Comparative advertising - Part 1: Itå«s only advertising

Introduction

In the first part of this article we consider the general legal and regulatory restrictions on comparative advertising, which are largely matters of intellectual property and consumer protection. In the second part we will explore recent developments in competition law and examine the way in which remaining restrictions on comparative advertising in specific industries and professions, including the legal profession, are coming under increasingly intense scrutiny by competition authorities.

Comparative advertising, as such, has always been lawful in the UK. In practice it was often difficult until 1994 because the notoriously obscure provisions in s. 4(1) of the Trade Marks Act 1938 had the general effect of preventing references to competitors' registered trade marks. Section 4(1) was so 'fulginously' obscurely worded that judges would avoid venturing an interpretation unless they had to. The few brave attempts to throw light on this section were consigned to academic history in 1994 when the current Trade Marks Act introduced a defence which, whilst not specifically referring to comparative advertising, had the object of allowing advertisers to use their competitors' trade marks.

Part 1 of this article examines the following areas in which restrictions are placed on comparative advertising in general:

registered trade marks;
malicious falsehood and slander of goods;
the Control of Misleading Advertisements Regulations 1988;
passing off;
copyright;
advertising codes.

Judges are inclined to be sceptical about the advertising industry. They tend to assume that the public takes advertising claims with a large pinch of salt. With such an unwelcoming judicial environment the remedies offered by advertising regulatory bodies will often provide a better alternative for aggrieved targets of comparative advertising campaigns.

Registered trade marks

Use of another company's trade mark in any form of advertising, even purely aural use in a radio commercial, will potentially infringe the trade mark. Trade mark infringement is categorised in terms of the use of identical or similar signs in relation to goods or services which are either identical to, similar or not similar to the goods or services for which the mark is registered. Under the Trade Marks Act 1994 (TMA 1994), s. 10(4)(d) 'use' for these purposes includes the use of a sign in advertising.

Competitors trade marks can now be used in advertisements because TMA 1994 s. 10(6) allows use of a registered trade mark 'by any person for the purpose of identifying goods or services as those of a proprietor or a licensee'. This principle is of general application. Although intended to apply to comparative advertising, it is not restricted to comparative advertising. It is qualified, however, by the following proviso:

'But any such use otherwise than in accordance with honest practices in industrial matters shall be treated as infringing the registered trade mark if the use without due cause takes unfair advantage of, or is detrimental to, the distinctive character or repute of the trade mark.'

This wording, although less obscure than s. 4(1) of the previous Act, was the subject of much speculation initially. It was suggested that s. 10(6) might effectively be construed out of existence. All comparative advertising might be said to be detrimental to the repute of the target trade mark. From the very first decision in 1996 it became clear, however, that a robust approach was going to be adopted.

Barclays Bank Plc v RBS Advanta [1996] RPC 307 concerned advertising literature published by RBS Advanta which compared the terms of the advertiser's own credit cards with those of other credit cards including the Barclaycard Standard Visa. A leaflet listed 15 ways in which the RBS Advanta card was said to be 'a better credit card all round'. A brochure contained similar, expanded copy and a comparative table showing the main financial terms of competitive credit cards.

The claimant argued that the leaflet was not honest as it did not compare like with like. For example, it made no mention of other ancillary benefits which the claimant offered its cardholders and which RBS Advanta did not have, such as a 24 hour emergency service and an overseas emergency service. Moreover, of the 15 points identified in the RBS Advanta leaflet, 6 or 7 were common to Barclaycard as well.

Laddie J was unimpressed, concluding that the advertisements merely conveyed the message that the package of 15 features, taken as a whole, was believed by the defendant to offer the customer a better deal. Honesty had to be gauged against what is reasonably to be expected by the relevant public of advertisements for the goods or services in issue.

Subsequent decisions have made it clear that the only word in the proviso, which counts for much is 'honest'. Use of a competitive trade mark is acceptable if it is honest. In the words of Laddie J, an advertisement may be dishonest if it is 'significantly misleading'.

