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What to do when an infringer is your biggest customer

Trademark owners have long complained that own-brand rivals use look-alike products to free-ride on their reputations and steal market share. INTA panelists today will explain what they can do about it, says Emma Barraclough

Imagine that a business that is ripping off your product’s packaging asks you to pay them $1 million to stop it. Would you pay up? It’s unlikely. Now imagine that they are one of the biggest distributors of your product and have the power to take your brand off their shelves overnight. That’s the kind of commercial dilemma that many brand owners face when confronted with own-brand lookalike products sold by supermarkets and other retailers.

Lookalikes––sometimes known as parasitic copies––have been around for decades, but brand owners are facing problems more frequently and in more markets than ever before, says Imogen Fowler of Hogan Lovells. “It’s been going on for some time in Europe and the U.S., but now lookalikes are appearing in far more places. It is becoming a problem in New Zealand and Australia, and it’s spreading to Asia too, along with the emergence of national and international supermarket chains.”

Fowler is moderating a session today on lookalikes that will consider how trademark owners should respond to own label brands that come close to––and often cross––the legal line when it comes to conjuring up the look and feel of the packaging used by market leaders.

The two in-house counsel (Jorge Casals Ide of Red Bull GmbH and Ann H. Chen of Mars, Incorporated) and one private practice lawyer (Lydia T. Gobena, Fross Zelnick Lehrman & Zissu, P.C.) on the panel will consider how brand owners can best protect their legal rights against the makers of lookalikes, as well as outlining the commercial issues that they need to consider before they take action against suspected infringers.

The session is aimed at both in-house counsel and at private practitioners, says Fowler. “We want to offer some advice to in-house lawyers on how to deal with lookalikes and raise awareness among those lawyers who may not yet have had to deal with the problem. But we also want to sensitize external counsel to the issues. It is easy to see a lookalike, say ‘blatant infringement’ and then march off to court to do exciting things. But we need to look at lookalikes as a commercial issue.”

Few lookalike disputes ever make it to court because of the business risks involved for brand owners. Big retailers are, after all, often their chief distribution channels. Added to these commercial concerns are legal uncertainties: brand owners and retailers know that it is difficult for the courts to determine with any certainty what consumers are thinking when they choose one product over another. For example, one rare case of a brand owner taking action against a supermarket own brand in the UK (when United Biscuits, maker of PENGUIN chocolate biscuits, sued Asda Stores over its PUFFIN biscuit in the 1990s) saw the brand owner lose, after it failed to convince the court that its trademark had been infringed.

But the lack of court rulings doesn’t mean that in-house counsel ignore the problem of lookalikes. Fowler says that some of her clients have more than 100 live disputes. The problem can be blatant and constant, she says––but brand owners should be willing to tackle it. “Once the retailer gets the message that you are going to fight it, they are more likely to move onto the next brand owner,” she says.

So how should brand owners respond to lookalikes? One of the biggest challenges for in-house counsel is to manage the relationship with a retailer who is both a competitor and a customer. There are also tricky internal relationships that must be handled sensitively. Senior management may demand the company’s legal team do everything it can to stop the sales of lookalikes, while the salespeople who make their living from keeping retailers stocked with the company’s products are often reluctant to confront their best customers about the problem.

In these cases, external counsel should help the in-house team draft correspondence and have those awkward conversations with retailers. If retailers deny that their own-brand version of the brand owner’s product is a lookalike, Fowler advises her clients to ask the other side for a copy of the design brief that they sent to their designers. “It is amazing what you see come out of the woodwork,” says Fowler. “I have seen cases where the brief said ‘get as close to [the brand leader] as you can.’ That’s a brilliant piece of evidence to have.”

Brand owners who want to avoid protracted and unpredictable legal disputes (and who doesn’t?) should consider what commercial solutions they might be happy to accept and how they can exploit commercial points of leverage in discussions with retailers. They might be willing to make another commercial concession in return for a supermarket phasing out a lookalike quickly, for example. Brand owners should consider the timing of their negotiations. Many retailers conduct a listings process each year, during which time they try to secure their annual purchasing deals. This makes it a good time to start talks, says Fowler. But trademark owners should be wary about agreeing to pay retailers to change their packaging. Retailers talk, and a brand owner that has developed a reputation as an easy mark is likely to be targeted again.

Although the commercial relationship between big supermarkets and brand owners is a complicated one, the rise of so-called deep discounters is reshaping the links between the two. While brand owners have traditionally held back from taking legal action against supermarkets, lookalikes also appear in smaller chains such as Aldi and Lidl in Europe. These kinds of stores, which are gaining market share in many jurisdictions, often don’t stock the market leaders’ own products, making it easier for trademark owners to justify taking legal action against them.

Those brand owners that choose to sue freeriding retailers need to understand that the rules on lookalikes vary widely from jurisdiction to jurisdiction. During today’s panel, Lydia T. Gobena of Fross Zelnick Lehrman & Zissu will be considering some of the issues involved in enforcing your IP rights and comparing the rules in some European countries with those in the U.S. Those trademark owners who sell their products across the EU may find it easier to enforce in Germany, where the opportunity to obtain an ex parte injunction provides a good starting point for negotiations with retailers, than in markets such as France and the U.K. (see box).

Of course trademark owners would rather avoid problems than respond to them, and the panelists will offer some tips to in-house counsel about the ways they can maximize trademark protection for their rights. They should work with their design teams to explain what elements of the product’s packaging may be eligible for protection, for example. Unusual bottle shapes, product colors and names may make rip offs by retailers easier to establish, and these designs and logos can then be protected by design rights as well as trademark rights, subject, as always, to constraints on the prosecution budget. But brand owners may be better off spending money upfront on protection than on retailers’ ransom demands down the line.

CM20 – Battling for Brands: 11:45 am to 1:00 pm today at INTA's Annual Meeting

How to deal with lookalikes

Responding to lookalikes requires a mix of legal know-how and commercial savviness. Here are some of the issues to take into account.

• Understand the commercial relationship you have with the retailer. Ensure you get your sales teams on board with the legal strategy you pursue, but remind them that your job is to avoid the dilution of the brand in the long term.

• If budget allows, obtain broad trademark and design protection for packaging as well as logos.

• Consider carefully the implications of paying retailers to change their lookalike packaging

• Educate your own design teams about IP protection and about what elements of a design or get up might be protectable.

• Document examples of customer confusion.

• Consider whether you can obtain an injunction in a more brand owner-friendly jurisdiction to give you greater negotiating leverage.

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