In this edition (#9)…

June 17, 2010

The recent order to increase music fees paid by gyms by 1500% sparked leading fitness chain Fitness First to dump licensed music from its aerobics classes.  In “Muscular Melodies” Assoc. Prof David Brennan explains the rationale behind the Tribunal’s pricing decision and the impact the decision may have on the competitive fitness market.

Also in this edition, Karen Abidi profiles the recent Victorian decision to destroy forged artworks of Charles Blackman and Robert Dickerson.  The decision underscores the fact that absence of knowledge is no defence to a misleading and deceptive conduct claim and that dealers cannot “turn a blind eye” to art of questionable provenance.


Muscular Melodies

June 17, 2010

By Assoc Prof. David Brennan

A recent Australian Copyright Tribunal determination (the Gyms Case) has garnered broad media attention. An order was made by the Tribunal determining a new licence scheme for the public performance of PPCA sound recordings (the PPCA is the collecting society for the Australian record industry) for use in fitness classes. The new rates were considerably higher than the existing rates. Importantly, the determination did not relate to the exercise of the public performance right in any musical works or lyrics that might have been included in the PPCA sound recordings. (Another collecting society, APRA, controls the lion’s share of those public performance rights.) When the Tribunal hearing commenced, the rate under the existing PPCA scheme was just under $1 per class; the new rate determined by the Tribunal was $15 per class. The increase created a firestorm of public criticism from the fitness industry.

How to determine reasonable prices?

A Tribunal determining reasonable or equitable prices for a copyright exploitation can utilize two basic approaches to estimate value. One is the mysterious black box of ‘judicial estimation’ which is, notwithstanding repeated claims to the contrary, number-plucking. The second method is to hypothesise about the outcome of a fair bargain occurring prior to the use. This could occur in a number of ways, but at the core of the assessment is to work out:

  • the value that the copyright exploitation is adding to the user’s business, and then,
  • the proportion of that added value which should be allocated to the copyright owner.

However the assessment at (i) – the value of the particular use of copyright in the hands of the copyright user – is easier said than done. This is because a copyright exploitation such as playing a CD for an aerobics class has public good characteristics; it is incapable of using-up the resource and is difficult for the copyright owner to prevent.

As the Nobel Prize winning economist Paul Samuelson wrote in 1954 apropos the free-rider problem associated with public goods, ‘it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has’. Thus in the Gyms Case it is unlikely that fitness centres have strong incentives to be candid about how valuable or integral playing PPCA sound recordings in classes are to their businesses.

To overcome this problem, in the Gyms Case the PPCA surveyed the fitness centres’ customers about how much they valued the use of music in the classes. This was undertaken on the rational basis that the value of the exercise of copyright by a fitness centre is a direct function of the value of that exercise to its customers (i.e. fitness class attendees) listening to the PPCA recordings. Indeed the Gyms Case is the third of a line of cases in which the party representing the interests of copyright owners relied upon evidence of the value copyright adds to the business of the copyright user by surveying the preferences of the business user’s customers. Economists refer to this as ‘stated preference’ data. (I should add that through my doctoral research, and in my capacity as a copyright consultant to Screenrights, I had a role in introducing the approach to the Tribunal.)

In the first of those cases in 2006 (the Foxtel Case), a Screenrights-commissioned survey asked (face-to-face) 2,373 Foxtel customers what they would be willing to pay to continue to receive from Foxtel the retransmission of free-to-air broadcast programming as part of their pay television service. The stated preference methodology employed in the Foxtel Case was contingent valuation. In the second case from 2007 (the Nightclubs Case) the PPCA-commissioned survey asked (via the Internet) 813 late night venue patrons a series of questions to elicit their preferences. For example, they were asked to indicate a preference for either a nightclub with music or a bar with no music. In the Gyms Case case, 72 gym patrons were surveyed (face-to-face) and asked which of two hypothetical fitness centres they preferred, where each centre had different attributes including the use of music in fitness classes. The stated preference methodology employed in both the Nightclubs Case and the Gyms Case was choice modelling.

Survey evidence was accepted in the Nightclubs Case and the Gyms Case as the starting point to assess the value of the copyright exploitation, but not in the Foxtel Case where the survey evidence was totally rejected in favour of judicial estimation. The reasons for this selective acceptance of stated preference evidence is simply not that easy to explain. In the Nightclubs Case and the Gyms Case an economist sat on the Tribunal. Also, in those cases (and unlike the Foxtel Case) the particular surveys relied upon by the Tribunal were not specifically challenged by expert-evidence put on behalf of the respondents. In the Nightclubs Case the respondents’ appeared to engage no expert evidence to challenge the survey evidence relied upon by PPCA.

