This article was originally published in the September 2009 issue of Shelf Life.

Shoppers and retailers are familiar with lookalike products in shops and with branded products being sold at reduced prices at discount retail outlets or market stalls. Two recent judgments from the European Court of Justice (ECJ) may indicate that it is the end of the line for these products and practices.

Lookalike products are designed to mimic the appearance of premium brands, but are generally retailed at lower prices than competitors' products. Until recently, it was generally the case that if a lookalike product's market name was sufficiently different from that of the product it sought to mimic, it would be difficult for the competing product's trade mark owner to succeed in a legal action for trade mark infringement or passing off. This position has changed significantly as a result of the ECJ's decision in L'Oreal, which is good news for brand owners and potentially bad news for manufacturers of lookalike products.

Briefly, the facts of the L'Oreal case are as follows: L'Oreal sued seven companies that made and sold products with replica scents and similar packaging to those of its perfume division, Lancôme, including Trésor and Miracle. The rival perfumes had names such as La Valeur and Pink Wonder and were usually sold on market stalls and in discount stores. While the products' respective packaging were not similar enough to cause confusion on the part of the public, they were designed to "wink at" the corresponding L'Oreal fragrance. L'Oreal's trade marks were also used in comparison sheets indicating which L'Oreal perfume the lookalike products were supposed to smell like.

L'Oreal claimed that the use of their trade marks in the comparison sheets constituted infringement under Article 5(1) of the Trade Marks Directive (Directive 89/104) and that the design of the lookalike products' packaging took unfair advantage of the registered trade marks under Article 5(2) of the Directive.

It was clear in L'Oreal that the famous brands were not in competition with the discount imitation perfumes, which were generally sold on market stalls, as consumers would not be led to believe that the replica product was associated with L'Oreal. There was no suggestion that the imitation perfumes were causing damage to L'Oreal's sales or reputation. However, L'Oreal raised the argument that consumers would buy the imitation products on the basis that they looked like the expensive branded products and that the imitation products were being sold on the back of L'Oreal's reputation, taking unfair advantage of the L'Oreal trade marks. On this point, the English Court of Appeal made a reference to the ECJ to establish whether a trade mark owner must demonstrate some damage to their sales or reputation in order to succeed in an infringement action.

The ECJ ruled that, under Article 5(2), there is no requirement for there to be a likelihood of confusion in the market or a likelihood of detriment to the reputation of a trade mark in order for unfair advantage to be taken of the mark's distinctive character or reputation. It stated that the unfair advantage relates not to the harm caused to the mark or its proprietor but rather to the advantage which the lookalike manufacturer gains on the back of the trade mark. It clarified that the mark owner need not prove that the use of the sign by the lookalike manufacturer is detrimental to the mark's distinctive character or reputation. It stated that when a manufacturer tries to ride on the coat tails of a brand owner's reputation without paying financial compensation or having to make any efforts of its own, the advantage gleaned from the free ride must be considered unfair and will consequently amount to trade mark infringement.

The ECJ judgment makes it clear that mark owners who have an established reputation may challenge signs which take unfair advantage of their mark's distinctive character or reputation. The ECJ confirmed that the only ingredient required to establish unfair advantage is proof that consumers make a connection between the reputed mark and the sign being challenged and clarified that there is no need for a likelihood of confusion to be proven. The ECJ remarked that the stronger and more recognisable the mark and its reputation, the more likely it is that use of the mark will constitute unfair advantage.

In relation to the question referred on Article 5(1), the ECJ held that a trade mark owner is entitled to prevent third party use of a mark identical to theirs, even where the use does not jeopardise the mark's function in indicating the goods' origin, provided that such use has, or is likely to have, an impact on one of the other functions of the mark, such as communication, investment or advertising. The ECJ also confirmed that unlawful comparative advertising occurs when a product is either expressly or implicitly portrayed to be an imitation of a reputed brand.

The consequence of the L'Oreal case is that it is possible to establish unfair advantage without having to show any decrease in sales or changes in the buying patterns of consumers. All that brand owners must establish is that the lookalike manufacturer intentionally produced a product which is similar to a trade marked product in order to create an association in the minds of the public between the products in question.

Not only is it now dangerous for manufacturers to "wink at" famous brands, it seems to be unsafe for retailers to stock genuine branded products which have been sourced outside of the EU and sell them at discount prices. Such goods, known as "grey imports", are imported into a particular territory in competition with the licensed distributor in the territory.

Grey imports were the subject matter of another recent ECJ judgment, Copad v Christian Dior, which is also favourable to trade mark owners. The case involved the resale of luxury corsetry products bearing the Christian Dior trade mark by a Christian Dior licensee to discount traders. In order to maintain the reputation of the Christian Dior mark, the agreement governing the licence arrangements between the parties prohibited the licensee from selling to particular retailers, such as discount stores. Instead, the licence agreement required the goods to be distributed through a selective distribution network. The French court made a reference to the ECJ regarding the scope of Article 8(2) of the Trade Marks Directive, which makes provision for trade mark owners to take action against a licensee that violates certain terms of the licence agreement regarding use of the trade mark. Article 8(2) specifies these terms as "provisions in a licensing contract with regard to its duration, the form covered by the registration in which the trade mark may be used, the scope of the goods or services for which the licence is granted, the territory in which the trade mark may be affixed, or the quality of the goods manufactured or of the services provided by the licensee".

The ECJ confirmed that Article 8(2) provides an exhaustive list of the provisions which, if violated, may give rise to an action for trade mark infringement. In its opinion, the prestigious image of luxury goods confers an aura, a quality which does not result from physical characteristics alone. Consequently, any impairment of the aura of luxury is likely to have a detrimental effect on the quality of the goods. The ECJ also accepted that the use of a selective distribution network could serve in itself to enhance the reputation of luxury goods while preserving their quality and ensuring their proper use.

The ECJ ruled that it was for the French court to decide whether the licensee had caused impairment of the Dior products' aura of luxury by distributing the products to discount stores in contravention of the requirement to sell through the selective distribution network. It accepted that the sale of Dior products outside of the selective distribution network could have an effect on the quality of the luxury goods. The ECJ advised that the French court should, when deciding whether the quality of the products was affected, take certain factors into account, such as the nature of the goods, the volume and frequency of sales by the licensee to discount stores and the type of products normally marketed by these stores.

This of course is good news for the owners of trade marks associated with luxury goods, as the judgment offers strengthened protection for such trade marks by acknowledging that the image and aura of luxury brands are key elements of their reputation and that allowing their prestigious image to be exploited and undermined can constitute trade mark infringement. On the other hand, it demonstrates that retailers and licensees must exercise new caution in handling and distributing luxury products in order to avoid liability for trade mark infringement.

The L'Oreal and Dior cases do support the interests of brand owners, but in order to benefit from the protection, they must have registered trade mark protection for the brands they seek to defend. And as for the manufacturers of lookalike products, the L'Oreal case makes it clear that it is in their best interests to have a clear understanding of the law and the new limits to which they are subject before launching a lookalike product in the Irish or Community markets.

For further information please contact Deirdre Kilroy.

September 2009.