The general principles established in Barclays Bank and in the subsequent case of Vodafone Group plc v Orange Personal Communications Services Ltd [1997] EMLR 84 were summarised by Michael Crystal QC (with additional observations of his own) in British Telecommunications Plc v AT & T Communications (UK) Ltd (unreported) 18 December 1996:

The primary objective of s.10(6) of the 1994 Act is to permit comparative advertising.
As long as the use of a competitor's mark is honest, there is nothing wrong in telling the public of the relative merits of competing goods or services and using registered trade marks to identify them.
The onus is on the registered proprietor to show that the factors indicated in the proviso to s10(6) exist.
There will be no trade mark infringement unless the use of the registered mark is not in accordance with honest practices.
The test is objective: would a reasonable reader be likely to say, upon being given the full facts, that the advertisement is not honest?
Statutory or industry agreed codes of conduct are not a helpful guide as to whether an advertisement is honest for the purposes of s. 10(6). Honesty has to be gauged against what is reasonably to be expected by the relevant public of advertisements for the goods or services in issue.
It should be borne in mind that the general public are used to the ways of advertisers and expects hyperbole.
The 1994 Act does not impose on the courts an obligation to try and enforce through the back door of trade mark legislation a more puritanical standard than the general public would expect from advertising copy.
An advertisement which is significantly misleading is not honest for the purposes of s. 10(6).
The advertisement must be considered as a whole.
As a purpose of the 1994 Act is positively to permit comparative advertising, the court should not hold words used in the advertisement to be seriously misleading for interlocutory purposes unless on a fair reading of them in their context and against the background of the advertisement as a whole they can really be said to justify that description.
A minute textual examination is not something upon which the reasonable reader of an advertisement would embark.
The court should therefore not encourage a microscopic approach to the construction of a comparative advertisement on a motion for interlocutory relief.

In the next decision on s. 10(6) Jacob J added a further point to this summary. The test of honesty is objective in this sense: that one should ask whether a reasonable trader could honestly have made the statements it made based on the information it had. A trader could have a defence if it turned out that the information it had was wrong in some way or other but it would have to stop the acts complained of when further credible information that it was wrong became available (Cable & Wireless Plc v British Telecommunications Plc [1998] FSR 383).

Malicious falsehood and slander of goods

In order to succeed in a malicious falsehood claim a claimant has to show that:

the defendant published to third parties words which are false;
they refer to the claimant or the claimant's property or business;
they were published maliciously; and (in certain cases);
special damage has followed as a direct and natural result of their publication.

Slander of goods is a branch of the tort of malicious falsehood involving the malicious publication (either orally or in writing) of a false statement which disparages the claimant's goods. In certain cases special damage also has to be proved.

Many of the malicious falsehood cases concerning comparative advertising concern the concept of 'mere puffing'. Just as the courts have taken the line in trade mark decisions that the public does not expect high standards of honesty from advertisers, so in defamation cases the courts draw a line between claims the public will take literally and claims which will be dismissed as puff. Slander of goods involves the making of an untrue statement of fact about a competitor's goods, disparagement rather than mere comparison.

The test is whether a reasonable person would take the claim as being a serious claim. This principle was most recently applied in Jupiter Unit Trust Managers Ltd v Johnson Fry Asset Managers PLC [2000] QB 19 April 2000. The claimant and defendant were both well-known fund managers competing in the ISA market. Johnson published advertisements describing various rivals, including Jupiter, as 'also rans', with an illustration showing horses racing. Jupiter argued that the advertisement sent out the message that 'Jupiter is a lazy or inefficient horse not worth backing and to which investors would self-evidently be foolish to entrust their money because there is a statistical certainty that their money does and will perform better if invested with Johnson Fry.' In Morland J's opinion only the most 'jaundiced and unreasonable' reader would derive any such message and no defamatory meaning was present in the advertisement.

In Lyne v Nicholls (1906) 23 TLR 86 two rival newspapers operated in the same district. One claimed that its circulation was 'twenty to one of any other weekly in the district.' This was untrue and the statement was held to be actionable. By contrast, for three adjoining tailors to claim respectively that they were the best in the world, the best in town and the best in the street would not be actionable, as it would merely amount to puffing one's own goods. (De Beers Abrasive Products Ltd v International General Electric Co of New York Ltd [1975] 2 All ER 599 at 604).

