Australian Competition and Consumer Commission v FitBit LLC [2023] FCA 1535

Introduction

In this case, the Federal Court of Australia (the Court) declared that FitBit LLC (FitBit) had breached the Australian Consumer Law (the ACL), found in Schedule 2 of the Competition and Consumer Act 2010 (Cth), by falsely representing consumer rights and guarantees relating to refunds and replacements of FitBit products to 58 Australian customers. The Court found that FitBit had contravened the ACL’s prohibitions on misleading or deceptive conduct in trade or commerce and made false or misleading representations as to the existence of any condition, warranty, guarantee, right or remedy in trade or commerce. The false or misleading representations made by FitBit’s customer service representatives to these customers were specifically that 18 of them did not have a right to a refund unless their FitBit products were returned within 45 days from the date of purchase (the Category A contraventions), and that 40 of them did not have a right to a replacement product because FitBit’s two-year warranty period had expired (the Category B contraventions).

As ultimately agreed by the parties, the Court ordered FitBit to pay the Commonwealth $11 million for its contravention of the ACL’s prohibition on making false or misleading representations in trade or commerce; to make a $200,000 contribution to the ACCC’s legal costs; and to appoint, at its own expense, an independent expert to review its relevant compliance program, implement any such recommendations and to provide the ACCC with written verification that its obligations relating to the expert’s role had been carried out.

History of proceedings

FitBit is an international consumer electronics and fitness company that develops, manufactures and sells health and fitness devices and software, such as wearable fitness trackers and smart watches, including to customers in Australia. The ACCC commenced proceedings against FitBit and sought relief from the Court including, declaratory relief, the payment of a penalty and non-punitive orders that required FitBit to take certain steps in relation to its programs concerning compliance with the ACL. Initially, FitBit defended the allegations, however, it later admitted to contravening the ACL as alleged by the ACCC. Therefore, the ACCC and FitBit jointly proposed and submitted that the Court should make declarations concerning FitBit’s contraventions, order FitBit to pay a pecuniary penalty of $11 million and make orders which required FitBit to appoint an independent expert to review its relevant compliance program and implement any recommendations made by that expert. FitBit and the ACCC also relied on a Statement of Agreed Facts filed on 31 July 2023 and a Statement of Agreed Facts and Admissions filed on 8 December 2023 (together the Joint Statements).

Agreed facts

In the Joint Statements, FitBit’s contraventions of the ACL were grouped into two categories. Category A contraventions occurred from approximately 10 May 2020 to 22 February 2022, where 18 Australian consumers contacted FitBit to complain about a problem they claimed to be experiencing with a FitBit product. A FitBit customer service representative told each that they did not have any right to a refund unless the relevant product was returned within FitBit’s own return policy period of 45 days from the date of purchase and/or shipment (the return period). These representations were false or misleading, and constituted misleading or deceptive conduct, or conduct which was likely to mislead or deceive, because the expiration of the return period could not, in and of itself, preclude a consumer’s right to a remedy under the consumer guarantee regime established by the ACL.

The Category B contraventions occurred from approximately 20 November 2020 to 14 February 2022, where 40 Australian consumers also contacted FitBit to complain about a problem they claimed to be experiencing with a FitBit product. A FitBit customer service representative told each consumer that they did not have any right to a replacement product because the applicable warranty period had expired. These representations were false or misleading and constituted misleading or deceptive conduct, or conduct which was likely to mislead or deceive, because the fact that FitBit’s own limited warranty period had expired could not, in and of itself, exclude a consumer’s right to a remedy under the consumer guarantee regime established by the ACL. Therefore, on each occasion that FitBit’s representative made the false or misleading representations to these 58 Australian consumers, FitBit contravened sections 18(1) and 29(1)(m) of the ACL.

It was also noted in the Joint Statements that senior management of FitBit were not directly involved in the contravening conduct. The contraventions were also not deliberate, in the sense that they were not the product of any deliberate disregard of the ACL, but were rather the result of a lack of focus or inadequate training of the FitBit customer service representatives who had engaged with the 58 consumers.

Law

In relation to prohibited conduct under the ACL, section 18 provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Additionally, section 29(1)(m) provides that 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 make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy. The ACL also provides various guarantees for consumers. Relevantly in this case are sections 54 and 55 of the ACL which set out the guarantees that goods are of acceptable quality and that they are reasonably fit for any disclosed purpose, and for which the supplier represents that they are reasonably fit. Furthermore, sections 64 and 276 prohibit the exclusion, restriction or modification of the availability of the consumer guarantees, such as those in sections 54 and 55, or of a consumer’s entitlement to exercise the rights to a remedy for goods that do not comply with the consumer guarantees.

