European Union: ´Limitations On Imitations: No More Free Rides´ — The ECJ´s Recent Decision On Comparative Advertising

The European Court of Justice ("ECJ") delivered a significant judgment on 18 June 2009 on whether cheap imitations of L'Oréal perfumes, which were clearly not the trade marked goods but were marketed in such a way as to 'wink at' L'Oréal's well known brands, infringed L'Oréal's trade marks and whether they were protected as permissible comparative advertising.

Background

Bellure & Others1 produce and market perfumes designed and packaged to look and smell like certain well known L'Oréal fragrances. These "smell-alike" perfumes were only sold to wholesalers or retailers, but Bellure & Others produced lists which indicated to potential customers the named L'Oréal fragrance that was being 'winked at'. Assurances such as "Only your wallet smells the difference" also appeared on these comparison lists.

In October 2006, L'Oréal2 issued proceedings in the English High Court against Bellure & Others for trade mark infringement for the use of their trade marks on the comparison lists. L'Oréal contended that the use of these comparison lists for selling the products of Bellure & Others and dealing with customers' queries, was contrary to s.10(1) of the Trade Marks Act 1994 ("TMA"). L'Oréal also claimed that the imitation of the packaging of their products and the sale of perfumes in that packaging constituted an infringement and took unfair advantage of the distinctive character and repute of L'Oréal's various trade marks contrary to s.10(3) TMA. The High Court held that the use of L'Oréal marks on Bellure's comparison lists constituted an infringement under s.10(1) TMA and also s.10(3) TMA in respect of the products produced by Bellure & Others which imitated L'Oréal's figurative marks for its 'Tresor' box and 'Miracle' bottle.

Bellure & Others appealed the decision in the Court of Appeal. Lord Justice Jacob's opinion was that, due to the difference in pricing between L'Oréal fragrances and the "smell-alike" perfumes, the public would not confuse products of L'Oréal with products of Bellure & Others and accordingly his view was that the two entities were not in competition. L'Oréal, however, claimed that even though there may be no detriment in terms of L'Oréal's sales, Bellure & Others only achieved their sales by taking unfair advantage of the reputation of L'Oréal's trade marks. Lord Justice Jacob sought clarification from the ECJ on the following questions.

Questions referred to the ECJ

  1. Can there be trade mark infringement pursuant to Articles 5.1(a) or (b) of the Trade Marks Directive ("TMD") where a trade mark is used in an advertisement to compare the characteristics of products, and in particular their smell, where the use causes no confusion, and no jeopardy to the trade mark's essential function as an indicator of origin?
  2. Is it an infringement of Article 5.1(a) of TMD where a well-known trade mark is used by a trader in a comparison list to indicate a certain characteristic of a product, but there is no likelihood of confusion, no effect on the proprietor's own sales, no jeopardy to the trade mark's essential function as a guarantee of origin, and no harm to the mark's reputation (whether by tarnishment or dilution), but the use of that trade mark plays a "significant role" in the promotion of the trader's product?
  3. What is the meaning of "take unfair advantage" within Article 3a(1)(g) of the Comparative Advertising Directive ("CAD") in the context of a comparison list comparing a product with another well-known trade mark?
  4. What is the meaning of "imitations or replicas" within Article 3a(1)(h) of CAD, and will that prohibition apply where no confusion or deception is caused?
  5. Where a trader uses a sign similar to a trade mark with a reputation, and the sign is not confusingly similar to a trade mark, in circumstances where:
  • the trade mark's essential function as a guarantee of origin is not impaired;
  • there is no tarnishing or dilution of the trade mark or its reputation or any risk of either of these;
  • the proprietor's sales are not impaired;
  • the proprietor is not deprived of any of the reward for promotion, maintenance or enhancement of its trade mark; but
  • the trader obtains a commercial advantage from the use of the sign as a result of its similarity to the registered trade mark;
  • does that use amount to taking "unfair advantage" of the reputation of the trade mark contrary to Article 5.2 of TMD?

Question 5: Is harm needed for unfair advantage?

The ECJ dealt with the fifth question first, which concerned the interpretation of Article 5.2 of TMD regarding the use by Bellure & Others of packaging and bottles, similar to those protected by L'Oréal's word and figurative marks. The ECJ was asked to consider whether the use of such packaging and bottles took 'unfair advantage' of L'Oréal's word and figurative marks even when such use did not give rise to confusion or cause detriment to L'Oréal.

