Sunday, August 3, 2008

Commercial Disparagement as a Tool in Corporate Battles

(In the following post V. Niranjan, a B.A., LL.B (Hons.) student at the National Law School of India University, Bangalore and Editor, National Law School of India Review, analyses recent court rulings on the issue of ‘comparative’ advertising and commercial disparagement)

The Delhi High Court very recently disposed of two cases relating to commercial disparagement, on the same day. This practice – of using ‘comparative’ advertisement to subtly deprecate a competitor’s product - has become increasingly common in corporate India. Interestingly, although the law has ever since 1895 recognised that this could constitute a tortious act, the practice was nearly non-existent in India, until about 2003. Since then, a spate of such cases has arisen across the country, and today there are more than 15 reported judgments of various High Courts.

The Delhi High Court (Reckitt Benckiser v. Hindustan Lever, CS 1359/2007, decided on 7 July 2008) was required to determine whether an advertisement promoting the Lifebuoy soap indirectly disparaged Dettol, its main competing brand. The advertisement cleverly showed a lady using an ‘orange’ bar of soap, only to be told by a doctor that ‘ordinary antiseptic soaps make the skin dry, allowing germs to enter the cracks’. This culminates in the suggestion that the Lifebuoy Skin Guard is free of these defects, as it contains Glycerine and Vitamin E. The ingenuity of this campaign allowed HLL to claim that its advertisement could not have been directed at Dettol, as there was not so much as a single mention of that brand in the entire advertisement. The High Court rejected this argument, confirming that the test to be applied is the perception an ‘average person with imperfect recollection’ would have had of it. Such an ‘average person’, the Court said, must be picked from the ‘target group of users of the product sought to be slandered’, thus making it far easier for a plaintiff to establish disparagement, since a customer familiar with the specificities of a product will invariably make the association that the advertisement intends him to make. The Court awarded punitive damages of Rs. 5 lakh.

On the same day, the Court (Reckitt Benckiser v. Hindustan Unilever, IA 994/2008 in CS 136/2008) also declined to issue an injunction restraining HLL from telecasting its advertisement disparaging Reckitt’s product Harpic Power. This was another ingenious advertisement where a ‘blue, thin’ toilet cleaning liquid was said to have no germ killing capacity, as compared to Domex, the competitor’s product. The Court applied the same test of ‘average person with imperfect recollection’, this time concluding that the target group would not associate the advertisement with Harpic, since Harpic is not a ‘thin’ toilet cleaner.

More significant than these decisions are two questions that need answers. First, to what extent are Courts willing to allow the market resolve these disputes, and secondly, under what circumstances will disparagement be inferred, especially when the advertisement in question makes references to a class of products, as opposed to a particular product? This has assumed importance because some of these advertisements are thought to be extremely effective commercially.

Developments over the past five years or so indicate that there are very few comparative advertisements that the Court will allow. There is no better example than the 2003 Cola Wars. Coca Cola famously telecast an advertisement claiming that ‘PAPPI’ was a ‘sweet’ drink meant for ‘children’, as opposed to ‘Thums Up’, that ‘grown up people’ would prefer. Although this is probably no more than commonplace advertising in a competitive market, a Division Bench of the Delhi High Court (Pepsi Co v. Hindustan Coca Cola Ltd., (2003) 27 PTC 305) issued a permanent injunction restraining its broadcast, holding that the advertisement depicted a Pepsi product in a ‘derogatory and mocking’ manner. The Court specifically said that the marketplace is no ‘substitute’ for an injunction.

Furthermore, the concept of ‘generic disparagement’ has made the range of permissible advertisement still narrower. Not only can an advertisement not be ‘derogatory’, it now cannot make negative references to a class of products, or to a characteristic of a product, should an average person of imperfect recollection associate that class or characteristic with a specific brand. Eureka Forbes was therefore able to prevent Pentair from advertising that a water purifier system based on ultra-violet technology fails to detect invisible contaminants, although the advertisement did not refer to Aquaguard itself (Eureka Forbes v. Pentair Water India, (2007) 4 Kar LJ 122). The Delhi High Court’s decision in Dettol and Harpic also confirm this theory, as do several other decisions of various High Courts involving Dabur, Emami, Colgate Palmolive, Reckitt and Wipro etc. The merits of these tests apart, the question is whether the growing significance of using injunctions to block damaging advertisement will continue.

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