While the Trade Marks Act governs whether comparative advertisements are permitted in the first place, the Fair Trading Act complements this regime by providing rules that can be used to regulate the substance of such advertisements.
There are four sections of the Fair Trading Act potentially relevant to the practice of comparative advertising. These are:
(a) section 9 (misleading and deceptive conduct in the course of trade);
(b) sections 10 and 11 (conduct liable to mislead in relation to goods or services respectively); and
(c) section 13 (which prohibits false or misleading representations as to a number of matters).
Fair Trading Act generally
Before considering the comparative advertising cases specifically, it may be helpful to revisit the effect of the Fair Trading Act more generally. This was summarised by the Supreme Court in Red Eagle Corporation v Ellis:
It is, to begin with, necessary to decide whether the claimant has proved a breach of s 9. That section is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances. Naturally that will depend upon the context, including the characteristics of the person or persons said to be affected. Conduct towards a sophisticated businessman may, for instance, be less likely to be objectively regarded as capable of misleading or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties. Richardson J in Goldsboro v Walker said that there must be an assessment of the circumstances in which the conduct occurred and the person or persons likely to be affected by it. The question to be answered in relation to s 9 in a case of this kind is accordingly whether a reasonable person in the claimant’s situation — that is, with the characteristics known to the defendant or of which the defendant ought to have been aware — would likely have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so. Of course the fact that someone was actually misled or deceived may well be enough to show that the requisite capacity existed. ” [emphasis added]
The Court of Appeal also commented on the application of the Act to advertising and marketing activities more specifically in Geddes v New Zealand Dairy Board:
[77] The first point to emphasise is that the commercial law of New Zealand is ‘based on the premise that society’s resources are best allocated in a competitive market where rivalry between firms ensures maximum efficiency in the use of resources’: Tru Tone Limited v Festival Records Retail Marketing Limited; Telecom Directories Limited v Ad.Viser (NZ) Limited. The normal response to a trade rival’s allegedly innovative product or service should be a trade or marketing response, not a rush to the court door with ‘some arguable item in the competitor’s promotional material which might be labelled misleading or deceptive’: Squibb & Sons (NZ) Limited v ICI NZ Limited. [78] Secondly, in evaluating conduct which is allegedly misleading or deceptive, the court must always identify those who have been or are likely to be misled or deceived… In this case, the audience is clear, the dairy farmers of New Zealand. [79] Thirdly, when determining whether advertising or promotional material is misleading or deceptive, the courts must adopt a robust approach — ‘a degree of robust realism is necessary’: Stuart Alexander & Co (Interstate) Pty Limited v Blenders Pty Limited; Unilever. [80] Fourthly, the conduct of a defendant must be viewed as a whole. ‘Where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words’: Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited. [81] Finally, in trade description cases, the focus is upon what is said and done rather than on what is not said or done. The legal obligation is to avoid falsehood. It is not an obligation to provide compendious explanations: Unilever. [citations omitted]Nature of a comparative advertisement
Although I am discussing comparative advertisements as a class and there are some aspects of commonality, there is no particular legal effect of an advertisement being comparative.
This is something which Heerey J observed in the Full Court of the Federal Court of Australia in Gillette Australia Pty Limited v Energizer Australia Pty Limited [2002] FCAFC 223, in rejecting the suggestion that special rules should apply in comparative advertisements as compared with the usual Trade Practices Act considerations:
The characterisation of advertising as comparative does not of itself have legal significance, or create any kind of presumption in favour of a party alleging a breach of Pt V of the TPA. There is no basis in the TPA for regarding comparative advertising as an inherently disreputable form of commercial conduct, to be viewed with suspicion by the courts. On the contrary, to the extent that comparative advertising provides consumers with accurate hard facts about competing products, it assists in the making of better informed consumer choices and thereby results in more effective competition. Of course, the more actual comparisons that are used, the more potential there is for error (and half-truth). So advertisers have to be careful. … Assertions of factual inaccuracy have to be carefully considered by courts in comparative advertising cases, no differently from any other cases.
Perhaps the most significant common feature is the fact that the third party competitor which is the target of the comparison will scrutinise the advertisement with its legal advisers, so the advertiser needs to ensure that the claims are justified, as noted by Allan J in Energizer NZ v Panasonic:
[I]n the natural course of things, a comparative advertiser can expect its material to be subjected to close scrutiny by a trade competitor. Lindgren J, a member of the Court in Gillette v Energizer, helpfully summarised the position at [44]:“[44] The judicial dicta referred to signify that a comparative, as distinct from a ‘unilateral’, promotion of a product necessarily indicates that the advertisement is not mere advertising puff, but involves representations of fact which are either true or false. They also suggest an obvious practical consideration: since the manufacturer, distributor or seller of the compared product will be closely familiar with it and will have a financial interest in stopping the advertising, it can be expected that the advertisement will be construed by that competitor ‘minutely and finely with an eye keenly attuned to the perception of error’ (to adopt an expression from a different area of the law: cf Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287; 115 ALR 1, quoted with approval in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259; 136 ALR 481 at CLR 271-2 per Brennan CJ and Toohey, McHugh and Gummow JJ). Thus the advertiser can reasonably expect a challenge, including a challenge to the point of litigation.”