In the Gyms Case the Tribunal did not rely on the main survey evidence put by PPCA involving 453 participants who were surveyed over the Internet.  That evidence was hotly contested by experts on behalf of the fitness centres. The survey that was ultimately relied upon by the Tribunal was a pilot survey (described above) commissioned by the PPCA involving the 72 participants. Paradoxically this pilot survey was not relied upon as a central aspect of the PPCA case and, unlike the main survey in the Gyms Case, was therefore not attacked by respondent expert evidence.

While much criticism has been levelled at the large price increase that the decision in the Gyms Case represents, and similar criticism was levelled at outcome in the Nightclubs Case, there are fundamental questions of economic valuation that critics of these cases must confront. Added value for many industries is generated by the highly subjective preferences of consumers, and experience has shown that people who are asked in surveys their preferences for goods or services generally give honest responses. It is for these reasons that the market research industry exists to guide product and pricing decision by suppliers. If valuation evidence gathered from a properly conducted survey is relied upon by a rights holder, particularly where the respondent is given an opportunity to provide input into the survey design prior to its conduct, why should it not be preferred over the murkiness of judicial estimation?

In the Foxtel Case, such survey evidence suggested an average willingness-to-pay of $2.50 per subscriber per month (pspm) to receive the retransmission of free-to-air broadcast programming from Foxtel. Screenrights based its claim to equitable remuneration for rights holders of $1 pspm on the basis of that evidence. The Tribunal having completely rejected the survey evidence substituted its view of what was equitable remuneration in a way not clearly explained by economic evidence. It determined equitable remuneration to be 22.5 cents pspm. 

Moreover, if the result of an evidence-based approach leads to the emergence for the first time of market prices in these determinations, it should not be surprising to witness market-behaviour in reaction to those prices. Hence many fitness centres have moved to the consumption of non-PPCA ‘sound alike’ recordings. This will trigger competition between those fitness centres who provide (and pay for) PPCA recordings for their fitness classes and those that do not. Whether the survey evidence of the value of the PPCA repertoire was correct might now be now tested by revealed behaviour of fitness centre consumers.

David Brennan – Associate Professor at the Melbourne Law School and a copyright consultant to Screenrights    


Law Destroys Fake Art

June 17, 2010

By Karen Abidi, lawyer

Art forgery is a radical misrepresentation of an artist’s work, said Justice Vickery of the Victorian Supreme Court earlier this month, in Charles Blackman and Ors v Peter Gant and Anor [2010] VSC 229.  He ordered the destruction of fake art purporting to be by the renowned Australian artists Robert Dickerson and Charles Blackman.

Fake art is said to represent 10 per cent of the Australian art market. It damages the artists’ reputations and the market for their genuine works.  It also harms art buyers and the broader art industry, as the circulation of fakes creates uncertainty and lack of confidence in the art market. 

The artworks in this case were two drawings falsely attributed to Blackman, called “Street Scene with a Schoolgirl” and “Three Schoolgirls”, and one drawing falsely attributed to Dickerson, called “Pensive Woman”.  Click here for images.  They were not copies of the artists’ actual works, and therefore there was no issue of copyright infringement. They were drawn in the style of these artists, with false signatures.  The judge stated that they were deliberately contrived to mislead the unsuspecting public.

The artists were the plaintiffs in the case.  When the buyer of the fakes, an inexperienced art purchaser, found out that the drawings were forgeries, he returned them and received a refund.  He suffered no loss and was not a party to the legal proceedings.  The defendant was Peter Gant, a Carlton gallery owner, who gave valuations of the three drawings (of amounts reflecting that they were genuine) and was the seller of one of them.

Dickerson, now elderly, gave evidence at the trial that he did not draw Pensive Woman.  He said he felt “a bit sick” when he first saw the work, and described it as “very bad work” and “bloody awful”.  Blackman was unfit to give evidence at the trial, as he is afflicted by a form of brain damage that affects short-term memory.  Expert evidence was given that the schoolgirl drawings were un-Blackman like and poorly drawn.  The judge was left in no doubt that the art works were “fakes masquerading as the genuine article”.

