Brazil: False Association As An Element To Apply The Unfair Competition Doctrine

Last Updated: 1 July 2013
Article by Rodrigo De Assis Torres

Abstract: This article seeks to analyze a recent decision issued by the Civil State Court of Rio de Janeiro in the Interlocutory Appeal nº 0004394-31.2012.8.19.0000, that, while examining an ex parte injunction pleading formulated by Red Bull, recognized the likelihood of false association by consumers of products bearing considerable resemblances on their respective trade dresses. The decision addressed with precision the elements that lead the Reporting Judge to reverse the first level decision and grant the injunction based on the plausibility of the plaintiff's allegations.

Keywords: Industrial Property - Unfair Competition - False Association – Divert of Clientele - Trade Dress - Brand Dilution

(i) The Decision:

The decision referred to in this article was issued on the interlocutory appeal filed by Red Bull against the rejection of an injunction pleading, made before the lower court, requesting another energy drink manufacturer to stop importing, manufacturing and commercializing an alleged infringing product. According to Red Bull, the Defendant's product would copy the most distinctive elements of its energy drink "Red Bull", i.e., (i) the combination of colors "blue, silver and red" (ii) use of red letters in the spelling of the brand's name, (iii) the juxtaposition of the red element in the middle of the can, just like the famous energetic "Red Bull", and (iv) the prevalence and use of the color combination "blue and silver" in the package.

The decision, issued in the Interlocutory Appeal nº 0004394-31.2012.8.19.0000, spoke with notable precision about the illegal activity committed by the Defendant, consistent on acts of unfair competition. The Reporting Judge recognized that the Defendant, when using the same color combination and similar layout of the Plaintiff's packaging caused a clear confusion for consumers, as well as an undue association between the companies.

(ii) The likelihood of confusion issue, the secondary meaning of the color combination and the risk of dilution:

The likelihood of confusion is a classic element to depict an act of unfair competition, and it has been examined by scholars of good reputation such as the Professor Celso Delmanto:

"Establishing confusion with items or products of a competitor is undoubtedly the most repeated fraud applied to cause the misleading punished by this article. The unfair agent tries to imitate the extrinsic appearance of the competitor's product so that your product is presented similar to the eyes of consumers and they will buy it thinking it was the item of their competitor. The fraudulent means is here the product itself, that is, the mistake is in re ipsa."

As a general rule, any conduct able to mislead consumers as to the source of products and/or services or even to the existence of any relationship between the companies may be found as unfair competition in view of Articles 195, III, and 209 of the Brazilian Industrial Property Law and Article 10 bis (3) of the Paris Union Convention, which read as follows:

Art. 195. Commits crime of unfair competition who:

III - employs fraudulent means to divert someone else's clientele, in one's own benefit or that of another.

Art. 209. The aggrieved party is reserved the right to receive losses and damages to compensate for any harm caused by the violation of industrial property rights and acts of unfair competition not provided for in this Law, that tend to be harmful to the reputation or business of others and to create confusion among commercial and industrial establishments or renderers of services, or among products and services put on the market.

Article 10 bis.

(3) The following in particular shall be prohibited:

1. all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor;

The most important issues to be considered in such cases are (i) if the "trade dress" is eligible to protection as being inherently distinctive or by having acquired secondary meaning; and, more importantly, (ii) if the reproduction or imitation of the "trade dress" is able to mislead consumers.

In the case at hand, when using a package and label that extract the essence of the distinctive elements from the famous energetic "Red Bull", the Defendant's product came too close to the plaintiff's product, taking advantage of its fame and prestige within the beverage market.

At this point, the decision was also grounded on a specific field of the unfair competition entitled "free riding" that is found against acts directed to the unjust enrichment of a company by the misuse of another's reputation and work.

The fame of the RED BULL mark and product was also expressly mentioned by the judge and it has been taken into consideration in this decision particularly regarding the risk of dilution, that is, a famous sign (registered or not) losing its attraction power before consumers due to an undue use made by third parties.

It is equally important to highlight that the color combination of the Red Bull product (blue and silver) has acquired a secondary meaning due to its use and large amount of money invested in the divulgation of the product. The judge particularly recognized this secondary meaning while considering the result of several surveys performed around the world that clearly showed the degree of acknowledgment of the consumers of such combination when related to beverages.

(iii) The False Association:

Another central argument used on the decision and which can be considered an "innovation" to court orders usually issued by Brazilian Courts, is the recognition of the likelihood of false association if the products "Red Bull" and Defendant's energy drink are examined together.

Here is the part of the decision that addressed this issue:

"It needed protection because the differences between the packages are not able to differentiate the products in the same market segment, being the consumer, inattentive, lead to think that it is the same energy drink or deduce that this is another product from the same manufacturer."

The Reporting Judge of 18th Civil Court of Rio de Janeiro, also found that consumers may buy a product thinking that it may come from another player of this market, thus, the judge understood that there is a clear possibility of acquiring a product that may not bear the same quality of the Red Bull product and the consumer, in such case, may associate the lack of quality to Red Bull in view of the similarities of the packages.

On this theme, the celebrated scholar Denis Borges Barbosa teaches precisely:

"The association which is spoken, in contrast to the confusion, did not apply over products or services, but on the qualitative elements of the origin of these products or services. The counterfeiter, through the use of symbolic elements, seeks to take advantage of the image created by the innovator."

"This does not happen by mistake between one product and another, leading to a choice that was not even rational, but induced error. The association is through the illegal use of the image built around the product, or other significant elements."

Thus, although bearing some differences, it has been decided that the defendant would probably take advantage of the huge investments made by Red Bull to promote its brand and trade dress to enhance the success and acceptability of his product.

(iv) Conclusion:

The decision here analyzed represents an interesting precedent of the State Courts of Rio de Janeiro to begin to see other ways to characterize unfair competition, going beyond the traditional divert of clientele by likelihood of confusion.

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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