Comparative advertising and price: Implementation of Directive 97/55/EC in Germany and England compared

I. Introduction.

The legal implications surrounding comparative advertising open up to a wide field of study. Its issues have, to different degrees, been considered on numerous occasions by academics of all backgrounds. Hence, to give a detailed outline of the law of comparative advertising in Germany and England would exceed the comprehension of this dissertation. I shall thus limit myself to a consideration of both methodology and practical ramifications of the implementation of EC Directive 97/55 on Comparative Advertising^[1] in both EU Member States with regard to price indications. This will be followed by a comparison between the two approaches, and a conclusion drawing on a critical evaluation of the former.

As William Cornish said, “comparison-explicit or implied, specific or vague, lies at the root of modern advertising”.^[2] Comparative advertising, indeed, was and continues to be practised by many companies in their advertising campaigns^[3] and, hence, forms part of their marketing strategy.^[4] The more and more aggressive atmosphere^[5] in the industry, including in the European Union, has now accelerated the process and, although use of comparative advertising is still minor in comparison to the US, it is certainly a method of advertising the average consumer is very aware of. Very often, we come across indirect comparative advertising, which may be defined as advertising that describes only one product or its attributes and compares it generally and indirectly to competing products^[6], as opposed to direct comparative advertising which is generally considered to catch advertising that names the competitor the products or services of whom are used in the comparison. The comparison may be either positive or negative, and may seek either to associate or dissociate the two brands.^[7]

Economic arguments in favour of this advertising practice, however, do not only rely on considerations of benefits and drawbacks regarding competitors and market players. Two other factors come into play when we are concerned with a market economy: the consumer and the general interest. Consumer protection arguments, therefore, have always laid at the core of the discussion focusing on the legality of comparative advertising, the primary matter we are concerned with. If anything, the consumer, according to economic theory, represents the leading force in this respect since he is the one keeping the economy running and consumers may be the main cause for a need to consider the “general interest”. In recent decades, consumer protection has come to the fore in both national and European politics; in relation to comparative advertising, the principle has been used both to support and to undermine the legality of the former although the camp in favour of it has clearly prevailed.^[8]

Consumer protection is, by its very nature, closely linked to issues concerning competition in free market economies. Hereby, I need to mention some theoretical observations underlying competition policy. We first need to distinguish between policies aiming at ousting unfair competition, and policies aiming at restricting anti-competitive behaviour in order to prevent distortions and to promote competition generally. Our primary focus will lie on the former. A core argument in support of the promotion of competition is provided by the contemplation that competition is beneficial for the consumer since it inter alia reduces the purchase price, acts as an incentive to improve product quality and increases consumer choice. One of the arguments made in favour of comparative advertising was that it would increase consumer knowledge and promote fair competition.^[9] Arguments against comparative advertising are more often than not concerned with “unfair competition”.^[10] One of the criticisms of the practice is that comparisons are often made only on a single attribute of a product thus leading to unfair and misleading information which distorts competition and restricts consumer choice.^[11] Domínguez Péres, however, dismisses all arguments relating to lack of informative value. She puts forward the proposition that comparative advertising cannot be strictly categorised as hindering competition but rather as competition based on goods and services so that, as long as the advertiser announces characteristics of his own product, he is conforming to the principle of advertising based on the product offer.^[12] Essentially, the debate comes down to whether comparative advertisements will give rise to misinformation of the consumer or actually contain factual information. As Domínguez Pérez put it, “ the informative element is the essential component of this method of advertising and, at the same time, its weakest aspect”.^[13] To that effect, Schricker has argued that the consumer is interested in receiving any information, even if it is biased, as long as it is true.^[14]

The law of comparative advertising, touching on the law of advertising, trade marks^[15], competition, civil wrongs (torts), crimes, consumer protection and human rights represents itself on a global scale in a patchwork of different legal areas, provisions and codes, depending on the respective jurisdiction. For the purposes of this dissertation focusing on German and English, as well as European Union law, we are primarily concerned with the law relating to trade marks, with codes of advertising set up by advertising authorities within the framework of a self-regulatory system^[16], the law of unfair competition and the provisions of Council Directive 97/55/EC, which was only recently implemented in Germany and England.

Since the scope of this essay only extends to the implementation of Directive 97/55/EC, the relevance of issues relating to intellectual property law is limited to the law of trade marks considering that the Comparative Advertising Directive may overlap with national provisions of trade mark law, this being the case where a competitor’s trade mark is used in the comparison. According to Vahrenwald, comparative advertising will necessarily involve references to a competitor’s trade marks.^[17] It is difficult to follow this line of thought considering that many of the successful brands in commerce are not actually registered trade marks and are thus not protected through trade marks law from being used by a business rival. Nonetheless, the use of trade marks is common in comparative advertising^[18] and has, as a consequence, played a major role in creating hurdles to a liberalisation of comparative advertising law in the European Union.^[19] Since the enactment of Directive 89/104/EEC^[20], commonly referred to as the Harmonisation Directive, comparative advertising in the EU may give rise to a trade mark infringement action where there is interference with the trade mark owner’s rights under Art.5(3).

