L'Oreal Sends Copycats on the Run

Imitation may be the purest form of flattery, but in branding it can threaten the bottom line. In these straightened times, market leaders must increasingly fend off encroachments in the form of emboldened look-alikes and aggressive competitor advertising seeking to take market share. Brand owners can take heart, though, from the ECJ's recent judgment in L'Oreal SA et al. v Bellure NV et al. (Case C-487/07), which promises stronger action from the courts where competitors overstep the bounds.

When is advantage unfair?

L'Oreal was a reference by the English Court of Appeal, seeking ECJ guidance in an infringement action against smell-alike perfumes. The defendant manufacturers used similar packaging and bottle shapes to L'Oreal's leading brands and expressly identified L'Oreal's perfumes by brand name in comparison lists designed to show prospective retailers the perfumes to which the smell-alikes equated. 

L'Oreal argued the defendants were taking unfair advantage of the reputation of its well-known registered trademarks for perfume names and bottle shapes under Article 5 (2) of the Harmonisation Directive and S. 10 (3) of the Trade Marks Act 1994. It was common ground, though, that there had been no confusion and that L'Oreal's own sales had not suffered. In light of that, the Court of Appeal asked, could the defendants' use of deliberately similar packaging and get-up and references to L'Oreal's trademarks in the comparison lists take unfair advantage of L'Oreal's reputation?

The ECJ held that it could. Article 5 (2) was intended to provide special protection for marks with a reputation in circumstances where there was not necessarily confusion, but where unfair advantage or detriment to the distinctive character or repute of the earlier mark could be proved. Therefore, an existence or lack of confusion was irrelevant: the question was solely whether there had been unfair advantage.

In the Court's view, advantage could be unfair even where there were no lost sales or other disadvantage to the brand owner. Article 5 (2) was concerned in particular with parties who deliberately set out to gain a marketing edge by free-riding on the reputation and prestige of a rival's brand, without paying compensation and with exploitative intent. There was no doubt in the Court's mind that any commercial benefit achieved in this way would be inherently unfair, regardless whether and how the activities affected the brand owner. 

On the agreed facts, the defendants' lookalike packaging fell squarely within this provision, as did the comparison lists, which were created specifically with a view to enhancing sales by exploiting the reputation of L'Oreal's marks.

All the same...

The ECJ also considered questions relating to L'Oreal's challenge to the comparison lists as being in breach of the Comparative Advertising Directive 84/450.

L'Oreal argued, in particular, that the lists breached the CAD by portraying the smell-alike products as imitations or replicas of L'Oreal's branded products and thereby took unfair advantage of the reputation of L'Oreal's trademarks. Both types of conduct in advertising were expressly prohibited by the CAD.

The Court agreed. The comparison lists were compiled for advertising purposes with a view to identifying the defendants' products as being the same as, or equivalent to, L'Oreal's named branded products. The lists were therefore advertising and fell within the CAD's purview.

The Court had already found that the advantage derived from using L'Oreal's trademarks in the lists was unfair, and the Court appeared to consider that any advertising using a rival's trademark to present products as an imitation or replica would be inherently unfair and unlawful.

It concluded that the defendants' use was in breach of the CAD and could not therefore escape liability for trademark infringement under the umbrella of legitimate comparative advertising.

Comment

Back at the Court of Appeal, L'Oreal's case for infringement now appears rock solid.

It could not have come at a better time. The recession is prompting all players to battle more aggressively for market share, and advertisements portraying products as being equivalent to, but cheaper than, the market leader can be very attractive. Packaging designed to resemble the market leader sends a signal that the product is the same as the market leader as well, and is designed to take market share in a more subtle, sometimes misleading, way.

L'Oreal's two-pronged approach in this case has therefore been particularly helpful for brand owners. First, the confirmation that all free-riding on reputation is effectively unfair, regardless of the impact on the brand owner, is extremely favourable to those considering action against lookalikes. In this regard, the importance of protecting distinctive overall packaging design and get-up as trademarks cannot be understated. These are often the elements that copycats seek to imitate, since they communicate, even from a distance, the identity of the product with which they are competing.

Second, the finding that portraying products as imitations or replicas of another's branded products is in breach of comparative advertising law fills an important gap, since even truthful comparative ads can now overstep the bounds. The Court was clear that portrayals of products as imitations or replicas can be indirect as well as express, and that they must be considered in their overall economic context. Those selling knock-offs of luxury products, in particular, will find it harder to promote their wares.

As a result of L'Oreal, comparative advertising designed mainly to attack or challenge, rather than to promote or tout, is more likely than before to fall foul of comparative advertising rules. Lookalikes, too, are more likely to be caught by trademark infringement as conferring an inherently unfair advantage.

The lesson is clear: creative and positive market positioning has nothing to fear from this ruling. Copycats and knocking copy, however, do.