The decision the European Court of Justice (“ECJ”) in the case of L’Oréal v Bellure (Case C-487/07, 18 June 2009) was widely reported. It held that referencing of well-known registered trade marks for perfumes in the promotion of ‘smell-alike’ products - cheap imitations of the famous brands - infringes the trade mark. Further, the ECJ held that any unauthorised use of a registered trade mark in comparative advertising is unlawful if the advertiser presents its product (expressly or by implication) as an ‘imitation or replica’ of that brand. The decision and some of the language employed by the Court signalled a shift in European trade mark law towards increased protection for trade marks emphasising the investment and advertising value of marks in addition to their fundamental legal function as indications of origin.

It was left for the UK Court of Appeal (“CA”), which referred the case to the ECJ, to implement the ruling. On 21 May 2010 the Court handed down a decision that finally brought the case to closure. The CA duly - and inevitably - gave a judgment for the claimant. In doing so, however, the CA expressed regret over the ruling of the ECJ and called for the law to be changed through legislation. Lord Justice Jacob, delivering the leading judgement for the CA (with whom Lord Justices Wall and Rimer agreed), did not mince his words in voicing his criticism. He said the ECJ’s decision unduly interfered with free speech, that it would stifle competition, that it failed to provide necessary guidance on the law, and that it was inconsistent with previous case law.

Fairness v. Competition

The issue - as viewed by the CA - concerns the balance between fairness and competition considerations. There was never any doubt that the promotion of cheap ‘smell-alike’ imitation perfumes by reference to the leading brands whose smells they copied took advantage of the reputation of the leading brands. After all, the whole point of an imitation is to do so. The question was whether the law allowed products to be promoted in that way for the sake of maintaining a healthy competition in the market and to protect the consumers’ interest to be informed of the comparable characteristics of products.

There was consensus that the comparison in this case was perfectly truthful and not misleading in any way. It consisted simply of identifying to consumers and traders the well-known brands which the imitation perfumes imitated. Further, there was no issue of the practice causing any actual harm to the leading brands. The smell-alike imitations were not in competition with the leading perfume brands. They were bottom-of-the-market products offered at prices a fraction of those commanded by the well-known brands. There was no confusion, disparagement, blurring or dilution of the leading brands’ reputation. The only conceivable harm, the CA said, was that the existence of cheap imitations which successfully imitate the smells of well-known perfumes may suggest to consumers that the exclusive image of the leading brands 'may be a bit of a delusion' (although the defendants did not claim in their promotions that the quality of their imitations was equal to the original perfumes they imitated).

The CA referred the case to the ECJ exactly on that footing. It asked whether in cases where there was no confusion and no harm caused to the trade mark owner, could there still be an infringement on the grounds that the registered mark was used to promote an imitation product and/or on the ground that it took unfair advantage of the leading brand’s reputation? The ECJ responded affirmatively to both questions.

Promoting a Replica or Imitation Product by Reference to the Leading Brand

On the first issue, the ECJ held that whilst a 'purely descriptive' reference to a registered trade mark does not amount to an infringement under Article 5(1)(a) of the Trade Marks Harmonisation Directive (as previously held by the ECJ in Hölterhoff v. Freiesleben) this was not so when a mark was being referenced in advertising (including in comparative product lists distributed to traders). Secondly, although it is not trade mark infringement to refer to a registered trade mark in comparative advertising provided that the advertising complies with the Comparative Advertising Directive (Directive 97/55/EC, “CAD”) - as held by the ECJ in O2 Holdings Ltd v. Hutchison 3G UK Ltd - the CAD does not allow advertising that presents a product as an ‘imitation or replica’ of another product (Article 3a(h)).

Accordingly, the ECJ held that the use of the perfume marks in comparison lists in connection with the promotion of imitation perfumes was not protected from infringement as 'purely descriptive' use and was not allowed by the CAD because it presented the smell-alike products, at least by implication if not expressly, as imitations or replicas.

Comparison that Takes ‘Unfair Advantage’

On the alternative grounds (under Article 5(2) of the Trade Marks Harmonisation Directive) the ECJ held that the promotion of imitation perfumes by reference to the leading brands’ registered trade marks in comparative lists amounted to taking 'unfair advantage' of the reputation of the well-known trade marks. The Court characterised such use as 'riding on the coat-tails' of the leading brands and held that such use took 'unfair advantage' of the reputation of the claimants’ marks. On the same reasoning, the ECJ held that the comparative use was not permitted under the CAD (as it prohibits comparative advertising if it takes ‘unfair advantage’ of the reputation of another person’s trade mark).

The Court of Appeal’s Criticism of the ECJ’s Decision

The ECJ, therefore, did not depart from the language of the legislation in reaching its conclusion. The CA, however, criticises the way in which the ECJ interpreted the legislation.

The CA said that the ECJ failed to draw a clear line between lawful 'purely descriptive' comparative use of a mark and actionable comparative use in 'advertising'. In Hölterhoff v. Freiesleben two trade marks were used by a seller of semi-precious stones in the course of commercial negotiations with a buyer to describe the type of cut of the seller’s stones (the marks were not used in the purchase order or invoice). Such use was held by the ECJ to be 'purely descriptive'. In L’Oréal v Bellure the registered marks were used in comparative lists distributed to traders to identify which perfumes were imitated by the products on sale. In both cases the seller intended to convey information about its products to potential customers by reference to a third party product (using the third party's registered trade mark to identify its product). The CA said that the ECJ failed to explain why the use of a registered mark to describe the type of cut of a stone offered for sale was held to be outside the reach of trade mark law whilst the reference to a branded perfume to describe the smell of a cheap imitation was an infringement and to explain where exactly the line was drawn.

