The penalty for a cause marketing misstep: Oscar Wylee update

The market for socially-conscious consumers who are looking to use their buying power ethically and in support of socially responsible causes is growing rapidly. This presents opportunities for businesses to engage with their customers in new ways. However, the Australian Competition and Consumer Commission (ACCC) is well aware and is looking closely at potentially misleading claims and turning to the courts to seek penalties where customers are misled.

This article provides an update on the ACCC’s misleading cause marketing case against eyewear retailer Oscar Wylee (see our early commentary on this case here). Businesses looking to capitalise on socially-conscious consumers and do some good should read Oscar Wylee’s experience as a cautionary tale.

The case and judgment

The ACCC commenced proceedings against Oscar Wylee in December 2019 for misleading or false representations about its charitable donations and affiliations. Oscar Wylee’s advertisements made clear representations, saying ‘Buying a pair today? As soon as you do, we’ll donate a pair to someone in need.’[1]

In the result, Oscar Wylee has been dealt a $3.5million pecuniary penalty for misleading conduct. Noting that Oscar Wylee have not been immune to the impact of COVID-19 on the retail sector, Justice Katzmann, who presided over the trial in the Federal Court of Australia, ordered that the pecuniary penalty be paid in instalments over the course of the next three years.

In addition, Oscar Wylee has suffered some adverse publicity as its attempts at charitable donations and cause marketing initiatives were exposed through the Court’s judgment:

• The company ran a ‘Buy a pair, give a pair’ campaign and issued online and physical marketing materials which said that for each purchase of a pair of glasses by a consumer, Oscar Wylee would donate a pair of glasses to someone in need.
• The ACCC alleged that a mere 3,000 pairs of glasses were donated despite Oscar Wylee having sold over 320,000 pairs of glasses to consumers. In addition, the ACCC argued that a partnership initiative with a Cambodian eye care charity, Rose Charities (Rose), was also, in effect, bogus, the actual association with Rose being limited to a one-off donation of $2,000 and 100 frames.[2]
• Three weeks before the scheduled hearing, the ACCC and Oscar Wylee submitted agreed facts and made joint submissions as to admitted conduct and to proposed court orders. Accordingly, Justice Katzmann of the Federal Court found that Oscar Wylee “…improperly exploited the good nature of consumers to its advantage by contriving to enhance the value of its brand by falsely associating it with altruistic pursuits…” in contravention of sections 18 and 33 of the Australian Consumer Law (ACL), Schedule 2 to the Competition and Consumer Act 2010 (Cth).

The penalties

The Court ordered that Oscar Wylee pay $3.5 million in penalties, which accounts for contraventions in relation to the ‘Buy a pair, give a pair’ campaign, as well as the misrepresented charity association.

Oscar Wylee are also required to contribute to the ACCC’s costs, publish corrective advertising, are under strict instructions to triple-check any partnerships with charitable organisations before advertising them, and must for the next three years undertake an annual review of their compliance with the ACL.

These are significant penalties in the circumstances.

Justice Katzmann paid particular attention in the judgment to the relevant approach to calculating penalties where, in the context of email, social media and website advertising, the contravening representations occurred millions of times. We note the following from her Honour’s judgment:

• In circumstances where contraventions were assessed in the period between 13 January 2014 and 31 December 2018, her Honour commented that, prior to 1 September 2018, the applicable maximum penalty for each act or omission amounting to a contravention was $1.1 million. Thereafter and in the relevant period, the legislation changed and the maximum jumped to $10 million per contravention, or three times the value of the benefit obtained from the contravention, or 10% of the body corporate’s annual turnover.
• Her Honour referred to the totality principle (which requires a Judge imposing a sentence to review the aggregate of multiple contraventions and consider the just and appropriate outcome), and calculated the penalty by grouping the contraventions arising from the ‘Buy a pair, give a pair’ campaign and Rose misrepresentations into four courses of conduct, one for each type of media through which Oscar Wylee contravened the ACL: being social media, direct emails to consumers, its website and physical promotional merchandise.[3]
• The Court held that this course of conduct approach does not mean that that the maximum penalty for a single contravention is converted into the maximum penalty for a course of conduct, “…rather it means that the statutory maximum for a single contravention operates as a guide to Parliament’s assessment of the gravity of this kind of wrongdoing.” It ensures that defendant companies are not punished twice, or multiple times, as in this case, for instances of wrongdoing.[4]

Factors relevant to assessing penalty

Following Reckitt & Colman, her Honour also had regard to the following factors in deciding the final penalty:

• the nature, extent and duration of conduct and the circumstances in which it took place;
• the relevant consumer market and the competitiveness of that market;
• the involvement of senior management;
• whether the defendant company had any sort of compliance/monitoring system in place to guard against the occurrence of conduct of this kind;
• whether the defendant company had previously contravened the ACL; and
• the defendant company’s cooperation with the ACCC’s investigation.

It should be noted that Justice Katzmann went so far as to say that she was troubled “by the fact that Oscar Wylee chose not put on any evidence to explain its behaviour, let alone apologise or identify any measures it may have implemented to guard against a repetition of the contravening conduct.“[5]

A salutary lesson for those using cause marketing

Misleading conduct around causes, particularly to this extent, will not be treated lightly by the ACCC or the courts. Businesses looking to engage in meaningful cause marketing and charitable initiatives should tread carefully and ensure their marketing genuinely reflects the extent of the good the company is doing in supporting a particular cause.

Authored by:

Edward Martin, Partner
Alberta McKenzie, Paralegal

Endnotes

[1] ACCC v Oscar Wylee Pty Ltd [2020] FCA 1340, at [19].

[2] ACCC v Oscar Wylee, at [37].

[3] ACCC v Oscar Wylee, at [67].

[4] ACCC v Oscar Wylee, see discussion at [61]-[75].

[5] ACCC v Oscar Wylee, at [82].