All change!

The Misleading Advertising Directive (MAD) as amended by the Comparative Advertising Directive (CAD) is due to be repealed at the end of this year and will be replaced by the Misleading and Comparative Advertising Directive (MCAD).

Further, the case law is in a state of flux with the European Court of Justice (ECJ) considering a referral from the UK courts in the O2 v H3G litigation.
What is comparative advertising?

Article 2a of MCAD has retained the definition given by CAD:

"any advertising which explicitly or by implication identifies a competitor or goods and services offered by a competitor"

What legislation applies to comparative advertising?

Comparative advertising is legislated for at both a national and community level in both a direct and indirect manner. For example, MAD, CAD and now MCAD are all direct community level pieces of legislation as is the Unfair Commercial Practices Directive (UCPD). Examples of indirect legislation include the European Convention on Human Rights and its provisions concerning freedom of speech and the Trade Marks Directive. There are many other pieces of direct and indirect legislation applicable to this field.

In addition to legislation there are industry codes applicable to comparative advertising depending on the media employed. For example the Broadcast Television Advertising Standards Code (TV Code).

Who will hear your complaint?

Not surprisingly, given the choice of legislation and codes on offer there are a number of fora enabled to hear a complaint concerning comparative advertising for example the UK courts – and potentially the ECJ, the Advertising Standards Authority (ASA) the Office of Fair Trading (OFT), Ofcom, Trading Standards and so forth.

The choice of forum is very important as it can radically affect the outcome of the complaint. For example BA sued Ryanair for a series of price comparison adverts due to Ryanair using the phrase "Expensive BA****DS". The ASA upheld BA's complaint. The High Court dismissed it.

What is the legislature's approach to comparative advertising?

It is important to understand why the European and national legislators have been so committed to regulating comparative advertising when attempting to predict the outcome of any particular complaint.

A review of the recitals to MCAD (which are almost identical to those of MAD/CAD) assists in this regard and may be summed up by the following quotes.

"(2) …advertising reaches beyond the frontiers of individual Member States, it has a direct effect on the smooth functioning of the internal market.

(3) Misleading and comparative advertising can lead to distortion of competition within the internal market.

(6) The completion of the internal market means a wide range of choice. Given that consumers and traders can and must make the best possible use of the internal market and that advertising is a very important means of creating genuine outlets for all goods and services throughout the Community, the basic provisions governing the form and content of comparative advertising should be uniform and the conditions of the use of comparative advertising in the Member States and should be harmonised. Comparative advertising can also stimulate competition between suppliers of goods and services to the consumer's advantage."

The big issue

The big issue in our view is how do you reconcile the ability of an IP rights holder to prevent third parties from using his IPR with the seemingly blanket permission to use a third party's IPR in the context of comparative advertising?

This tension affects all IPRs but this article focuses on the issue in the context of trade marks because trade marks are the only IPRs specifically mentioned by the recitals to both CAD and now MCAD.

It will be a very rare comparative advertiser who does not make use of his competitor's trade mark in order to identify his competitor's goods and services.

However, the use of a trade mark in a comparative advertisement is not as innocent as simply being an identification of origin, it also often serves as a means of grabbing consumer attention for a less well-known rival i.e. free riding on the competitor's greater reputation. This free riding can also result in confusion or dilution of reputation where consumers might consider the rival company to be some form of next generation or merger with the more well-known brand. Further, the use of the competitor's trade mark is rarely done in a positive context and so there is often an element of tarnishing or detriment.

If you wish to complain about the use of your trade mark in the context of comparative advertising which legislation applies? Comparative advertising legislation or trade marks legislation, or both?

The trade marks legislation whilst providing routes for claiming infringement if use of a mark goes beyond mere origin identification in a comparative advertisement also provides for defences to claims of infringement. The defence usually cited in comparative advertising cases is Article 6(1)(b) .
(1)The trade mark shall not entitle the proprietor to prohibit a third party from using, in the course of trade
(a) …
(b) indications concerning the kind, quality, quantity, intended purpose, value geographical origin, the time of production of goods or of rendering of the service, or other characteristics of goods or services;
(c) …
provided he uses them in accordance with honest practices in industrial or commercial matters.

