UK Court Diary

O2 Under Water: Comparative Advertising Defence to Trade Mark Infringement

The High Court wrought a potentially major change in the law on defences to trade mark infringement in its judgment in O2 Holdings Ltd. and Others v. Hutchison 3G Ltd. [2006] EWHC 534 (Ch). The decision, which concerned a comparative advertising dispute between two leading mobile phone companies, effectively introduces a new defence to trade mark infringement under the Comparative Advertising Directive.

 

The Facts

O2 Holdings Ltd. was a leading provider of mobile telecommunications services in the United Kingdom. It had been using imagery including bubbles in its advertisements since 2002, and had spent enormous sums on promoting that imagery. Some £320 million was spent on advertising and promotion between May 2002 and August 2004, and O2 advertised heavily in a variety of media, including television. The bubbles were used in different shapes, sizes, colours and, where television advertising was concerned, in different directions of movement, but bubble imagery of some kind was virtually always present. The bubbles were, in effect, part of O2’s brand identity.

O2 owned numerous U.K. trade mark registrations for static bubbles of one kind or another, four of which featured in the case. They were protected in respect of telecommunications apparatus and services.

Hutchison 3G Ltd. (“3G”) was a rival mobile telecommunications company launching a new pay-as-you-go service in August 2004 under the name “ThreePay.” The campaign featured a television advertisement in which the first segment was designed to evoke O2’s service. A stream of bubbles appeared on the screen in black and white, with sombre music in the background and information on O2’s prices and service. The screen then faded and switched to cheerful blue, more upbeat music and 3G’s more favourable price and service information. The campaign was singularly successful, with 3G’s market share rising from 5% to nearly 25% in a one-month period alone.

O2 sued for trade mark infringement in respect of 3G’s use of bubble imagery. It claimed, in particular, that the permitted use of trade marks to identify competitors’ goods and services in comparative advertising did not extend to use of brand imagery, as opposed to brand names.

 

Bursting O2’s Bubble

O2’s claim for infringement failed, despite a promising start.

The judge accepted O2’s claim that the bubbles in 3G’s ad were similar to those of O2, and that, against the backdrop of the soundtrack and overall imagery during that segment, their use was likely to confuse the average consumer into believing that the services provided under the bubbles were those of the advertiser. A claim for infringement was made out, therefore, under S. 10 (2) of the Trade Marks Act 1994.

However, this first flush of success did not last long. 3G argued successfully that it had a defence under the Comparative Advertising Directive (“the Directive”).

The Directive, by dint of its incorporation in The Control of Misleading Advertisements (Amendment) Regulations 2000, governs comparative advertising in the U.K. It lays down the conditions for acceptable comparative advertisements, including requirements that they:

• must not be misleading;
• must compare goods or services meeting the same needs or intended for the same purpose;
• must objectively compare one or more material, relevant, verifiable and representative features;
• must not create confusion, discredit or denigrate the competitor or its trade marks;
• must not take unfair advantage of the reputation of the competitor’s trade mark; and
• must not present goods or services as imitations or replicas of goods or services of the competitor trade mark owner.

“Comparative advertising” is defined in the Directive as “any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor.”

This by definition applied to 3G’s advertisement, which identified O2 expressly and, through the use of its brand imagery, by implication.

The judge held that an advertisement must comply with the Directive in order to avoid trade mark infringement. An advertisement that complies with the Directive will not, he ruled, infringe.

Relying on the recitals to the Comparative Advertising Directive, the judge held that the question to be answered first was whether 3G’s use of the bubble imagery was indispensable to making the comparative advertisement effective or,

as O2 contended, merely gratuitous and unnecessary. In this regard, the judge noted that what would make a comparative advertisement effective would vary depending on the media: in the case of television advertisements visual impact was indispensable, and it seemed to the judge inappropriate to curtail the advertiser’s choice of visual images if the overall message of the advertisement was compliant with the Directive.

In this case, the judge found that the advertisement was compliant. It was not misleading as a whole; anyone viewing the entire advertisement, rather than just the segment containing the bubbles, would be left in no doubt that the ad was a comparison between O2 and 3G, and that the advertiser was 3G. The ad compared services meeting the same needs or intended for the same purpose; compared prices objectively; did not create confusion; and did not discredit or take unfair advantage of O2’s trade marks. O2’s only real objection to the use of the bubble imagery was the accurate reporting of its higher prices as compared with those of 3G. The judge saw no unfair advantage in 3G leading its ad with the references to O2, which was in the judge’s view a legitimate way for a new market entrant

to draw attention to itself. There was, he noted, no industry norm as to whose products or services should feature first in a comparative advertisement.

Comparative advertising, the judge observed, must be robust in order to be effective, and 3G’s advertisement went no further than was reasonable. The judge held that 3G had a defence to O2’s infringement claim.

 

Comment

This decision is of critical importance when weighing the prospects of successful trade mark infringement action against comparative advertisements.

The principles enunciated are also central to whether a proposed comparative advertisement is likely to provoke a successful infringement claim, and therefore to whether the commercial advantages of publishing it are outweighed by the legal risks.

Infringement claims against comparative advertising are an unusual feature of trade mark law, since they allow a trade mark owner to stop others’ use of his own brands to denote his own goods or services. The availability of remedies against such use is fundamentally important in the right circumstances, as certain forms of use by others can unfairly undermine a brand owner’s image or whittle away at the brand’s distinctiveness and value.

Like parallel imports, however, comparative advertisements are acceptable in certain circumstances, and a clear understanding of what is allowed is essential for companies wishing to compete in this way, as well as for those who expect their competitors to do so.

This judgment takes the law on comparative advertising in an important new direction, confirming that competitors may go further than was previously thought in identifying their rivals’ brands. In a competitive marketplace, it may not be long before this principle is put to the test.