Australia not made the representations on the EasyTone Shoe Box Promotional Material or EasyTone In-Store Promotional Material.

170    The parties submit that the orders requiring Reebok Australia to pay, within four months of the date of the order, the sum of $35 per pair of EasyTone shoes to each consumer who proves the purchase of those shoes from an authorised retailer of Reebok Australia during the period September 2011 to February 2013 and claims to have suffered loss or damage in relation to the Reebok's conduct, is appropriate in the circumstances. I accept this submission.

Non punitive relief orders under s 246 ACL

Compliance program

171    Section 246(2)(b)(i) ACL provides for the making of orders for the establishment of a compliance program.

172    The orders require Reebok Australia to establish and maintain a compliance program that is designed to minimise the risk of Reebok Australia engaging in conduct which contravenes s 18, s 29 or s 33 ACL.

173    The parties submit that the proposed orders in relation to a compliance program are appropriate to the circumstances of Reebok Australia and the industry in which it does business.

Publication orders

174    Section 246(2)(d) ACL provides for the publication of corrective advertising. The parties agree that Reebok Australia should publish notices in newspapers and on Reebok Australia's website.

175    The proposed notifications serve to alert affected consumers to the contravening conduct and to educate the industry as to the requirements of the ACL. They will alert consumers to the fact of contraventions and the possibility of remedy. I accept that this level of notification is appropriate because Reebok Australia relies on promotional material on and inside its shoe boxes and promotional material in retailers' stores to sell its sports footwear. They also support the primary orders and prevent repetition. More broadly, the proposed advertisements will raise public awareness (including by other wholesalers of sports shoes, who rely on credence claims) of conduct that breaches the ACL.

176    In Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 3) (2010) 276 ALR 102, the court ordered online corrective advertising and letters be sent to customers. The parties submit that it is appropriate to also order the publication of the appropriate notice in a widely circulating newspaper. In Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855, the court ordered a notice be published on the respondent's website.

COSTS

177    Reebok Australia has agreed to pay $45,000 towards the ACCC's costs of and incidental to the proceedings and, together with the penalty of $350,000, has agreed to pay those amounts within 60 days of the Court's order.

178    I am satisfied that the Court’s discretion ought be exercised in the manner agreed between the parties.

conclusion

179    For the foregoing reasons and with the benefit of joint submissions from the parties, I am satisfied with the orders proposed by the parties. The following orders are made:

THE COURT DECLARES THAT:

EasyTone shoe box promotional material

1.    The Respondent (Reebok Australia), between September 2011 and February 2013 by supplying to retailers for sale to consumers “EasyTone” shoes in shoe boxes bearing stickers and containing swing tags, information cards and/or information booklets, with words to the effect that EasyTone shoes:

1.1.    are designed to tone and strengthen key leg and butt muscles while you walk;

1.2.    help tone your hard-earned leg muscles using air pockets to create resistance;

1.3.    help tone your key leg muscles by balance pods built-in under the heel and forefoot of the shoes which are designed to create natural instability with every step which forces your muscles to adapt and encourages toning;

represented to consumers that wearing EasyTone shoes would result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

1.4.    it was a fact that wearing EasyTone shoes would not result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

1.5.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

1.6.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (ACL);

1.7.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

1.8.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

14.    Reebok Australia, between September 2011 and February 2013 by supplying to retailers for sale to consumers “EasyTone” shoes in shoe boxes bearing stickers and containing swing tags, information cards and/or information booklets, with words to the effect that EasyTone shoes:

2.1.    are designed to tone and strengthen key leg and butt muscles while you walk;

2.2.    contain balance ball-inspired technology with moving air which creates micro-instability and is designed to tone and strengthen key leg and butt muscles with every step;

represented to consumers that wearing EasyTone shoes would result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

2.3.    it was a fact that wearing EasyTone shoes would not result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

2.4.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

2.5.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

2.6.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

2.7.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

15.    Reebok Australia, between September 2011 and February 2013 by supplying to retailers for sale to consumers “EasyTone” shoes in shoe boxes bearing stickers and containing swing tags, information cards and/or information booklets, which included the following characteristics:

