Failure to remove unlawful advertising attracts $12 million penalty

Hogan Lovells
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Hogan Lovells

[co-author: Zachary Forrai]

On 29 July 2021, the Federal Court of Australia (the “Court”) handed down its largest ever pecuniary penalty for serious, sustained and knowing contravention of the Therapeutic Goods Act 1989 (Cth) (“TG Act”). The decision highlights the enforcement capabilities of the Therapeutic Goods Administration (“TGA”) and the willingness of the Court to penalise wrongdoers. Importantly, penalties apply for each day non-compliant material remains on a website. Directors and senior managers may also be liable for any contravening conduct.

Background

In February 2021, following proceedings commenced by the Department of Health in March 2020, the Court found that between March 2019 and March 2020 (“relevant period”) Evolution Supplements Australia Pty Ltd ("Evolution”) and its sole director, Mr Keskin, breached the TG Act for unlawful advertising of various unregistered therapeutic goods, including Selective Androgen Receptor Modulators.[1]

Evolution maintained a website which advertised a total of 97 unregistered therapeutic goods during the relevant period. Additionally, 70 of the advertisements referred to schedule 4 prescription only substances (which are prohibited from being advertised to consumers) and were promoted on its ‘after hours’ website (between 8pm and 4am).

Mr Keskin was, during the period of the contravening advertisements (January 2019 to March 2020), a person responsible for and who took part in the management of Evolution as its sole director. Mr Keskin failed to comply with a direction made by the TGA and failed to cause Evolution to cease advertising therapeutic goods on its website.

On this basis, the Court ordered that Evolution and Mr Keskin be restrained from engaging in consumer advertising for prescription only substances or therapeutic goods that are not entered on the Australian Register of Therapeutic Goods (“ARTG”) for a period of 5 years. Further, the Court ordered Evolution and Mr Keskin pay for the costs of the proceedings.

Determination of the penalty

On 29 July 2021, the Court handed down the penalty for Evolution and Mr Keskin’s contravention of the TG Act. The Court balanced the nature and extent of the contraventions, maximum penalties available under the TG Act and considerations in respect of deterrence of future similar actions.

In particular, the Court considered ten key factors in assessing the appropriate penalty:

  1. the nature of the seriousness of the breaches in the failure to register on the ARTG;
  2. the conduct of Evolution and Mr Keskin severely undermined the operation of the TG Act and controls granted to the TGA therein;
  3. the danger that substances posed to human health and safety, having particular regard to the framework in the Poison Standards;
  4. the contraventions were done purposefully as part of a desired marketing strategy;
  5. the introduction of after hour operations to avoid TGA monitoring having received notification from the TGA to cease operations;
  6. the disregard of requests to address concerns regarding advertising raised by the TGA on numerous occasions;
  7. minimal cooperation by the respondents during the course of proceedings before the Court;
  8. the conduct of Evolution advertising the products for the purpose of advancing its own economic interests, and in doing so prioritised those interests above public safety;
  9. the fact that Evolution and Mr Keskin had not previously engaged in similar conduct; and
  10. that Evolution was subject to a stayed Notice of Proposed Deregistration from the Australian Securities and Investments Commission pending the findings of these proceedings, meaning a deterrence penalty would be of little influence to Evolution.

Ongoing offence provisions

Notably, the TGA submitted that each day on which an advertisement containing the contravening material remained on the website amounted to a separate contravention of the TG Act. Further, the TGA submitted that the number of days for which an advertisement was published should be inferred from the first date on which it appears in the evidence to the last date on which it appears in the evidence. These propositions were accepted by the Court.

However, in doing so, the maximum penalties in this case would exceed a staggering A$137 billion for Evolution (based on 13,103 contraventions) and over A$795 million for Mr Keskin (based on 758 contraventions).

For obvious reasons, a penalty of this magnitude would be of little benefit as neither respondent would be able to comply with the obligations to satisfy the amount owing.

Penalty

Ultimately, the Court ordered:

  • Evolution to pay to the Commonwealth of Australia a pecuniary penalty in the sum of A$11,000,000;
  • Mr Keskin to pay to the Commonwealth of Australia a pecuniary penalty in the sum of A$1,000,000; and
  • Evolution and Mr Keskin to pay the TGA’s costs of the proceedings.

Significance

This case highlights the serious consequences for failing to comply with directions issued by the TGA with respect to non-compliant advertising. Importantly, penalties apply for each day non-compliant material remains on a website. Directors and senior officers should also be mindful of their advertising obligations and respond promptly to any notices issued by the TGA.

[1] Secretary, Department of Health v Evolution Supplements Australia Pty Ltd [2021] FCA 74.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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