Comparative Advertising

• What do I need to know about the new regulations affecting comparative advertising which have recently been introduced?
• What code controls should I be aware of if I am planning a comparative ad in the UK?
• What legal risks does comparative advertising involve in the UK?
• If my comparison is perfectly fair and not in any way misleading, could there still be a problem?
• Does English law have any general unfair competition laws which impact on knocking copy?
• How does the law of trade libel affect comparative advertising?
• Surely I can reproduce my competitor's trade mark in the interests of vigorous competition?
• Are the rules governing comparative advertising broadly similar in the rest of Europe and the USA?

What do I need to know about the new regulations affecting comparative advertising which have recently been introduced?

The background

The EC Directive dealing with Comparative Advertising was first proposed as far back as the early eighties, at the same time as the Misleading Advertising Directive.  It was part of a grandiose European consumer protection strategy.

The misleading advertising initiative bore fruit relatively quickly in European terms.   By 1988 the Directive had been signed off and the UK had implemented it in the form of the Control of Misleading Advertisements Regulations 1988.

The comparative advertising proposal, however, did not fare so well. In fact it was only in 1997 that agreement was finally reached and the lengthy and sometimes bitter debate shows in the wording of the final Directive.

Behind the inter-state debate, the intention of the Directive was certainly laudable: to harmonise the law on comparative advertising throughout the European Union. Because of the "Euro" drafting however and the slippery nature of the beast it is dealing with, there is no guarantee that the Directive will have the desired effect.  The view of these commentators, moreover, is that the DTI's expectation of "little change" in the current regulatory landscape for comparative advertising here in the UK is wishful thinking.

The compromises that show

Regarding the Directive, there has all too obviously been a compromise between "protectionist" EU Member States ("MS") such as Germany, Italy, Belgium and France and "informationist" MS Member States like the UK, Ireland, Holland and Denmark.

The protectionists have won on one critical aspect, which will change radically the approach in the UK to this kind of advertising. This is the "protectionist" new rule that all comparative advertising will be illegal unless it satisfies all of no less than seven rules.

And that's not all. The solution to the fundamental and knotty problem of how to define "comparative advertising", a term hitherto unknown to English law, has been fudged, and fudged in such a way that advertisers had good reason to fear the impact of the new rules and even more January 2001. We will reveal why later.

The implementing regulations

The regulations implementing the Directive in the UK are racily named 'The Control of Misleading Advertising (Amendment) Regulations 2000'. In compliance with the Directive, they have been in force in the UK since 23 April 2000.

As the title suggests, the new rules have been brought into force by incorporating them into the existing Control of Misleading Advertisements Regulations 1988.

The dangerous definition

In the amended Regulations "comparative advertising" is defined as any advertisement which, "in any way, either explicitly or by implication, identifies a competitor or goods or services offered by a competitor."

We will come back to this definition in a moment, but if an ad is caught by it, it will automatically be illegal unless it satisfies seven requirements.  For the moment we will call these "golden rules", though advertisers may come to refer to them in rather different terms!

There is also an eighth "special offer" rule.   This reads as follows:

"Any comparison referring to a special offer shall 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 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 golden rules

The golden rules are that a comparative advertisement will only be permitted in the UK if:

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;

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.
How the system works

The new comparative advertising rules do NOT give competitors the right to sue each other for knocking copy that breaks the new Regulations.

But if brand owner A is unhappy about competitor B's comparative ad claims, these regulations give A an extra stick to beat B with by way of threats to report B to the OFT or, come 2001, consumer groups, unless B stops making the offending claims.

So far as legal proceedings are concerned, until January 2001 the only litigation that can arise will be by way of applications to the Court by the Director General of the Office of Fair Trading in respect of print advertising. The only legal sanction is an injunction preventing further use of the ad plus an order to pay prosecution costs. The OFT can only start this procedure if it is satisfied that all 'existing means' for regulating the ad in question (e.g. in a printed or on-line advertising context, the ASA/CAP scheme) have been used and have failed to prevent continued use of the offending advertising.

Broadcast advertising: a different regime

In the case of broadcast advertising, injunction applications are not necessary, since the ITC and the Radio Authority are the "existing means" of regulation and if they are satisfied that an advertisement breaches the regulations they will simply order their licensees not to carry the advertising in question.

Who triggers the Regulations?

As for who will trigger the application of the Regulations, a competitor or consumer may complain to the ASA, ITC or Radio Authority depending on the medium in which the ad appears. Alternatively they may go direct to the OFT. If they do this, however, the OFT will refer it back to the relevant regulatory body and will only consider applying to the Court for an injunction if, despite adverse findings by the ASA for example, the advertiser continues using the offending ad.

This has been the regime for misleading advertising since 1988 and will continue as such until 2001, but then there will be a significant change.

The second whammy comes in January 2001

By January 2001 the EU "Injunctions for the Protection of Consumers' Interests" Directive must be implemented across Europe.

This will mean that for the first time in the UK, organisations representing consumers, such as the Consumers' Association and any other bodies which meet the laid-down criteria, will be able to apply to the Court direct to enforce a range of consumer protection measures.  These measures have been introduced across the EU by way of Directives over the last 15 years.

