A step too far for Fitbit – Refund policies and defect warranties must comply with the ACL even where goods are supplied by foreign suppliers

Foreign companies supplying goods to Australian consumers should not assume that the Australian Consumer Law (ACL),¹ does not apply to them or that the Australian Competition and Consumer Commission (ACCC) will not take action against them because they are based overseas.

In a previous article, we examined the proceedings instituted by the ACCC against Valve Corporation (Valve), a US company, for contraventions of the ACL.² Valve was held to have made false or misleading representations about the existence or exclusion of a guarantee or remedy in breach of section 29(1)(m) of the ACL, and engaged in misleading or deceptive conduct in breach of section 18 of the ACL by representing to consumers that they were not entitled to refunds under any circumstances. The Full Court held the ACL applied to Valve despite its lack of physical presence in Australia and despite the fact that the contract between Valve and its consumers was governed by Washington State law.

More recently, the ACCC announced that it had instituted Federal Court proceedings against US-based Fitbit LLC (Fitbit LLC) for alleged contraventions of the ACL in respect of their refund policies and warranty documents.³ Fitbit LLC, the US manufacturer of health and fitness devices, sells its products online to consumers based in Australia. Fitbit LLC also provides customer support services to Australian consumers and maintains a presence in Australia through a related body corporate, Fitbit (Australia) Pty Ltd (Fitbit Australia).

In 2018, Fitbit Australia was also investigated by the ACCC and ultimately gave the ACCC a court-enforceable undertaking after it acknowledged that representations it made to consumers about its warranties for faulty products may have contravened the ACL (2018 Undertakings). The action taken by the ACCC against Fitbit LLC in the current proceedings do not relate to the 2018 Undertakings given by Fitbit Australia.

What are the alleged misrepresentations made by Fitbit LLC?

The ACCC has alleged that between 10 May 2020 and 22 February 2022, Fitbit LLC misled over 58 Australian consumers about their rights under the ACL. In particular, it made false, misleading or deceptive representations during that period in its terms of sale and warranty documents respectively that:

1. a consumer would not be entitled to a refund in respect of a faulty Fitbit product unless the product was returned within 45 days of purchase and it was purchased directly from the Fitbit website (45 Day Return Period Representation); and/or
2. in its limited product warranty, that where a consumer had been given a replacement device to replace a defective device, the warranty period for the replacement device would be for the longer of thirty (30) days and the remaining period of the original 2-year warranty period which applied in respect of the original defective device that had since been replaced (Limited Warranty Representation).

45 Day Return Period Representation

The ACCC has alleged that requiring consumers to request a refund for a defective product within 45 days is not reasonable.⁴

If a product breaches a consumer guarantee, in this case it was alleged that the products were not of acceptable quality⁵ or fit for purpose,⁶ a consumer is entitled to reject them and at the consumer’s election, obtain a refund⁷ if the failure to comply with a guarantee is a ‘major failure’. A product is deemed to have a ‘major failure’ if:⁸

1. the product would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure;
2. the product departs in one or more significant respects – if they were supplied by description—from that description, or if they were supplied by reference to a sample or demonstration model—from that sample or demonstration model;
3. the product is substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose;
4. the product is unfit for a disclosed purpose that was made known to the supplier of the goods, or a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made, and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or
5. the product is not of acceptable quality because it is unsafe.

If a consumer has a right to reject goods, the consumer must do so within ‘a reasonable period of time’ after the ‘major failure’ becomes ‘apparent’.

A reasonable time depends on the types of consumer goods and the defect. It is the period of time within which it would be reasonable to expect that the failure would become apparent which includes consideration of the type of goods, the use to which a consumer is likely to put them, the length of time for which it is reasonable for them to be used, and the amount of use to which it would be reasonable for them to be put before it becomes apparent that a consumer guarantee has been breached.⁹

The ACCC has alleged that the 45 day timeframe within which to reject a good:

1. is not a reasonable period and as such, amounts to a false or misleading representation (concerning the existence, exclusion or effect of any warranty, condition, guarantee, right or remedy under the ACL), in breach of section 29(1)(m) of the ACL; and
2. constitutes misleading or deceptive conduct under section 18 of the ACL.

