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

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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