ECJ ruling clarifies the meaning of unfair advantage and introduces the law of unfair competition to English Law

On 18 June 2009, the European Court of Justice gave judgment in a reference from the English Court of Appeal in the case of L'Oreal SA and Others v Bellure NV and Others. Field Fisher Waterhouse LLP is acting for the Defendants in this case. The ruling, which concerns the application of Article 5(2) of the Trade Marks Directive (89/104/EEC) ("TMD") and the Directive concerning Misleading and Comparative advertising (84/450/EEC ("CAD"), comes as no surprise to practitioners in continental jurisdictions. However, to common law jurisdictions such as Ireland and the UK, it represents an unwelcome restriction on free competition.

The facts are, in brief, that the Defendants made and sold perfumes that smelt like the fragrances of the famous brands but at a fraction of the price. The Defendants' marketing strategy was to design their packaging so as to allude to the famous brands, without causing any deception or confusion. To assist retailers to sell their products, they put in circulation comparison lists identifying which famous brands their range of perfumes smelt like. In these lists, the Claimants' perfumes were identified by their registered trade marks.  The Claimants claimed that the use of their trade marks in the comparison lists infringed their trade marks under Article 5(1)(a) TMD and that the design of the packaging of certain of the Defendants' products took unfair advantage of their trade marks under Article 5(2) TMD.

In October 2007, the Court of Appeal referred five questions to the ECJ, including three questions concerning the interpretation of the words "unfair advantage" and how certain provisions of the CAD were to be construed. 

In relation to the first two questions, the ECJ has now ruled that the proprietor of a registered trade mark is only entitled to prevent the use of his mark by a third party under Article 5(1)(a) TMD if such use is capable of jeopardising the essential function of the mark or affects or is liable to affect one of the other functions of the mark. This ruling affirms the basic principle laid down in previous ECJ rulings (e.g. Arsenal Football Club, and Adam Opal). If none of the functions of a trade mark is affected, the use of the trade mark does not fall within Article 5(1)(a) TMD, even if the Defendant derives commercial benefit from his use of that mark.

However, if use of a registered trade mark in a comparative advertisement does fall within Article 5(1)(a) TMD, for the advertiser to avoid liability for trade mark infringement, the advertisement needs to satisfy a number of conditions laid down by the CAD. The ECJ has now provided guidance on the interpretation of two of those conditions.

The condition at Article 3(a)(1)(h) of the CAD, that the comparative advertising must not present goods or services as imitations or replicas of goods or services bearing a registered trade mark, applies to any imitation or replica, including imitations of particular characteristics of the goods or services of the Claimant, rather than the goods or services as a whole. Applying this ruling to the present case (something which the ECJ has no jurisdiction to do), the ECJ stated that the comparison list used by the Defendants did present the Defendants' products as imitations of the famous brands, and thus fell foul of this condition. In addition, by reason of this, ECJ ruled that the advertisement took "unfair advantage" of the reputation of the Claimants' registered trade marks, and thus fell foul of another condition laid down by the CAD at Article 3(a)(1)(g). The presentation of goods or services as imitations of a product bearing a trade mark is, the ECJ ruled, "inconsistent with fair competition and thus unlawful, any advantage gained by the advertiser... will have been achieved as a result of unfair competition and thus, accordingly, be regarded as taking unfair advantage of the reputation of that mark".

The third ruling of the ECJ and the one which has the greatest impact on trade mark law in the EU, is that Article 5(2) TMD is to be interpreted in a manner which is consistent with the ruling described above, namely any advantage gained from use of the reputation of a registered trade mark will be regarded as unfair competition and thus unlawful, even if there is no damage, or likelihood of damage, to the distinctive character or the reputation of the trade mark, by tarnishment, blurring, dilution or other detriment.

This ruling creates the surprising result that a claim under Article 5(2) TMD in relation to the use by a defendant of a similar, but not confusingly similar sign to a well known registered trade mark, whether in relation to the same goods or to different goods, may succeed without proof of any damage to the registered proprietor's trade mark, whereas a claim under Article 5(1)(a) in respect of the use by the defendant of a sign identical to the same registered trade mark in relation to identical goods, may fail if none of the functions of the trade mark is affected.

Thus it is said that unfair competition law has, finally, arrived within the United Kingdom. Our traditional common law of passing off has always required a claimant to prove deception, and damage to his business, before establishing a cause of action. All he has to prove now is that a defendant has gained commercial advantage from the reputation of his mark by establishing a link with his mark though use of a similar sign. The continental concept of "parasitical trading" is now part of English jurisprudence.

For further information, please contact Hamish Porter or Nick Rose.