May I Compare Thee to a Chameleon? NZ’s Comparative Advertising Law in its Historical Context

New Zealand’s law regarding the use of another party’s trade marks in comparative advertising in the last 100 years has been through several forms, and is currently close to where it started.

Prior to the Patents, Designs and Trade Marks Amendment Act 1939 the trade marks legislation in effect allowed the use of another party’s trade marks in comparative advertising if the consumer would not confuse the goods of the comparative advertiser with those of the trade mark owner. This was found to be the case in the UK House of Lords decision Irvings Yeast-Vite Ltd v Horsenail [1934] RPC 110, where the phrase “Yeast tablets a substitute for ‘Yeast-Vite’’’ was held to not be a use of “Yeast-Vite” as a trade mark. More particularly, while the proprietor had the exclusive right to the use of a registered trade-mark upon or in connection with the goods in respect of which it is registered, the then definition of a trade mark limited that right to the origin function of indicating that they are the goods of the proprietor. Consequently, as Horsenail’s use of “Yeast-Vite” clearly did not indicate that they are the source of origin of Yeast-Vite, the use was held to be non-infringing.

This was considered undesirable and so when the UK refreshed its trade marks legislation with the Trade Marks Act 1938 it allowed for the possibility that comparative advertising involving the use of another party’s trade mark can amount to trade mark infringement. This was effected by several changes as follows: (i) extending a trade mark’s exclusive rights to being in relation to its goods rather than merely upon or in connection with its goods; (ii) by extending the definition of “use of a mark” so that it was not limited to use in a physical relationship to the goods to denote origin, but could also include use in other relation to the goods such as performing an advertising function; (iii) expanding the exclusive rights of trade marks in Part A of the register (see below) so as to also be infringed when a trade mark in use is performing an advertising function.

New Zealand’s Patents, Designs and Trade Marks Amendment Act 1939 incorporated these (and most of the other) amendments from the UK Act, with the result that trade mark infringement could be established for comparative advertising involving the use of another party’s trade mark where that trade mark was in Part A of the register. By way of the Patents, Designs and Trade Marks Act 1921-22 New Zealand adopted the UK’s division of the register into Part A and Part B, which the UK effected with its Trade Marks Act 1919. Part A was for prior registrations and marks that are adapted to distinguish, while Part B was for marks that are capable of distinguishing. For comparative advertising that used a third-party’s Part A trade mark registration to infringe it only required that the registered mark was used in the course of trade in relation to (some of ) the goods that it is registered in relation to and with that mark being taken as likely to be being used as a trade mark. Given the commercial nature of comparative advertising these conditions are in practice easily satisfied.

Comparative advertising that used a third-party’s Part B trade mark registration would likewise infringe. However, no relief would be granted if the defendant could establish both that deception or confusion would be unlikely and that their use of the trade mark does not indicate a connection in the course of trade between their goods and a person who has the right to use the mark. Given that comparative advertising seeks to contrast or compare one party’s goods with another’s, in theory it should be hard for the affected party to establish the requisite deception or confusion or connection in the course of trade.

The Trade Marks Act 1953 incorporated these provisions, and their effect in terms of comparative advertising was considered in the dispute between Montana Wines Ltd and Villa Maria Wines Ltd. Villa Maria had run ads that compared its wines with Montana’s with the ads containing a picture of one of Montana’s bottles that had some of Montana’s Part B registered trade marks on its label. The dispute went before the High Court as an interlocutory injunction, in which Montana focussed its case on Villa Maria’s conduct creating the impression of a connection in the course of trade between the parties, although it did not thereby relinquish other grounds in the event that the case went to full trial.

In Montana Wines Ltd v Villa Maria Wines Ltd 2 IPR 203 the High Court judge found that Villa Maria’s ad infringed under section 8(1)(b) by using Montana’s trade marks in the course of trade while importing a reference to the goods with which Montana is connected in the course of trade. The judge went on to hold that the Part B defence was not available to Villa Maria on the basis that the ads could give the impression that there was a connection in the course of trade between Montana and Villa Maria or that Montana impliedly endorsed Villa Maria’s product. It was also found that through the ads Villa Maria sought to benefit from associating its product with the established reputation and quality of Montana’s wines.