The judge stated that a valuation not only gives a market value for the art, it also certifies its authenticity.  A valuation is a representation that the art is by the particular artist.  The giving of the valuations, and the sale of one of the drawings, was held to constitute misleading and deceptive conduct by Mr Gant in trade or commerce, in breach of section 9 of the Fair Trading Act (Vic) 1999.  The judge ordered that the drawings be delivered to the artists for destruction.  Robert Dickerson said that he would rip up the fake with his bare hands.

The judge made no finding that Mr Gant knew the drawings were forgeries or that he acted other than innocently.  A person may engage in misleading and deceptive conduct in breach of the Fair Trading Act even if they act honestly and reasonably.

Following this decision, art dealers, galleries and auction houses that sell and value art will need to be confident of the authenticity of the art they are dealing with.  There can be no “turning a blind eye” to art of questionable provenance.  Since this court case, a Whitely said to be fake was withdrawn from auction in Melbourne, and another Whitely and a Dickerson of questionable provenance have been reported.  This decision gives artists legal ground on which to seek to prevent trade in their fake art, and fosters certainty and confidence in the Australian art market.


In this edition (#8)…

June 3, 2010

In this edition we report from across the pond.  Dr Owen Morgan sheds light on a David and Goliath battle between a Kiwi businessman and Coca-Cola. This fascinating article highlights the bullying tactics of the drinks giant and the possible impact on the Rugby World Cup and the future of… “carbonated milk”!

The “Boycott Facebook” day last month sparked headlines around the world as Facebook incited mutiny amongst its users by changing its privacy settings.  Elisabeth K. Cooke outlines Facebook’s privacy labyrinth.  She also discusses how she is using the new settings to avoid “frenemies” and annoying 3rd party advertisers.

Finally, Peiwen Chen reflects on the recent IPRIA seminar given by Dr Dev Gangjee on the ECJ’s L’Oreal “knock off” imitation perfumes case .  Chen outlines the case and discusses Gangjee’s views on the “depressing” expansion of trade mark law into unfair competition.


World Famous in New Zealand – a ‘battle between a Paeroa businessman and international drinks giant Coca-Cola’

June 3, 2010

By Dr Owen Morgan

The New Zealand media recently reported that the Assistant Commissioner of Trade Marks had directed Coca-Cola’s application for the phrase ‘WORLD FAMOUS IN NEW ZEALAND’ (in respect of aerated waters etc) to proceed to registration.  For the decision click here.

The phrase was coined by an advertising agency for use with ‘Lemon and Paeroa’, a popular aerated drink and one that has lifted awareness of Paeroa, a small rural town (population around 4,000) in the North Island of New Zealand which is known for its mineral springs. The drink was originally made from Paeroa mineral water and lemon. The phrase was used for sometime by Coca-Cola Amatil (NZ) Limited before it filed the application and Coca-Cola already held a number of registrations for labels incorporating the name of the drink and the phrase.

The application was filed on 30 September 2004 and it was accepted on 29 January 2007. It would probably have proceeded to registration without much interest from anybody if Coca-Cola hadn’t upset a small businessman. But it wasn’t until 12 April 2010 that the Assistant Commissioner handed down his decision in respect of the opposition by a Paeroa businessman, Mr Tony Coombe.

Why bother opposing Coca-Cola’s application?

Coombe is a small businessman apparently prepared to spend his own money to protect a ‘Kiwi-ism’ that belongs to all New Zealanders. There is some truth in this assertion as can be seen by the wide range of material that is returned when the phrase is searched on Google.

What hasn’t been reported is that the dispute arose because Coombe had incorporated a company in September 2000 named World Famous in New Zealand Limited. It is currently an inactive land-holding company. Coombe was later contacted by Coca-Cola’s lawyers who asked him to change the name of the company. He refused and his attempts to reach an agreement with Coca-Cola’s lawyers were unsuccessful and led to what he described as ‘nasty phone calls’ and ‘nasty letters’. Coombe hit back by opposing Coca-Cola’s application and the dispute dragged on.

Why would Coca-Cola try and get Coombe to change the name of his company?

The answer, presumably, is that Coca-Cola wants a monopoly on the use of the phrase over and above the monopoly it will obtain by way of its trade mark registration and the related goodwill that it has built up in the phrase.

Who won?

Coombe has spent a reasonable sum of money (approximately NZ$30,000 in legal fees over a period of about two and one half years) and he has nothing to show for it, other than the right to battle on. He hasn’t changed the name of his company but he admits that if he had known how much the dispute was going to cost him, he might well have done so.

