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Is comparative advertising unfair?

September 2008 - Intellectual Property. Legal Developments by Field Fisher Waterhouse.

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THE EUROPEAN COURT OF JUSTICE (ECJ) IS IN THE midst of considering questions referred to it by the UK courts in three separate cases that should clarify the law regarding comparative advertising. This type of advertising, particularly when it identifies a competitor or a competitor’s goods or services by referring to a registered trade mark, is of particular concern to trade mark owners as their competitors normally seek to make unfavourable comparisons with their own goods or services, or to take advantage of being associated with the market leader’s brand.

‘The First Council Directive of 21 December 1988 to approximate the laws of the Member States relating to trade marks’ (89/104/EC), known as the Trade Marks Directive (TMD), provides that under certain conditions a trade mark owner is entitled to prevent third parties from using a sign that is identical or similar to its own trade mark, including use in advertising. In contrast, the Comparative Advertising Directive (CAD) (97/55/EC) permits the use of a rival’s trade mark in comparative advertising provided that the advertisement fulfils certain conditions set out in Article 3a of that Directive. Examples of these conditions include that a comparative advertisement must not be misleading, that it must not discredit or denigrate a trade mark, and that it must not take unfair advantage of a trade mark.

The UK courts are seeking clarification from the ECJ on the interpretation of the two directives. In the first case, O2 Holdings Ltd & anor v Hutchison 3G UK Ltd [2008], the ECJ handed down its judgment on 12 June 2008, commenting on the inter-relationship between the two directives. A fortnight later, in Intel Corporation Inc v CPM United Kingdom Ltd [2008], Advocate General (AG) Sharpston gave her Opinion on certain issues, including the definition of ‘unfair advantage’, a concept contained in both the TMD and CAD. A third case, L’Oréal SA & ors v Bellure NV & ors [2007], seeks more guidance on these issues. Here we look at these three cases and what effect they could have on brand owners seeking to prevent their registered trade marks from being used in comparative advertisements.

THE ‘BUBBLES’ CASE

O2 v Hutchison concerns O2’s UK trade mark registrations for static pictures of bubbles, which it used to advertise its mobile phone services. O2 was unhappy with the way a rival mobile phone service provider, Hutchison 3G, used images of bubbles in water when comparing its charges with those of O2 in its television advertising campaign, launched in 2004. The bubbles in the Hutchison 3G advertisement were similar to O2’s trade-marked images of bubbles.

O2 accepted that the price comparison in the disputed advertisement was correct and that it did not, as a whole, mislead customers into believing that there was a trade connection between O2 and Hutchison 3G. However, O2 issued proceedings in the UK for trade mark infringement, complaining that the bubbles in Hutchison 3G’s advertising were not necessary to make the price comparison between the two companies’ services.

When the High Court dismissed the claim, O2 appealed to the Court of Appeal. The Court of Appeal referred questions to the ECJ to clarify whether:

  • the use of a competitor’s trade mark in a comparative advertisement in such a way that it does not cause confusion or otherwise jeopardise the essential function of the trade mark as an indication of origin amounts to use within Article 5 TMD; and
  • the use of a competitor’s registered trade mark in a comparative advertisement has to be ‘indispensable’ to comply with the conditions in the CAD, and if so, the criteria by which indispensability is to be judged.

Mengozzi AG handed down his Opinion on these questions on 31 January 2008, concluding that the CAD provides an exhaustive code in relation to comparative advertising, and that if any of the conditions were not met, the sanction would be an action for breach of that directive by the relevant competition authority in the relevant member state. In his view, use of a registered trade mark for comparative advertising purposes does not fall within the ambit of the trade mark infringement provisions in the TMD, and a trade mark proprietor does not have a right of action to prevent the use of its mark.

If the ECJ had followed this Opinion, the case would have had major implications for trade mark owners in the UK, since it would have deprived them of the remedy of commencing trade mark infringement proceedings in comparative advertising cases. Instead, they would have been confined to relying on the laws applying the CAD, which in the UK are enforced by the Office of Fair Trading and other bodies with very limited enforcement powers.

In the event, however, the ECJ chose not to follow all of Mengozzi AG’s recommendations, and declined to answer all the Court of Appeal’s questions. First, the ECJ ruled that the proprietor of a registered trade mark is not entitled to prevent a third party’s use of a sign identical with, or similar to, its own mark, if used in a comparative advertisement satisfying all the conditions laid down in Article 3a CAD.

