Facing Off Fairly

WHEN PEPSI CHALLENGED Coke to a taste test in malls two decades ago, and then publicized the results, few in the U.S. market called foul. But sensibilities in the European Union are more finely attuned to the potential risks of comparative advertising.

In 1984, the EU issued Council Directive #84/450¹ to harmonize regulation and prevent misleading advertising. After implementation of #84/450 in the legal systems of the Union’s member states, it soon became clear that additional provisions were necessary for comparative advertising.

In 1997, a supplemental directive, #97/55, defined comparative advertising as “any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor.”₂

While comparative advertising is allowed as a general principle, to be considered legitimate:

• It must avoid misleading messages and confusion between the advertiser and its competitors.

• It must not discredit, denigrate or take unfair advantage of a competitor’s trademarks, trade names or other distinguishing materials.

• Any comparative claims must also relate to goods or services meeting the same consumer needs or purposes.

• Comparative advertising content must be objective, material, relevant and verifiable.₃

  For all its good intentions, the new directive soon ran into trouble. Marketers and their attorneys felt that the requirements were too vague and open to divergent interpretations.

  Two cases that have been filed with the European Court of Justice (ECJ) address core issues under #97/55. The first was in Germany, where Toshiba Europe brought an action against Katun Germany, a local distributor of after-market spare parts and replacement items used in Toshiba photocopiers. Toshiba objected to the use by Katun of Toshiba’s OEM product numbers in its offers. The German Court hearing the case requested clearance from the ECJ on the following pertinent points:

• Is an ad considered “comparative advertising” if it indicates the manufacturer’s product numbers or other reference information in order to allow the consumer to understand replacement parts? If it is comparative advertising, would a legitimate comparison occur₄ if the ad indicated the manufacturer’s product OEM numbers alongside the supplier’s own order numbers for price comparison purposes?

• What criteria should be used when assessing whether an ad takes unfair advantage of the reputation of a distinguishing trademark of a competitor? If only an OEM number is used instead of a specific reference to the product, has the competitor taken unfair advantage, of the reputation of the competitor’s distinguishing mark?₅ Does it make any difference that such diversion of business from consumers who are familiar with OEM numbers causes harm to the sales of the original manufacturer?

In October 2001, the ECJ held that comparative advertising necessarily implies explicit identification of a competitor, as well as by implication. Thus, a catalog supplier’s offer of spare parts and replacement items for an OEM may constitute valid comparative advertising so long as it objectively compares one or more material, relevant, verifiable and representative features of goods.

The court also found that use by an after-market supplier (in this case, Katun) of numbers used by an OEM (Toshiba) was not inappropriate, given that the numbers were not an indication of the manufacturer’s trademark, nor perceived by the public as referring to the products manufactured by the OEM. To establish such use as falling within the directive’s intended coverage, the lower court had to determine the perception of the average individual.

Most importantly, the ECJ found that “an advertiser cannot be considered as taking unfair advantage of the reputation attached to distinguishing marks of his competitor, if effective competition on the relevant market is conditional upon a reference to those marks.”

The second case was referred to the ECJ from an Austrian court. In Pippig Augenoptik GmbH & Co. KG vs. Hartlauer Handelsgesellschaft mbH, an Austrian Court was asked to decide if Pippig, a small chain of specialist opticians’ shops, had grounds to object under #97/55 as a result of advertising by Hartlauer, another — but larger — optical chain.

Hartlauer was running an advertising campaign, in print as well as on radio and TV channels, which contained price comparisons. In particular, Hartlauer offered competitive spectacles for a significantly lower price; however, the Hartlauer ads did not state that its spectacles were not furnished with identical Zeiss lenses, but with lenses provided by a competitor.

The Austrian Court asked the ECJ if the Directive applied to all elements of a comparison, namely statements regarding the product offered by the advertiser, statements regarding the product offered by the competitor and statements regarding the relationship between the two products. The Austrian court also asked the ECJ if a member state could adopt stricter national provisions on protection against misleading advertising and whether price comparisons were per se improper.

The ECJ held that the requirements of the Directive may not be subject to national provisions more stringent than those granting protection against misleading advertising, including “the various elements of the comparison.”

The ECJ recognized price comparisons as a basic aspect of comparative advertising and refused to hold that the discrediting or denigration of a competitor who charges higher prices was per se improper. Finally, the ECJ confirmed that the Directive allows the use of another’s trademark, trade name or other distinguishing marks in comparative advertising; therefore, such use may legitimately involve the reproduction of competitor’s logo or of a picture showing its shop’s front, as long as all the requirements set by Community law for comparative advertising are met.

The ECJ had concluded that there are some general principles and criteria useful to define acceptable comparative advertising, but critical aspects are still left to the vagaries of interpretations by national courts on a case-by-case basis. These include the use of distinguishing marks, the consumers’ perception of the association among products, the impact on a competitors’ reputation, the use of obscure brands in comparative ad campaigns, and the verification of fulfillment of all requirements set by the EU Directive for legitimate comparison.

The harmonizing process that initially inspired the EU Directive on comparative advertising will require a substantial amount of case law and additional interpretation by the ECJ before a set of uniform criteria will be established. Such a lack of clear guidance illustrates the difficulty in advising advertisers under the EU Directive and the complexities of the European initiatives to harmonize Union-wide standards.

Felix Hofer is a senior partner of the law firm Studio Legale Associato Hofer Lösch Torricelli, based in Firenze, Italy. He is also member for Italy of the Global Advertising Lawyers’ Alliance (GALA, www.gala-marketlaw.com). Hofer may be reached at [email protected].

Douglas J. Wood is executive partner at the law firm Hall Dickler Kent Goldstein & Wood, New York City. He is also global president and member for the United States of GALA. Wood may be reached at [email protected].

1. See Official Journal of the EU, 1984 L 250, September 19, 1984, p. 17.
2. See Official Journal of the EU, 1997 L 290, October 23, 1997.
3. According to article 3/a, if a comparison is made between products with designation of origin, it must relate “it relates in each case to products with the same designation”.
4. Under Article 3a(1)(c) of the directive
5. Within the meaning of Article 3a(1)(g) of the directive