Advertising, Comparative

by Ansgar Ohly

1. Concept and purpose

For a trader, comparing his own products to those offered by a competitor can be an effective marketing tool. The market introduction of new goods or services, in particular, can benefit from a comparison with established products. From the point of view of the competitor identified in the advertisement, however, there is the risk that his goodwill may, in the case of a critical comparison (‘A is better that B’), be damaged or, in the case of a claim of equivalence (‘A is as good as B’), be misappropriated. The consumer is likely to benefit from truthful and informative comparisons, as they enhance market transparency. Unlike neutral product tests, however, comparative advertisements may inform consumers in a deceptive, incomplete or distorted way. Unfair competition law is called upon to intervene and to find a reasonable balance between these competing interests.

2. Development of the law

Before 1997 European jurisdictions disagreed about whether comparative advertising was permissible. The foundations of German law were laid by the Reichsgericht (Supreme Court until 1945) in a judgment of 1931 which prohibited comparative advertising, arguing that nobody could be a judge in his own cause and that no trader had to put up with being used as an advertising tool by a competitor (RG GRUR 1931, 1299 – Hellegold). Only a few narrow exceptions were allowed. French law for a long time also regarded comparative advertising as unfair competition (concurrence déloyale) under Art 1382 Code civil, but price comparisons had been allowed in some circumstances since 1992. English law adopted a different approach. Under general tort law comparative advertising was permitted as long as it did not cause confusion as to the trade origin of the products (passing off) or contain false and damaging allegations about a competitor or his products (injurious falsehood). However, under s 4(1)(b) of the Trade Marks Act 1938 (repealed 1994) ‘importing a reference’ to marks registered in Part A of the bipartite register constituted trade mark infringement.

European law was harmonized by the Directive on Comparative Advertising of 1997 (Dir 97/ 55), which amended the Directive on Misleading Advertising of 1984 (Dir 84/450) by inserting a definition of comparative advertising and eight criteria under which comparisons were permitted. According to Art 1 of the 1984 Directive, which was not amended in 1997, the directive intended to protect competitors, consumers and the general public. This was changed by the Unfair Commercial Practices Directive of 2005 (Dir 2005/29, hereinafter UCPD) (unfair competition (basic principles)), which restricted the purpose of Dir 84/450 to the protection of other traders and which also slightly modified the criteria of permissibility. In 2006, the directives of 1984 and 1997 were newly codified as Dir 2006/ 116 on Misleading and Comparative Advertising (DMCA, all citations hereinafter refer to the 2006 version). While the DMCA contains an exhaustive list of conditions under which comparative advertising is permitted, it enables the Member States to choose between allowing civil actions and creating administrative procedures against unfair comparative advertising (Art 5 DMCA). Article 6 DMCA also stresses the importance of self-regulation.

As a consequence, the systematic positions and the practical relevance of the national implementing provisions differ considerably. Under German law, illegal comparative advertising amounts to an unfair commercial practice (§ 6(2) Act against Unfair Competition—UWG), which can trigger claims for injunctive relief by competitors, trade and consumer organizations (§ 8 UWG) and claims for damages by competitors (§ 9 UWG) (unfair competition (consequences)). § 6 UWG is of high practical importance; it has been applied in several Supreme Court judgments and in many decisions by lower courts. In France the DMCA was implemented in Arts 121-8 ff of the Code de la consommation, this has not changed after the purpose of the DMCA was restricted to the protection of traders in 2005 (see above). Unfair comparisons thus mainly trigger criminal law sanctions, but competitors whose interests are affected can bring a civil action (action civile) for damages in the course of criminal proceedings. In the UK the DMCA was implemented by the Business Protection from Misleading Marketing Regulations 2008. The regulations do not allow for civil actions, but only for administrative supervision, of which the Office of Fair Trading and the local Weights and Measures Authorities are in charge. In practice, however, most cases are settled by self-regulation. The Code of Advertising, Sales Promotion and Direct Marketing contains rules on comparative advertising (rules 18–21), and the Advertising Standards Authority has had to assess comparative advertising on numerous occasions. The legal provisions on comparative advertising have not played an important practical role in the UK so far. This may change, however, after the ECJ has now held that the use of a competitor’s trade mark in unfair comparative advertising will regularly amount to an infringement of that mark (see 4. below and ECJ Case C-533/06 – O2/Hutchison 3G [2008] ECR I-4231; ECJ Case C-487/07 – L’Oréal [2009] ECR I-5185). Thus the amount of trade mark litigation over comparative advertising is likely to increase in the future.