What relevance does this have to comparative advertising? One of the Directives consumer associations will be able to police is the Misleading (and now Comparative) Advertising Directive.

So the less than delightful prospect UK comparative advertisers face, come January 2001, is the double whammy of having to follow seven "golden rules" to save their ads from illegality, and avoiding the attentions of eagle eyed consumer organisations looking for an opportunity to justify their existence and use their brand new powers.

So what impact are the Regulations likely to have?

If our experience of the existing misleading advertising regulations were anything to go by, the answer would be 'minimal'. In only a handful of cases each year has the OFT been constrained to apply for court injunctions and predictably these powers have been used only in respect of the recidivist 'fringe' advertisers promoting, for instance, hair restorer, slimming products and get-rich-quick schemes.

We have concerns however, that the extension of the Regulations to comparative advertising will not be such a non-event.

The comparative advertising regime before the new Regulations

Up until 23 April 2000 in the UK, comparative advertising was allowed, but advertisers had to be aware of certain basic rules. For example the advertisement could not:

– infringe competitors' registered trademarks;
– libel competitors or amount to a "malicious falsehood" about them;
– be a misleading price comparison and hence a criminal offence under the Consumer Protection Act;
– mis-describe the advertised product or the competitor's and thus offend against the Trade Descriptions Act;
– offend against the Codes governing print (ASA/CAP) or broadcast (ITC/Radio Authority) advertising.
And now that the new Regulations are in force?

Now that the 2000 Regulations are in force comparative advertisers who are nimble enough to avoid these risks will still not be home and dry. To escape injunction applications by the OFT (and come 2001, consumer bodies) they must ensure that the advertisement complies with all seven of the golden rules introduced by the regulations and/or the new "special offer" rule as appropriate.

A departure from existing rules

One of the reasons why the impact of the Control of Misleading Advertisements Regulations was minimal was that the definition of "misleading" was little more than a re-articulation of existing rules, such as those contained in the ASA/CAP British Code of Advertising. These new regulations, on the other hand, are in significant ways a material departure from the existing regulatory landscape.

Inconsistencies with pre-existing Codes?

Up until May 2000, existing ASA/CAP print advertising code did not require in terms that "only" goods or services "meeting the same needs" or "intended for the same purposes" could be compared.

Separately, neither the ITC code, nor for that matter, the ASA/CAP code, required expressly that comparative advertisements must "objectively compare one or more material, relevant, verifiable and representative features" of the products in question.

Similarly, there was no specific requirement contained in either of the Codes, or in any existing legislation, that if an advertisement referred to a special offer the advertisement had to, in all cases, in a clear and unequivocal way, indicate the date on which the special offer ended or, if the offer had not yet begun at the time the advertisement was published, give the date of the start of the offer. The Regulations' requirement that if appropriate the offer should be expressed to be 'subject to availability' was also not necessarily an absolute rule under any existing Code or Regulation.

Print/cinema/on-line Code changes

In May 2000, the Committee of Advertising Practice, guardian of the British Code of Advertising, published an "Addendum".  This required that when it came to comparative advertising, the Code was applied by reference to new provisions which mirrored the new Regulations.

Broadcast Codes – possible changes

In April 2000 the ITC announced proposals to bring the TV advertising codes into line with the new Regulations.  As of July 2000, no decision had been taken.

"Existing means" impotent?

Now that the existing codes are being brought into line with the Regulations, it is to be hoped that for the moment at any rate there will be no materially greater risk of comparative advertising litigation than there was before.  We still fear, however, that the day to day impact of the application of these new rules through the amended codes will result in a stricter regime for comparative advertising in the UK, with particular problems potentially arising out of points covered in the next section.

The following key aspects of the Directive Regulations and the UK Regulations are open to different interpretations.

Rules open to interpretation

The 'Comparative Advertising' Definition. This is critical because only obedience to the seven golden rules will save an advertisement that comes within it.   Clearly all advertising is 'comparative' in that it seeks to persuade the consumer to buy the advertised product in preference to others.  What is caught by the new Regulations, however, will be "any advertising which explicitly or by implication identifies a competitor or goods or services of the same kind offered by a competitor". The critical question is when does an advertisement "by implication" identify a competitor.  For instance, will an approach similar to the "identification" rule in defamation be adopted?  For instance, say there are only a handful of sources for a particular product or service and these are all fairly well-known to the prospective customer (for example national supermarket chains, electricity suppliers or cable TV services).  Applying the defamation test, it could be argued strongly that any comparative claim in advertising in these sectors "identified competitors by implication" and was therefore caught by the Regulations.
Advertising that 'objectively compares one or more material relevant verifiable and representative features'. Precisely what a "material" or "relevant" feature is may very well vary depending on the particular requirements of the buyer and cultural differences across the Union.  Given that the underlying purpose of these regulations is to facilitate comparative advertising moving freely across the European Union, one has to have deep concerns as to whether regulators in Spain, Germany and Sweden are going to take exactly the same view as to precisely what this requirement means.
Comparative advertisements must not 'discredit or denigrate' the trademarks, trade names, other distinguishing marks, goods, services, activities or circumstances of a competitor. This is inconsistent with existing UK law in this area.  It does not state for instance, as does Section 10 (6) of the Trade Marks Act 1994 in a similar context, that the "discrediting" or "denigrating" may be permissible unless it is 'without due cause'.  Does this mean that however accurate and capable of substantiation the knocking copy might be, it will still fall foul of the regulations?   If the answer is "yes", this represents another significant departure from the well-established principle of English law (to be given a further buttress by the Human Rights Act when it comes fully into force in October 2000) that absent any breach of confidentiality, truth should in most cases be a dependable shield against any attempt to gag the free dissemination of information, commercial or otherwise.
Sum-up