However, he has also said that he felt that he might as well go ahead with the next stage which was to file an appeal in the High Court against the decision of the Assistant Commissioner. There is lesson here: put a price on how far you are prepared to go to fight for a principle when you’re confronted by a multi-national with very deep pockets. A second lesson, and one for the Coca-Cola’s of this world, is: some people value their principles and are prepared to fight for them.

Coca-Cola’s mark has been registered, but does this mean that Coca-Cola won? The Assistant Commissioner noted that Coca-Cola faced a difficulty:

‘While the applicant may be able to produce evidence of a connection in the minds of the public between its L&P trade mark (and goods) and the use of the phrase “World Famous in New Zealand”, that does not mean that others should not be free to use the same phrase in relation to their goods and nor does it mean that the public will not expect that to be a phrase that others ought to be free to use. On the evidence it appears that the public do in fact have such an expectation.’  (para 32(g))

Coca-Cola may have won the battle, have they won the war? The media reports were not complimentary of ‘the international drinks giant’ and all Coca-Cola has secured is confirmation of its existing monopoly. The exclusive right to use the phrase in question had surely been established by the years of use on the label and the many bottles and cans of drink that have been sold.  And Coca-Cola may yet face another day in court.

Isn’t this just another example of a multi-national bullying a small businessman.

Postscript – the future of carbonated milk!!

More recently, Coca-Cola has again been in the news for its aggressive behaviour in protecting its marketing position. It appears that Coca-Cola has a supplier contract with the organisers of the National Agricultural Fielday.  The NZ “Fielday” is the largest agribusiness exhibition in the Southern Hemisphere.

It is reported that Coca-Cola have used this agreement to prevent an innovator (Mr Revell) from selling his newly developed product – a carbonated milk drink (cola and lemonade flavours) – from a stand at the Fielday. The organisers declined his application for a stand, although, he was later told he could exhibit but not sell his product. As Revell couldn’t afford the cost of the stand, he declined.

Post – postscript – anything but the football!!

There is another lesson in the Revell example for small businessmen. New Zealand hosts the Rugby World Cup in 2011. Under New Zealand’s draconian ambush marketing laws, the right to sell products in the vicinity of World Cup venues will be strictly controlled and will require a licence from the organiser.

If Coca-Cola is the soft drinks supplier to the Rugby World Cup, it is reasonable to assume that it will use its commercial ‘clout’ to ensure that no other licences are issued to sell soft drinks. This would mean that no other traders (including children selling home-made lemonade from their front gardens) in certain designated streets around the venues will be able to sell drinks to passers-by.


Juggling Facebook and Privacy

June 3, 2010

by Elisabeth K. Cooke

Founded in February 2004, Facebook has quickly become one of the most popular social networking sites, playing host to 400 million users in 75 different languages around the world.  Facebook’s mission is to ‘give people the power to share and make the world more open and connected’. They are certainly well on their way. Even the Supreme Court of the Australian Capital Territory is on board with Facebook, ruling in 2008 that Facebook is a valid protocol to serve notice to defendants.

The concept of social networking sites raises a number of privacy and safety concerns. Recently, Facebook has been in the news for a surprising variety of reasons: police laying charges based on the contents of photos, fugitives being located from their own status updates and young people coming to harms way. The very nature of social networking sites provides for a broad ability to raise all sorts of issues. However, it is how Facebook users establish and maintain privacy that has become of the utmost importance.

Understanding Privacy Settings

Scrutinizing Facebook’s privacy statement is no simple task. The New York Times recently investigated Facebook’s privacy statement, drawing particular attention to the word count. In 2005, Facebook’s privacy statement was at a mere 1,004 words. Five years later it has ballooned to 5,830 words, a growth of over a thousand words a year. The New York Times cleverly points out that Facebook’s policy statement is longer than the United States Constitution. The Australian Constitution, however, could eat Facebook’s privacy statement for breakfast, coming in at approximately 14,000 words. The University of Melbourne’s privacy policy weights in with 1,383 words. The length of the privacy statement alone is daunting, never mind trying to navigate around the 50 different privacy settings with 170 different options.

