Australia: Passing off intellectual property: Private label brands mislead consumers

In today's highly competitive retail and FMCG (Fast-Moving Consumer Goods) space, the process of getting a product to market can be a potential minefield. Not only are you competing with other manufacturers in the same product category for market share, the recent boom in 'retailers' own' brands means that competition is even more fierce!

When a manufacturer, or retailer, launches a product with very similar branding features to another item in the market sector, what legal protection is available for the manufacturers of the original product? As we know, product differentiation is the key to success, so manufacturers need to be able to effectively protect their branding from competitors.

In this article, we look at a recent case that relates to intellectual property infringement and how you can ensure that your product branding is adequately 'different' to other products and compliant with relevant legislation. The article references sections of The Australian Consumer Law (ACL) - specifically legislation covering misleading and deceptive conduct. It also makes reference to the concept of passing off - a common law tort often used to enforce unregistered trade mark rights.

Whilst section 18 of the ACL is in place for the protection of consumers, passing off is in place to protect commercial traders - and plays a role in the protecting of a trader's goodwill (a brand's positive reputation, or identification) from misrepresentation.

Details of the Case:

Late last year, the Federal Court of Australia heard the case of Moroccanoil Israel Ltd v Aldi Foods Pty Ltd - a matter which has highlighted a number of issues relating to intellectual property infringement and passing-off, which owners of private label brands can potentially face in the marketplace.

No passing off in get-up

Aldi Foods Pty Ltd (Aldi) is well known for its business model which is based on the slogan ' Like brands. Only cheaper'. The Federal Court proceedings brought Aldi's business practices into sharp focus, as one of Moroccanoil Israel Ltd (MIL) concerns was that some of Aldi's products were not just 'like brands' but were, deceptively, VERY similar to one particular brand - and thus contravene Australian trademark and consumer protection laws.

The brand in question is 'Moroccanoil' which was widely used by Moroccanoil Israel Ltd (MIL) in its haircare and other products - which in turn led to the international recognition of Argan oil, extracted from the nuts of the Moroccan Argan tree. The allegations made by MIL against Aldi were of trademark infringement and passing-off.

Aldi successfully defended MIL's trade mark infringement case, as well as the company's claim that consumers would be misled by the presentation of the Aldi products.

Misleading representations

Despite this small victory, Aldi was still restrained from selling their products in their current packaging and labelling due to the potential for consumers to be misled by the more generic representations which were contained on the product and packaging. This was due to the fact that some elements of MIL's Australian Consumer Law claims had been established. As a result, the Court granted a permanent injunction restricting the sale of the Moroccan Argan Oil products in Australia by Aldi - although this decision has since been appealed.

Generic Representations use of the term 'Natural':

The Federal Court clearly stated that the marketing of products as 'natural' when they do not wholly or substantially contain natural ingredients - as well as any claims of performance benefits that cannot be properly substantiated, are likely to contravene the Australian Consumer Law.
The branding associated with the shampoo, conditioner and treatment products being sold by Aldi contained the phrases 'Protane Naturals' and 'Moroccan Argan Oil' in the packaging.

Moroccanoil alleged that, through the use of the word 'naturals' on the packaging of its products, Aldi represented that each of its products contained wholly, or substantially natural ingredients. Aldi attempted to argue that the products contained at least one natural ingredient (including Argan Oil), and that other ingredients that are properly regarded as 'natural', such as water, were present.

The Court considered that, with regard to the use of the word 'natural' or 'naturals', the ultimate question for consideration was 'whether the representation is misleading or deceptive to the ordinary or reasonable member of the relevant class of consumer'. The Court held that a consumer would expect a product being sold as 'natural' to be made 'wholly or substantially from natural ingredients' and that there was no logical reason why a trader would choose to call a product line 'natural' unless it intended to convey that message.

Aldi's oil treatments, shampoo and dry shampoo were each made up of substantially synthetic ingredients, thus the Court found that their representation as 'natural' did contravene the ACL. While the products did contain one or more 'natural' ingredients (such as water), the court found these were only minor ingredients in the products - and ultimately, the products were not substantially made of 'natural' ingredients. On this basis, the representation that the products were 'natural' was misleading.

Performance Representations:

Packaging associated with Aldi's haircare products also made claims that it 'helps strengthen hair' and that the 'bristles are infused with Argan Oil to aid in delivering shine and hydration - perfect for dry to normal hair'. Moroccanoil alleged that the performance claims made by Aldi, along with the false claims about the ingredients used in its hair products, represented to consumers that the Argan Oil in the products made a material contribution to the performance benefits of its products.

The Court held that Aldi had failed to substantiate the performance claim in Court, and that 'one would expect a trader to do this before taking the product to market'. Ultimately, the Court found that there was no reasonable foundation for the performance claims made by Aldi regarding its oil treatment, shampoo and conditioner - and that Aldi had contravened the ACL.

The Court also held that Aldi made false representations to consumers that the Argan oil in the products made a material contribution to the performance benefits of its products, since the actual quantity of the Argan oil used in the manufacturing process was negligible to make any material contribution to the performance of the products.

Aldi tried to defend its stance by arguing that if 'sensibly construed', the performance claims were not made on the basis of the Argan oil used in the products - but rather its end products as a whole. This was decisively rejected by the Court, with the justification that such claims were made to drive consumers to actively purchase products infused with Argan oil, rather than similar products which were not infused with Argan oil.

Key lessons for your business:

This particular dispute highlights the importance of undertaking due diligence before choosing your brand, your product packaging and labelling. It is also critical that your business is able to substantiate any performance claims made in respect of the product. It is exceedingly important to choose all aspect of branding and product presentations with care and caution - otherwise you may end in the Federal Court fighting to keep your product on the shelves.

Some key factors that must be considered when launching a new product are:

  1. What intellectual property is your business intending to use (this includes slogans, logos, imagery etc.) in selling the product?
  2. Are there any notable similarities between a third party's intellectual property and your product, your product description and/or your overall brand?
  3. Are there any specific limitations on the use of certain descriptions or branding elements for your particular product?
  4. Is there any information linked to your description of the product which could be seen as being deceptive or misleading?
  5. What disclaimers do you have in place to protect your brand against third party claims?

All aspects of your product branding, including packaging and labelling and any further advertising must avoid the use of misleading statements, images or descriptions etc. - and should be designed in a way that makes the benefits to the general public immediately clear. Your brand should be able to effectively cultivate both a strong reputation and monetary profit based on its own merits, without diminishing the value of your intellectual property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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