Aggressive competitors

Europe

Rafi Azim-Khan - Pillsbury Winthrop Shaw Pittman

Pillsbury Winthrop Shaw Pittman's Rafi Azim-Khan looks at how you can use your IP rights and other options to restrict aggressive competitor marketing

To what extent can you use IP rights to deal with aggressive competitor marketing or trading behaviour? How far can a competitor go in making claims about its new product, service or brand and can they use or refer to your brand in the process? In Europe, are IP rights sacrosanct and always available to be used to stop others in prima facie breach or are they now subject to caveats and controls brought about by developments at EU Directive (and ECJ) level, particularly regarding comparative advertising and unfair commercial practices?

These are increasingly important questions and even more so in tough economic times. While the UK economy has only recently avoided a triple-dip recession, it remains a fact that companies are fighting harder than ever for market share. Pressure is on to launch and market new products or services. With less business and revenue to go around, companies are taking an increasingly dim view of competitors eroding their market position or undermining their brand through "unfair" or "aggressive" comparisons with their products. So where can one draw the line? Have legal developments been a help or a hindrance?

In this article, we consider to what extent one can use intellectual property rights (or other rights or options) to either go on the offensive to try to curtail a competitor's sales or marketing activity or, conversely, to shield oneself from another asserting IP rights infringement.

Aggressive marketing practices

Although lawyers developed a fairly good understanding of the original EU Trade Marks Directive (89/104/EC, as subsequently updated by 2008/95/EC, the TM Directive or TMD) over time, particularly the ability to look to take infringement action over the use of registered marks by third parties without consent (subject to certain "honest practices", "unfair advantage" and "detrimental use" exemption tests), EU law in this area significantly evolved following a key 2008 ECJ decision and the introduction of two key EU Directives, namely Directive 2006/114/EC on Misleading and Comparative Advertising (updating 97/55/EC, the Comparative Advertising Directive or "CAD") and Directive 2005/29/EC (the Unfair Commercial Practices Directive or "UCPD").

On the plus side, for a competitor looking to "shop" a rival it feels is overstepping the mark to regulators, these two pieces of legislation offer a wide range of new options and outlawed commercial practices to potentially point to depending on what the competitor is doing. In summary, they replaced a whole host of laws which previously governed pricing, product descriptions, comparative advertising, sales activity and so on. In the UK these were implemented by virtue of the Business Protection from Unfair Trading Regulations 2008 (BPR) and the Consumer Protection from Unfair Trading Regulation (CPRs).

If the competitor is, therefore, aggressively eating into one's market share through exaggerated pricing/savings, or via performance claims or product descriptions that are not accurate and so on, it is likely the same may be unlawful under the UCPD/CPRs. There is also now a long list of blacklisted sales and trading activities that will always be deemed unfair. This is explored a little further below. All of this is also, of course, in addition to a company looking to stop a competitor via direct IP rights infringement action.

At this point it may sound like one-way good news for trademark and other IP rights owners. The reality is, however, quite a bit more complex.

European rulings

An important case that highlights some of this complexity around the use of IP rights to prevent aggressive competitor marketing in Europe, and one with which your author was involved, was the dispute between two major mobile phone networks, O2 Holdings and O2 (UK) v Hutchison 3G, which resulted in a very important European Court of Justice ruling on the juxtaposition of the Trade Marks Directive and the Comparative Advertising Directive. The case, also known as the "Bubbles Case", concerned use of O2's registered bubble imagery marks without consent in TV advertisements for the 3 network. Key questions included whether use of a mark without consent in a comparative advertisement amounted to trademark use or use in the course of trade and was therefore potentially actionable. A crucial question concerned the very role of IP rights in light of the specific directive that governed when such advertising would be lawful or not, was the CAD truly the "exhaustive" authority to the exclusion of the TM Directive?

This latter question had two related sub questions which caused great concern to IP lawyers. Did the operation of CAD mean that even if one could show actionable trademark rights under Art 5 (1) or Art 5 (2) of the TMD one could not in fact use the same to prevent use of those marks? In short, did the CAD take precedence over the TMD?

To help make sense of how trademark rights can (or cannot) be used in such a situation it is necessary to understand this "exhaustive" approach and the checklist laid down by the CAD across the EU.

The Comparative Advertising Directive applies to both B2C and B2B activity. It also sets the rules under which comparisons and advertisements identifying (and using the trademark of) a competitor or a competitor's goods/services are allowed or prohibited.

The ECJ ruled on this in the case of Pippig Augenoptik v Hartlauer Handelsgesellschaft, determining that national courts had to determine whether comparative advertising was lawful solely in accordance with the provisions of the Comparative Advertising Directive.