On appeal in Villa Maria Wines Ltd v Montana Wines Ltd [1984] 2 NZLR 422 the Court of Appeal applied the analysis of the UK Court of Appeal majority in Bismag Ltd v Amblins (Chemists) Ltd 1940 RPC 209 and held section 8(1)(b) wasn’t concerned with the origin function of a trade mark, which was instead covered by section 8(1)(a). Infringement under section 8(1)(b) was held to require that the registered mark was used by a third party in a trade mark sense as referring to the goods of the owner of the mark. In applying that the Court of Appeal agreed with the High Court judge’s finding that Villa Maria infringed under section 8(1)(b) by using Montana’s trade marks in the course of trade while importing a reference to the goods with which Montana is connected in the course of trade.

While the defence to infringement of Part B marks has two aspects that need satisfying, the aspect of the defence concerning the unlikeliness of deception or confusion was not on appeal as it was accepted that there was no deception or confusion regarding the owner of the respective trade marks. The Court of Appeal found that the Part B defence was available to Villa Maria as the other aspect only concerns whether the origin function of the trade mark has been misrepresented. As the ads did not give the impression that Montana was connected with the production or preparation of Villa Maria’s wines, that was not the case. While the ads could give the impression that Montana impliedly endorsed Villa Maria’s product or consented to the ads or that there was a corporate link between the two companies, those types of connection in the course of trade were not relevant to the type of connection that removed the Part B defence to infringement.

Amongst the various TRIPs Agreement complying amendments made by the Trade Marks (Amendment) Act 1994 were amendments to the rights given by registration in Part A and Part B of the register. The intent behind the amendments to those provisions was to expand the scope of infringement by allowing a registered mark to be infringed by use of similar marks on similar goods or services, provided such use was likely to deceive or cause confusion. Prior to that infringement could only be established for the use of an identical or nearly resembling mark in relation to the goods or (following the 1987 amendment Act) services that the mark was registered for. Both before and with the TRIPs amendments a likelihood of confusion was presumed if an identical mark was used in relation to (some of) the same goods as those the mark was registered for.

However, in PC Direct Ltd v Best Buys Ltd 7 TCLR 452 those amendments gave rise to a curious result when comparative advertising involved the use of a mark identical to a Part B registered mark on goods or services identical to (some of) those it is registered for. Best Buys used PC Direct’s Part B registration of PC DIRECT in ads that compared characteristics of both party’s computers. It was conceded that the use was not likely to deceive or cause confusion. Nonetheless, as a matter of statutory construction, the amendments were found to result in the Part B defence not being available where the use involved the double identity of an identical mark and identical goods or services. While noting that the legislative history was silent regarding the effect of the 1994 amendments on comparative advertising, the Judge considered a possible policy rationale was that the absence of confusion on the part of the public insufficiently protects a plaintiff whose reputation has been borrowed for comparative advertising purposes. In this regard it was noted that Villa Maria would have infringed if its comparative advertisements had been made after the 1994 amendments.

Given that their company name contained the trade mark, PC Direct further argued that the use of its company name by Best Buys in relation to computers would infringe, meaning that there would be no other practical means by which Best Buys could engage in comparative advertising. The Judge noted a UK case which held that third party use of a company name that contained a registered trade mark was not use of the trade mark in a trade mark sense. While attracted to that reasoning, the Judge was precedentially bound by the Court of Appeal’s Villa Maria v Montana decision, which held that use of a mark in comparative advertising is use in the course of trade and in a trade mark sense.

