In probably the first European Court of Justice judgment on the “Comparative Advertising Directive”, the verdict is a thumbs-up for a more liberal interpretation of the directive than might have been feared.
Topic: Comparative Advertising
Who: Toshiba Europe GmbH v Katun Germany GmbH
Where: The European Court of Justice
When: October 2001 (reported August 2002)
Katun Germany sold spare parts which could be used on Toshiba photocopiers. In its catalogue, Katun listed its spare parts on a 4 column page. The first column was headed "OEM Product Number" and set out Toshiba's own "Order Number", designating the Toshiba part for which the Katun spare part could be used as a substitute. The second column was headed "Katun Product Number" and set out Katun's order number for its relevant spare part. The third column was a description of the product and the fourth column referred to the product number of the particular model of photocopier for which the Katun product was intended.
Toshiba sued Katun in Germany for unfair competition. It based its complaint solely on the fact that in the Katun catalogue, Toshiba's spare part order numbers appeared alongside the equivalent Katun product numbers. Toshiba argued that it was not necessary for Katun to use these "Order Numbers". A price comparison and an explanation as to the use of the products being sold were possible, Toshiba argued, using Toshiba's corresponding model numbers for their photocopiers (as opposed to the numbers of the spare parts) and diagrams illustrating the particular spare part being sold.
Katun defended on the basis that its advertising was directed solely at specialised traders and that in view of the large number of spare parts involved, the reference to a Toshiba product number was objectively necessary. Furthermore, the parallel listing of the Toshiba product number for the spare part in question and the equivalent Katun product number enabled customers to compare prices conveniently.
At this point, the Comparative Advertising Directive, as implemented in Germany, came into play. The purpose of this Directive was to liberalise the regime for comparative advertising across Europe. The broad effect of the new regime was to legalise comparative advertising so long as certain requirements were fulfilled.
This meant that if the Katun catalogue classified as "comparative advertising" there should be no legal substance in Toshiba's complaint that the catalogue misled the customer by asserting that Katun's products were of an equivalent quality to those of Toshiba and unlawfully exploited Toshiba's reputation.
Toshiba argued that the catalogue was not caught by the Comparative Advertising Directive at all. This was because one of the preconditions for legal comparative advertising under the new rules is that the advertisement must "objectively compare one or more material, relevant, verifiable and representative features" of the goods in question. The Katun catalogue, Toshiba argued, did nothing of the kind, making only a generalised assertion that the products in question were equivalent.
The ECJ, to whom these questions had been referred by the German domestic Court, accepted that if one interpreted the Comparative Advertising Directive literally, it did suggest that any advertising which contained an express or implied comparison, but which did not objectively compare one or more material, relevant, verifiable or representative features of the goods in question, was outwith the Directive and therefore illegal.
This could not be right, the Court went on, because separate European legislation in the area of trade marks (implemented in the UK via the Trade Marks Act 1994) makes it quite clear that it is perfectly legal to use a competitor's registered trade mark in the context of honestly and non-misleadingly comparing ones own goods with those of a competitor. This saving does not go on to state that it only applies if it is accompanied by an "objective comparison of one or more material, relevant, verifiable or representative features" of the goods in question.
On the face of it, therefore, there was a clear discrepancy between European trade mark and comparative advertising law, but the ECJ rationalised its way through this by referring to the objective of the Comparative Advertising Directive. This was, as set out in the Recital to the Directive itself, to stimulate competition between suppliers of goods and services to the consumer's advantage. This meant, in the Court's view, that the conditions required of comparative advertising in the Directive must be interpreted in the sense most favourable to it. On the facts in question, showing the product numbers of the equipment manufacturer (in this case Toshiba) alongside the competing supplier's product numbers enables the public to identify precisely the products of the equipment manufacturer to which the supplier's products correspond. This process also involved, in the view of the Court, the making of an implicit statement that the two products in question had "equivalent technical features". So in one bound the ECJ had freed itself of the apparent inconsistency between the two pieces of European legislation and found, on a very broad reading of the relevant provision, that the Katun catalogue did indeed contain, by implication, a "comparison of material, relevant, verifiable or representative features" of the products in question.
This was not the end of the story, however. Toshiba also argued that even if the Katun catalogue was a comparative advertisement and caught by the Directive, it still fell foul of it because it took "unfair advantage of the reputation of …other distinguishing marks of a competitor." The next big question therefore was whether Toshiba's product numbers, which were a mere series of numbers and letters, classified as "distinguishing marks" for the purposes of the Directive.
What was a "distinguishing mark", the European Court of Justice pondered. After much soul-searching, it finally determined that a marking or product number in this context will be a "distinguishing mark" if the public identifies it as coming from a particular undertaking".
Going back to the Katun catalogue, the ECJ was by no means convinced that, in context, Toshiba's sequences of letters and numbers would be identified as coming from Toshiba alone. However, it sidestepped the need to make a decision on this point by referring this aspect back to the local court. The Dusseldorf Regional Court would have to take into account the perception of an average individual who is reasonably well informed and reasonably observant and circumspect. Account would also have to be taken of the type of persons at whom the advertising was directed. Would specialist traders regard the Toshiba product numbers as referring to products manufactured by Toshiba?
Assuming that the Düsseldorf Court did on that basis determine that the numbers in question were "distinguishing marks", the next question was whether Katun's use of those marks was taking unfair advantage of Toshiba's reputation. Again, this was a question for the local Court to decide. If the Court were to determine on the evidence available to it, for instance, that specialist traders would, as a result of reading the catalogue, derive a false impression of the relationship between Toshiba and Katun, this would place the Katun catalogue outside the Director's requirements and render it illegal.
That assessment had to be made, the ECJ said, in the light of the overall presentation of the advertising in issue. For example, if the catalogue elsewhere highlighted Katun trademarks and the nature of their products in such a way that no confusion or association would be possible between Katun and Toshiba, it was unlikely that this requirement of the comparative advertising directive was breached. With that, the ECJ passed the matter back to the Düsseldorf court.
Why this matters:
From a UK lawyer's point of view, it is difficult to see how these issues could ever have reached such an exalted point in European legal appellate procedures. In Germany, however, comparative advertising had been effectively forbidden until the arrival of the Comparative Advertising Directive, so brand owners have found it much more difficult to accept that a more liberal regime has arrived as a result. On the face of it, Toshiba's arguments as to the proper, literal interpretation of the Directive are perfectly valid.
One of the principal concerns expressed by marketinglaw on the introduction of the Directive in the UK was that it created a stricter regime for comparative advertising than had hitherto been the case here. This was because it effectively stated that all comparative advertising was by definition illegal unless it fulfilled the requirements of the Directive. So far, this position has not been taken advantage of by UK brand owners, but Germany's cultural and legal heritage is such that it is hardly surprising that the point should first be taken all the way to the European Court of Justice in the context of German promotional material.
So we now have the very first European Court of Justice decision on points arising out of the Comparative Advertising Directive, a development of considerable relevance and interest for marketers in the whole of Europe. The fact that the ECJ has chosen to adopt a very wide and liberal interpretation of the Directive is encouraging. Furthermore, although it has passed the task of making the decision on the crucial points in the case back to the local Court, there can be no doubting that if the Düsseldorf Court follows the message of the ECJ judgment, it will throw out Toshiba's case.