A legal fight over hair care products highlights issues for private label brands.

The Federal Court of Australia’s recent decision in Moroccanoil Israel Ltd v Aldi Foods Pty Ltd has provided brand owners with an insight into the risks of implementing a private label brand strategy.

Argan oil extracted from the nuts of Moroccan Argan trees became internationally recognised following the success of Moroccanoil hair care products. In particular, Moroccanoil products became well-known for their distinctive turquoise label and dark glass packaging.

In 2012 Aldi launched a private label range of hair care products under the name Moroccan Argan Oil. Following the launch of Aldi’s range, Moroccanoil Israel Ltd (MIL) commenced proceedings against Aldi in Australia, alleging that through the sale of its Moroccan Argan Oil products Aldi had infringed its trade marks, was in breach of the Australian Consumer Law (ACL) and had attempted to pass off on its reputation.

Aldi subsequently filed a cross-claim for the rectification of the Trade Marks Register, seeking the removal of MIL’s Australian registered trade marks or at least a limitation on the scope of the registered goods for these marks.

While the Federal Court dismissed MIL’s trade mark infringement case, Katzmann J found that some elements of MIL’s ACL claims had been established. As a result, the Court granted a permanent injunction restricting the sale of the Moroccan Argan Oil products in Australia.

Rinse and repeat

In their evidence Aldi submitted that it often attempts to identify on-trend product categories in order to attempt to create its own versions of successful products.

The Court noted that Aldi’s staff considered that a benchmark rule of “at least 10 points of difference” was sufficient to differentiate a house brand from the market leader, such as Moroccanoil, whilst still being able to capitalise upon a particular consumer trend.

The limitations of tendency evidence

Section 97(1) of the Evidence Act 1995 (Cth) prevents parties from relying on evidence of character or reputation to prove that a person has a tendency to act in a particular way unless the court thinks that the evidence will have significant probative value.

On this basis Katzmann J refused to admit evidence that could have supported a finding that Aldi has a tendency to copy elements of the get-ups of other brands. MIL had sought to rely on this evidence to show that Aldi had used similar diagnostic cues in order to appropriate MIL’s reputation in its Moroccanoil product.

The MIL trade marks

MIL had previously been unsuccessful in opposition proceedings before the Registrar of Trade Marks who found that MOROCCANOIL was not inherently adapted to distinguish MIL’s goods from the goods of other traders. As a result, MIL only owns composite marks which include the word MOROCCANOIL in Australia.

The Court found that ‘Moroccan Argan Oil’ was used as a badge of origin by Aldi and that the sign was capable of distinguishing Aldi’s products from other Argan Oil products. Despite this, Katzmann J held that MIL had not established that the Aldi sign was deceptively similar to the MIL Marks as there was no real danger that an ordinary consumer, with an imperfect recollection of the MIL marks would wonder whether the Aldi products were related to MIL’s products.

While the Court also rejected Aldi’s cross claim for the cancellation of the marks, Katzmann J did order the removal of a sub-set of the designated goods on the basis that the MIL Marks had not been used in connection with these goods.

Affiliation, ‘naturals’ and performance benefits

In addition to their allegations of trade mark infringement, MIL also argued that Aldi breached the ACL because:

  • The get-up of the Aldi products gave rise to a representation that Moroccanoil and the Aldi products were affiliated with or had the approval of MIL;
  • Aldi misled consumers by representing that their products used ‘natural’ ingredients; and
  • Aldi made false representations regarding the performance benefits of Argan oil.

While the Court found that MIL had a substantial and valuable reputation in the get-up of some of its products, Katzmann J held that ordinary consumers shopping at Aldi wouldn’t be misled or deceived by the get-up of the Aldi products because of their lower price point.

The Court accepted that to the extent that Aldi copied the MIL products they did so only to take the concept of hair care that utilises Argan oil and didn’t attempt to appropriate MIL’s reputation by passing off their goods as MIL’s.

Despite this, Katzmann J found that the use of the phrase ‘naturals’ on Aldi’s products was misleading and misrepresented that the goods were of a particular standard or quality. While Aldi’s Argan oil was naturally sourced, the relevant products were predominantly synthetic such that they were not substantially made up of natural ingredients.

This also contributed to a finding that the amount of Argan oil present could not have made a material contribution to the performance of the Moroccan Argan Oil products.

Cheeky but not actionable

In related UK proceedings, Judge Hacon found that Aldi’s conduct in supplying an Argan Oil product with a similar get-up under the name ‘Miracle oil’ was not an actionable misrepresentation.

His Honour noted that while “some of the public interested in hair oil thought that the similarities were cheeky”, the question of whether Aldi had lived dangerously in replicating elements of the Moroccanoil get-up was not determinative of passing off.

Will phantom brands continue to spook market leaders?

Ultimately, Aldi successfully defended MIL’s trade mark infringement case and MIL’s claim that consumers would be misled by the get-up of the Aldi products. Despite this, Aldi was still restrained from selling their products because of the potential for consumers to be misled by the more generic representations used in Aldi’s branding.

Both the UK and Australian decisions in this dispute demonstrate that Aldi’s approach to creating low-cost house brands by focusing on points of difference can be effective. However they also serve as a reminder of the importance of being able to substantiate representations made in the course of marketing campaigns.