Claimants considering legal proceedings in respect of comparative advertising by competitors face considerable hurdles. The courts are not well disposed towards such claims, whether the cause of action is trade mark infringement or malicious falsehood. Judges take the view that the public is neither gullible nor particularly trustful of advertising. Even if a cause of action is established, judges take some convincing that a comparative advertisement has caused any damage. Jonathan Parker J's comment in Emaco Ltd v Dyson Applicance Ltd [1999] ETMR 903 was cited as being apposite also in Jupiter:

'But where, as in the instant case, damages are sought in respect of a single example of comparative advertising in the context of a continuing marketing war between two suppliers, questions inevitably arise as to whether any substantial damage can properly be attributed to that particular piece of comparative advertising, and, if so, how much damage is to be assessed.'

Claimants should also consider the remarks of Jacob J in Cable and Wireless on the subject of trade mark infringement claims combined with claims in malicious falsehood: 'It is difficult to imagine a case where, given a valid trade mark registration covering the goods or services concerned, a claim of malicious falsehood can add anything.'

The Control of Misleading Advertisements Regulations 1988

The Control of Misleading Advertisements Regulations 1988 (as amended by the Control of Misleading Advertisements (Amendment) Regulations 2000) (the Regulations) implement an EC Directive whose purpose was to allow comparative advertising subject to a number of harmonised conditions. Comparative advertising was previously either impossible or very difficult in various continental countries such as Germany.

Since comparative advertising was already lawful in the UK, the Regulations had if anything the opposite effect, although their restrictions largely reflect restrictions already present in the UK in the various advertising codes.

The Regulations apply to advertisements for all products apart from advertisements for investments and most other advertisements for financial services (which are subject to a separate regime under the Financial Services Act 1986). 'Advertisement' is widely defined as any form of representation which is made in connection with a trade, business, craft or profession in order to promote the supply or transfer of goods or services, immovable property, rights or obligations. An advertisement is 'comparative' if in any way either explicitly or by implication it identifies a competitor or services offered by a competitor.

It has been suggested that generalised superiority claims such as 'Persil washes whiter' might be interpreted as comparative advertisements under this definition. However, it is difficult to argue that 'Persil washes whiter' would even by implication 'identify' any individual competitor unless there was only one other washing powder on the market.

A comparative advertisement is only permitted, as far as the comparison is concerned, if eight conditions are met:

It is not misleading.
It compares goods or services meeting the same needs or intended for the same purpose.
It objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price.
It does not create confusion in the market place between the advertiser and a competitor or between the advertiser's trade marks, trade names, other distinguishing marks, goods or services and those of a competitor.
It does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, or circumstances of a competitor.
For products with a designation of origin, it relates in each case to products with the same designation.
It does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products.
It does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name.

Any comparison referring to a special offer must indicate in a clear and unequivocal way the date on which the offer ends or, where appropriate, that the special offer is subject to the availability of the goods and services, and where the special offer has not yet begun, the date of the start of the period during which the special price or other specific conditions shall apply.

The Regulations are not directly enforceable by companies against comparative advertisers. So far as non-broadcast advertising is concerned, they are enforced by the Director General of Fair Trading, but only after established means of dealing with the complaint have been invoked and have not dealt with the complaint adequately. In practice, the Regulations have acted as a statutory long stop where the Advertising Standards Authority (ASA) has been unable to enforce the Advertising Code against rogue advertisers. Complaints concerning broadcast advertisements are considered by the Independent Television Commission (ITC), Welsh Authority or Radio Authority.

Passing off

Passing off claims in respect of comparative advertising are rare, since the whole point of a comparative advertisement is normally to distinguish one company's goods from another's.