Talking about Facebook and privacy has quickly become as popular as skinny jeans and the elusive ‘best’ coffee in Melbourne. But what should we actually be worrying about? What are the risks and concerns? As a proud and possibly addicted Facebook user, here are my top three concerns:

  1. Who can access my Facebook profile content and personal information?
  2. Search engine visibility
  3. 3rd party advertisers

Understanding privacy on Facebook is much different than privacy in the offline world. Generally, we assume that we are the gatekeepers that grant others a right to our personal information. Facebook sees things differently. Facebook keeps the gate open as their default setting for privacy. Facebook argues that everyone ‘opts in’ to join Facebook and every time a user posts a status update or photo, they have ‘opted in’ to share that personal information by the mere act of adding it to their account. This means that anyone who joins Facebook (meaning anyone over the age of 13 with a valid email address) has zero privacy until they sort through the 50 different settings with 170 options.

Controlling My Profile

Facebook’s privacy settings are detailed and specific. Most importantly they are designed to empower users to sort through each setting individually in order to protect users privacy. It is essential go through each category to select your own privacy settings.

Personally, I was quick to adjust the ‘Search’ subcategory to control who could search for me either on Facebook or on a search engine (search engines can index anything you make public, I set my profile as completely private). I also took the liberty of ‘blocking’ a few individuals on Facebook who shall remain nameless. Apart from 3rd party advertisers, which I’ll address later on, that took care of the outside world – it was then time to work through my ‘Friends’.

I have found that the most effective and time efficient way to control what different ‘Friends’ can see is by creating ‘friend lists’. Creating lists is relatively easy. On my ‘Home’ page, I selected ‘Friends’ from the right hand column of options. The ‘Friends’ page provided me with a list of all my friends in order of most recent activity. At the top of the ‘Friends’ page is a button marks ‘Create a List’. Once I clicked the list I had the option to create a group of friends separate from all of my other friends.

While I would never want to openly admit that I classify or rank my ‘friends’ – I secretly do. Inner circle friends, family, work colleagues, university colleagues all have their own lists. I have found these lists useful to sending out group messages over Facebook, but most importantly, I can tailor the level of privacy I want to have against the entire list by simply going through my privacy settings and ‘allowing’ or ‘blocking’ them on all settings (who can see photos, wall posts etc). This enables me to have a slightly more manageable and time efficient strategy for protecting my privacy. This is of course not to say that I have a particularly interesting Facebook profile, in fact, I am quite sure that I don’t. However, not all of my friends on Facebook need to see me in my pyjamas on Christmas morning.

3rd Party Advertising

Facebook says they don’t share identity or names – they sell advertising based on demographic and perceived interests. Facebook uses anonymized demographically targeted ads, and “serve ad impressions to users where the word is on there somewhere”. While similar to a key word search on Google, this the word search goes through your entire Facebook profile, including personal messages, wall posts, etc. This translates into advertising getting their audience without getting the personal information.

Since setting my status as ‘engaged’ I have been bombarded with ads full of blushing young women dressed up as cupcakes. At the beginning of the year, I arranged a trip to Sydney and organized to meet friends via Facebook messages. Imagine my surprise when ads for Sydney Opera House tours started popping up on the right hand side of my profile.

Facebook’s business pages currently hosts over 1.5 million small businesses and plan to go up against Google in providing advertising services. The anonymized demographically targeted ads provide businesses with the ability to narrow down their target audience, reaching directly to specific individuals. Facebook goes as far as to provides users with the option to ‘close’ an ad and give feedback on why they chose to close the ad. How helpful.

Facebook’s Statement of Rights and Responsibilities

Facebook’s ‘Statement of Rights and Responsibilities’ provides that they can amend the Statement so long as they provide users with notice by posting the change on the Facebook Site Governance Page and provide users with an opportunity to give comment (Section 13). If there are 7000 or more users who comment on a change, Facebook will provide a voting mechanism for the particular change. While Facebook prides itself on being user friendly – the moral of the story is that changes can happen without users receiving direct notification. This means that users must exercise self-responsibility and frequently check the Facebook Site Governance Page for any updates or changes.

New Additions and applications

Social plug-ins let you see what your friends have liked, commented on or shared on sites across the web. All social plug-ins are extensions of Facebook and are specifically designed so none of your data is shared with the sites on which they appear. For example, last week I was on cnn.com and paused in the middle of the reading an article only to notice a bar at the right hand side of the page informing me that one of my Facebook friends had recently posted a comment on his friend’s Facebook wall about that particular article. I couldn’t log into Facebook fast enough to update my privacy settings.