Limited Warranty Representation

Fitbit LLC provided 2-year limited warranties with its devices. The ACCC has alleged that Fitbit LLC conveyed to consumers (who had been supplied with a faulty device as a replacement for an original faulty device), that they were not entitled to a second replacement device if Fitbit LLC’s two-year ‘limited warranty period’ for the original device had expired.

Under the ACL, where a replacement product is supplied and fails to comply with the guarantee as to ‘acceptable quality’, a consumer may:

1. in the case of a ‘major failure’ – reject the goods and, obtain a refund or a replacement from the supplier (see our comments on how this applied in the case of the 45 Day Return Representation above); and
2. where the failure is not a major failure, obtain from the supplier of the goods a remedy in the form of repair, replacement or refund at the supplier’s election.

These rights apply regardless of whether any “warranty period” on an original (replaced) device has expired.

The ACCC has alleged that the representations made by Fitbit LLC in relation to the expiration of the warranty period on a replacement device constituted misleading or deceptive conduct under section 18 of the ACL and also constituted a false or misleading representation as to the existence, exclusion or effect of any warranty, right or remedy in breach of section 29(1)(m) of the ACL.

Can customer service representatives’ actions be caught by the ACL?

In addition to the 45 Day Return Period Representation and the Limited Warranty Representation contained in the relevant sale and warranty documents used by Fitbit LLC, the ACCC alleges that Fitbit LLC customer service representatives through the Fitbit Product Complaint Handling Process also made similar false and misleading representations to consumers about their rights. These representatives were either employed or outsourced by Fitbit LLC. According to the ACCC, the representations conveyed by the various customer service representatives to consumers (which reinforced the Limited Warranty Representation and/or 45 Day Return Period Representation) amounted to conduct by Fitbit LLC by reason of section 139B(2) of the Competition and Consumer Act 2010 (Cth).¹⁰ This section provides that conduct of an agent or employee of a body corporate (who acts within the employee’s or agent’s actual or ostensible authority) is conduct that is taken to have been engaged in also by the body corporate.

Important take-aways

• The consumer protection laws contained in the ACL apply to all suppliers and manufacturers of goods and services to Australian consumers (including foreign suppliers and manufacturers). This is the case regardless of the governing law contained in the contract and whether or not the supplier or manufacturer has a physical presence in Australia.¹¹
• Where there is a ‘major failure’ in respect of goods, a consumer has a ‘reasonable period of time’ within which to reject the goods.
• It is imperative that businesses train their sales and product support staff on consumers’ rights under the ACL as their representations may also give rise to liability under the ACL for which the organisation will ultimately be liable. This includes people working for organisations outsourced by the business.
• The Treasury Laws Amendment (More Competition, Better Prices) Act 2022, has increased the maximum financial penalties for breaches of the Competition and Consumer Act 2010 (Cth) (CCA) (including breaches of section 29 of the ACL, which apply to false or misleading representations about goods or services). The maximum penalties for companies that breach the relevant sections of the CCA and the ACL are now the greatest of either $50 million, three times the value of the “reasonably attributable” benefit obtained from the conduct (if the court can determine this) and 30% of adjusted turnover during the relevant breach period.

This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate.

¹Competition and Consumer Act 2010 (Cth), Schedule 2 (ACL).
²Valve Corporation v Australian Competition and Consumer Commission (ACCC) [2017] FCAFC 224.
³https://www.accc.gov.au/media-release/fitbit-in-court-over-statements-to-consumers-on-faulty-devices
⁴ACL, s262.
⁵ACL, s54.
⁶ACL, s55.
⁷ACL, s259(3) and s263.
⁸ACL, s260(1).
⁹ACL,s262.
¹⁰Concise Statement No. of 2022 Federal Court of Australia District Registry: New South Wales Division: General Commercial and Corporations National Practice Area (Regulator and Consumer Protection), paragraph 26.
¹¹Valve Corporation v Australian Competition and Consumer Commission (ACCC) [2017] FCAFC 224.