The twin threats of a potentially more restrictive regime for comparative advertisers and injunction applications by consumer bodies should not be taken lightly by advertisers contemplating long-running comparative campaigns.

All comparative claims and references to special offers in UK advertising must now be checked carefully against the Regulations. 

Even when full EU implementation is a reality, the dangers of different interpretations of the complex new rules are such that despite the Directive's laudable ambitions, prudent and responsible comparative advertisers may still consider it appropriate to take advice in well known EU ad-control hot spots such as Germany.

What code controls should I be aware of if I am planning a comparative ad in the UK?
Comparative ads in print are less problematic than on TV or radio. This is because the broadcast Codes impose tighter constraints on comparisons than the Committee of Advertising Practice's British Code of Advertising, which applies to press, poster, cinema and internet advertising. Having to pre-clear all broadcast ads with the Broadcast Advertising Clearance Centre (TV) and the Radio Advertising Clearance Centre (radio) also acts as an obstacle to "winging it" with a comparative claim in broadcast media, whilst this risky approach is at least physically possible in print advertising, for those who like to live dangerously.

It should be remembered however, that the Committee of Advertising Practice has recently published an "Addendum" requiring the parts of the British Code of Advertising affecting comparative advertising to be applied by reference to the new EU Directive-driven Regulations governing all "Comparative Advertising" in the UK as that term is defined in the Regulations.  See the answer to the first question in this FAQ item.

What legal risks does comparative advertising involve in the UK?
Where do we start? Apart from the extensive new rules introduced by way of the Control of Misleading Advertisements (Amendment) Regulations 2000 and covered above, the principal legal risk areas are trade mark infringement, trade libel, passing off and "public law" problem areas such as offences under the Trade Descriptions Act (false product descriptions), Consumer Protection Act (misleading price indications) and Consumer Credit Act (misleading credit deal offers).

If my comparison is perfectly fair and not in any way misleading, could there still be a problem?
Unfortunately yes. For example, in the consumer credit arena, comparisons (eg "lower interest rates" or "the best credit deals ever!") are not allowed at all unless they are contained in the "full" category of credit ad (see FAQ's on consumer credit advertising), whilst the most accurate comparative ad ever will still create a copyright infringement risk if it shows the competitor's product and this involves reproducing a copyright work such as a logo, labelling or product surface graphics.

Does English law have any general unfair competition laws which impact on knocking copy?
No it does not. The closest English law comes to an unfair competition law affecting comparative ad claims is the law of passing off. See Passing off FAQ's for more details but in essence if a comparative ad uses distinctive aspects of a competitor's branding and could confuse as to whether the advertiser's and competitor's products are connected, this could give the competitor a cause of action in passing off.

How does the law of trade libel affect comparative advertising?
If an ad is misleading about an identified competitor and can be shown to have been published maliciously (in other words recklessly as to its truth or falsity or for some improper motive) then it could constitute a trade libel or malicious falsehood and expose the advertiser to damages awards and other penalties such as injunctions preventing further use of the ad in question. The case law makes it clear, however, that principles applicable to this tort, such as the "single meaning" rule requiring the plaintiff to establish that the ad is most likely to bear just one meaning and that this meaning is completely untrue, make a case in trade libel difficult to prove. Nevertheless, advertisers should take care: even litigating to win can be time-consuming, commercially disruptive and unless the winner is very fortunate, unlikely to lead to full recovery of legal costs.

Surely I can reproduce my competitor's trade mark in the interests of vigorous competition?
"Not necessarily" is the answer here. If the competitor's brand is registered in the UK for the products you are advertising, there will be an infringement of the trade mark if the court is satisfied that it is being used "otherwise than in accordance with honest practices in industrial or commercial matters" and this "without due cause takes unfair advantage of or is detrimental to, the distinctive character or repute of the trade mark" What does all this mean? Helpfully Chancery Judges have interpreted this as netting out to "so long as the advertisement is not significantly misleading you should be OK."

Are the rules governing comparative advertising broadly similar in the rest of Europe and the USA?
The short answer is "no." Whilst in the USA the regulatory landscape is in some ways more liberal than here in the UK, there are fairly wide reaching unfair competition statutes such as the Lanham Act which impact on so called trade mark dilution and knocking copy generally. On the Continent there are a number of states where comparative advertising is virtually impossible, no matter how true, fair or accurate it may be. Advice should be taken therefore before contemplating any comparative campaign which has an international footprint.