3.1.    an image of a pair of legs with radiating rings over the gluteus maximus, thighs and calves with the words “28% glutes, 11% thighs, 11% calves” next to the corresponding parts of the body;

3.2.    an image of a pair of legs with radiating rings over the gluteus maximus, thighs and calves;

3.3.    an image of a pair of legs with radiating rings over the gluteus maximus, hamstrings and calves with the words “Benefits. Increases muscle activation up to* 28%, 11%, 11%” next to the corresponding parts of the body and under the picture the statements “*28% Gluteus Maximus, 11% Hamstrings and 11% Calves. Based on tests comparing EasyTone Go Outside to a typical foam based walking shoe:

represented to consumers that wearing EasyTone shoes would result in an increase in the toning and/or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, respectively 28%, 11% and 11% compared to that which would result from wearing a traditional walking shoe, when:

3.4.    it was a fact that wearing EasyTone shoes would not result in an increase in the toning or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, the specific percentage amounts represented compared to that which would result from wearing a traditional walking shoe; and

3.5.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

3.6.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

3.7.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

3.8.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

EasyTone in-store promotional material

16.    Reebok Australia, between September 2011 and approximately December 2012 by permitting continued in-store use of promotional material Reebok Australia had supplied to retailers being EasyTone floor mats, EasyTone posters and EasyTone footwear towers with words to the effect that EasyTone shoes:

4.1.    tone and strengthens key leg muscles;

4.2.    help tone your butt and legs with every step;

4.3.    via moving air balance pods help tone and strengthen key leg muscles with every step;

represented to consumers that wearing EasyTone shoes would result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

4.4.    it was a fact that wearing EasyTone shoes would not result in an increase in the muscle tone of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

4.5.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

4.6.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

4.7.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

4.8.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

17.    Reebok Australia, between September 2011 and approximately December 2012 by permitting continued in-store use of promotional material Reebok Australia had supplied to retailers being EasyTone floor mats and EasyTone footwear towers with words to the effect that EasyTone shoes:

5.1.    tone and strengthen key leg muscles;

5.2.    via moving air balance pods help tone and strengthen key leg muscles with every step;

represented to consumers that wearing EasyTone shoes would result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than any increase which would result from wearing a traditional walking shoe, when:

5.3.    it was a fact that wearing EasyTone shoes would not result in an increase in the strength of the wearer’s buttocks, thighs/hamstrings and calves greater than that which would result from wearing a traditional walking shoe; and

5.4.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

5.5.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

5.6.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

5.7.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

18.    Reebok Australia, between September 2011 and approximately December 2012 by permitting continued in-store use of promotional materials Reebok Australia had supplied to retailers being EasyTone floor mats and EasyTone posters which included the following characteristics:

6.1.    words to the effect that moving air balance pods help tone and strengthen key leg muscles with every step. By how much? 28% butt 11% thighs 11% calves;

6.2.    lines marked on a picture of a woman at the place of the gluteus maximus, thighs and calves with the words “up to 28% up to 11% up to 11%” next to the corresponding parts of the body;

represented to consumers that wearing EasyTone shoes would result in an increase in the toning and/or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, respectively 28%, 11% and 11% compared to that which would result from wearing a traditional walking shoe, when:

6.3.    it was a fact that wearing EasyTone shoes would not result in an increase in the toning or strengthening of the wearer’s buttocks, thighs/hamstrings and calves by, or up to, the specific percentage amounts represented compared to that which would result from wearing a traditional walking shoe; and

6.4.    Reebok Australia had no reasonable grounds for making the representations;

and thereby Reebok Australia in trade or commerce:

6.5.    engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 18 of the ACL;

6.6.    in connection with the supply of goods, or in connection with the promotion of the supply or use of goods, made a false or misleading representation that EasyTone shoes had performance characteristics, benefits or uses which they did not have in contravention of section 29(1)(g) of the ACL; and

6.7.    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for their purpose of EasyTone shoes in contravention of section 33 of the ACL.

THE COURT ORDERS THAT:

Pecuniary Penalties

19.    Reebok Australia pay to the Commonwealth of Australia a total pecuniary penalty of $350,000 in respect of the acts or omissions relating to Reebok Australia’s contraventions of ss 29(1)(g) and 33 of the ACL within 60 days.