Although the nomenclature is not important in the context of the Fair Trading Act, an advertisement can be comparative even if the subject is not expressly identified in the advertisement: see, for example, Telecom Corp v Clear Communications. In that case Greig J observed:
[W]hen detailed comparisons are undertaken, as is sometimes the case with direct comparisons between competing goods or services, the specificity of advertisement and the statements in it give less room for construction as puffery but give clear grounds for testing the accuracy or falsity and so the misleading or deceptive nature of the comparison overall. That can apply to advertising which, though not in terms comparative, is in its ordinary meaning and connotation to be treated as comparative. Thus without direct reference to a competitor or that competitor’s goods and services the implication of advertising may nonetheless be clear that the advertiser’s goods or services are in fact being compared with others.There is a danger in over-analysing material, something which the High Court remarked upon in Energizer v Panasonic:
The courtroom environment and the focused attention I was able to give the material constitute quite different circumstances from those in which an ordinary member of the public might view the advertisement. Of course, it is the impact on members of the public that must be assessed. In terms of viewer perception, television advertisements present their own problems, usefully summarised by Lindgren J in Eveready Australia Pty Ltd v Gillette Australia Pty Ltd (No.4) at [38].
“I have reviewed each of the 10 second, 15 second and 30 second Duracell television commercials more than once, and have tried to assess their likely impact on members of the public in the circumstances in which they would have been likely to view them. Those circumstances are not the circumstances in which I viewed the commercials. First, it would be very unlikely that members of the public would have viewed any of the commercials in isolation: rather, they would almost certainly have viewed them after and before viewing other things on the television screen. Second, unlike myself, they would not have viewed the commercials with a special interest in them and many would probably have viewed the commercials against a background of distractions, such as domestic activity or simply pre-occupation with other more interesting concerns. Third, members of the viewing public would not know in advance that the commercials were about to commence. ”
In order to comply with the Fair Trading Act, advertisements generally (including comparative advertisements) must not be misleading or deceptive. This means that any comparisons are accurate (i.e. correct) and fair so that consumers are not misled, and it is also important to have supporting evidence available for the claims in case they are challenged and the claims need to be justified in court.
I will now turn to consider three recent New Zealand cases and the lessons for advertisers and targets which follow from those decisions: Energizer NZ v Panasonic (2009), Luxottica v Specsavers (2011) and Tasman Insulation v Knauf Insulation (2014).
Energizer NZ Ltd v Panasonic New Zealand Ltd (High Court, 2009)
This was an interim injunction application. The case related to claims made by the defendant about the efficacy of its batteries, in particular:
(a) that its “Evolta” battery is the “Guinness World Records Longest Lasting Double AA alkaline battery” (in a supermarket flyer); and
(b) that its battery was the “Guinness World Record Holder / For The Longest Lasting AA alkaline battery” (TVC).
The respective parent companies of the plaintiff and the defendant undertook independent testing of the durability of the defendant’s Evolta batteries. On the strength of the test results it had obtained, the defendant’s parent company managed to persuade the Guinness World Records organisation to certify that the Evolta was the world’s longest lasting alkaline battery.
Changes in the market
The difficulty for the defendants, however, was that the battery world (and in particular the New Zealand battery market) had moved on since the TVC was made and first aired. When screening of the advertisement first occurred, the defendant understood the Evolta battery to be substantially superior to its local competitors. It was not then aware that Energizer had commenced to market the US-sourced e2 battery in New Zealand.
Per Allan J:
[A]lthough the defendants’ claims carry an implication of product superiority over their rivals, the claims themselves are not framed in comparative language. They are simply statements of alleged fact which the Court is required to consider in terms of s 9 of the Act. [24] The advertised claims do not refer to the New Zealand market at all. On their face, they appear to make claims to superiority in the global market. Be that as it may, the defendant accepts that the plaintiff’s better performing e2 US sourced product is now widely available in New Zealand. The necessary assessment must be conducted in the context of the New Zealand marketplace as it now exists, not the state of competition at an earlier point in time.The defendant argued that the Guinness World Record status remained accurate, even if the Evolta was no longer the best-performing battery in the world.
