The Italian branch of the renowned Swiss multinational Nestlé has successfully defended its “Galak” branded line of white chocolate products before the IP Court of Milan, with particular focus on its Easter eggs.

Following interim proceedings in which it had already obtained a preliminary injunction, Nestlé filed a lawsuit for the alleged infringement of registered trademarks and unfair competition by an Italian confectionery company.

The plaintiff was the licensee of several trademarks containing the word “Galak”, used in connection with its white chocolate product line, including Easter eggs. In connection with the same products, the plaintiff had been using a fictional character for some time on the Italian market, a humanised milk drop called “Pluff”, registered as a Community figurative trademark.

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A “Galak” Easter Egg

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During the Easter sale campaign of 2012, the defendant launched its own white chocolate Easter egg line, marketed under the brand “CIOCOLAK” featuring packaging with a humanised milk drop called “Lak”.

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A “Ciocolak” Easter egg

During the same campaign, the defendant had also put on the market a line of Easter eggs bearing on its packaging the character Winnie the Pooh and some characters from the Disney saga, mirroring Nestlé’s Easter campaign of the two previous years.

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Nestle’s egg featuring Winnie the Pooh

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The Defendant’s egg featuring Winnie the Pooh

Nestlé claimed that these conducts constituted infringement of the trademarks in suit and acts of unfair competition in the form of slavish imitation, appropriation of merits and parasitic competition. Consequently, it requested the IP Court of Milan to make the injunction already granted against the defendant permanent and to award the resulting damages.

The Milan IP Court, however, rejected all of Nestlé’s trademark infringement claims. The Court noted that the signs “GALAK” and “CIOCOLAK” are conceptually different, the former evoking (as it contains the word “gala”, Greek for “milk”) the predominant presence of milk in the chocolate, the latter the chocolate alone. The two signs also differ from a visual and phonetic standpoint, the only similarity entrusted to the final ‘k’, upon which, in the Court’s view, all the strength of the distinctive sign cannot rely. According to the judges Nestlé’s figurative trademark representing a milk drop was also significantly different from the character used by the defendant, as it presented the typical, tapering contour of a drop, anthropomorphised with arms and legs and set in a particular posture, while the humanised drop used by the defendant had more of a round shape, presented only two hands detached from the main body and evoked a “smiley” icon more than anything else.

Ultimately, according to the Court of Milan, despite the identity of the type of goods for which the allegedly conflicting signs were used, the low degree of similarity between the same, along with the presence on the packaging of the defendant’s products of the latter’s company trademark in a pre-eminent position, ruled out the likelihood of confusion, even in terms of likelihood of association.

The Court, however, turned its attention away from the trademarks as such to the products and the defendant’s marketing strategy, and upheld Nestlé’s unfair competition claims.

First, the Court found that the likelihood of confusion, ruled out for the trademarks, was on the contrary apparent when the packaging was taken into consideration, which led the judges to uphold the claim of slavish imitation.

The judges found that, on the one hand, Nestlé packaging had been proven by the plaintiff to be original and distinctive of its products, thanks to the combination of its various features, particularly the choice of a humanised drop of milk, thus departing from the generality of the competition’s packaging; and that, on the other, the differences between the packaging in suit was “… virtually imperceptible to an overall examination and, especially, to a non-contextual comparison between the two products”. In this regard, the Court emphasised the presence on the defendant’s packaging of an “ impressive amount of similarities and conceptual references” to the plaintiff’s products, noting that, even apart from the colour choices, “… it is certainly not irrelevant that the (defendant’s) packaging, like Nestlé’s, is dominated by the image of a humanised drop of milk (although graphically different) emerging (‘jumping up’) from a splash of milk. … These chromatic and figurative similarities, which cover all the main features of the packaging, are coupled with a certain literal similarity of the product trademark, which, although it is not, as already stated, sufficient to constitute trademark infringement, contributes to the overall aspect of the two products and their likelihood of confusion“.

The Court also found the plaintiff’s misappropriation of merits claim to be well founded. The judges held that the defendant had intended “… to place itself in the white chocolate Easter egg market, dominated by Galak products, by appropriating the quality and market appreciation conquered by Nestle, with the evident intention of overlapping a share of the relevant market, without even trying to accredit itself by facing the start-up costs“.

Perhaps the most interesting part of the ruling is the one that concerns the parasitic unfair competition claim, a form of “free-riding”. The Court noted that, even in the absence of likelihood of confusion, an integral imitation of different products allow competitors to appropriate parasitically and at little cost of the investments that others have made for the placing on the market of original goods, and thus to inflate the market of products – sold at a lower price – enjoying the commercial credit already achieved over the years by the imitated company’s products, while at the same time reducing its competitive strength.

In the case at issue, the judges took into account the fact that, in addition to imitating the plaintiff’s packaging on its “CIOCOLAK” eggs, the defendant had also copied the use of Winnie the Pooh and some characters from the Disney saga, already used by Nestlé on its Easter egg packaging in the previous season, thus “following the plaintiff’s steps” in terms of marketing strategy with no marketing effort other than paying royalties to the owners of the relevant rights on the above characters.

According to the court, this was “a textbook case of synchronic parasitic competition“, characterised by the reproduction of all the initiatives of a more accredited competitor, and formed by conducts which, taken individually, may be in themselves lawful, but, if considered as a whole, are contrary to the principles of fair competition, since they are intended to profit parasitically from the competitor’s efforts for commercial accreditation. The imitation of almost everything a competitor does, especially if “synchronic”, i.e., almost simultaneous “… whether or not it produces confusing effects on the origin of the goods, expands the imitator’s potential to take advantage, without any marketing and advertising efforts, of the onerous exertions made by the imitated competitor to win a share of the market for their products“.

Thus having established the unfairness of the competitive conduct of the defendant, the Court of Milan confirmed the injunction already granted in interim proceedings, enjoining the defendant from the further promotion and marketing of eggs bearing the disputed packaging, and from any further parasitic imitation of the plaintiff’s initiatives.

The Court also granted the plaintiff’s request for damages, which were calculated, however, on an equitable basis, as a percentage of the gross operating margin made by the defendant from the sales of the products in suit and not, as requested by the plaintiff, on the basis of the latter’s loss of market share. The Court found in fact that the plaintiff had failed to prove the existence of a direct correlation between the defendant’s conduct and its loss of revenue, considering it instead attributable to the general economic crisis.