The Court of Appeal last week cast doubt on a decision last year holding that "free riding" on another product's reputation and benefiting from the efforts put into promoting it can amount to trade mark infringement even where there is no apparent harm or damage to the mark or the product concerned. It was similarly unconvinced by the trial judge's finding that the use of a third party's trade mark in a comparison list is unlawful. However, no firm judgment has yet been given by the Court of Appeal, with a number of questions referred to the ECJ for a preliminary ruling.

Smell-alikes and Look-alikes

The first instance decision of Mr Justice Lewison in L'Oreal v Bellure was reported just over a year ago (see our newsflash 'Look-alikes, smell-alikes refused a "free ride" but escape "unfair competition"' of 10 October 2006) and concerned the sale of cheap perfumes by Bellure and others with apparently identical smells to expensive L'Oreal fragrances such as Trésor and Miracle. No claim could be brought against these "smell-alikes" for the copying of the smell (L'Oreal holding no trade marks for the smell, and there being no other possible cause of action under English law). Instead, L'Oreal brought an action for trade mark infringement and passing off in respect of

(a) the use of comparative tables distributed to wholesalers and other Bellure customers, explaining which smell-alike was meant to copy which original fragrance; and

(b) the use of similar bottles and packaging to the L'Oreal originals which the defendants admitted had been designed with "a wink of an eye" to that of the luxury brand.

L'Oreal won at first instance on the comparative tables and in respect of some of the bottles and packaging, where the trial judge found that there was sufficient similarity between the equivalent luxury and cheap products to create a "link" between them in the mind of the consumer. Both sides appealed. Lord Justice Jacob, giving the leading judgment of the Court of Appeal, largely approved of Lewison J's assessment of the facts but disagreed on his application of the law. However, in Jacob LJ's view, before the Court could properly decide the appeal there were key questions of interpretation of the Trade Marks Directive (the "Directive") that needed an answer from the ECJ.

Making comparisons – descriptive use?

It being accepted that creating and marketing smell-alikes offended no law, the argument was that the only practical way for the defendants to describe their legitimate products was to refer to the luxury and trade marked brand name – their use in comparative lists was therefore purely descriptive. This, the defendants argued, meant that their use was either outside of Art 5(1)(a) of the Directive altogether or caught by the defence under Art 6(1)(b), which allows descriptive use if it is in accordance with honest practices in industrial or commercial matters.

The judge accepted that in this case the comparison lists acted as advertising material for the defendants, material intended to be commendatory of the smell-alikes, and to promote them by reference to the well-known brands. As the result the smell-alikes gained a major promotional advantage. However, the image and the essential function of the trade marks for those brands were not adversely affected by the lists – customers were not deceived, and no one thought any less of the original brands.

The defence, if it applied, was one of comparative advertising, and the judge considered that there were similar issues in this case as in O2 v Hutchinson [2006] EWCA Civ 1656, which is awaiting a decision from the ECJ on questions referred to it. He noted that the making of a comparison by any trader was bound to take advantage of a well-known product, and that it was often essential for comparisons to be made (eg, by generic drug manufacturers), but that such comparisons were not automatically "unfair" for the purposes of trade mark and comparative advertising law.

He then referred four questions to the ECJ (set out in full at the end of this newsflash), the first being nearly identical to the question he referred in O2. All four related to the use of a third party trade mark in a comparison list to describe a characteristic of a product. Two of the questions related to particular wording in the Misleading Advertising Directive. His view was that the answers to the questions should lead to the conclusion that comparison lists, when used in such a way so that no damage is caused to the trade mark, should be lawful. European trade mark law, he said, "should not be overprotective".

Free riding not unfair if no harm done?

The question of whether the use of sufficiently similar packaging (so as to cause a consumer to "link" the products) which "winked" at the original brand's packaging could found a claim for Art 5(2) trade mark infringement, ie, that use of the defendant's sign took unfair advantage of, or was detrimental to, the reputation of the trade mark, was an entirely separate question, said Jacob LJ. The trial judge did not find any detriment but did find that the smell-alikes took unfair advantage of the well-known brands – by free riding and receiving part of L'Oreal's "reward for the costs of promoting, maintaining and enhancing" their trade marks. Jacob LJ agreed that the smell-alikes took advantage, but was unsure that doing so was "unfair" – given that no harm or damage was suffered by L'Oreal. His fifth question to the ECJ (again set out below) asked for its view on this point, his view, for what it is worth at this stage, was that it was not.