Facebook is on the cusp of offering location-based services to Facebook users. This service will allow users to see the geographical location of other users at the time they log in. This will certainly take ‘face creeping’ (checking up on or ‘stalking’) someone’s profile to an entirely new level.

Facebook’s Stance

Facebook reported that they will soon ramp up their efforts to provide better guidance to those confused about how to control sharing and maintain privacy. Elliot Schrage, Vice President for Public Policy at Facebook said that ‘anyone interested in these topics should become fans of the About Facebook Page and the Facebook Site Governance Page — two valuable sources of information that already provide regular updates to more than 8 million users’. Users are also welcome to become a fan of ‘Facebook’ and to leave a suggestion at the help center.

While I continue to juggle my paranoia with what has become a mild obsession with Facebook I have found three approaches that I believe protect my privacy: maintain my ‘Friend lists’, checking changes to privacy settings frequently and using what my mother would call using my ‘not-so-common common sense’ about what I post about myself on the internet. But after all the work to maintain my privacy and stay ahead of any updates or changes, I can’t help but ask myself, is it worth the risk?

Elisabeth K. Cooke is a JD candidate at the Melbourne Law School


L’Oreal v Bellure: ‘a depressing decision’?

June 3, 2010

by Peiwen Chen

Dr Dev Gangjee, from the London School of Economics, spoke at the public seminar hosted by IPRIA and Blake Dawson on 10 May 2010, following the European Court of Justice’s (ECJ) decision in L’Oreal v Bellure.  The ECJ concluded that free riding, or ‘taking advantage’ of the reputation enjoyed by an earlier trade mark (L’Oreal) is actionable per se. The decision, a ‘depressing’ and ‘worrying movement’ in Dr Gangjee’s view, is a major victory for trade mark owners as it offers broader protection to well known brands.  The rationalisation of the judgment is also interesting as the concept of unfair advantage arguably resembles the ‘gains’ central to restitution law.

1. L’Oreal v Bellure

Bellure produced a range of smell-alike fragrances in look-alike packaging where the scent itself was not the subject of intellectual property protection, such as ‘Miracle’ by Lancome.  Bellure’s fragrances were priced at the lower end of market and were sold in discount stores and street markets.  Hence, the probability of confusion with the genuine fragrance was not likely.  However, to emphasise olfactory equivalence, it created comparison lists to promote its imitations in the form of ‘if you like Lancome Miracle, try our cheaper equivalent’.

L’Oreal brought proceedings against Bellure on two grounds, that (1) Bellure’s perfumes damaged L’Oreal’s business by creating confusion; and (2) Bellure had taken a ‘free ride’ on the L’Oreal’s investment in branding and marketing.  Whilst L’Oreal failed on the basis of consumer confusion and the tort of passing off, it succeeded in establishing infringement under Articles 5(1)(a) and (2) of the Trade Marks Directive on the basis of double identity and free riding.

Article 5(1)(a) grants a trade mark proprietor exclusive rights against a defendant who made use of another’s identical trade mark in relation to identical goods without obtaining permission; whilst Article 5(2) protects against ‘dilution’ of these registered marks which enjoy a reputation.  Prohibiting Bellure’s use of comparison lists and similar packaging, the ECJ formally recognised the trade mark law as encompassing a ‘communication, investment or advertising’ function.  Prohibition against taking unfair advantage of repute prevents exploitation through the ‘transfer of image’ of the trade mark.  Therefore, the unfairness resulted from the defendant’s exploitation, without compensation to L’Oreal, of L’Oreal’s marketing efforts and brand value.

2. Why ‘depressing’?

Dr Gangjee points out that the ECJ has essentially recognised property rights in reputation per se.  The ECJ’s conclusion that Article 5(2) focuses on the advantage gained by the third party rather than detriment caused to the trade mark itself, effectively recognised the investment in creating a stylish brand image.  As Dr Gangjee correctly notes, what we have at stake is a restriction to references and allusions which are otherwise useful, whether it be to signal competitive substitutability or to further innovate and learn.  Granting ‘reputation’ property rights to one group takes away the freedom of others, which invites Dr Gangjee (and many other academics at the seminar) to question whether this protection is justified.