However, when considering relief in the context of the interlocutory injunction, while noting that there was a serious question to be tried, the absence of a risk of confusion was considered to increase the likelihood of damages being an adequate remedy. Consequently, when considering the overall justice of the case, this allowed the Judge to give weight to public interest factors, which arose on account of the overlap between the plaintiff’s trade mark and its company name making comparative advertising in relation to such a business impractical. In particular, the Judge gave priority to the rights to freedom of speech and to receive information that are protected by the New Zealand Bill of Rights Act 1990, given that comparative information can have public benefits.

The next significant litigation involving comparative advertising issues arose from Benchmark Building Supplies (trading as Bunnings) placing stickers next to various products in advertising brochures produced by Mitre 10, where the stickers stated a lower price offered by Bunnings. The stickers were placed in the Mitre 10 brochures next to third party brands, unbranded goods and Mitre 10’s BUTLERS brand. In Mitre 10 (NZ) Ltd v Benchmark Building Supplies Ltd 10 TCLR 607 the High Court Judge granted some of Mitre 10’s interim injunction requests under the trade mark infringement cause of action. Most of the relevant Mitre 10 trade mark registrations were in Part A, although its BUTLERS mark was registered in Part B. The Judge found Mitre 10’s trade marks to be used by Benchmark in a trade mark sense in relation to the unbranded goods as well as for the BUTLERS brand. However, Mitre 10’s class 16 registration for printed matter was not infringed as the brochures were purely promotional in nature and not part of Mitre 10’s business to manufacture or sell. Where the stickers were placed in relation to third party brands Mitre 10 could not claim infringement of its goods registrations. At best it could claim infringement of its retailing and wholesaling services registration, but that too was rejected as the device mark used in the brochure differed from the retail services device mark registration. Benchmark attempted to argue that the BUTLERS registration was not infringed as a stylised version of the mark was used in the brochure. However, the Judge held that the word mark registration covered all stylised uses of that mark and so an identical mark had been used by Benchmark, meaning, following PC Direct, that the Part B defence was not available. Benchmark also tried to use section 8(3)(a) of the Trade Marks Act 1953, arguing it had a defence given that Mitre 10 applied the BUTLERS mark to the brochure. However, the Judge rejected that, finding that the intent behind section 8(3)(a) is to protect resellers, which Benchmark’s use did not fall within.

The decision was appealed and heard shortly before the commencement of the Trade Marks Act 2002, while the Court’s unanimous decision (Benchmark Building Supplies Ltd v Mitre 10 (NZ) Ltd 10 TCLR 767) was delivered shortly after the Act’s commencement date of 20th August 2003. Under section 94 of the new (and current) Act the use of a registered trade mark in comparative advertising is allowed provided the use is not otherwise than in accordance with honest practices in industrial or commercial matters.

94 No infringement for comparative advertising of registered trade mark
A registered trade mark is not infringed by the use of the registered trade mark for the purposes of comparative advertising, but any such use otherwise than in accordance with honest practices in industrial or commercial matters must be treated as infringing the registered trade mark if the use, without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.

While the new Act’s transitional provisions specify that the old Act continues to apply in respect of proceedings commenced before the commencement of the new Act, it was accepted that section 94 would apply in respect of future alleged infringements, which in effect is the focus of interim injunctions. Nonetheless, Mitre 10 argued that Benchmark’s use did not allow it to claim the section 94 defence for two reasons. Firstly, it was claimed that the section is concerned with traditional comparative advertising, where the party making the comparison compiles the information. The Court of Appeal rejected that distinction, finding that Benchmark’s use fell within the specified purpose of that section. Secondly it was argued that Benchmark’s use was not in accordance with honest practices in industrial or commercial matters in that it takes unfair advantage of, and is detrimental to, the distinctive character or the repute of their trade mark. The Court of Appeal found that the Mitre 10 mark was only used in relation to retail services, while the BUTLERS mark was used in relation to goods. In either case, the Court of Appeal found Benchmark’s conduct to be in accordance with honest practices in industrial and commercial matters as its use of those marks did not disturb those functions and actually depended upon the public perceiving the marks as retaining those functions.