Furthermore, unfair competition law has played a major part in shaping the law surrounding comparative advertising. The relationship between unfair competition and intellectual property law, however, can be difficult to make out. Generally, intellectual property rights lie outside the scope of unfair competition law, even where they have a bearing on matters of competition. Having the status of special regulations, intellectual property rights consequently prevail over issues relating to competition. Nonetheless, rules of unfair competition may still find applicability in the form of ancillary provisions, particularly in regard to performance lacking legal protection against unfair exploitation.^[21]

As touched on above, Council Directive 97/55/EC emerged from the former Directive on misleading and comparative advertising, Council Directive 84/450/EEC. Before Directive 97/55 was passed, the law relating to comparative advertising in the EU was nowhere near harmonisation: almost all possible legal models were represented. Most Member States, including Germany, thereby took a middle position^[22], located somewhere between total prohibition and total permission of the advertising practice. England and the Benelux countries may best represent the two poles at each end of the scale, England having followed a liberal approach in respect of comparative advertising, and the Benelux having followed a strict one.^[23] In France, comparison of price was permitted only, whereas comparison of other product features was generally prohibited.^[24] Harmonisation was only present in relation to misleading advertising which had been dealt with under Directive 84/450.^[25] The Recitals of Directive 97/55, as well as government statements and declarations made by EU bodies have made it very clear that the primary aim behind the enactment has been the liberalisation of the law relating to comparative advertising in order to facilitate the free movement of goods, services and capital in the internal market of the EU, and to promote commercial exchange. Nevertheless, whether the effects wished for will actually be achieved is a different question to be considered. This shall depend on how the industry will react to the Directive in the future, on how implementation is dealt with in Member States and, most importantly, on how the European Court of Justice^[26] is to interpret the Directive.

Finally, price comparisons are meant to provide ultimate assistance to the consumer when faced with a choice of products and are thus seen as increasing market transparency. However, although the price of a product or service may indeed represent the least subjective attribute to it, it is also the feature that is most open to manipulation designed to mislead the consumer.^[27] In any event, it was argued on numerous occasions that the liberalisation of price comparison lay at the core of the rationale behind the Directive’s enactment.^[28] The trend moving towards increasing price comparisons has recently become even stronger due to the introduction of the monetary union and the following growth in price transparency.^[29]

Chapter 1: The Law of Comparative Advertising in England.

Overall, the law seems to have played a surprisingly minor role in comparative advertising in England.^[30] In fact, comparative advertising is most deregulated in the United Kingdom out of all European countries.^[31] Until recently, there was little use made of law and, very largely, a “dog-bite-dog” attitude dominated amongst advertising agencies.^[32] However, comparative advertising is generally regulated through a complex patchwork of civil (torts), criminal and trade mark laws.^[33]

Yet, one of the most important provisions regulating comparative advertising in England is the 2003 British Code of Advertising, Sales Promotion and Direct Marketing^[34] which was drawn up by representatives of the relevant trade and professional bodies, and is supervised by the Advertising Standards Authority^[35].^[36] The Code allows comparative advertising so long as comparisons are “clear and fair”. Comparative advertising is subject to the general provisions of the BCA that sets out the conditions to be met for it to be legal.^[37] The self-regulatory system is reinforced by the Control of Misleading Advertisements (Comparative Advertising) Regulations 2000 under which, if a misleading advertisement or promotion continues to appear after the ASA Council has ruled against it, ASA can refer the matter to the Director-General of Fair Trading who may order legal sanctions.^[38]

Overall, in requiring the substantiation of factual claims and being concerned with general “fairness”, the self-regulatory system places stricter requirements on comparative advertising than there are at law.^[39] The United Kingdom having always opposed a system of unfair competition, may be seen as having provided for a substitute of it in the BAC. The view that general provisions of “fair” and “unfair” behaviour may often lead to more vigorous standards may also be supported when one looks at the German 1909 Act Against Unfair Competition.

Despite its obvious disadvantages, self-regulation is fostered as being flexible in scope. This includes the ability to use much vaguer criteria for standards of behaviour and to more easily adapt rules as public standards change.^[40] With the coming into force of Directive 97/55/EC, the self-regulatory system and EU legislation on comparative advertising now stand side by side.