If satisfied that a person has contravened a relevant provision of the ACL, section 224(2) of the ACL sets out the matters the Court must consider relating to a penalty order to be paid to the Commonwealth, which include: the nature and extent of the act or omission and of any loss or damage suffered due to the act or omission; the circumstances in which the act or omission took place; and whether the person has previously been found by a court in proceedings under Chapter 4 or Part 5.2 of the ACL to have engaged in any similar conduct.

Common law precedent has established additional factors for a court to consider in this penalty determination, which the Court in this matter agreed included the size and financial position of the corporation; whether the corporation has a corporate culture conducive to compliance with the relevant Act; whether the contravener has engaged in similar conduct in the past; and whether the contravener has demonstrated contrition and co-operated with the relevant authorities.

Under sections 224(3) and 224(3A) of the ACL, the 58 contraventions alleged to have been committed by FitBit attracted a total penalty of $580 million, being a $10 million maximum penalty per contravention. This was established on the basis that section 224(3A)(a), which stated $10 million as the maximum penalty amount per contravention of the relevant provisions of the ACL in this case, was the applicable provision to use.

Issues

The issue in this case was whether the Court agreed with the jointly sought penalty and reliefs.

Consideration

The Joint Statements included agreed facts relevant to the assessment of the appropriate penalty. In short, it was agreed that FitBit had not previously been found by a court to have engaged in any conduct breaching the ACL; FitBit is a very large global company based in the United States, having access to substantial financial resources; FitBit had a relevant compliance program in place at the time of the contraventions and accepted that continuing compliance measures were required; FitBit cooperated with the ACCC by voluntarily providing some information and documents prior to these proceedings commencing as well as agreeing to Joint Statements; and the maximum penalty for each contravention should be $10 million in line with section 224(3A)(a) of the ACL.

The Court noted that an appropriate penalty is to be one that strikes an appropriate balance between oppressive severity and the need for deterrence in the particular case. In considering this aspect, the Court noted, in line with the agreed facts, that the assessment of this penalty must take into account FitBit’s substantial size and financial resources as well as the fact that the ACL should be “front of mind” to the FitBit company. As jointly submitted, the agreed penalty was not disproportionate having regard to the theoretical maximum penalty of $580 million, and $11 million was agreed to be sufficient to deter FitBit and “send a strong message to other suppliers of products to Australian consumers”.

Findings

The Court agreed that the jointly agreed penalty of $11 million was appropriate in all the circumstances, being $4 million for the Category A contraventions and $7 million for the Category B contraventions; the latter accounting for greater number of consumers affected by that particular conduct. The Court noted that it may not have imposed this exact penalty had it not been jointly agreed to by the parties. However, the Court concluded that this agreed amount fell within the range of penalties that would be reasonable and appropriate having regard to the relevant facts and circumstances, particularly noting that the agreed penalty is adequate and sufficient to serve the objectives of deterrence in this case.

In relation to non-punitive relief, the Court agreed with the parties that it was appropriate for FitBit to be ordered to implement compliance measures pursuant to section 246(2)(b) of the ACL. Therefore, at FitBit’s own expense, it was to:

• appoint a suitably qualified, independent, compliance professional with expertise in consumer law (a Reviewer) to review the efficacy of its compliance program and implementation of its compliance program;
• instruct the Reviewer to prepare a written report with recommendations on any revisions and/or material deficiencies in the above stated matters;
• provide the ACCC with a copy of the Reviewer’s report; and
• implement any recommendations made by the Reviewer.

Compliance Impact

Organisations should review their compliance policies relating to the ACL and ensure that they accurately and practically reflect the requirements of the ACL as it relates to their specific operations, particularly those in relation to consumer rights to refunds, warranties and guarantees. All relevant staff within the organisation should receive appropriate training on prohibitions, consumer rights and consumer guarantees under the ACL to ensure that the organisation’s policies, specifically related to its terms of sale or service, can be correctly implemented by staff. It is important to note that relief and penalties under the ACL are ultimately matters for the Court to determine, regardless of any joint agreements the parties have come to on facts, proposed penalties or relief sought. However, it is generally encouraged that organisations acknowledge contraventions in order to avoid lengthy and complex litigation.

Organisations should also be aware that the maximum penalty amount specified in section 224(3A)(a) of the ACL has been substantially increased since the time of FitBit’s contraventions of the ACL, increasing from $10 million to $50 million. As the Court relied on the Joint Statements in this matter which utilised the figure from this provision in the analysis and eventual order of FitBit’s penalty, organisations should note that the Court may now conclude a higher penalty than that determined in this matter will be appropriate in future cases.