A comparative advertisement is one that explicitly or by implication identifies a competitor or goods or services offered by a competitor. These are permitted so long as the advertisement fulfills the following conditions:

• It is not misleading i.e. it does not deceive or it is not likely to deceive the people to whom it is addressed, therefore not affecting a person's economic behaviour injuring a competitor by reason of its deceptive nature;

• It compares goods and services meeting the same needs or intended for the same purpose. So, put another way a marketer must compare apples with apples;

• It objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price;

• It does not discredit or denigrate the trademarks, trade names, other distinguishing marks, goods, services or activities or circumstances of a competitor;

• For products with designation of origin, it relates in each case to products with the same designation;

• It does not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products;

• It does not present goods or services as imitations or replicas of goods or services bearing a protected trademark or trade name; and

• It does not create confusion in the marketplace between the advertiser and a competitor or between the advertiser's trademarks, trade names, other distinguishing marks, goods or services and those of the competitor.

This last element became a key aspect of the ECJ ruling in O2 which we will return to.

When asked to confirm the position, the ECJ held in O2 that the CAD was indeed to be the comprehensive test of what was to be permitted or not. If a company complied with the CAD, then otherwise actionable trademark rights could not be used to stop the use of those marks in marketing or comparisons. The CAD did indeed take precedence over the TMD.

So, is this all bad news for IP rights holders? Well, the ECJ decision in O2 did clarify one welcome, albeit narrow, point in particular, namely the "confusion" hurdle in the CAD checklist. If one can show the necessary grounds to establish an actionable infringement on likelihood of confusion grounds under Art 5 (1) (b) then it is likely that the competitor using your mark would struggle to pass the CAD hurdle (where the marketing must not create confusion). The key point, of course, is that if you cannot pass all the checklist requirements the CAD "shield" falls away.

Another piece of good news for trademark owners followed in the form of another ECJ decision which again found a way to look at non fulfillment of the CAD checklist as the route to remedy.

In the case of L'Oreal v Bellure, a case concerning "smell a like" imitation perfumes, the ECJ considered that (i) unfair advantage could be taken of the repute of a mark under the Trade Marks Directive without the need to show either a likelihood of confusion or detriment to the registered mark; and (ii) the Comparative Advertising Directive rules prevented an advertiser from stating explicitly or implicitly in comparative advertising that its product or service was an imitation or replica of a product bearing a well-known trademark.

Options against competitors

Trademark owners, as a result of these developments, have a mix of options when trying to deal with competitor marketing they feel is overstepping the mark. Trademark infringement action can still be considered in comparative use cases if there is good likelihood of confusion, on the basis that the possible defence provided by the CAD could fall away.

If, however, this is not reasonably arguable (in the O2 case the ECJ held there was no confusion) then such use of trademark rights may not be an option.

The L'Oreal case also confirms confusion is not the only ground and that one should carefully focus on all the elements of the CAD checklist to see if there are other grounds for showing the requirements are not met and hence removing the shield it can otherwise provide to the competitor.

One could also possibly consider another "creative" approach trying to use other IP rights such as happened in the case of McDonald's Hamburgers v Burger King.

In this case, the outcome of which surprises many, McDonalds successfully ran a passing off argument to prevent marketing from its up and coming rival. There is no guarantee a similar approach would work today, and again one would have to look at the operation of the CAD, but it is an example of possible creative thinking relating to use of unregistered rights.

In summary, there are five categories of unfair commercial practices which are outlawed under the CPRs: (i) those which cause the average consumer to buy a product he/she would not otherwise have bought; (ii) misleading actions; (iii) misleading omissions; (iv) aggressive actions; and (v) blacklisted practices (ie a set list of practices which will always be considered unfair).

Therefore, an advertisement which falls foul under the BPRs may also fall foul under the CPRs (which may also potentially catch a host of additional sales and trading techniques that may cause concern).

One should also not overlook the Advertising Standards Authority in the UK and the ability to put pressure on a rival that is engaging in misleading marketing. As it costs less than litigation, has the ability to make media refuse marketing, will give a rival negative publicity and has the power to refer to the OFT, it is an option to seriously consider in the mix.

It is likely the tougher economy will see businesses compete ever more fiercely for market share and seek to generate the same sometimes with marketing and sales efforts that cross the line. While the CAD has certainly complicated the ability to use one's IP rights against a competitor engaging in comparative marketing, possibilities still remain as highlighted above and the new EU wide rules on marketing (comparative or otherwise) and commercial practices have provided additional tools to be considered.

Rafi Azim-Khan is a partner and head of IP/IT & privacy, Europe at Pillsbury Winthrop Shaw Pittman.