14 June 2013

Lookalikes in UK Law

The UK Intellectual Property Office has released a report [PDF] on lookalikes.

The summary is as follows -
The issue of lookalikes is one that has been on the policy and business agenda for at least two decades. Well-known brands, and brand-owners’ groups, have long advocated specific and adequate protection against lookalikes under United Kingdom (UK) law, particularly in the context of possible business-to-business harm. More recently, the issue has also become more prominent on the agenda of the European Union (EU) both in the context of so-called “free-riding” in relation to trade mark law, and with respect to possible unfair commercial practices. 
This report uses a working definition of a lookalike in the following terms: a lookalike product is a product sold by a third party which looks similar to a manufacturer brand owner’s product and, by reason of that similarity, consumers perceive the lookalike to share a greater number of features with the manufacturer brand owner than would be expected simply because the products are in the same product category. This report further defines own brand in this report as a product sold under a retailer’s brand name (whether or not is it also a lookalike), and a manufacturer brand as a brand controlled by an entity that manufactures the products itself, rather than applying its own branding to something manufactured by a third party. 
The literature review  
The literature suggests that innovation leads to growth in consumer markets. Further, brands provide consumer security as brands need to retain consistent quality to survive. The literature also indicates that large brand owners, who manufacture and design their products, innovate more than non-manufacture brands rivals. 
The existing literature suggests that own brand products have an evolutionary life cycle with lookalikes existing in the later stages of that cycle. It also indicates that own brands are more successful in low innovation product categories. Accordingly, incremental innovation by manufacturer brand owners makes it more difficult for own brand to penetrate the market. This in turn might be a driver for manufacturers to innovate. 
There is little empirical evidence on whether own brand affects innovation. Further, in the food sector it has been found that the existence of own brand has had no effect in Europe (except in Spain). Nevertheless, it has been suggested that lost sales caused by own brand would lead to less money being spent by manufacturers on research and development 
The literature postulates certain types of business harm which might be caused by lookalikes. This includes lowering the level of innovation, wasted rents on packaging changes, brand followers being pushed out of the market place and an adverse effect on advertising. In addition, it suggests that there is a need to protect the investment in market research to obtain new consumer insights. 
The existing consumer evidence suggests that in the absence of the brand leader, products that look similar to that leader are better received by consumers than those that look distinct. In addition, when a lookalike is on the shelf at the same time as the brand leader the lookalike might be used for comparison purposes. Further, the presence of lookalikes will reduce a consumer’s reaction time in selecting a product and may (under time pressure and outside the normal shop environment) increase the chance of mistaken selection. 8. There have been numerous consumer surveys on the issue of similar packaging for fast-moving consumer goods. These studies demonstrate a high level of consumers making mistaken purchases. The reasons for these mistakes include similar packaging such as cues of colour, shape and size. Additionally shelf position is reported as a factor. 
Previous consumer surveys show that consumers have a perception that own brand goods have a common origin with manufacturer brand owner products (irrespective of packaging) and when packaging is similar there is an increased perception of common origin. Additionally, those surveys suggest that consumer perceptions of own brand are generally good with at least a quarter (and possibly three-quarters) of consumers perceiving own brand to be as good as the manufacturer brand owner’s products. 
Research findings 
The present research was divided into three parts. The first part comprises interviews with stakeholders in the fast-moving consumer goods market. The second part of the research comprises two consumer surveys: one considering whether there is a lookalike effect; and the second addressing the advantages and disadvantages perceived by consumers across three jurisdictions. The final part of the research involved the analysis of sales figures for certain brand leading products to see the impact, if any, of a lookalike entering the market. 
The study found a small, but statistically significant, lookalike effect leading consumers to believe that similar-looking products have similar product characteristics and similar origin. The effect is greater, however, in those consumers who do not use products within a particular product category (and so the effect is lower in relation to the persons most likely to buy the product). This is consistent with the existing literature which suggests consumers are confused when packaging is similar. 
It was found that that a high number of UK households reported that the accidental purchase of lookalikes disadvantages them very much (1.68 million) or somewhat (9.92 million). Conversely, a substantial number of households reported such a purchase to advantage them very much (0.99 million) or somewhat (8.99 million). This suggests that some consumers suffer detriment from the mistaken purchase whilst others find it to be a positive experience. However, the research did not investigate why some consumers perceived the purchase to be a good or bad experience. 
Impact of Lookalikes 
The study revealed that a substantial majority of consumers had deliberately purchased a lookalike and, of those consumers, most of them found the experience to be advantageous. The research did not analyse why some consumers perceived the purchase to be advantageous. 
The research found that there is a fine line between confusing packaging and using generic cues to provide useful signals to consumers. 
The study found limited evidence to support the suggestion that lookalikes spur manufacturer brand owners to innovate as it is the best way to maintain the price differential. Such an effect, however, might disappear in markets where market share (more precisely, sales) has declined so much that the cost of research cannot be recovered. 16. It was not found that lookalike products directly cause brand manufacturers to make additional (and wasteful) changes to their packaging. 
The literature suggested that lookalike packaging causes a greater loss of sales (or market share) than distinctive competitors. However, in interviews with the research team only one of the manufacturer brand owners reported this finding; the others gave a mixed picture. 
The statistical analysis of the sales figures showed that in a very limited number of product categories, an association was found between a reduction in the sales of the brand leader and an increase in the sales of the lookalike. This could have been caused by numerous factors, one of which is the similarity of the packaging (the lookalike effect at work). Such associations did not appear to relate to consumers’ relative perception of packaging similarity or common production origin and also did not generally appear to exist within the particular supermarket selling the own brand. The evidence is therefore inadequate to determine whether lookalike packaging generally diverts sales or if the effect of that packaging is negligible. 
In relation to advertising spend, there were differing responses by manufacturer brand owners when a lookalike enters the market. Accordingly, no meaningful conclusions can be drawn as to the effect on advertising spend when a lookalike enters the market. 
The discussions with manufacturer brand owners, reviews of the literature and the surveys suggest that if there were to be a statutory definition of a lookalike it could be: “goods which by virtue of their name, shape, colour, packaging or labelling or any combination thereof, are similar in overall appearance to the goods; but excluding any of those things where they are descriptive, functional or commonplace.” 
Manufacturer brand owners reported that lookalikes enabled competitors and retailers to take unfair advantage of the manufacturer brand owner’s research into consumer insights and packaging design. 
Legal analysis 
In none of the three jurisdictions examined - the UK, Germany and the United States – was the legal position of lookalikes particularly clear. Nevertheless, at the interim stage, there is a perception that a claimant is more likely to be successful in the favourable German forum than in either of the other two countries. 
It is probable that the prevention of certain lookalikes is within the scope of the Unfair Commercial Practices Directive (2005/29/EC). Under this assumption, the United Kingdom may not be free to legislate to further prevent lookalikes save in business-to- business transactions. However, it would also mean that certain lookalikes are already unlawful under the Consumer Protection from Unfair Trading Regulations 2008. 24. Accordingly, if there is a restriction on legislation in relation to lookalikes, a private right of action under the Consumer Protection from Trading Regulations 2008 would be permitted under the Unfair Commercial Practices Directive.