1.1: Rejection of a Law of Unfair Competition.

There has long been intense opposition in Britain and Ireland, both common law countries^[41], to a harmonisation of the law of unfair competition at European level.^[42] This is certainly due to the fact that, would a harmonisation actually take place, the UK would have to face a comprehensive revision of their trade mark law and possibly other legal areas, UK legislators and courts traditionally being against an introduction of unfair competition law. There is thus no general principle that underlies a body of law governing competition. Because of this lack of coherence, English law is characterised by a patchwork of various torts and regulations; the tort that comes closest to a general principle and is most important where badges of trade are concerned is represented by the law of passing off.^[43]

In spite of appeals from various authors, acceptance of the concept of unfair competition at common law does not seem to be near.^[44] Reichmann argues that the reason that the UK lacks an unfair competition law is that it formally subscribes to strict free-market principles in accordance with which product stimulation is a right rather than a wrong.^[45] The importance of protecting consumers clearly prevails over the protection of competitors. Moreover, reluctance to introduce such a concept stems from the fact that unfair competition law attempts to encompass all aspects of industrial property law. As a result, its rationale is based upon general principles to accommodate protection in a variety of cases. This means that it is for the courts to determine what is “fair” or “unfair” in the market place. Judges in common law countries have been unwilling to do so because this would impose ambiguous moral standards upon business conduct, thus interfering with competition. According to Kamperman Sanders, however, the development of economic torts in English law shows that courts are very capable of setting boundaries.^[46]

Another means of addressing the issue was pointed out by Booy who proposes a “half-way house” alternative, based on the Australian experience of s.52 of its 1974 Trade Practices Act.^[47] Australian jurisprudence, as that of the UK, does not recognise a general law of unfair competition.^[48] However, section 52 of the Trade Practices Act provides that “a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. Like passing off, the provision requires no proof of intent but unlike passing off, it may be invoked by both consumers and competitors alike.^[49] Adams claims that it is difficult to find decisions under this provision which might not equally well have been decided the same way under the tort of passing off.^[50] In any event, it is true that Community law increasingly uses the concept of “unfair” conduct so that one might say that English courts will have to acquaint themselves with the concept sooner or later.^[51]

[...]

^[1] Amending Council Directive 84/104/EEC of 10 September concerning misleading and comparative advertising

^[2] Cornish, Llewelyn (2003), p.632

^[3] Bainbridge (2002), p.544

^[4] Cornish, Llewelyn (2003), p.634f.

^[5] Ibid.

^[6] Carey (2000), p.21

^[7] Mills (1999), p.427f

^[8] Ibid., p.418

^[9] Bently, Sherman (2001), p.869

^[10] Mills (1999), p.427

^[11] Carey (2000), p.21

^[12] Ibid., p.24

^[13] Ibid., p. 31

^[14] Ibid., p. 32

^[15] Bentley, Sherman (2001), p.872

^[16] Ibid.

^[17] Vahrenwald (1996), p.284

^[18] Carey (2000), p.21

^[19] Henning-Bodewig (1999), p.386

^[20] First Council Directive 89/104/EEC of December 1988 to approximate the laws of the Member States relating to trade marks

^[21] Schricker, Henning-Bodewig (2001), p.1369

^[22] Henning-Bodewig (1999), p.386

^[23] Meyer-Harport (1995), p.178

^[24] Fletcher, Fussing (2003), p.572

^[25] Schricker, Henning-Bodewig (2001), p.1374

^[26] Hereafter referred to as the ECJ

^[27] Vahrenwald (1996), p.284

^[28] Tilmann (1999), p.549

^[29] Menke (1998), p.819

^[30] Cornish (2003), p.634

^[31] Mills (1999), p.427

^[32] Cornish (2003), p.634

^[33] Fitzgerald (1997), p.250

^[34] Hereafter referred to as BCA

^[35] Hereafter referred to as ASA

^[36] Cornish (2003), p.872

^[37] Ibid., p.873

^[38] Fitzgerald (1997), p.251

^[39] Fitzgerald (1997), p.252

^[40] Fitzgerald (1997), p.251

^[41] Henning-Bodewig (1999), p.385

^[42] Domínguez Perez (2001), p.36

^[43] Kamperman Sanders (1997), p.52

^[44] Ibid., p.53

^[45] Kamperman Sanders (1997), p.53f

^[46] Ibid., p.54

^[47] Booy (1991), p.439

^[48] Moorgate Tobacco Co Ltd v. Philip Morris Ltd (No.2) [1985] R.P.C. 219

^[49] Booy (1991), p.440

^[50] Adams (1992), p.259

^[51] Schricker, Henning-Bodewig (2001), p.1379