3. Regulatory content and structure

a) The definition of comparative advertising

Article 2(c) DMCA defines comparative advertising as ‘any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor’. This definition covers both critical comparisons (‘A is better than B’) and claims of equivalence (‘A is as good as B’). Competitors or their products are identified directly when their trade marks or trade names are mentioned or when pictures of their products are shown. Whether there has been an indirect identification has to be assessed from the point of view of the relevant section of the consuming public. The public can identify a particular competitor from allusions such as references to its place of establishment or to its advertising slogans or on the basis of the market structure (ECJ Case 381/05 – de Landtsheer [2007] ECR I-3115 para 20). In oligopolistic markets consumers are likely to understand a reference to ‘the other big company’ as identifying a particular competitor.

Surprisingly, the element of ‘comparison’ is lacking in the definition. The mere identification of a competitor thus seems to be sufficient. If the wording of the definition were conclusive, the mere information about competing offers, the mere criticism or denigration of a competitor and even the offer of counterfeit goods would amount to ‘comparative advertising’. Since, however, some of the requirements listed in Art 4 DMCA require a comparison, such ‘comparative advertising without a comparison’ would always be prohibited; the DMCA would not even allow considering possible justifications. The ECJ has not decided this issue yet, but it has pointed out that it is the purpose of comparative advertising to highlight the advantages of one product over another product (ECJ Case C-44/01 – Pippig [2003] ECR I-3095 para 36), which allows the conclusion that Art 4 DMCA only applies to advertising which presents an alternative between competing products. This interpretation, which, methodologically speaking, is a teleological reduction of Art 2(c) DMCA (ie a restriction warranted by the purpose of this provision), is supported by the prevailing view in Germany, whereas the relevant decisions of the Federal Supreme Court seem difficult to reconcile. A comparison in the widest sense, however, is sufficient. Thus a list in which the manufacturer of no-name toner cartridges juxtaposes the serial numbers of its products and the respective types of copiers offered by a well-known manufacturer constitutes comparative advertising, because it impliedly compares the toner cartridges offered by both companies (ECJ Case C-112/99 – Toshiba [2001] ECR I-7945 para 39).

b) Criteria of fairness

Article 4 DMCA lists eight conditions of fairness. Explicitly, the provision states only that comparisons are permitted when these criteria are met. Recitals 7, 9, 11 and 17, however, show that the directive intends to fully harmonize the law of comparative advertising and that, hence, a comparison which falls foul of the criteria must be prohibited by the Member States (ECJ Case C-44/01 – Pippig [2003] ECR I-3095 para 44). Underlying the eight conditions is a proportionality test: comparative advertising is permitted (i) when it is capable of informing consumers and (ii) when it does not interfere with the goodwill of the identified competitor more than necessary for the purpose of consumer information. The ECJ regularly interprets the conditions set forth in Art 4 DMCA in the sense most favourable to comparative advertising (ECJ Case C-112/99 – Toshiba [2001] ECR I-7945 para 37).

(i) Comparative advertising must not be misleading in the sense of Arts 6, 7 UCPD (commercial practices, misleading). The relevant perspective is that of a reasonably well-informed and circumspect average consumer. (ii) The advertisement must compare products meeting the same needs or intended for the same purpose. This is the case when both products can be substituted one against the other from the point of view of the average consumer (ECJ Case 381/ 05 – de Landtsheer [2007] ECR I-3115 para 28). (iii) The advertisement must objectively compare one or more material, relevant, verifiable and representative product features including the price. This excludes purely subjective comparisons (such as comparisons of taste or image) which lack any factual basis. (iv) The signs or products of a competitor must not be denigrated. Since, however, an element of denigration is inherent in every critical comparison, criticism is permissible as long as it does not go beyond what is necessary for the purpose of consumer information. (v) For products with designation of origin, the advertisement must relate in each case to products with the same designation. This ‘Champagne clause’ has been widely criticized for its protectionist character, since even comparisons between wines of different designations can enhance market transparency and since Art 4(f) provides for sufficient protection against the misappropriation of goodwill. The ECJ has taken account of this criticism and has interpreted Art 4(e) narrowly and favourably to comparative advertising (ECJ Case 381/05 – de Landtsheer [2007] ECR I-3115 paras 66 ff). (vi) The comparison must not take unfair advantage of the reputation which attaches to a competitor’s trade marks or other distinguishing signs. The wording of this provision is similar to the text of Art 5(2) of the Trade Mark Directive (Dir 2008/95, hereinafter TMD) (trade mark law), and the ECJ interprets both provisions alike as prohibiting the attempt ‘to ride on the coat-tails of [another trader’s] mark in order to benefit from its power of attraction, its reputation and its prestige, and to exploit, without paying any financial compensation and without being required to make efforts of his own in that regard, the marketing effort expended by the proprietor of that mark in order to create and maintain the image of that mark’ (ECJ Case C‑487/07 – L’Oréal ECR I-05185 paras 49, 77). It is submitted that this rather vague and emotive circumscription does not do justice to the fact that even many objective and useful claims of equivalence take advantage of the other product’s reputation. Again, the principle of proportionality should be of great importance: the comparison is permitted when it does not take more advantage of a competitor’s reputation as is necessary for the effective information of consumers. Thus, even the adoption of another trader’s serial numbers into the numbering system of a competing manufacturer of spare parts can be legitimate if it is the most effective way of informing purchasers about the functioning of the parts and if confusion is avoided (ECJ Case C-59/05 – Siemens [2006] ECR I-2147 paras 18 ff). (vii) The advertiser’s product must not be presented as the imitation or replica of a competitor’s trade-marked product. Thus, a manufacturer of cheap smell-alike and look-alike perfumes is prevented from informing resellers or consumers about the similarity of smell (ECJ Case C‑487/07 L’Oréal v Bellure ECR I-05185 para 76). This requirement is difficult to justify. If the imitation itself is permitted, the imitator should be able to inform consumers about the similarities between the products. This is not only in the consumers’ best interest, the restriction of the imitator’s commercial speech also interferes with his fundamental right guaranteed by Art 10 ECHR and Art 11 EU Charter of Fundamental Rights (ChFR). (viii) The advertisement must not cause confusion between traders or their signs. An advertiser who creates confusion not only commits an act of unfair competition, he also infringes his competitor’s trade mark (Art 5(1)(b) TMD) (ECJ Case C-533/06 – O2 [2008] ECR I-4231 para 33).

