Comparative Advertising Under Scrutiny

Just how aggressive comparative advertising can be came under scrutiny by the Court of Appeal recently in O2 Holdings Ltd. and Another v. Hutchison 3G Ltd. ([2006] EWCA Civ 1656).

In another recent case, De Landtsheer Emmanuel SA v. Comité Interprofessionnel du Vin de Champagne and Veuve Clicquot Ponsardin SA (Case C-381/05), the Advocate General gave guidance on the extent to which a class of competitors can rely on the Comparative Advertising Directive to object to comparative ads.

These judgments afford useful insight into what is allowed, and what is not, in drafting and challenging comparative advertising.

 

O2’s Appeal

The facts in O2 Holdings were summarized in the autumn 2006 issue of Make Your Mark. Briefly, Hutchison 3G Ltd. had used certain figurative trade marks of O2 Holdings in price comparisons with its own rival pay-as-you-go mobile phone service. O2 sued for infringement but failed on the grounds that the comparative ads were within the scope of what was permitted under the Comparative Advertising Directive (97/55) (“the CAD”).

On appeal, O2 argued that the CAD did not provide a defence where the use of the trade mark was not indispensable to the efficacy of the comparative advertising. In its submission, Hutchison’s advertisements would have been effective without the need to use O2’s figurative marks.

Hutchison itself cross-appealed, arguing that the lower court’s finding that the ads would have infringed but for the CAD was wrong, on the grounds that the use was not capable of affecting the origin-indicating function of O2’s marks and could not, therefore, amount to use capable of infringing.

 

Court of Appeal Decision

The Court was attracted by Hutchison’s submissions.

In particular, it pointed to consistent case law from the ECJ that the protectable subject matter of a trade mark was its essential, origin-indicating function. Use that served only to identify a competitor’s product or service as emanating from that competitor could not undermine the ability of the mark to denote the origin of the product or service. Indeed, it served to reinforce that origin-indicating message. In the view of the Court, the law should not concern itself with such use except where it was unfair, derogatory or otherwise did not conform with the CAD.

The Court further supported Hutchison against O2’s argument that the CAD only provided a defence where the use of a competitor’s trade mark was indispensable to the efficacy of the comparative advertising. It could not conceive of any rational legal basis for such a requirement, taking into account that businesses did not need to advertise comparatively at all.

More generally, the Court found the CAD itself vague on the extent to which it provided a defence to the infringement of various types of intellectual property rights. The ECJ, it opined, would eventually have to consider whether compliance with the CAD would afford a defence to any IP right infringement action against a comparative ad.

For now, the Court considered that the issue could be adequately addressed by referring to the S. 11 (2) (b) defence in the Trade Marks Act 1994, which was based on Article 6 (1) of the Trade Marks Harmonisation Directive. This permitted the use of “indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or rendering of the service, or other characteristics of goods or services,” provided the defendant used them “in accordance with honest practices in industrial or commercial matters.”

The Court considered that honest comparative advertisements would by definition fall within the scope of this defence, since they would be using competitors’ trade marks in a purely descriptive manner, namely to accurately identify the competitors as the source of particular goods or services. It was inclined, therefore, to find for Hutchison on the appeal.

Nonetheless, the deep ambiguities in the law in this area caused the Court to reserve its judgment and to refer questions to the ECJ on whether comparative advertising can infringe if the use of a competitor’s mark is not capable of undermining its origin-indicating function, and whether there is any requirement that the use be indispensable for it to enjoy a defence under the CAD. The ECJ’s guidance is awaited.

 

Champagne, Beer or Both?

In this case, De Landtsheer, a Belgian brewer, launched a new white beer produced using the method for making sparkling wine. It advertised the product as a “Champagnebier” and “La Première Bière BRUT au monde” (“The first BRUT beer in the world.”).

Comité Interprofessionnel du Vin de Champagne (“CIVC”) and Veuve Clicquot sued, claiming that De Landtsheer’s use of BRUT and “Champagnebier” amounted to unfair comparative advertising under Belgian law, which was based on the CAD. The Cour d’appel de Bruxelles referred to the ECJ questions on whether comparative advertising included ads that referred only to a type of product, rather than a specific product, and did not identify any competitors specifically.

 

The Advocate General’s Opinion

The Advocate General noted that the definition of comparative advertising within the CAD was broad. Under it, an advertisement was comparative if it identified one or more competitors, either expressly or by implication. However, it was essential that one or more specific competitors be identified, rather than just all competitors in that field, generally.

Where an advertisement referred to a type of product rather than to a specific product, it could be regarded as subject to the CAD only if one or more specific competitors could be identified from the ad. This was a question of fact for the national court.

A reference to a type of product could potentially be tantamount to identifying one or more specific competitors, for example if there were only a small number of undertakings active in that field. However, each of those undertakings would have to be known to, and called to mind by, the consumer individually. Reference to a designation of origin on its own would not, in the Advocate General’s view, be enough to meet this requirement unless each of the authorized users of the designation were conjured up individually by the ad.

 

Comment

The Advocate-General remarked that the CAD was not intended to prohibit less aggressive forms of comparative advertising such as mere harmless boasting or claims of superiority as compared with all competitors.

It had, on the contrary, been drafted with the aim of liberalizing comparative advertising, not making it unlawful in circumstances where it would previously have been acceptable in most member states.

Despite this laudable aim, however, these decisions show that the courts are finding it a challenge to establish the boundaries of what is acceptable under the CAD. In O2, the ECJ will have to examine whether the CAD can prohibit use of a competitor’s trade mark where the use does not affect essential function, and whether it permits use of a competitor’s trade mark where that use is not indispensable to the effectiveness of the ad. In De Landtsheer, it must decide whether a comparative ad must invoke one or more specific competitors, rather than a group of competitors generally.

The impact of the answers will be far-reaching, and how the ECJ will rule is unclear. Even when its decisions are handed down, however, the competitive nature of the marketplace can be relied upon to ensure that the boundaries are pushed out yet further.