The ECJ focused on the concept of "free-riding", which relates not to the detriment caused to the mark, but to the advantage gained by a trader by projecting the image of the mark or the characteristics of the goods protected by it on to the trader's goods. The ECJ noted that to establish whether such free-riding had taken place would require a global assessment, taking into account all factors relevant to the circumstances of the case, including the strength of the mark's reputation, the degree of distinctive character of the mark, the nature and degree of proximity of the goods and the similarity of the goods and marks in question. The stronger the mark's distinctive character, the easier it will be to find that free-riding is taking place. In this case, it was held to be clear that the reference to L'Oréal in the comparison lists conferred a commercial advantage and there was an intention on the part of the defendants to create an association in the mind of the public with the L'Oréal brand.

In view of the above analysis, the ECJ held that Article 5.2(a) of TMD must be interpreted as meaning that free-riding could be found notwithstanding the absence of likely confusion or detriment to the mark or to its proprietor. The advantage arising from the use by a third party of a sign similar to a mark with a reputation is taken unfairly by that third party: "where that party seeks by that use to ride on the coat-tails of the mark with a reputation in order to benefit from the power of attraction, the reputation and the prestige of that mark and to exploit, without paying any financial compensation, the marketing effort expended by the proprietor of the mark in order to create and maintain the mark's image".

Questions 1 & 2: Must comparison lists cause harm?

The first and second questions were taken together. It was noted that comparison lists may constitute comparative advertising and that a trade mark owner would not be entitled to prevent use of its mark by a third party in a comparative advertisement which satisfies all the conditions laid down in Article 3a(1) of CAD. The ECJ observed that the use of L'Oréal's marks in the comparison lists were not for purely descriptive purposes (which would have meant such use was excluded from the reach of Article 5.1) but for the purpose of advertising. The ECJ held that the exclusive right under Article 5.1(a) of TMD must be interpreted as meaning that the proprietor of a registered trade mark is entitled to oppose the use by a third party in a comparative advertisement which does not satisfy the CAD, even where such use is not capable of jeopardising the essential function of the mark, which is to indicate the origin of the goods or services, provided that such use affects or is liable to affect one of the other functions of the marks. Such other functions would include that of guaranteeing the quality of the goods or services in question and those of communication, investment or advertising.

Questions 3 & 4: How can unfair advantage be proved?

By its third and fourth questions, the ECJ was asked to consider whether Article 3a(1) of CAD must be interpreted as meaning that where an advertiser indicates through a comparison list (without in any way causing any confusion or deception) that his product has a major characteristic similar to that of a product marketed under a well-known mark, of which the advertiser's product constitutes an imitation, that advertiser takes unfair advantage of the reputation of the trade mark within the meaning of Article 3a(1)(g) or presents goods or services as imitations or replicas within the meaning of Article 3a(1)(h).

The ECJ considered questions three and four together and held that an advertiser who states explicitly or implicitly in comparative advertising that the product marketed by him is an imitation of a product bearing a well-known trade mark presents "goods or services as imitations or replicas" within the meaning of Article 3a(1)(h), and the advantage gained by the advertiser as a result of such unlawful comparative advertising must be considered to be an advantage taken unfairly of the reputation of that mark within the meaning of Article 3a(1)(g).

What does this decision mean for brand owners?

This decision will be of significant interest to brand owners contemplating claims against producers and traders of "look-alike" products as it confirms that brand owners need not show that the public are confused by the similarities between their products and "look-alike" products in any comparative advertising or that the "look-alike" products are detrimental or harmful to the sales or reputation of their products.

The clarification of the scope of the "free-riding" concept will particularly be welcomed by owners of well known brands who may now seek to prevent others from riding on the coat-tails of their brand's success, even where no confusion and no real detriment is being caused.

Advertisers will need to ensure that any comparisons they make are based on identifiable objective criteria such as price or quality (for example, those used on price comparison websites and by supermarkets) and that such comparisons do not unfairly leverage the reputation of a third party's trade mark. Those producing replicas or imitations will have to tread very carefully indeed to stay in business.

Footnotes

1 Bellure NV, Malaika Investments Ltd, (trading as "Honey pot cosmetic & Perfumery Sales") and Starion International Ltd ("Bellure & Others")

2 L'Oréal SA (together with two of its subsidiaries: Lancôme parfums et beauté & Cie) SN and Laboratoire Garnier & Cie ("L'Oréal")

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