Monday, November 24, 2008

A New Theory of Commercial Disparagement

An earlier post had noted recent decisions of the Delhi High Court on the issue of comparative advertising and commercial disparagement. It is becoming increasingly commonplace today to see advertising battles fought out in Courts. A recent decision of the Madras High Court, however, has substantially changed the law on the point – Colgate Palmolive v. Anchor Health and Beauty Care Pvt. Ltd., MANU/TN/0980/2008, decided on September 4, 2008.

Anchor telecast an advertisement claiming that its toothpaste was the “only” toothpaste to contain certain important ingredients, and also the “first” toothpaste providing all round protection. Colgate took exception to these claims and filed an application seeking an injunction against the telecast of this advertisement. This judgment is significant not because of these facts, but because it applies entirely new principles to ascertain disparagement.

The settled law until this decision was based on English precedent, and in brief, was that a tradesman could puff his own goods even by making false claims, so long as these claims did not contain misrepresentations about a competitor’s goods. This principle had been applied by several High Courts in India, and is noticed in the judgment of the Madras High Court. The Court, however, ruled that it is unwise to rely on English precedent in light of subsequent statutory and regulatory developments in England and in the USA. The Court noted that the Federal Trade Commission in the USA is empowered to take into account the consumer’s interest by injuncting false and misleading advertisements, regardless of whether these advertisements are mere ‘puff’ or disparage a competitor’s goods. Similarly, the Court notes a host of regulations in the United Kingdom, such as the Control of Misleading Advertisements Regulations 1988, Consumer Protection from Unfair Trading Regulations 2008, Business Protection from Misleading Marketing Regulations 2008, the Communications Act, 2003 etc. The Court concluded that these developments, subsequent to the leading decision on the point (De Beers Abrasive Products v. International General Electric, [1975] 2 All ER 599), have made the principles enunciated by those decisions unreliable.

As to what principles apply in Indian law, the Court turned to analogous statutory instruments, since there is no law directly regulating comparative advertising, and since the Advertisement Code does not explicitly deal with it. The Court considered the definition of ‘unfair trade practice’ in Section 36A of the MRTP Act, and concluded that although this Act has been repealed by the Competition Act, the definition in Section 36A has been incorporated into the Consumer Protection Act, 1986. Thus, the Court held that once the section repealing the MRTP Act is notified, a manufacturer can still have recourse to civil courts to in effect apply the definition contained in the Act.

The Court then found that the question of disparagement involves ‘balancing’ two rights – the fundamental right under Art. 19(1)(g) of the Constitution protecting commercial speech, and the right of consumers to reliable information. The Court held that the existing law in India, based on English precedent, “recognises the right of producers to puff their own products even with untrue claims, but without denigrating or slandering each other's product. But the recognition of this right of the producers would be to de-recognise the rights of the consumers guaranteed under the Consumer Protection Act, 1986.” Thus, the Court concluded that an action for disparagement lies if the definition of ‘false or misleading facts disparaging the goods, services or trade of another person’ as per section 2(1)(r)(1)(x) of the Consumer Protection Act. The advertisement would be injuncted even if it did not satisfy this definition, so long as it constituted an unfair trade practice as defined in s. 2(1)(r)(1) of the Act. As to when an injunction is the appropriate remedy, the Court held that there is no question of damages being an adequate alternative where public interest is involved, and issued directions in this case to Anchor to omit the words “first” and “only” from the offending advertisement.

Thus, there is now a conflict between different High Courts in the country on the law applicable to cases of commercial disparagement, which is likely to continue until it is resolved by the Supreme Court.

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