Avni Chari, a student of NALSAR, brings us another very interesting guest post on a recent U.K. judgment. A must read for all those of you interested in the use of trademarks during the course of comparative advertising.
UK IMPLEMENTS ECJ’S DECISION IN FAVOUR OF L’ORÉAL
Avni S. Chari
L’Oréal compels European Courts to revisit the issue of balancing free trade and Intellectual Property Rights.
Judgment available here.
The UK Court of Appeal reluctantly applied the ECJ’s guidance and ruled in favour of the cosmetics superpower, L’Oréal, in its struggle to protect the reputation of its luxury perfumes from the threat posed by low-cost “smell-alike” imitations. The case arose in 2006 when L’Oréal sued Bellure for trademark infringement. It embroiled a dispute between L’Oréal, the owner of luxury fragrance brands, and Bellure, the producer of low cost “smell-alike” fragrances. In the marketing of these imitations, Bellure used packaging and colour schemes which were suggestive of the top brands. It was not disputed, however, that the similar packaging was unlikely to mislead professionals or the public. Further, the products were sold using a comparison list to relate the particular perfume to the branded equivalent by referring to the word mark by which the products are known.
The recent UK decision implements the responses of the European Court of Justice pronounced in 2009 to questions referred to it by the Court of Appeal. The questions related to the lawfulness of such practices. Quintessentially, it raised important issues about the interaction of trademark law with the Comparative Advertising Directive and the notion of unfair competition. The ECJ comprehensively expounded that such practices were unlawful. While doing so, ECJ explored the text and provisions of the Comparative Advertising Directive.
There is ample authority in the context of comparative advertising declaring that an advertiser may not use the registered trademark of his competitor if this would involve a likelihood of confusion. However, the context of the present case is very different. The whole purpose of the impugned advertisements is to contrast, rather than, confuse two marks.
Article 5(2) of the First Council Directive 89/104/EEC protects an owner from the use of his trademark by a competitor even if there is no likelihood of confusion, if the competitor’s use “takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark.” The ECJ directed the national court to consider the totality of circumstances in order to determine whether the use in question is unfair. In this case, the defendants modelled their packaging to resemble that of L’Oréal brands and deliberately sold their perfumes as imitations. The ECJ declared this to be an unfair practice and termed it “free-riding” or “parasitism.” The court elaborated, “…where a third party attempts, through the use of a sign similar to a mark with a reputation, to ride on the coat-tails of that mark in order to benefit from its power of attraction, its reputation and its prestige, and to exploit, without paying any financial compensation and without being required to make efforts of his own in that regard, the marketing effort expended by the proprietor of that mark in order to create and maintain the image of that mark, the advantage resulting from such use must be considered to be an advantage that has been unfairly taken of the distinctive character or the repute of that mark.”
Under European Law, a company cannot prevent third parties from manufacturing and selling imitations of its products. However, L’Oréal was successful in stopping imitators from advertising the similarities of these smell-alike perfumes. It is seemingly paradoxical that while the law permits the manufacture of perfume that smells like those sold under famous brands, it proscribes these manufacturers from apprising the public of which exact branded product it smells like.
The UK judges were obligated to uphold the ruling of the ECJ in favor of L’Oréal. However, the decision of the Court of Appeal was not pronounced without regret, the greatest of which was articulated by Justice Robin Jacob. “The ECJ’s decision in this case means that poor consumers are the losers.” The judge lamented, “Only the poor would dream of buying the defendants’ products… they are denied their right to receive information which would give them a little bit of pleasure: the ability to buy a product for a euro or so which they know smells like a famous perfume.”
Justice Jacob was of the view that law should not impede traders from making honest statements about lawful products, or else competition will be impaired. He regarded the entire approach employed by the European Court of Justice as creating unwarranted pastures in IP law. It amounts to “muzzling” free trade and free speech and derogates from a consumer’s freedom of choice.
The real significance of this case, however, goes beyond the facts, to reflect a state of clashing ideology. The Courts of UK favour a free market, while the ECJ takes a more protectionist stance favoring enhanced IP rights. The underlying issue in this case is how competitive the law should allow European markets to be while keeping in mind the need to protect IP rights. The Court of Appeal is a resolute partisan of freedom of speech and free trade. Even when upholding the decision of the ECJ, the UK judges have expressed stiff disapprobation and apprehension as to the full extent of the implications of this judgment.