A number of questions arise if you wish to complain about the use of your trade mark in the context of comparative advertising:.

• Do you have a claim under trade mark law at all or is CAD (MCAD) the only relevant legislation?
• If you do have a claim under trade mark law does CAD (MCAD) offer a standalone defence?
• Alternatively if you have a claim under trade mark law is there a defence available under Art 6(1)(b) which has to be interpreted in light of CAD (MCAD)?
• Or do you ignore CAD (MCAD) and simply apply trade mark law in relation to the infringement case?

Trade marks legislation is silent on the issue of its inter-relationship with comparative advertising.

Conversely MCAD's recitals do refer directly to trade marks. Such recitals have been more or less copied from the recitals in CAD, and are presented below. However these recitals do not deal with the thorny issue of the interrelationship between the two sets of legislation and this omission in our view represents an opportunity missed.

"(13) Article 5 [of the TM Directive] confers exclusive rights on the proprietor of a registered trade mark, including the right to prevent all third parties from using, in the course of trade, any sign which is identical to, or similar to, the trade mark in relation to identical goods or services or even, where appropriate, other goods;
(14) It may, however be indispensable , in order to make comparative advertising effective, to identify goods or services of a competitor, making reference to a trade mark or trade name of which the latter is the proprietor;
(15) Such use of another's trade mark, trade name or other distinguishing marks does not breach this exclusive right in cases where it complies with the conditions laid down by this Directive, the intended target being solely to distinguish between them and thus to highlight differences objectively;"

This text seems to suggest that either there is no infringement at all if use of the mark is in the context of comparative advertising or alternatively, that there is a defence to trade mark infringement if use of the trade mark in the comparative advertisement "complies with the conditions laid down by [the ] Directive".

But what impact does "indispensable" have? Does it mean that use of the mark has to be "indispensable" as a condition of entry into the defence provided by MCAD? Or is it being used in a more colloquial form to highlight to EU countries which have traditionally banned the use of someone else's marks in comparative advertising that the EU regards use of such marks as indispensable in the context of such advertising. The meaning here of "indispensable" being "necessary" or "desirable".

What is clear from the caselaw is that whatever "indispensable" means it certainly doesn't seem to mean the same thing as the OED definition of "absolutely necessary" because such meaning would render any defence offered by MCAD toothless.

So, what are conditions laid down by the Directive? (Again the text shown is that of MCAD which is almost identical to those of CAD):

Article 4

1. Comparative advertising shall, as far as the comparison is concerned, be permitted when the following conditions are met:

it is not misleading according to Articles 2(b), 3 and87(1) of this Directive or Articles 6 and 7 of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market ("Unfair Commercial Practices Directive") ;

1. it compares goods or services meeting the same needs or intended for the same purpose;
2. it objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price;
3. it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, or circumstances of a competitor;
4. for products with designation of origin, it relates in each case to products with the same designation;
5. it does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products;
6. it does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name.
7. it does not create confusion among traders between the advertiser and a competitor or between the advertiser's trade marks, trade names, other distinguishing marks, goods or services and those of a competitor;

Case law

There have been a number of recent judgments from the UK courts and the ECJ. What follows is not a comprehensive list but instead highlights some of the major decisions.

European Court of Justice

Pippig Augentoptick GmbH & Co KG v Hartlauer Handelsgesellschaft mbH Verlassenschaft Nach Dem Verstorbenen Franz Joself Hartlauer - Case C-44/01 [2004] ETMR 5 - 8 April 2003

Pippig is a small specialist chain of opticians stocking big brand designer glasses. Hartlauer is a larger commercial chain of opticians stocking mainly cheaper brands and some big brands sourced from parallel importers. Hartlauer distributed a leaflet claiming that it had done 52 price comparisons over six years against traditional opticians which demonstrated that its offerings were much cheaper. It also cited one direct comparison with products sold by Pippig.

Hartlauer used Pippig's name, an image of Pippig's shop front and within such image the sign "Pippig" in its advertisements.

Pippig complained about the allegedly misleading nature of the price comparison and about the inclusion of its name, logo and shop front in the advertisements. Pippig submitted that the overwhelming manner of its portrayal went beyond that which was "indispensable" to properly inform the consumer of the comparison being made.