[49] In the present case the defendants argument is that the representations conveyed in the television advertisement are literally true, so that there can be no infringement of s 9. It is not in dispute that if the representations contained within the advertisement are literally true and that no arguably misleading interpretation of the representation is available, then the plaintiff must fail. But if the representation conveys another meaning which is untrue, then the proscriptions in s 9 may well apply.Qualification
The TVC contained a qualification in relation to the claim, as noted by the Court:
An asterisk appears immediately after the word “Lasting*” in order to draw attention to what is in effect a footnote visible below the depiction of the battery shown in the centre of the screen. The footnote reads:
“*Average of all discharge modes ANSI and IEC testing since January 2008. ”
[17] This asterisked footnote appears for a matter of seconds, but is largely illegible to the viewer. It is in a much smaller font than the type used for the primary claim and is dwarfed both by that claim and by the depiction of the battery itself. I did not notice the footnote when the advertisement was played in the courtroom during the hearing.The Court found, however, that the footnote did not actually assist the defendant’s case:
Only the most attentive and astute viewer would notice the footnote at all. Most members of the public would simply overlook it, even on repeated viewings, and focus upon the main text and the picture of the battery. That in my view, was the plain intention of those who created the advertisement. Indeed, Mr Parkes, who swore an affidavit for Panasonic, says that the defendant regarded the averaging qualification as “arguably unnecessary”. No doubt that approach influenced the decision to relegate the subtext to effective invisibility. I therefore proceed on the basis that the primary claim is, for practical purposes, unqualified by the asterisked material. [emphasis added]
In considering the unqualified claim, the Court found that there was a serious question to be tried in relation to the defendant’s alleged breach of the Fair Trading Act.
In considering whether or not to grant relief, the Court noted the following:
[A] factor often needing attention in comparative advertising cases is the immediate impact of an injunction upon a defendant. The Court will not lightly ruin a competitor’s product launch, or worse, completely restrain a party from entering the market (see Squibb at 324). In such cases, the grant of an interim injunction will often bring the litigation to an end because the interim injunction effectively becomes permanent.Nevertheless, the Court granted an interim injunction. The Court recognised that terms of the injunction must be carefully drawn. As is normally the case for injunctions relating to advertising claims, the orders related to particular claims (rather than a particular advertisement).
Luxottica Retail New Zealand Limited v Specsavers New Zealand Limited (Court of Appeal, 2012)
In Luxottica v Specsavers, the parties were competitors who provided optometry services and optical products in retail stores. The plaintiff, which trades under the name OPSM, objected to some of the claims made in its competitor’s television commercials and print advertising.
Specsavers arranged for mystery shoppers to visit OPSM stores and find particular pairs of glasses. It then used the comparative prices in a TVC.
In the first TVC for Specsavers, the voiceover stated:
“At Specsavers you can get two pairs of our lowest priced progressive glasses and pay no more than $399 in any store you visit.
But at OPSM we found that two pairs of their cheapest progressives varied by over $200 from store to store, anywhere up to $976 for two pairs. ”
In the image on screen, the prices of $399 for Specsavers and $976 for OPSM were prominently displayed beside each other. The words “Up to” appeared just above the figure of $976 for the OPSM glasses but in smaller print. The TVC contained the qualification “Based on 14 mystery shopper purchases nationally between 16/3/10 and 26/4/10”.
The second TVC was similar but expressed in slightly different terms.
Luxottica took action on the basis that the claims made in the TVC were likely to mislead or deceive:
(a) by conveying the impression that the cheapest pairs of OPSM progressive glasses cost $976 while the cheapest pairs at Specsavers were $399 (“the headline comparison”).;
(b) alternatively, by conveying the impression that the cheapest pairs of OPSM progressive glasses were priced at around $796 (based on the price of $976 less the $200 described in the TVC as the amount by which the price for OPSM glasses varied from store to store). The price of $796 for OPSM glasses was again compared with the cheapest progressive glasses at Specsavers of $399 (“the variation comparison”).
The High Court granted summary judgment for the defendants on the basis that the plaintiff’s claims could not succeed, but this was overturned by the Court of Appeal.
On appeal, the Court found the implication of the advertisement was potentially misleading and deceptive, at least for the purposes of considering whether or not the plaintiff had an arguable case. The comparison was unfair and misleading because it did not compare “apples with apples”. The TVC gave the impression of much higher prices at OPSM than Specsavers by giving the lowest price at Specsavers compared with the highest price at OPSM:
The “anchoring” effect of the top price for the OPSM brand is, we think, significant. We accept Mr Gault’s submission that it is arguable the attention of consumers would not have been drawn to, or focused upon, the fine print and that the “take home” message to the consumer would be that the comparative prices for the products were $399 and $976 respectively for the first TVC and $399 and $892 for the second TVC. The true comparison of lowest prices was between $399 and $652 in each case.