Passing off and unfair competition

Jacob LJ agreed with the trial judge's rejection of claims for passing off – there being no proof that anyone was misled by the smell-alikes. He also rejected an argument that smell-alikes, like domain names comprising third party trade marks, were "instruments of fraud", by analogy with the cyber-squatting case of BT v One in A Million [1999] FSR 1.

This case had earlier made headlines when at an interim hearing, a cause of action based on a tort of unfair competition was not struck out. No such tort exists in English law and the invitation to create one (by developing the law of passing off to situations in which there is no misrepresentation or deception) was roundly rejected at trial. Again, following a thorough review of the arguments and the authorities, Jacob LJ on behalf of the Court of Appeal also declined the invitation. In doing so it was his view that no such tort was desirable, and that should the courts or Parliament choose to create one they would "truly have let the genie out of the bottle" in creating something of a "wholly uncertain scope".

Conclusion

While the tort of unfair competition remains dead and buried (at least for now), this case now awaits the answers to some key questions affecting trade mark law. Those answers should develop further our understanding of what it means to take "unfair advantage" of the reputation of another's mark. They should also help to solve the problem noted by Jacob LJ as to where the line between permissible competition and unlawful trade mark infringement should be drawn in respect of the "free riding" by one on another's brand. Free riding, Jacob LJ states, is to a certain extent necessary for proper competition and lawful free trade, but it is not as yet clear whether the free riding in this case – by direct comparison and indirect "winking" – goes too far. Jacob LJ's view (with which a second judge agreed) was that it does not, but the third judge, Mr Justice Blackburne, was more cautious and remained unconvinced. 

Questions referred to the ECJ

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 smell) of goods marketed by him with the characteristics (and in particular the smell) of the goods marketed by the competitor under that mark in such a way that it does not cause confusion or otherwise jeopardise 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 in the course of trade uses (particularly in a comparison list) a well-known registered trade mark for the purpose of indicating a characteristic (particularly a smell of a fragrance product) of his own product (particularly its smell) in such a way that:

a) it does not cause any likelihood of confusion of any sort; and

b) it does not affect the sale of the products under the well-known registered mark; and

c) it does not jeopardize the essential function of the registered trade mark as a guarantee of origin and does not harm the reputation of that mark whether by tarnishment of its image, or dilution or in any other way; and

d) it plays a significant role in the promotion of the defendant's product

does that use fall within Art. 5(1)(a) of Directive 89/104?

3- In the context of Art 3a(g) of the Misleading Advertising Directive (84/240) as amended by the Comparative Advertising Directive (97/55), what is the meaning of "take unfair advantage of" and in particular where a trader in a comparison list compares his product with a product under a well-known trade mark, does he thereby take unfair advantage of the reputation of the well-known mark?

4- In the context of Art. 3a(h) of the said Directive what is the meaning of "presenting goods or services as imitations or replicas" and in particular does this expression cover the case where, without in any way causing confusion or deception, a party merely truthfully says that his product has a major characteristic (smell) like that of a well-known product which is protected by a trade mark?

5- Where a trader uses a sign which is similar to a registered trade mark which has a reputation, and that sign is not confusingly similar to the trade mark, in such a way that:

a) the essential function of the registered trade mark of providing a guarantee of origin is not impaired or put at risk;

b) there is no tarnishing or blurring of the registered trade mark or its reputation or any risk of either of these;

c) the trade mark owner's sales are not impaired; and

d) the trade mark owner is not deprived of any of the reward for promotion, maintenance or enhancement of his trade mark.

e)But the trader gets a commercial advantage from the use of his sign by reason of its similarity to the registered mark

does that use amount to the taking of "an unfair advantage" of the reputation of the registered mark within the meaning of Art.5(2) of the Trade Mark Directive?