The ECJ noted in particular that when a comparative advertisement includes a sign likely to cause confusion on the part of the public, which includes the likelihood of association between the sign and the mark, that advertisement would not satisfy one of the conditions laid down in Article 3a CAD. In this scenario, it would then be for the courts to consider whether there was trade mark infringement.

The effect of this judgment is that, in a case involving comparative advertising, the court will first have to consider whether all the requirements of the CAD are met and, if not, only then can the court go on to consider whether the trade mark has been infringed. The ECJ declined to rule on whether the use of a competitor’s mark in comparative advertising must be ‘indispensable’ to comply with the conditions set out in Article 3a CAD. Therefore, this issue is still not resolved.

It is now up to the Court of Appeal to apply the ECJ’s ruling to the facts. Given that O2 itself has admitted that the bubble imagery in Hutchison’s advertising was not misleading, it is likely that the Court of Appeal will conclude that the advertisement complies with all the conditions under the CAD, so that no trade mark infringement issues arise and O2’s claim will fail.

INTEL v CPM AND UNFAIR ADVANTAGE

One of the conditions for compliance with the CAD is that the advertisement must not:

‘… take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products’.

The concept of ‘unfair advantage’ is also contained in the TMD as a ground for refusal to register a trade mark or as a ground on which to invalidate a registration. It is also a concept that is relevant to trade mark infringement. ‘Unfair advantage’ therefore plays an important role in both comparative advertising and trade mark law.

The meaning of these words was one of the issues considered by Sharpston AG in her Opinion of 26 June 2008 on the questions referred to the ECJ by the Court of Appeal in Intel v CPM. The case involves an application by Intel, the owner of the trade mark ‘Intel’, to invalidate the later mark ‘Intelmark’, registered in class 35 for marketing and telemarketing services. The ‘Intel’ mark was registered in classes 9, 16, 38 and 42 for computers and computer-linked goods and services. The UK courts recognised that Intel had a ‘huge reputation’ for the ‘Intel’ word mark in respect of computers and computer-related goods and services, even before 1997 when the ‘Intelmark’ registration took effect.

It was accepted that the marks were similar but were applied to very different goods and services, so that use of ‘Intelmark’ did not suggest a trade connection with Intel, but merely brought to mind the ‘Intel’ mark. Therefore, the issue in the case is whether Intel can rely on the ground of invalidity set out in Article 4.4(a) TMD.

Article 4.4(a) TMD provides that a trade mark shall not be registered, or if registered, shall be liable to be declared invalid, where and to the extent that:

‘… the trade mark is identical with, or similar to, an earlier national trade mark… and is to be, or has been, registered for goods or services which are not similar to those for which the earlier trade mark is registered, where the earlier trade mark has a reputation in the member state concerned and where the use of the later trade mark without due cause would take unfair advantage of, or be detrimental to, the distinctive character or the repute of the earlier trade mark’.

The UK Intellectual Property Office and the High Court refused to invalidate the ‘Intelmark’ registration. Intel therefore took its case to the Court of Appeal, which decided that it required clarification of aspects of Article 4.4(a), including whether certain circumstances in the case were sufficient to establish unfair advantage and, if not, what factors the court should take into account.

Sharpston AG opined that the facts that the earlier mark has a huge reputation for certain specific types of goods or services, that those goods or services are dissimilar to the goods or services of the later mark, and that the earlier mark is unique in respect of any goods or services were not sufficient in themselves to establish unfair advantage within the meaning of Article 4.4(a). However, she declined to set out any specific conditions to be met, stating that in order to decide whether unfair advantage is established, the national court must take account of all factors relevant to the circumstances of the case.

Sharpston AG referred to the concept of ‘unfair advantage’ as ‘free-riding’, where the focus is on benefit gained by the later mark from being linked to the well-known earlier mark, rather than on whether the earlier mark is harmed by being linked to the later mark. In her view, what must be established is some sort of boost given to the later mark by its link with the earlier mark.

In Sharpston AG’s opinion, if, despite its reputation, the connotations of the earlier mark have a dampening or even merely a neutral effect on the performance of the later mark, unfair advantage seems unlikely. She gave the example that a select range of expensive hand-made jewellery being sold under the mark ‘Coca-Cola’ would not inevitably mean that the marketing of the jewellery would benefit unfairly (or at all) from the Coca-Cola Company’s trade mark.