In substance the Court took a similar approach to the High Court in Energizer v Panasonic in concluding that material which is literally true can still mislead:
But as the authorities show, even if the representations are literally true, this may not be sufficient to preclude a finding of misleading or deceptive conduct or the likelihood of such conduct. Where it is arguable that the qualifying material and small print may be overlooked by the consumer (which is a particular risk in the case of a fleeting TVC where a viewer may be distracted by a range of other factors), it is the overall impression conveyed to the average consumer by the advertisements which is critical. We consider the Judge gave insufficient weight to these factors and did not sufficiently recognise that the impression conveyed to viewers by television advertisements is arguably rather different from that received by a Judge who has the opportunity in a courtroom or in chambers to take in and carefully analyse all the detail (large or small and irrespective of how long the material would appear on screen when viewed by a potential customer).
Knauf v Tasman Insulation (High Court, 2014)
The case of Tasman Insulation v Knauf Insulation related to claims and counterclaims between the makers of PINK BATTS and EARTHWOOL insulation products. The High Court’s decision is significant for trade mark lawyers as one of the few judgments to give detailed consideration to the genericism provisions of the Trade Mark Act. I focus below on some of the Fair Trading Act issues.
There were six separate Fair Trading Act issues. Three of these related to Knauf’s EARTHWOOL name and marketing but I will focus on the other three which are more in the nature of comparative advertising:
(a) Knauf’s reference to “a competitor” in a press release;
(b) Tasman’s statement regarding the compression ratio of its product; and
(c) an “immersion test” demonstration by Tasman.
The reference to “a competitor”
Knauf took out an advertisement in the Sunday Star Times which, under the heading “Why Brown Makes Pink See Red”, stated:
“ … A competitor has been trying to discredit EarthWool® claiming that our insulation is ‘bendy, slumpy, bulgy and bursty’.”
Tasman denied having released any such statement and consequently alleged that the representation was false and misleading, in breach of the Fair Trading Act. The Court found that Tasman had referred to Knauf’s product as bendy and slumpy, but the statement was inaccurate to the extent that it alleged that Tasman had been trying to discredit EARTHWOOL by a claim that it was “bulgy and bursty”.
Compression ratio claim
Knauf made a counterclaim against Tasman, alleging that the Tasman statement that its PINK BATTS products were “on average over 7:1 compression ratio packed” contravened ss 9, 10 and 13 of the Fair Trading Act for the reason that independent testing of the six Tasman products had shown an average compression ratio of 4.348:1, not 7:1. In its reply Tasman stated that its methodology for calculating the compression ratio as across its PINK®BATTS® products produced an arithmetical average ratio of 7.48:1 but for simplicity it rounded off the ratio to 7:1.
The Court considered the details of the various testing, and reached the conclusion that Knauf’s allegation was not made out on the evidence because:
(a) Tasman’s contention that Knauf did not calculate the actual average compression ratio was sound; and
(b) where there is more than one acceptable method for making a calculation, it ought not to be objectionable that a different result is obtained by the use of a different acceptable calculation.
This aspect of the case shows the importance of having robust scientific data to support marketing claims, where appropriate.
The immersion test
Tasman undertook demonstrations which involved a comparison of the PINK®BATTS® and EARTHWOOL® products when submerged or soaked in water. Knauf alleged that these were misleading or deceptive in making a comparison in contrived and unrealistic circumstances which gave rise to false, misleading or deceptive distinctions concerning the products’ respective qualities.
The Court agreed with Knauf on this point, on the basis that the test was inappropriate and misleading in requiring the Tasman product to be removed from the container before it would inevitably also sink.
Summary of guidance from the case law
In summary, the key aspects which emerge from Energizer v Panasonic, Luxottica v Specsavers and Tasman v Knauf are as follows:
(a) Advertisers need to ensure that there is a proper basis for all claims, and recognise that developments may occur in the market which means that the claims are no longer accurate. This is particularly the case where claims are made regarding relative performance or price, whether the competitors are specifically named or not. Advertisers need to ensure that their claims are reviewed regularly.
(b) Claims should be as specific as possible. Where a claim could be taken as having a factual basis rather than just being puffery, there must be a proper factual basis for making the claim.
(c) It is not enough to rely on an advertisement being strictly true (i.e. that the Evolta had been recognised as being the world’s longest lasting AA alkaline battery) if the main inference (i.e. that it is longer lasting than all of its competitors) is incorrect.
(d) “We didn’t mean that” is not an excuse.
(e) A footnote or small print must be legible, or there is a risk that the claim will be treated as unqualified.