Not just hot air: civil penalties for unlawful advertising of therapeutic products

In late October 2023, the Federal Court of Australia awarded civil penalties against both Vapor Kings Pty Ltd and its sole director for unlawfully advertising nicotine vaping products (NVPs) — known as “vapes” — in breach of the Commonwealth Therapeutic Goods Act 1989 (the TG Act).^[1] Vapor Kings was ordered to pay an unprecedented $4.9 million civil penalty.

The decision is a rare illustration of the assessment of civil penalties for non compliance with therapeutic goods regulations, and a reminder of the willingness of regulators to pursue accessorial liability beyond primary wrongdoers.

Infringement notices for advertising NVPs are not new.  However, this is the first civil penalty order obtained by the Therapeutic Goods Administration (TGA) for advertising NVPs.

The enforcement action by the TGA follows the scheduling of all NVPs as “Schedule 4 medicines (prescription only)” in the Poisons Standard in October 2021 and the Australian Government’s recent commitment to a crackdown on recreational vaping, which we covered previously in this March 2023 Insight.

The current legal status of NVPs in Australia

NVPs have always been unapproved therapeutic goods in Australia — importing, advertising, and selling them has always been unlawful, subject to very limited exceptions.^[2]

However, the Australian Government has been tightening loopholes. On 1 October 2021, the entry for nicotine in Schedule 4 to the Poisons Standard was amended so that it captures all NVPs, including nicotine e-cigarettes, nicotine pods, and liquid nicotine. As a consequence, consumers can no longer import NVPs from overseas suppliers without a prescription. No NVP products have been included in the Australian Register of Therapeutic Goods (ARTG) by the TGA, meaning all NVPs are “unapproved therapeutic goods”. This heavily restricts their supply and prohibits their advertising.

Over $5 million in civil penalties for the Vapor Kings

The TGA commenced proceedings against Vapor Kings Pty Ltd and its sole director for the unlawful advertising of NVPs on 27 July 2022 on two websites it controlled and operated, one with an Australian domain name and a second with a UK domain name.

The proceedings followed warnings being given to both the company and its sole director that the advertising was not compliant with the rules relating to the advertising and promotion of NVPs.

Each day on which a prohibited advertisement remained online was a separate contravention of the TG Act.^[3]  This resulted in a dramatic multiplication of the potential civil penalties.

In relation to the AU Website, the conduct took place between 24 November 2021 and 16 February 2022, being approximately 84 days. In relation to the UK Website, the conduct took place between 16 February 2022 and 15 June 2022, being approximately 119 days (accepting that, at some points, between 3 and 15 June 2022, the UK Website was inaccessible). It involved the advertising of 162 Products.

Secretary, Department of Health and Aged Care v Vapor Kings Pty Ltd [2023] FCA 1297, [35]

Prior to the hearing, Vapor Kings and its sole director settled the claim.   Vapor Kings and its director admitted that:

• the NVPs on the websites were therapeutic goods^[4] that were not registered on the ARTG
• the advertisements for the NVPs referred to nicotine or products containing nicotine, which is listed in Schedule 4 of the Poisons Standard
• the advertising of these NVPs contravened section 42DLB of the TG Act
• the sole director “aided, abetted, counselled or procured” the company’s contraventions of the TG Act

Vapor Kings agreed to a record $4.9 million civil penalty, as well as the making of declarations of non compliance and an injunction to restrain ongoing non compliance. The director agreed to a further civil penalty of $100,000.

Accessorial liability extending the reach of the regulator

The decision is a timely reminder of the TGA and other regulators’ willingness to extend enforcement action beyond the primary (often corporate) wrongdoer.

Under Australian law, accessorial liability may extend to parties who aid, abet, or participate in a primary wrongdoer’s violation of a civil penalty provision. Those who knowingly and actively assist or participate in the prohibited conduct can be individually liable.

Accessorial liability is an increasing risk for online platforms, advertisers, payment processors, and others who may facilitate a third party to contravene therapeutic goods laws and regulations.  The same exposure to accessorial liability may also exist under consumer protection, competition and corporations law. 

We expect the TGA to increasingly rely on accessorial liability to extend the reach of its jurisdiction, particuarly in areas that intersect with the TGA’s enforcement priorities.  

But I don’t sell vapes?

The decision also provides a useful illustration of the principles that apply to the imposition of civil penalties in the context of the TG Act. The following factors will be key to the penalties that are imposed:

The TGA’s decision to commence civil penalty proceedings is reflective of the TGA’s willingness to take strong enforcement action for non-compliance with therapeutic goods regulations, particularly where that action is consistent with its enforcement priorities.