Most passing off claims in this area fail. In one of the leading cases (Cadbury Schweppes Pty Ltd v Pub Squash Co. Pty Ltd [1981] 1 All ER 213 (PC)), Cadbury Schweppes launched a lemon drink in Australia which was novel in that it was specifically aimed at the adult male market. The themes of its advertising were manly sports and nostalgia for the old Australian pubs. A rival company copied the taste of the drink itself and both promotional themes, but their product and the advertising for it were easily distinguishable. Cadbury Schweppes failed to establish passing off.

McDonald's Hamburgers Ltd v Burgerking (UK) Ltd [1987] FSR 112 was a somewhat surprising exception to this general rule, although once again the courts were sceptical when it came to damages. McDonalds sued Burger King in connection with an advertisement which used the line 'It's Not Just Big, Mac'. The High Court held that this was passing off and ordered an injunction to stop Burger King running the advertisement, but refused an inquiry as to damages on the ground that there was no prospect of McDonalds recovering any damages. McDonalds appealed and the Court of Appeal agreed, but only held that it was impossible to say that McDonalds had no chance of recovering any damages.

Copyright

Although as a matter of trade mark law advertisers are allowed to include their competitors' registered trade marks in comparative advertisements, copyright may still be infringed if the trade mark is a copyright artistic work such as a logo. The Sunday Mirror (IPC Magazines Ltd v MGN Ltd [1998] FSR 431) ran a television commercial featuring a woman holding an issue of IPC Magazines' Woman magazine. The Woman magazine had a black band superimposed across the middle of the cover with '57p', the price of the magazine, printed on it. The commercial went on to show the same woman holding a copy of the Mirror's magazine across which the slogan 'Free with the Sunday Mirror' appeared. IPC Magazines successfully sued the Mirror for infringement of various copyrights, including the copyright in the logo 'Woman' as used in the title of the magazine.

Advertising codes

In practice, complaints concerning comparative advertising are dealt with by the various advertising regulatory bodies rather than by the courts. Claimants have been criticised in court for not pursuing such remedies. Given the difficulties which may be faced in proving damage, the risks associated with interlocutory injunctions and the costs of litigation, the regulatory route is often preferable.

The Advertising Code, enforced by the ASA, governs non-broadcast advertising including advertising on the Internet. It contains the following general provisions concerning comparative advertising:

'Comparisons can be explicit or implied and can relate to advertisers' own products or to those of their competitors; they are permitted in the interests of vigorous competition and public information.'

'Comparisons should be clear and fair. The elements of any comparison should not be selected in a way that gives the advertisers an artificial advantage.'

A recent addendum sets out the conditions which comparative advertising must now meet under the Control of Misleading Advertisements Regulations 1988 and incorporates those requirements into the British Codes of Advertising and Sales Promotion.

The Advertising Code contains other provisions concerning denigration, exploitation of goodwill and imitation which may also be relevant in specific cases.

The ASA has no power to fine advertisers. Its main sanctions are to request that an advertisement be withdrawn and the negative publicity which an adverse ruling may attract. Advertisers should be aware that the ASA publishes its adjudications on the Internet as well as in print. Search engines may pick up adjudications involving an advertiser when someone is searching generally against that company.

Television and radio commercials are governed respectively by the ITC Code of Advertising Standards and Practice and the Radio Authority Advertising and Sponsorship Code. The Broadcast Advertising Clearance Centre (BACC), which is responsible for pre-clearing most television advertising on behalf of the television companies, contains very detailed guidance on comparative advertising (http://www.bacc.org).

The future

It remains to be seen whether the addendum incorporating new conditions for comparative advertising in the Control of Misleading Advertisements Regulations 1988 will be enforced against 'respectable' advertisers by the OFT. Lawyers warning that the new Regulations will make comparative advertising more risky have been accused of alarmism. Further developments are, however, looming on the horizon. The European Injunctions Directive, due for implementation next year, will allow consumer bodies throughout the EU to apply to the courts for injunctions to stop infringements of nine specific consumer protection directives if the infringement harms the collective interests of consumers. The Misleading Advertising Directive is one of those nine directives.

This article first appeared in the journal Intellectual Property Lawyer and is reproduced by kind permission of Sweet & Maxwell.