The wake from the ECJ's landmark ruling on unfair advantage in L'Oreal has at last reached English shores. The Court of Appeal recently applied the ECJ's guidance in deciding the case which was the subject of the reference, but its reluctance in doing so was glaring (L'Oreal S.A. & Ors. v Bellure NV & Ors, C-487/07 and  EWCA Civ 535).
Jacob LJ's scathing criticism may well make famous brand owners fear to tread where L'Oreal has passed, and his remarks expose potential weaknesses in the ECJ's ruling. Nonetheless, the ECJ's guidance is tolerably clear, if perhaps imperfect, and it remains of significant importance to famous mark owners in proceedings before EU national courts and IPOs.
Coming Home to Roost
The ECJ's ruling in L'Oreal was reported in detail in a past issue of Make Your Mark.
Briefly, the case concerned Bellure's use of well-known L'Oreal perfume names in comparison lists for smell-alikes, to denote that certain Bellure scents were cheaper imitations of L'Oreal's high-price, luxury perfumes. L'Oreal contended that the use of its trademark names was infringement under S. 10 (1) (identical mark-identical goods) and also under S. 10 (3) (registered mark with a reputation, where the use without due cause of a later identical or similar mark is likely to take unfair advantage of, or be detrimental to, the distinctive character or repute of the mark) of the Trade Marks Act 1994.
The Court of Appeal sought guidance from the ECJ on the correct application of these provisions, which were based on corresponding provisions in the Directive. In its guidance, the ECJ ruled that any use which was likely to affect inter alia the advertising function of a registered trademark could constitute infringement under the corresponding Directive provision for S. 10 (1) TMA, and that use of a mark to denote that a later product was a replica or imitation was capable of affecting the registered mark's advertising function. As regards S. 10 (3), the ECJ considered that any "riding on the coat-tails" of an earlier mark's reputation would amount to unfair advantage.
The case returned to a highly sceptical Court of Appeal. The Court began with its view that, in summary, the ECJ's ruling bound it to use trademark law to muzzle the defendants from telling consumers the truth, namely that its lawful smell-alike scents were less expensive imitations of L'Oreal's branded scents.
The Court lashed out at what it perceived to be a gross encroachment on freedom of speech and honest competition. It saw no harm to consumers in being told that certain goods were the same as other, branded goods, but cheaper, and considered that the inability of traders to impart this information would impede their ability to trade and competition in general.
The Court saw, moreover, danger in the ECJ's finding that "riding on the coat-tails" of an earlier mark's reputation was unfair advantage, failing to draw the line between what type of advantage was fair, and when it became unfair. It quoted extensively from academic writers who had expressed the same reservations.
In the other half of the judgment, and with clearly smouldering resentment, the Court of Appeal turned to apply the ECJ ruling to the facts of the case.
As regards, first, the comparison lists under S. 10 (1), these were clearly uses of an identical trademark for identical goods, within the course of trade. The defendants' use would only fall outside of that provision if it were "for purely descriptive purposes". In deciding whether it did so, it was necessary to consider whether the use affected any of the functions of the registered mark, including the communication, investment or advertising functions, even though the average consumer would not be confused.
The Court expressed extreme puzzlement with these functions, which it regarded as "vague and ill-defined." Indeed, it noted that all advertisements for competing products and services were naturally intended to undermine the advertising and investment function of competitors' brands, and indeed that was the fundamental point of comparative advertising.
Nonetheless, the Court of Appeal was able to reach an answer, it said, "because the Court [ie, ECJ] has said so." The ECJ had regarded the defendants' use as going beyond pure descriptiveness because it was used for advertising, and was therefore capable of affecting the advertising function of the mark. There was therefore infringement under S. 10 (1).
The Court noted that there was unsatisfactory ambiguity as to why the ECJ had viewed the comparison lists as falling within the Directive equivalent of S. 10 (1), without a descriptiveness defence under Article 6 (1) (b) of the Directive. Indeed, an earlier case where a jeweller had offered to cut a diamond in a certain shape by referring to an earlier registered trademark, because the use, despite clearly being an advertisement of a type, was regarded as descriptive of a characteristic of the goods (eg, a diamond cut in the Spirit Sun style; Hölterhoff; C-2/00).
The Comparative Advertising Directive did not, moreover, operate to save the defendants' use from infringement, because the ECJ had ruled that any use of a mark in a comparative advertisement, which denoted that the product being advertised was an imitation or replica of another, would not comply with the conditions within the CAD and would, in the ECJ's judgment, amount to taking unfair advantage of the reputation of the earlier mark.
Consequently, even if a descriptiveness objection might be said to apply under Article 6 (1) (b), it would be vitiated by the fact that the use was taking unfair advantage, and was therefore not in accordance with honest practices.
Consequently, the Court of Appeal found that the use of L'Oreal's trademarks in the defendants' comparison lists was infringement under S. 10 (1).
It was therefore not essential for the Court of Appeal to decide the claimants' case on S. 10 (3) infringement, but it did express its views briefly. It considered the ECJ's ruling to bind it to find unfair advantage in every case of clear free-riding or riding on coat-tails, which was of course the case here. The Court regretted that there was no line drawn between permissible and impermissible free-riding - all were regarded as leading to advantage, and all such advantage was regarded as unfair. Consequently, had it been necessary to decide the point, L'Oreal would have won on that ground as well.
The Court of Appeal had a point in its criticism of the overarching nature of the ECJ's ruling, which was effectively that all advantage derived from the use of another's famous mark in comparative advertising is inherently unfair.
Surely whether advantage is unfair or not is a question of fact for the national courts to decide, but the ECJ's pronouncement on the issue leaves little for national courts to discuss. Arguably, though, it may be possible to imagine some circumstances in which using another's well-known mark to promote one's own goods and services is fair.
Moreover, it is indeed hard to see where the line is drawn between use of another's mark as a means of comparison in oral representations and use of another's mark as a means of comparison in written advertising. In one case (Hölterhoff) in the other (L'Oreal), the ECJ has found a defence on the basis that the use merely denoted a characteristic of the advertised goods. In the other, the ECJ has pointed, categorically, toward infringement without a defence. There should be no difference between how oral and written advertising are treated for the purposes of trademark infringement. The ECJ should clarify this apparent muddle.
What remains clear, though, is that replica and imitation products are severely hobbled, if not doomed, under the current law, since even where the products themselves are lawful, the manufacturers and retailers cannot tell the public in so many words what they are. Rather, it must offer them silently and hope that the consumer is able to make the connection without any help. It is a discouragement to the trade in look-alikes, smell-alikes and knock-offs, a trade that is sufficiently lucrative and pervasive that L'Oreal is unlikely to be the last word.
For all the legal imperfection, though, famous brand owners can take considerable comfort from the L'Oreal rulings, since an automatic finding of unfair advantage arising from piggybacking will reduce the need to invest so heavily in evidence preparation on that point when dealing with comparative advertising and "wannabe" rivals.
Although the Court of Appeal did not consider the issue, brand owners would do well to bear in mind, as well, the ECJ's comments on "image-transfer". Little of value can be won by a rival using a mark similar to that of a more established rival if he does not benefit from the positive market recognition and image of that rival.
Brand owners should therefore be mindful of the need to create, track and care for the image of their brand, as proof of their efforts in that regard may be invaluable later in court or IPO proceedings against a similar mark. A well-cared for brand is likely to be a more valuable one.