Apple has offered to refund Australian customers who have bought the new iPad because the tablet computer does not work on the country's 4G network.
The US technology firm promoted its third-generation tablet as the iPad with Wifi+4G, but Australia has only one 4G network, operated by Telstra Corp, which operates on a different frequency to the 4G on Apple's new iPad.
The country's consumer watchdog accused Apple of misleading new iPad customers about its 4G capabilities and took legal action.
The Australian Competition and Consumer Commission wants the court to force the company to correct its ads, refund any affected buyers and impose penalties.
Apple's lawyer Paul Anastassiou told the Federal Court in Melbourne that the company would send emails to all Australian buyers to date, offering the refund.
The new iPad was launched in stores earlier this month.
While the iPad is the clear market leader, and the new version with its faster chips, fourth-generation wireless and a sharper display is only expected to cement Apple's lead, the company has hit some bumps in the road.
It is waging a battle with a Chinese technology company, Proview, that claims to own the iPad trademark in China, in a long-running dispute that has threatened to disrupt iPad sales in one of its fastest growing markets.
In Australia, a small but a key launch market for Apple products, it lost a bid to ban the sales of Samsung Electronics Co Galaxy tablet late last year.
That battle is part of bruising global patent war between the two firms that spans about 30 legal cases in 10 countries.