BY CONSENT, THE COURT ORDERS THAT:

Injunctions

20.    Reebok Australia be restrained for a period of three years from the date of these orders, whether by itself or its servants or agents or otherwise howsoever, in trade or commerce in Australia, from supplying footwear to retailers with any words, images or pictures that state or convey that use of the footwear offered for sale will improve toning and/or strengthening beyond any improvement which may result from using a traditional footwear of that kind unless Reebok Australia has first obtained written evidence from an expert substantiating that there is a sound scientific basis for making such statements.

Non-punitive Orders

Compliance Program

21.    Reebok Australia will at its own expense:

9.1.    establish, within three months of the date of this order, a Competition and Consumer Law Compliance Program (Compliance Program) which meets the requirements set out in Annexure A and maintain the Compliance Program for 3 years from the date on which it is established; or

9.2.    if it already maintains an existing Compliance Program:

9.2.1.    within 3 months of the date of this order, review the existing Compliance Program and make any amendments necessary to ensure that it meets the requirements set out in Annexure A; and

9.2.2.    maintain this program for at least 3 years from the date on which the amendments referred to in paragraph 9.2.1 are made.

Corrective Advertising

22.    Reebok Australia will:

10.1.    within 28 days of the date of order take all reasonable steps to cause to be published, at its own expense, a corrective notice in the Saturday edition of The Australian newspaper, which is in the form and terms of Annexure B (Newspaper Notice), and take reasonable steps to ensure that the notice:

10.1.1.    is placed within the first 10 pages of the newspaper;

10.1.2.    is at least 28 centimetres by 5 columns in size and / or of a size no less than one quarter of a page in the newspaper;

10.1.3.    has a banner font of sans serif 12 point bold;

10.1.4.    has a headline font of 12 point bold;

10.1.5.    has a body text font of no less than 11 point;

10.1.6.    has the Applicant’s (ACCC) and Commonwealth logos of at least 25 millimetres in height and centred;

10.1.7.    has a baseline text of at least 8 point and centred;

10.2.    within 28 days of the date of order, publish or cause to be published a corrective notice in the form and terms of Annexure B, on its website www.reebok.com/en-au/ (Website Notice), and use all reasonable steps to ensure that the notice:

10.2.1.    is accessible by a prominent one-click link displayed in the top third of the homepage of Reebok Australia’s website entitled “Corrective Notice - Breaches of the Australian Consumer Law” and satisfies the following specifications:

10.2.1.1.    the words “CORRECTIVE NOTICE - BREACHES OF THE AUSTRALIAN CONSUMER LAW” are to be in uppercase, 18 point, bold, black, sans serif font on a white background, centred and in a black bordered box;

10.2.1.2.    the words “Click here for further information” are to be 14 point, black, sans serif font on a white background and centred below the words “CORRECTIVE NOTICE - BREACHES OF THE AUSTRALIAN CONSUMER LAW” in the same bordered box;

10.2.1.3.    the bordered box is to be at least 255 pixels wide by 60 pixels high; and

10.2.1.4.    the bordered box and its contents, including white space, is to operate in the form of a one-click hyperlink to the website notice; and

10.2.2.    is to be substantially the same as the notice in Annexure B, including font and formatting, and:

10.2.2.1.    has a headline font of no less than 12 point, bold, black, sans serif font on a white background;

10.2.2.2.    has a body text font of no less than 12 point, bold, black, sans serif font on a white background;

10.2.2.3.    is of at least 540 pixels wide by 500 pixels high;

10.2.2.4.    has a black border that is 3 pixels wide;

10.2.2.5.    Reebok Australia’s, ACCC’s and Commonwealth logos are to be in colour, centred, and at least 25 millimetres high;

10.2.2.6.    is to be displayed on a stand-alone webpage that is coded in standard “HTML” format; and

10.2.2.7.    is not displayed as a “pop-up” or “pop-under” window; and

10.2.2.8.    is maintained for a period of no less than 90 days from the date of order.