The important points in the ECJ's judgment in the context of this article are found at paragraph 84 in which it is held that it is permissible in the context of comparative advertising to not only cite the competitor's name but also to reproduce its logo and an image of its shop front if the advertisement complies with the provisions of "Community law".

In other words Pippig is of no assistance in the hunt for a definition of "indispensable" save to strongly suggest that it has a weaker meaning than "absolutely necessary". But what it does do is suggest that in order to gain justification for including a third party's marks and other insignia in your advertisement you must have regard to the wider panoply of Community laws as opposed to just those laws applying to comparative advertising.

UK

O2 Holdings Ltd & O2 (UK) Ltd v Hutchison 3G Ltd – [2006] EWHC 534 – 2004 (High Court), March (High Court) & December (Court of Appeal) 2006

H3G were relatively new entrants to the telecoms market in the summer of 2004. They decided to heighten their profile by using comparative advertising comparing their prices with those of the leading operators at the time.

The advertisement run against O2 consisted of the depiction of monochrome bubbles which crowded onto screen and then died away accompanied by gloomy music and a monotone voiceover announcing O2 prices. After half the running time the screen cleared to bright white onto which the multicoloured 3 logo danced accompanied by upbeat music and an upbeat voiceover announcing that 3's prices were much better than O2's.

O2 sued H3G for trade mark infringement of 12 of its bubble marks claiming use of a similar sign in relation to identical goods resulting in a likelihood of confusion and use of a similar sign in a context which took unfair advantage of or caused detriment to the reputation of its marks.

H3G defended relying on Article 6(1)(b).

O2's case was that H3G could not take advantage of the Article 6(1)(b) defence if its use was not in accordance with honest commercial practices which, in the context of comparative advertising, amounted to compliance with CAD. In which case, argued O2, use of the distorted bubbles could not be said to be indispensable when O2's name and logo was available for use, neither could it be said to be permissible to use approximations of O2's marks as opposed to the marks themselves.

H3G denied infringement and challenged the validity of the marks as lacking both inherent and acquired distinctiveness.

For the purposes of the case only O2 accepted the price comparison to be fair. Further, for the purposes of case management O2 was required to elect two marks to take forward to judgment in relation to its claim under s.10(2)TMA94 and a further two marks to take forward in relation to s.10(3)TMA94.

Mr Justice Pumfrey in an interim injunction judgment followed the approach that use of a trade mark in comparative advertising gives rise to a prima facie case of infringement, the legislation then provides a defence at Article 6(1)(b) provided use of the mark is in accordance with honest commercial practices. Mr Justice Pumfrey said that he ought to have regard to CAD but then applied the criteria set down by Jacob J (as he then was) in BA v Ryanair which was decided pre CAD. We propose to summarise Mr Justice Pumfrey's approach as stating that the TMD is engaged and that CAD has a very limited impact on the availability of the defence.

Mr Justice Lewison then gave the first instance decision.

Mr Justice Lewison held that the marks had both inherent and acquired distinctiveness and that O2 had established a prima facie case of infringement under Article 5(1)(b) but that H3G had established a defence under CAD. Mr Justice Lewison also found that O2 had failed to establish a case under Art 5(2) but that even if it had H3G would have had a defence under CAD. Mr Justice Lewison held that because the advertisement complied with CAD such compliance provided a defence under Article 6(1)(b) of the Trade Marks Directive (TMD). His approach may be summarised as stating that TMD is engaged but that CAD steps in and provides a defence without one having to consider TMD.

O2 appealed the decision claiming that there was no defence open to H3G. H3G appealed claiming that there was no case of infringement. The validity of the marks was not further challenged by H3G.

Lord Justice Jacob gave the leading judgment in the Court of Appeal which he opened by saying this case is about "How aggressively does EU law permit comparative advertising to go? Particularly can the advertiser not only use his rival's main name or trade mark but also, honestly, his subsidiary registered trade marks including marks embodying his trade imagery (what the Americans call trade dress)? The question deep down involves a decision based upon the philosophy of how competitive the law allows the European industry to be."

