The end of comparative advertising as we know it?

On 23 April 2000 the EU Directive seeking to harmonise comparative advertising rules across Europe became law in the UK.

The DTI said the proposals would mean "little change" to the present UK system for regulating "knocking copy". We are not so sure.

The background
The compromises that show
The new regulations
The dangerous definition
The golden rules
How the new system works
Broadcast advertising: a different regime
Who triggers the regulations?
The second whammy
What impact are the Regulations likely to have?
The comparative advertising regime before 23 April 2000
And now the new regulations are in force?
A departure from existing rules
Inconsistencies with existing codes
ASA/CAP finally react
No longer a legal long stop
Rules open to interpretation
Sum-up
Stephen Groom and Nick Johnson examine the entrails.

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 showed 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 changes radically the approach in the UK to this kind of advertising. This is the 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.

The new regulations

The regulations are  named 'The Control of Misleading Advertising   (Amendment) Regulations 2000'.

As the title suggests, the idea is to follow the Directive by incorporating them into the existing Control of Misleading Advertisements Regulations 1988.

The dangerous definition

The 1988 Regulations have been extended to cover comparative advertising, defined as any advertisement which, "in any way, either explicitly or by implication, identifies a competitor or goods or services offered by a competitor."

If an ad comes within this definition 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 which 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 is only now 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 marketplace 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 new system works

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

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  triggers 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, you guessed it, 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  recidivist 'fringe' advertisers promoting, for instance,   hair restorer, slimming products and get-rich-quick schemes.

Our concern is, however, that the extension of the Regulations to comparative advertising will not be such a non-event.

The UK comparative advertising regime before 23 April 2000

Before the new regulations, 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 the new Regulations are in force?

With the new regulations 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 will also have to 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, were at the time of their introduction into UK law in significant ways a material departure from the existing regulatory landscape.

Inconsistencies with existing Codes

As of 23 April 2000 the existing ASA/CAP print advertising 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  "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 extant legislation, that if an advertisement referred to a special offer, it had in all cases, in a clear and unequivocal way, to indicate the date on which the special offer ends or, if the offer has not yet begun at the time the advertisement is 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.

ASA/CAP finally react

As reported in our Newsfeed section, those responsible for drawing up the self regulatory print code, the British Code of Advertising, finally reacted in May 2000 by bringing the Code into line with the Regulations by way of an Addendum.

On the broadcast advertising front, however, neither the ITC or the Radio Authority had indicated as of September 2000 whether they intended doing the same in relation to their advertising codes.

No longer a legal long stop

Potentially therefore this means that in the TV and radio areas,  rather than being merely the legal 'back- stop' for enforcing existing regulations which it has been in relation to misleading advertising, the new comparative advertising rules may open up a whole new area of legal (as opposed to Code) risk for advertisers.

Until January 2001 this may stretch the already scarce resources of the OFT as the only regulatory authority in the land with the power to enforce these new regulations. Come 2001, however, advertisers may not rest so easy, since, for the reasons already explained, consumer organisations will step into the breach.

Rules open to interpretation

So if we have significant departures from existing "knocking copy" groundrules that have worked passably well for as long as most of us can remember, will we at least have the comfort of being reasonably certain when the new rules apply and what they mean?

We fear not. Key aspects of the Directive are open to widely different interpretations.

The 'Comparative Advertising' Definition. This is critical because only obedience to the seven golden rules saves 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 will be 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 will 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.  For cross-border comparative claims, the indications from our colleagues in the European Advertising Lawyers' Association are that even by September 2000 a significant number of EU states, including France, Ireland and Spain had still not implemented the Directive.

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.

And what about knocking copy on the net?  That, as they say, is another story!