Non-party Consumer Redress

23.    Reebok Australia will at its own expense:

11.1.    within 14 days of the date of this order and prior to the publication of the Newspaper Notice and Website Notice:

11.1.1.    establish an email address by which consumers who are responding to the Newspaper Notice or Website Notice can contact Reebok Australia;

11.1.2.    establish a 1800 telephone number by which consumers who are responding to the Newspaper Notice or Website Notice can contact Reebok Australia; and

11.1.3.    appoint a representative or representatives of Reebok Australia (Contact Officer) to deal with any correspondence received by Reebok Australia in response to the Newspaper Notice or Website Notice;

11.2.    maintain the email address, telephone number and Contact Officer for a period that is not less than 150 days from the date of the date of this order; and

11.3.    for each consumer who contacts Reebok Australia within four months of the date of publication of the Newspaper Notice or Website Notice and in response to the Newspaper Notice or Website Notice claims to have suffered loss or damage due to Reebok Australia’s contraventions:

11.3.1.    assess whether the consumer has provided sufficient proof of purchase of EasyTone shoes from an authorised retailer of Reebok Australia during the period September 2011 and February 2013, such assessment to be made within 14 days of the claim; and

11.3.2.    if it is determined that the consumer has a valid claim pursuant to paragraph 11.3.1 above, pay to the consumer $35 for each pair of EasyTone shoes purchased, such payment to be made within 14 days of the date of determination of a valid claim

(Consumer Redress Process).

24.    Reebok Australia will at its own expense:

12.1.    within 180 days of the date of this order, cause a review of the Consumer Redress Process to take place (Consumer Redress Process Review);

12.2.    ensure that the Consumer Redress Process Review is conducted with access to all relevant sources of information in Reebok Australia’s possession or control, including without limitation Reebok Australia’s records of the communications with customers who have responded to the Newspaper Notice or Website Notice;

12.3.    ensure that the findings of the Consumer Redress Process Review are set out in a report to be provided to the ACCC (Consumer Redress Process Review Report), which will provide particular and specific information regarding the scope of the Consumer Redress Process Review and, at a minimum, report on the following:

12.3.1.    the number of consumers who contacted Reebok Australia through the Consumer Redress Process;

12.3.2.    the number of consumers who are given redress; and

12.3.3.    the number of consumers who were denied redress and reasons why any such consumers were denied redress; and

12.4.    Reebok Australia will cause the Consumer Redress Process Review Report to be provided to the ACCC on a confidential basis within 14 days of completion of the Consumer Redress Process Review.

Costs

25.    Reebok Australia pay to the ACCC a contribution towards its costs of, and incidental to, these proceedings in the amount of $45,000 within 60 days.

Associate:

Dated:    17 February 2015

Annexure A

Requirements for Competition and Consumer Law Compliance Program

Reebok Australia Pty Ltd (Reebok Australia) will establish a Competition and Consumer Law Compliance Program directed to compliance with sections 18, 29(1)(g) and 33 of the Australian Consumer Law, being Schedule 2 of the Competition and Consumer Act 2010 (ACL)(Compliance Program) that complies with each of the following requirements:

Appointments

1.    Within 1 month of the date of the Order of the Court (Court Order) coming into effect, Reebok Australia will appoint a Director or a Senior Manager with suitable qualifications or experience in corporate compliance as Compliance Officer with responsibility for ensuring the Compliance Program is effectively designed, implemented and maintained.

1.    Within 2 months of the date of the Court order coming into effect, Reebok Australia shall appoint a qualified, internal or external, compliance professional with expertise in trade practices issues (Compliance Advisor). Reebok Australia shall instruct the Compliance Adviser to conduct a Competition and Consumer Act risk assessment (Risk Assessment) in accordance with paragraphs 2.1 – 2.4 below:

1.1.    identify the areas where Reebok Australia is at risk of breaching sections 18, 29(1)(g) and 33 of the ACL;

1.2.    assess the likelihood of these risks occurring and the consequences of the risks to the business operations of Reebok Australia should they occur;

1.3.    identify where there may be gaps in Reebok Australia’s existing procedures for managing these risks; and

1.4.    provide recommendations for action having regard to the assessment.