In her view, it cannot be concluded that the later mark takes unfair advantage of the earlier mark from the mere fact that the earlier mark is unique. Sharpston AG commented that the greater the reputation and distinctiveness of the earlier mark and the greater the similarity between the goods or services covered by the two marks, the more likely it will be that the later mark will derive advantage from any link established between the two in the mind of the public. In addition, if the later mark is to derive unfair advantage, the associations with the earlier mark must be such as to enhance the performance of the later mark in the use that is made of it.

The parties are now waiting for the ECJ’s final ruling on the issues raised. It will be interesting to see whether the ECJ agrees with Sharpston AG’s opinions on unfair advantage, and how this will affect Intel’s invalidity action.

L’ORÉAL v BELLURE

All the issues mentioned above are due to be considered again in the ‘smell-alike’ case of L’Oréal v Bellure. In this case the defendants were importing, distributing and selling products that aped the fragrances of the claimant’s luxury perfumes. One of the defendants used a comparison table that listed a number of luxury brands against a list of its own products, each product appearing in the list against the luxury brand with a similar smell. It was accepted that sales of the defendants’ cheap, smell-alike perfume had no impact on sales of the claimants’ luxury perfumes and that no one would be confused into thinking that the cheap smell-alikes were produced by the claimants.

At first instance the judge held that the packaging of two of the defendants’ perfumes gave rise to infringement under Article 5.2 TMD, and that the comparison lists also constituted trade mark infringement and could not benefit from the ‘honest practices’ defence under the TMD. Both parties appealed and the Court of Appeal referred questions to the ECJ in October 2007.

The first question is nearly identical to the first question in O2 v Hutchison, regarding whether the use of a competitor’s trade mark in a comparative advertisement falls under Article 5(1) TMD. The second question is related, and asks whether the use of a well-known mark in a comparison list falls within Article 5.1(a) TMD. These questions were asked before the ECJ’s ruling in O2 v Hutchison summarised above. The third and fourth questions seek to clarify the meaning of two of the conditions under the CAD, namely that the comparative advertisement does not take unfair advantage of the well-known mark and does not present the advertisers’ goods as imitations or replicas of those sold under the registered mark. The fifth question referred by the Court of Appeal relates to the meaning of taking ‘unfair advantage’ in Article 5(2) TMD when there is no damage to the well-known mark and the use of the mark is not misleading.

L’Oréal must be hoping that the ECJ will adopt Sharpston AG’s Intel v CPM Opinion on the concept of ‘unfair advantage’ and apply the same test to both directives. However, as has been shown in O2 v Hutchison, the ECJ does not always follow an AG’s guidance. Furthermore, L’Oréal v Bellure is the first time the ECJ has been asked to interpret the concept of ‘unfair advantage’ under the CAD. The ECJ could, therefore, agree with Sharpston AG’s Opinion on unfair advantage in Intel v CPM in relation to the TMD, but decide that a different test should apply under the CAD in view of the fact that it is in the nature of a comparative advertisement for the advertiser’s product or service to take advantage of the reputation of the trade mark used in the comparison.

CONCLUSION

The ECJ decisions in these cases will be vital to establishing the limits within which brand owners can use their registered trade mark rights to prevent competitors from linking their well-known brands to the competitor’s own products. O2 v Hutchison has at least preserved the right of trade mark proprietors to sue for trade mark infringement if the advertisement does not comply with the conditions of the CAD.

The forthcoming cases will hopefully define the scope of ‘unfair advantage’ under both directives, which may well prove fundamental to understanding what action trade mark owners can take to prevent comparative advertisements from using their marks. If a liberal definition is adopted, this should provide trade mark owners with greater power to prevent use of their marks in comparative advertising.

However, the ECJ has traditionally taken a fairly narrow approach to the protection afforded by a trade mark registration, preferring to limit this to what is required to guarantee the origin of the goods and services that are the subject of the trade mark. The ECJ has also ruled that the conditions required of comparative advertising must be construed in the sense most favourable to such advertising. An interesting issue will be whether the ECJ elects to interpret ‘unfair advantage’ consistently between the two directives. The answer should be provided in the coming months.

By Hamish Porter, partner, and Louisa Albertini, solicitor, in the IP and technology dispute resolution group at Field Fisher Waterhouse LLP.