4. Conclusion and perspectives

Union law has harmonized the criteria under which comparative advertising is permitted, thereby abolishing the differences which previously existed between liberal jurisdictions and countries which prohibited comparative advertising. Meanwhile the ECJ has had several opportunities of interpreting the provisions of the directive, some of which are not masterpieces of clear drafting. In its case law the ECJ aims at a uniform interpretation and only leaves very limited leeway to the national courts.

Since, however, the Member States can choose between different methods of enforcement (see Art 5 DMCA) (unfair competition (consequences)), differences between the European legal systems remain. Whereas in Germany § 6 UWG, which implements the DMCA, is of high practical importance, the English implementing provisions, due to the lack of a civil law remedy, are rarely applied in practice. This may change now that the ECJ has partly clarified the relationship between the DMCA and trade mark law. Whereas recital 15 DMCA clearly states that comparative advertising which satisfies all the requirements set out in Art 4 DMCA does not amount to a trade mark infringement, it is now established that the use of a mark in unfair comparisons can infringe a competitor’s trade mark if such use affects one of the trade mark functions protected by law (trade mark law) such as the indication of commercial origin, but also the advertising or communication function (ECJ Case C-533/06 – O2/Hutchison 3G [2008] ECR I-4231 para 33; Case C-487/07 – L’Oréal [2009] ECR I-5185 paras 56 ff). While it is not entirely clear yet whether the mere misappropriation of another trader’s reputation always ‘affects’ the trade mark functions, it is now made out that, in principle, trade mark law provides the possibility of enforcing the provisions of the DMCA, even in countries which have not allowed private law actions when implementing the DMCA.

Finally, although most recitals to the DMCA stress its liberalizing impetus, some of the criteria of fairness actually restrict the possibilities of comparative advertising to an extent which is hard to justify, in particular with respect to the proscription of subjective comparisons of image and taste (Art 4(c) DMCA), of comparisons between products bearing different appellations of origin (Art 4(e) DMCA), and of advertising for otherwise lawful product imitations (Art 4(g)). It remains to be seen whether the DMCA will form the core of a future harmonized unfair competition law in business-to-business relations or whether it will remain isolated in the future development of European law.

Literature

Ansgar Ohly and Michael Spence, The Law of Comparative Advertising (2000); Wolfgang Berlit, Vergleichende Werbung (2002); Barbara Fröndhoff, Die Inhaltsbeschränkungen irreführender und vergleichender Werbung (2002); Andrea Heister, Harmonisierung des Rechts der vergleichenden Werbung durch die Richtlinie 97/55/EG? (2004); Helmut Köhler, ‘Was ist vergleichende Werbung?’ [2005] Gewerblicher Rechtsschutz und Urheberrecht 273; Paul Stephenson, ‘Comparative Advertising and Intellectual Property Rights’ (2006) 28 EIPR 182; Ansgar Ohly, ‘Vergleichende Werbung für Zubehör und Warensortimente’ [2007] Gewerblicher Rechtsschutz und Urheberrecht 3; Helmut Köhler, ‘Die Rechtsprechung des EuGH zur vergleichenden Werbung: Analyse und Kritik’ [2008] Wettbewerb in Recht und Praxis 414; Ilanah Simon Fhima, ‘Trade Mark Infringement in Comparative Advertising Situations’ (2008) 30 EIPR 420; Rolf Sack, ‘Unlautere vergleichende Werbung und Markenrecht’ [2011] Wettbewerb in Recht und Praxis 288.