Compliance Policy

2.    Reebok Australia will, within 1 month of the Court order coming into effect, issue a policy statement outlining Reebok Australia’s commitment to trade practices compliance (Compliance Policy). Reebok Australia will ensure that the Compliance Policy:

1.5.    is written in plain language;

1.6.    contains a statement of commitment to compliance with the Competition and Consumer Act 2010;

1.7.    contains a strategic outline of how commitment to trade practices compliance will be realised within Reebok Australia;

1.8.    contains a requirement for all staff to report any Compliance Program related issues and trade practices compliance concerns to the Compliance Officer;

1.9.    contains a guarantee that whistleblowers will not be prosecuted or disadvantaged in any way and that their reports will be kept confidential and secure; and

1.10.    contains a clear statement that Reebok Australia will take action internally against any persons who are knowingly or recklessly concerned in a contravention of the Competition and Consumer Act 2010 and will not indemnify them.

Complaints Handling System

3.    Reebok Australia will ensure that the Compliance Program includes a trade practices complaints handling system. Reebok Australia shall use its best endeavours to ensure this system is consistent with AS/ISO 10002:2006 Customer satisfaction - Guidelines for complaints handling in organizations, though tailored to Reebok Australia’s circumstances. Reebok Australia will ensure that staff and customers are made aware of the complaints handling system.

4.    Reebok Australia will ensure that the Compliance Program includes whistleblower protection mechanisms to protect those coming forward with trade practices complaints. Reebok Australia shall use its best endeavours to ensure that these mechanisms are consistent with Australian Standard 8004, though tailored to Reebok Australia’s circumstances.

Reports to Board/Senior Management

5.    Reebok Australia will ensure that the Compliance Officer reports to the Board and/or senior management meetings every 12 months on the continuing effectiveness of the Compliance Program.

Training

6.    Reebok Australia will ensure that the Compliance Program provides for regular (at least once a year) and practical training for all directors, officers, employees, representatives and agents of Reebok Australia, whose duties could result in them being concerned with conduct that may contravene sections 18, 29(1)(g) and 33 of the ACL. Reebok Australia must ensure that the training is conducted by a suitably qualified compliance professional or legal practitioner with expertise in trade practices law.

7.    Reebok Australia will ensure that the Compliance Program includes a requirement that awareness of trade practices compliance issues forms part of the induction of all new directors, officers, employees, representatives and agents, whose duties could result in them being concerned with conduct that may contravene sections 18, 29(1)(g) and 33 of the ACL.

Supply of Compliance Program Documents to the ACCC

8.    Reebok Australia shall, at its own expense, within 3 months of the date of the Court order coming into effect, cause to be produced and provided to the ACCC copies of each of the documents constituting the Compliance Program and implement promptly and with due diligence any recommendations that the ACCC may make that are reasonably necessary to ensure that Reebok Australia maintains and continues to implement the Compliance Program in accordance with the requirements of the Court order.    

Review

9.    Reebok Australia shall, at its own expense, cause annual Reviews of the Compliance Program (Reviews) to be carried out in accordance with each of the following requirements:

1.11.    Scope of the Reviews – the Reviews should be broad and rigorous enough to provide Reebok Australia and the ACCC with a supportable verification that Reebok Australia has in place a program that complies with each of the requirements detailed in paragraphs 1 – 9 above and to provide the Review reports and opinions detailed at paragraph 11 below;

1.12.    Independence of Reviewer – Reebok Australia shall ensure that the Reviews are carried out by a suitably qualified, independent compliance professional with expertise in trade practices law (Reviewer). The Reviewer will qualify as independent on the basis that he or she:

1.12.1.    did not design or implement the Compliance Program;

1.12.2.    is not a present or past staff member or director of Reebok Australia;

1.12.3.    has not acted and does not act for Reebok Australia in any trade practices related matters;

1.12.4.    has not and does not act for or consult to Reebok Australia or provide other services on trade practices related matters other than Compliance Program reviewing; and

1.12.5.    has no significant shareholding or other interests in Reebok Australia.