In fairness, however, the approach of the ECJ is neither illogical nor inconsistent. The ECJ recognised that sometimes a trade mark might be used to describe a characteristic of another product. A particular example of such use is provided in the directive itself, which allows the use of a trade mark to indicate the purpose or intended use of a product, particularly as a spare part or accessory item. In Hölterhoff the ECJ expanded the rule in respect of similar cases where a mark is used purely descriptively. It is quite a different matter to promote one’s products, purposefully and systematically, by linking them directly to famous brands which the products seek to replicate. In the latter case the well-known brand is referred to not just to highlight or describe an important characteristic of the product on sale; it is the predominant if not only selling point (alongside the price). Although it may be difficult in some cases to determine whether or not the use of a mark falls under the 'purely descriptive' exception, the distinction the ECJ has drawn is not meaningless.

Next, the ECJ examined the position under the CAD, which prohibits comparative advertising that involves presenting a product as an ‘imitation or replica’ of another product. The question in this regard was purely one of interpretation. The ECJ rejected the suggestion that the CAD prohibition was meant to capture only the promotion of counterfeit products. Instead, the ECJ adopted a broad, if quite literal, approach to this provision. According to its ruling, Article 3a(h) of the CAD prohibits any comparative advertising that suggests, expressly or even by implication, that the advertised product imitates or replicates an essential feature of another product. The CA pointed out that in adopting this broad approach the ECJ ignored its own long established rule that the exceptions (or prohibitions) listed in the CAD should be interpreted narrowly and as favourably as possible to the comparative advertiser. The CA said it could not see the justification for a broad interpretation of the rule prohibiting the presentation of a products as an 'imitation and replica' and added that it could not see any rational basis for Article 3a(h) on any interpretation. It asked why a trader selling lawful replicas or imitation products should be prevented from informing the public of the true nature of those products.

This is, perhaps, the crux of the difference of views between the ECJ and the CA: in the eyes of the ECJ it is unlawful for a trader to exploit the reputation of another by referring to its trade mark. A comparative reference might be legitimate, but not where a product is promoted through the exploitation of the reputation of another mark. In the eyes of the CA it is in the essence of a competitive marketplace that traders should be allowed to do so, as long as they do it honestly, without deception or confusion, and with no denigration or tarnishing of their rivals’ brands. Therefore, such use should be actionable only where it 'unfairly' takes advantage of the trade mark's reputation.

The CA decision in L’Oréal v Bellure is significant in this context because it actually takes one step further than the ECJ. Whilst the ECJ’s interpretation of the notion of ‘unfair advantage’ is undoubtedly broad, the Court has not gone so far as to shut the door on the defence argument; in future cases, a defendant can still argue that although its use of the claimant’s trade mark may exploit the reputation, the use is not (for one reason or another) and thus not an infringement. By contrast, the CA laid down an authoritative and binding interpretation of the decision of the ECJ according to which in examining the question of 'unfair advantage' (for the purposes of Article 5(2) of the Trade Marks Harmonisation Directive and Article 3a(g) of the CAD) a court in the UK ought not examine whether the defendant’s use of the mark is unfair. According to the CA, it follows from the ECJ decision that the examination should be restricted to the question whether such use involves 'taking advantage' of the mark’s reputation. If it does, it must be held to infringe. Unless the ECJ (or the UK Supreme Court) clarifies in the future that 'unfairness' should nevertheless be examined, the courts in the UK (including the CA which is bound by its own decisions) will now be bound by this decision of the CA.

Overall, the CA finds the result unsatisfactory because trade mark law will now bar traders from conveying truthful non-misleading information to consumers and prevents the marketing of legitimate products (here, imitation perfumes), to the detriment of the interest of competition and consumers. The CA says that this could have serious implications on the competitiveness of the European marketplace. One example it gives is that the decision implies that manufacturers of generic pharmaceuticals must not tell consumers or even their pharmacists that their products are generic versions of well-known brands (even if they do so only in catalogues or lists whilst the packaging of their products displays only the generic name and their own brand). The example is perhaps not an ideal one because pharmaceutical products are often known by their generic name as well as the branded mark and generic versions are normally sold by reference to the generic name, not by reference to the branded original. However, the example illustrates the point that competition and consumers’ interest require similar products to compete in the market - which includes so called ‘generic products’ - and various replicas and imitation products and that it is very difficult to promote these products effectively without referencing the leading brand.

The European Commission itself might have its own reservations regarding the ruling in L’Oréal v Bellure (as reported in connection with another case, Interflora v Marks & Spencer, currently before the ECJ). The Max Planck Institute is currently examining European trade mark law at the request of the EU Commission and the CA added a call to re-examine the CAD as part of the review. However, until changes to the law are introduced by legislation (and unless the ECJ itself reverses its ruling) the owners of strong well-known trade marks that enjoy a reputation in Europe will be well positioned to fight against competitors, small and large, seeking to promote their products 'riding on the coat-tails' of the successful brand.