The case is also ‘depressing’ for Dr Gangjee as it suggests a trend towards a ‘box-ticking’ formalism in the European courts.  He drew our attention to the fact that EU courts are not meant to be politically neutral.  He considered the ECJ judgment lacked explanation and justification for reaching the conclusion it did in this case.  Dr Gangjee also noted that a lack of political neutrality is heightened by the institutional flaw in the lack of dissent within the European courts and the inconsistency of decision-making by the various levels of court.  Dr Gangjee emphasises the fact that European courts do not follow each other’s decisions.  In this case, the trial court accepted L’Oreal’s argument whilst the UK Court of Appeal argued that some additional elements beyond mere advantage that make a defendant’s use of the trade mark unfair is necessary to establish infringement.  In contrast, the ECJ preferred an advantage-based approach to trade mark protection, choosing to recognise explicitly the function of trade mark signs as style and luxury indicators, whose ‘image’ will be protected independently.  The absence of consistency between the upper and lower European courts is ‘worrying’ as it has implications for legal certainty.

3. What ‘Advantage’?

Dr Gangjee’s ‘depressive’ take on the case is understandable from an academic’s perspective, as the rationale and basis for the ECJ’s decision is not immediately clear.  It seems to carry with it the suggestion that a defendant’s advantage in always unfair.  Whilst the resemblance of the defendant’s packaging to the registered marks arguably confers an advantage on the defendants as they can charge at a higher cost, the court seems to have failed to explain why it was unfair. It leaves the question open of ‘what advantage’ is not unfair in any given trade mark case. There seems to be a presumption that any defendant has gained advantage without consolidation of any harm which may or may not be caused to the claimant.  According to this reasoning, proprietary rights should theoretically extend to circumstances where producers introduce new products into the market.  Yet, as Dr Gangjee stresses, we make no general attempt to intervene in cases where a person introduces a new product to the market.  No compensation is given to first-movers for their marketing effort in introducing a new product to the market that benefit subsequent producers.

4. Crossing paths with Restitution?

Whilst Dr Gangjee highlighted the danger of the ECJ decisions crossing into the realm of unfair competition laws and principles. There is indeed some similarity in the approach of the ECJ to determining the meaning of Article 5(2) and that of the unjust enrichment enquiry.  The unjust enrichment enquiry asks whether the defendant has been enriched by the receipt of a benefit at the claimant’s expense and whether it would be unjust to allow the defendant to retain the benefit.  Applying these questions to the L’Oreal case, it would give a similar outcome to what the ECJ arrived at: Bellure is enriched by the imitation of the ‘image’ of L’Oreal perfumes and the use of comparison lists at the expense of L’Oreal, such that it would be unjust to allow Bellure to continue replicating fragrances for its own benefit without compensation to L’Oreal.

L’Oreal appears to be among other ECJ decisions that resemble the gain-based unjust enrichment concept.  For example, in Mango Sport System v Diknak, the Office for Harmonisation in the Internal Market (OHIM) Board of Appeal held that the sole criterion for a finding of unfair advantage is benefit to the defendants without any correspondent effort or investment.

Perhaps the most important distinction between the ECJ’s judgment and unjust enrichment principles is the requirement of ‘unjust factors’ in restitution.  Whilst the ‘advantage’ in the L’Oreal case can easily be said to be a ‘benefit’ to the claimant, the ‘unfair’ element does not correlate to the ‘unjust factors’ imbedded in unjust enrichment law.  Therefore, unless the ‘transfer of image’ without authorisation becomes a policy-motivated unjust factor under unjust enrichment, we are unlikely to see trade mark protection broaden through restitution principles.

5. Concluding thoughts

Dr Gangjee’s concluding thoughts stressed that legal intervention should go no further than required to provide incentive to invest.  From an economic perspective, he notes that the L’Oreal decision fails to recognise the negative impact such a decision may have on the competitive common market.  The shift towards favouring trade marks with a reputation has also meant that European courts have had to retreat from an historical formalism and adopt outcome-based decision-making approach.  Without the development of substantial defences to counter this broad expansion of trade mark protection, Dr Gangjee insists that the ECJ’s decision is ‘largely depressing’.  This sentiments appears to be shared by Lord Justice Jacob from the UK Court of Appeal, stating that the L’Oreal decision is not only anti-competitive but it also contravenes the basic right to freedom of speech.  According to Lord Justice Jacob, truth in the marketplace is also desirable particularly where Bellure’s motive for speaking the truth is their own commercial gain.  Free speech is important in a liberal democratic society.  If L’Oreal really suggests a trend towards favouring trade mark owners at the cost of free speech, then the ECJ decision is indeed quite ‘depressing’.

Peiwen Chen is a graduate of the Melbourne Law School


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