Section 94 of the 2002 Act is based on section 10(6) (now repealed) of the UK Trade Marks Act 1994. (Comparative advertising in the UK is now governed by regulation 4 of the Business Protection from Misleading Marketing Regulations 2008.) The 2002 Act also abolished the distinction between Part A and Part B of the register, along with the distinction between marks that are ‘adapted to distinguish’ and those that are ‘capable of distinguishing’. This is reflected in the provisions of section 94 applying irrespective of the level of distinctiveness of the registered trade mark. Instead, section 94 prioritises open competition in the marketplace over trade mark rights, provided that any such trade mark use is in accordance with honest practices in industrial or commercial matters.

It is within this context that the recent New Zealand comparative advertising dispute between the global toy manufacturing entities of Lego and Zuru occurred. In Zuru New Zealand Limited v Lego Juris AS 2023 NZHC 1808 Zuru sought a declaration of non-infringement from the High Court over its use and proposed variations of use of Lego’s trade mark in compatibility notices. Zuru’s original compatibility statements on the packaging of its ‘MAX BUILD MORE’ toy range made prominent use of LEGO, in larger font and above BRICK COMPATIBLE. While the word MAX was more prominent than the word LEGO, the latter was found to be the next largest element and designed to draw the attention of the consumer. The Judge held that Zuru’s use of LEGO fell within the section 89 infringement provisions as a substantial number of consumers would be likely to view the prominent use of LEGO as use as a trade mark. The Judge then held that the proposed variations in compatibility statements would still be taken as use as a trade mark, either because they commenced with LEGO or because of the prominence of the compatibility statement as a whole.

The Judge then found that Zuru did not have a defence under section 94, essentially for two reasons. Firstly, its use was not in accord with honest practices – from the perspective of reasonable members of the trade. While the Judge agreed that Zuru could use LEGO to describe a characteristic of its product, it was the context around Zuru’s use that was not in accord with honest practices. Zuru was found to have taken a calculated risk given that it only sought advice on the matter from an in-house legal team, with the Judge characterising that advice as manifestly inadequate. It also hadn’t sought Lego’s consent and knew Walmart (in the USA) refused to accept stock that used the LEGO compatibility statements. In the USA it instead used ‘Compatible with Major Brands’ and it had also done so for the majority of the time it marketed the product in New Zealand. The Judge found no compelling reason why it could not have continued to do so. The Judge also found it was not reasonably necessary for Zuru to make prominent use of the LEGO mark, and consumers did not need to be advised of the compatibility of Zuru’s products with those made by Lego. The Judge concluded that the context of Zuru’s use shows that it sought to take unfair advantage by gaining leverage from the reputation Lego had built up in the mark over many years and so was not in accord with honest practices.

Secondly, the Judge held that Zuru’s compatibility statement does not satisfy section 94 as it does not make an express comparison with Lego’s product. The Judge found comparative advertising to involve an endeavour to persuade the consumer that features or characteristics of the advertiser’s product (such as quality, reliability, style, ease of use, or price) are superior to those of one or more competitors. At best Zuru’s compatibility statements amounted to inherent or implied (in contrast to express) comparisons regarding having a superior (lower) price. There was no express claim to superiority in respect of a feature or quality of Zuru’s product. Being interchangeable was considered insufficient to amount to a comparison for section 94 purposes. The Judge also held that it is not necessary for advertising to involve paid media and that advertising-like messages shown on packaging or in other promotional materials can qualify as advertising.

Concluding Remarks
After several twists and turns New Zealand’s law regarding the use of registered trade marks for the purposes of comparative advertising once again prioritises open competition in the marketplace over trade mark rights. However, the Zuru decision shows that not just any use of a third-party’s trade mark will be tolerated and that it is best to seek independent legal advice regarding whether a proposed use is in accordance with honest practices in industrial or commercial matters.

Author: Quinn Miller

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