1.13.    Evidence – Reebok Australia shall use its best endeavours to ensure that the Reviews are conducted on the basis that the Reviewer has access to all relevant sources of information in Reebok Australia’s possession or control, including without limitation:

1.13.1.    enquiries of any officers, employees, representatives, agents and stakeholders of Reebok Australia;

1.13.2.    Reebok Australia’s records, including Reebok Australia’s complaints register/reports and any documents relevant to Reebok Australia’s training or induction program; and

1.13.3.    documents created by Reebok Australia’s consultants and legal practitioners for use in Reebok Australia’s Compliance Program.

1.14.    Reebok Australia shall ensure that the first Review is completed within one year and one month of the Court order coming into effect and that each subsequent Review is completed within one year thereafter.

Reporting

10.    Reebok Australia shall use its best endeavours to ensure the Reviewer sets out the findings of the Review in two separate reports as set out below:

Company Compliance Program Review Report (to be provided to Reebok Australia)

1.15.    Reebok Australia’s Company Compliance Program Review Report will provide particular and specific information regarding the performance of the Compliance Program to the corporation including:

1.15.1.    if, and to what extent, the Compliance Program of Reebok Australia includes all the elements detailed in paragraphs 1-10 above;

1.15.2.    if, and to what extent, the Compliance Program adequately covers the parties and areas identified in the initial Risk Assessment;

1.15.3.    if, and to what extent, the trade practices training is effective;

1.15.4.    if, and to what extent, Reebok Australia’s complaints handling system is effective;

1.15.5.    if, and to what extent, Reebok Australia is able to provide confidentiality and security to whistleblowers, and staff are aware of the whistleblower protection mechanisms; and

1.15.6.    recommendations for rectifying deficiencies in paragraphs 11.1.1-11.1.5 above that the Reviewer thinks are reasonable necessary to ensure that Reebok Australia maintains and continues to implement the Compliance Program in accordance with the requirements of the Court order.

ACCC Compliance Program Review Report (to be provided to ACCC)

1.16.    The ACCC Compliance Program Review Report will provide particular and specific information regarding the scope of the Review and the effectiveness of the Compliance Program including:

1.16.1.    details of the evidence gathered and examined during the Review;

1.16.2.    the name and relevant experience of the person appointed as the company Compliance Officer;

1.16.3.    the Reviewer’s opinion on whether Reebok Australia has in place a Compliance Program that complies with the requirements detailed in paragraphs 1-10 above;

1.16.4.    actions recommended by the Reviewer to ensure the continuing effectiveness of Reebok Australia’s Compliance Program;

1.16.5.    confirmation that any actual and potential inadequacies in Reebok Australia’s Compliance Program have been brought to the attention of the Compliance Officer and the Board;

1.16.6.    confirmation that the Reviewer has revisited any actual and potential inadequacies in Reebok Australia’s Compliance Program identified in any previous Company Compliance Program Review Report, and assessed how they have been addressed by Reebok Australia;

1.16.7.    any reservations that the Reviewer might have about the reliability and completeness of the information to which the Reviewer had access in the conduct and reporting of the Review; and

1.16.8.    any comments or qualifications concerning the Review process that the Reviewer, in his or her professional opinion, considers necessary.

1.17.    Reebok Australia will ensure that the Review Reports are completed and provided to Reebok Australia within two months of each Review.

1.18.    Reebok Australia will retain the Company Compliance Program Review Report and cause the ACCC Compliance Program Review Report to be provided to the ACCC within 14 days of its receipt from the Reviewer.

1.19.    Reebok Australia acknowledges that a brief statement regarding the ACCC Compliance Program Review Report may be included in the ACCC’s 87B public register.

11.    Recommendations – Reebok Australia shall implement promptly and with due diligence any recommendations made by the Reviewer or required by the ACCC that are reasonably necessary to ensure that Reebok Australia maintains and continues to implement the Compliance Program in accordance with the requirements of the Court order.

12.    If requested by the ACCC Reebok Australia shall, at its own expense, provide copies of documents and information in respect of matters which are the subject of the Compliance Program.

13.    In the event the ACCC has sufficient reason to suspect that the Compliance Program is not being implemented effectively, Reebok Australia shall, at its own expense and if requested by the ACCC, cause an interim or additional Review to be conducted and cause the resulting ACCC Review Report to be provided to the ACCC.

Annexure B