Accordingly the following questions were referred to the ECJ for decision:

1. Where a trader, in an advertisement for his own goods or services uses a registered trade mark owned by a competitor for the purpose of comparing the characteristics (and in particular the price) of goods or services marketed by him with the characteristics (and in particular the price) of the goods or services marketed by the competitor under that mark in such a way that it does not cause confusion or otherwise jeopardize the essential function of the trade mark as an indication of origin, does his use fall within either (a) or (b) of Art 5 of Directive 89/104?
2. Where a trader uses, in a comparative advertisement, the registered trade mark of a competitor, in order to comply with Art. 3a of Directive 84/450 as amended must that use be "indispensable" and if so what are the criteria by which indispensability is to be judged?
3. In particular, if there is a requirement of indispensability, does the requirement preclude any use of a sign which is not identical to the registered trade mark but is closely similar to it?

We are currently awaiting the ECJ's decision.

Boehringer Ingelheim Ltd, Boehringer Ingelheim Pharma GmbH & Co KG, Boehringer Ingelheim Vetmedica GmbH –v – Vetplus Ltd [2007] EWHC 972 – 26 April 2007

This is Court of Appeal decision given following a first instance decision by Mr Justice Pumfrey in connection with an application for interim relief.

Boehringer and Vetplus are rival manufacturers of dog pills. Vetplus ran advertisements comparing its pills with those of rival manufacturers including Boehringer. The advertisement compared the quantity of active ingredient in each pill and also flagged up any discrepancies in relation to the claimed quantity of the active ingredient on the labels of the products with the amount found in tests.

Boehringer did not come out of the comparison well and sued to prevent publication of the advertisements on an interim basis. Its claim was based on a number of arguments including defamation and trade mark infringement but the pertinent points for this presentation are that Mr Justice Pumfrey, when attempting to determine if the defence under Article 6(1)(b) applies turned not to the criteria set out in CAD but to the list of criteria adopted by Mr Justice Jacob (as he then was)in the British Airways Plc v Ryanair [2001] FSR 32, a case decided pre CAD.

Interestingly Mr Justice Pumfrey appears to have made no reference to Art 3a of CAD when determining "honest commercial practices".

The Court of Appeal's leading judgment was given by Lord Justice Jacob and so one might have expected him to stick to the views expressed in his judgment in the O2 case but this did not happen. Instead Lord Justice Jacob said that if the ECJ reference in O2 determines that the answer to the first question is "yes" then the trade marks legislation is engaged. If this occurs a defence is provided at Article 6(1)(b) the proviso to which is a requirement that the defendant act in accordance with honest commercial practices. Jacob LJ goes on to say that if an advertiser complies with the conditions laid down in CAD then he will by definition be acting in accordance with honest commercial practices. In other words if the ECJ answers yes to the first question then Jacob LJ appears to be endorsing Lewison J's approach.

Conclusions

• Comparative advertising is regarded by the courts in this country and the legislators in Europe as a "good thing".
• Business to business complaints about comparative advertising will be met with cynicism by the Courts. Maybe you should consider a different forum?
• The relationship between MCAD and the Trade Marks Directive and the Community Trade Marks Regulation is murky at best.
• We submit that it will be rare when use of someone else's trade mark in a comparative advertisement does not give rise to a prima facie claim for trade mark infringement.
• When faced with a prima facie case of infringement the obvious defence is Article 6(1)(b) but the following issues are currently "known unknowns" –
• What is the relationship between TM law and CA law?
• What does "indispensable" mean? Is it even a requirement for the CAD defence to apply?
• If indispensability is a precondition of the defence, can it ever be "indispensable" to use someone else's trade mark?
• What exactly are you allowed to use? The mark or other distinguishing features as used by your target? If so then which version? The version as registered or the version as used or a version which does not differ in material elements? Can you use all of their marks or only the most prominent? That is, does indispensability also refer to the number of marks that you use?
• Does CAD represent a blanket defence to any IP infringement? E.g. copyright?

All we can do is await the ECJ's judgment in the O2 reference and hope that it clarifies matters. However one thing is certain comparative advertising is not only here to stay but it is being made to feel very welcome by the legislators.

---

For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.