Legality of L'Oréal smell-alikes wafts in the direction of the ECJ

The Court of Appeal has cast doubt on a decision holding that 'free riding' on another product's reputation and benefiting from the efforts put into promoting it can amount to trademark infringement, even where there is no apparent harm or damage to the mark or product concerned. The court was similarly unconvinced by the trial judge's finding that the use of a third party's trademark in a comparison list is unlawful.

The first instance decision of Mr Justice Lewison in L'Oréal SA v Bellure ([2006] EWHC 2355 (Ch)) concerned the sale of cheap perfumes by Bellure NV with apparently identical smells to expensive fragrances marketed by L'Oréal SA, such as Trésor and Miracle (see "Partial success for L'Oréal in smell-alike case"). No claim could be brought against these 'smell-alikes' for the copying of the smell, as L'Oréal held no trademarks for the smell and there was no other possible cause of action under English law. Instead, L'Oréal brought an action for trademark infringement and passing off in respect of:

• the use of comparative tables distributed to wholesalers and other Bellure customers, explaining which smell-alike was meant to copy which original fragrance; and
  
  
• the use of similar bottles and packaging to the L'Oréal originals, which the defendants admitted had been designed with "a wink of an eye" to that of the luxury brand.

L'Oréal won at first instance on the comparative tables and in respect of some of the bottles and packaging. The trial judge found that there was sufficient similarity between the equivalent luxury and cheap products to create a link between them in the mind of the consumer. Both sides appealed.

Lord Justice Jacob, giving the leading judgment of the Court of Appeal, largely approved Lewison's assessment of the facts, but disagreed on his application of the law. However, in Jacob's view, key questions of interpretation of the First Trademarks Directive (89/104/EEC) needed an answer from the ECJ before the court could properly decide the appeal.

It being accepted that creating and marketing smell-alikes offended no law, the argument was that the only practical way for the defendants to describe their legitimate products was to refer to the luxury and trademarked brand name; their use in comparative lists was therefore purely descriptive. This, the defendants argued, meant that their use was either:

• outside of Article 5(1)(a) of the directive altogether; or
  
  
• caught by the defence under Article 6(1)(b), which allows descriptive use if it is in accordance with honest practices in industrial or commercial matters.

Jacob accepted that the comparison lists acted as advertising material for the defendants; this material intended to be commendatory of the smell-alikes and to promote them by reference to the well-known brands. As a result, the smell-alikes gained a major promotional advantage. However, the image and the essential function of the trademarks for those brands were not adversely affected by the lists; customers were not deceived, and no one thought any less of the original brands.

The defence, if it applied, was one of comparative advertising. Jacob considered that there were similar issues in this case to those in O2 v Hutchison ([2006] EWCA Civ 1656), which is awaiting a decision from the ECJ on questions referred to it. Jacob noted that the making of a comparison by any trader was bound to take advantage of a well-known product and that it was often essential for comparisons to be made (eg, by generic drug manufacturers). However, such comparisons were not automatically unfair for the purposes of trademark and comparative advertising law.

Jacob then referred four questions to the ECJ, the first being nearly identical to the question referred in O2. All four relate to the use of a third-party trademark in a comparison list to describe a characteristic of a product. Two of the questions relate to particular wording in the Misleading Advertising Directive, as amended by the Comparative Advertising Directive (97/55/EC). Jacob's view was that the answers to the questions should lead to the conclusion that comparison lists, when used in such a way that no damage is caused to the trademark, should be lawful. EU trademark law, he said, "should not be overprotective".

According to Jacob, the question of whether the use of sufficiently similar packaging (so as to cause a consumer to link the products) which 'winked' at the original brand's packaging could found a claim for Article 5(2) trademark infringement was an entirely separate question. The trial judge did not find any detriment, but found that the smell-alikes took unfair advantage of the well-known brands by free riding and receiving part of L'Oréal's "reward for the costs of promoting, maintaining and enhancing" its trademarks. Jacob agreed that the smell-alikes took advantage, but was unsure that doing so was unfair given that no harm or damage was suffered by L'Oréal. His fifth question to the ECJ asked for its view on this point; Jacob's view was that it was not unfair.

Jacob also agreed with the trial judge's rejection of the claims for passing off, there being no proof that consumers were misled by the smell-alikes. He also rejected an argument that smell-alikes, like domain names comprising third-party trademarks, were "instruments of fraud", by analogy with the cybersquatting case of BT v One in A Million ([1999] FSR 1).

L'Oréal v Bellure had earlier made headlines when, at an interim hearing, a cause of action based on a tort of unfair competition was not struck out. No such tort exists in English law and the invitation to create one (by developing the law of passing off to situations in which there is no misrepresentation or deception) was rejected at trial. Following a thorough review of the arguments and the authorities, Jacob also declined the invitation. In doing so, it was his view that no such tort was desirable; should the courts or Parliament choose to create one, they would "truly have let the genie out of the bottle" in creating something of a "wholly uncertain scope".

While the tort of unfair competition remains dead and buried (at least for now), this case now awaits the answers to some key questions affecting trademark law. Those answers should develop further the understanding of what it means to take unfair advantage of the reputation of another's mark. They should also help to solve the problem noted by Jacob as to where the line between permissible competition and unlawful trademark infringement should be drawn in respect of the free riding of another's brand. Free riding, Jacob stated, is to a certain extent necessary for proper competition and lawful free trade, but it is not as yet clear whether the free riding in this case goes too far. Jacob's view (with which a second judge agreed) was that it does not, but the third judge, Mr Justice Blackburne, was more cautious and remained unconvinced.

Mark Shillito and Darren Meale, Herbert Smith LLP, London