The recent case of Australian Competition and Consumer Commission v Emma Sleep GmbH (Penalty) shows how not to promote price discounts (and how not to act when you suspect you may be breaching the Australian Consumer Law (ACL)).

Facts

Emma Sleep Southeast Asia Inc (Emma Sleep SEA) and Emma Sleep Pty Ltd (Emma Sleep AU) (collectively Emma Sleep) were two related companies owned by their German parent Emma Sleep GmbH.  Emma Sleep AU launched on the Australian market in 2020 selling mattresses, bed frames, pillows etc.  They promoted their products with purported price discounts – either giving a purchase price and a higher “strikethrough price”, or a percentage discount (eg 50% off) or a price saving (eg “save as much as $3,531”).  However, their products had never, or hardly ever, been advertised at the higher price.

This was a clear breach of the ACL because these types of advertising misrepresent that the products were previously sold at the higher price and have been reduced, when this was not true.

Emma Sleep AU also misrepresented that the products were on sale for a limited time only by either having a countdown timer or text such as “Last chance to get up to 55% off”.  However when the countdown timer reached zero it just reset to another period and the products continued to be sold at the same or a similar discount – another breach of the ACL.

ACCC lawsuit

The ACCC sued Emma Sleep.  Emma Sleep AU admitted liability.  Emma Sleep SEA denied liability but lost its court case.  The Federal Court in the Penalty Judgment awarded a penalty of $7.5 million against each company (total of $15 million) plus injunctions to stop the conduct and a corrective notice to be posted on Emma Sleep AU’s websites and social media platforms.  As well, both companies had to implement and comply with an ACL compliance program. 

Smoking gun

Whenever a business is sued, the other side (such as the ACCC) gets access to the internal documents of the business that are relevant to the case.  The other side is looking for a “smoking gun”.  This was found in the Emma Sleep case in a response to an internal email that suggested “offering only the optimum discount constantly is legally problematic in AU”, where an executive replied:

I think we should balance between risks and opportunities, i.e. if we can make more revenue and CM with more aggressive discount with calculated risks, we should go for it, that’s how we boosted UK growth in the last 2 months. So what we need to understand here is 1) how big is the fine, 2) how likely competitors will attack us based on their size and their discount strategy, 3) how can we be creative to get around with the legal constraints (e.g. new customer discount). Before we get more attention, we should grow as faster as we can.

The Court in the Penalty Judgment said that this is exactly the sort of calculus that ACL penalties must deter.  Penalties for misrepresentations have been recently increased to $100 million per breach.  Such high penalties are intended to prevent businesses from seeing the penalties as just a cost of doing business and are supposed to deter both the offender and other businesses from breaking the law in the first place.

Why a $15 million penalty

The Court described the $7.5 million penalty per company as not the “very large penalty” which may be awarded against a large multinational company.  Factors that the Penalty Judgment took into account when arriving at the $15 million figure were:

• a competitor had sent two warning letters to Emma Sleep AU in late 2021 claiming (correctly) that the pricing strategy breached the ACL;

• the email quoted above showed that Emma Sleep was aware of the potential ACL problem with their pricing strategy;

• despite the competitor’s warnings, Emma Sleep did not change its pricing strategy until after it had received two warning letters from the ACCC – it continued for a further 17 months after the competitor’s first warning;

• senior management at least “turned a blind eye” to the risk of ACL breach and there was no evidence that they obtained legal advice;

• the misleading conduct applied to the vast majority of Emma Sleep’s products and the majority of its advertising and continued for a lengthy period – 33 months;

• Emma Sleep earned about $134.5 million revenue from almost 244,000 sales;

• the conduct was intended to induce customers to purchase Emma Sleep products and it succeeded in doing so;
• Emma Sleep SEA argued it could only afford a $2 million penalty and Emma Sleep argued that it could not afford any penalty because it had made hardly any profits, but this was disregarded by the Court.  Case law says that even if an ACL penalty is so high that the offender will become insolvent, this does not prevent a Court awarding such a penalty to deter other businesses from breaching the ACL;
• the financial position of parent company Emma Sleep GmbH was much better;
• neither company showed contrition for their breaches.

 

Update – ACCC v Coles

The much publicised decision in the case of Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd takes the issue of strikethrough pricing further.  There the Judge accepted that supermarket customers would assume that a “was/now” price discount was genuine and the product would have been sold at the original price for a “reasonable period” of time.  In the specific case of manufactured grocery items sold at large supermarkets, where prices were relatively stable, the Court held that this “reasonable period” was 12 weeks.  Thus, “Down Down” promotions for products that had been sold at the “was” price for four weeks or less were misleading.  This finding was influenced by Coles’ internal policy to keep a price stable for at least 12 weeks before claiming a discount.

In industries other than large supermarkets, the minimum “reasonable period” for a price to be maintained before it can genuinely be said to be discounted is likely to vary.  This will depend on such factors as the degree of price volatility, the level of prices generally and competitor behaviour.  The main takeaway from the Emma Sleep and Coles cases is that price discounts must be real, not illusory.  Otherwise a business may find the ACCC knocking on their door.

You need a working knowledge of the ACL

The ACCC and the Courts expect Australian businesses to have a working knowledge of the ACL.  The ACCC website has a wealth of information about how to comply with the ACL.  If you ever suspect that proposed (or current) conduct may breach the ACL and the ACCC website does not answer your question, it is essential to seek legal advice from a lawyer who practises in this area.  If the lawyer says it probably breaches the ACL, you stop the conduct.  This initial legal cost will pale into insignificance compared with the legal costs, business disruption and potential penalties that you will incur if you are being prosecuted by the ACCC.

This blog provides general information only, and is not intended as legal advice specific to your circumstances.  Please seek the advice of a lawyer if you have any particular questions.

Liability limited by a scheme approved under Professional Standards Legislation

© Margaret Ryan, Melbourne, Australia, 2026