26 June, 2017
Homart Pharmaceuticals Pty Ltd v Careline Australia Pty Ltd [2017] FCA 403 (20 April 2017)
What you need to know
The Federal Court of Australia has held that an Australian cosmetics company, Homart Pharmaceuticals Pty Ltd (Homart), contravened s 18 of the Australian Consumer Law (ACL) by intentionally appropriating the get-up of a trade rival's bio-placenta skincare product.
The Court restrained Homart from selling, offering for sale, distributing, promoting or marketing bio-placenta skincare products in Australia using the trade rival's misappropriated get-up or any get-up deceptively similar to the trade rival's get-up.
Homart has filed an application for leave to appeal the decision to the Full Federal Court.
What you need to do
Companies should be vigilant to ensure that the get-up of their products (including key components of their product packaging) is not misappropriated by competitors. Companies should be aware that, even if the brand name of a competitor's product differs from the company's original product, competitors may be liable under the ACL (and for passing off) if the get-up of the competitor's product is identical or near identical to the original.
Upon becoming aware of a trade rival's conduct that potentially constitutes a breach of the ACL or an infringement of the company's intellectual property rights, companies should proceed cautiously. In particular, companies should carefully consider all communications to trade rivals, legal representatives and media outlets (including on social media). Poorly worded and/or ill-timed communications may result in unwanted legal action, including claims for misleading or deceptive conduct, injurious falsehood or defamation.
Background
Ovine placenta extract (commonly referred to as sheep's placenta) is an increasingly common ingredient of cosmetic products in Asia (in particular China). This case concerns two Australian trade rivals that manufactured, distributed and sold skincare product ranges using a product known as "bio-placenta" (a component of which is ovine placenta extract). The primary target market for "bio-placenta" products in Australia is consumers of Chinese ethnic origin.
Since 2008, Careline Australia (Careline), a health and skincare company, has manufactured and sold a bio-placenta product in Australia known as CHANTELLE SYDNEY (CHANTELLE). The CHANTELLE product is a skincare product that is touted to hydrate and firm skin, whilst improving skin repair and complexion. By all accounts, the CHANTELLE product is a popular product in Australia amongst Chinese residents and Chinese tourists. In 2015-2016, Careline's sales of the CHANTELLE product had tripled from the previous year, to $2,188,730.33.
Having observed Careline's success, in early 2016, Homart Pharmaceuticals Pty Ltd (Homart), a trade rival to Careline, launched its own bio-placenta product. Homart marketed this product under the brand CHÉRI AUSTRALIA (CHÉRI). Like the CHANTELLE product, the CHÉRI product was advertised as a product that hydrates, firms and lightens skin as well as improving skin repair. Also like the CHANTELLE product, the target consumer market for the CHÉRI product is Chinese residents of Australia and Chinese tourists visiting Australia.
Despite the brand name difference, Careline considered that Homart's packaging for its CHÉRI product was the result of blatant copying. In particular, it considered that Homart had copied the gold rectangle carry bag, several aspects of the gold rectangle box and lid and the appearance of ampules of bio-placenta. The packaging for both the CHANTELLE and CHÉRI products is depicted below.
Click on the image to enlarge.
Careline sprang into action. It sent letters to certain of Homart's customers and media outlets to air its grievances. Careline employees also used WeChat (a Chinese social media platform) to complain about Homart's conduct. In tandem, Careline's lawyers sent a letter of demand to Homart alleging that it was engaging in breaches of the ACL and passing off.
On 13 May 2016, Homart sued Careline and sought interlocutory relief to restrain Careline from repeating the representations contained in the letter of demand and posted on WeChat. Careline cross-claimed and argued that Homart was not entitled to relief on the basis that it was engaging in misleading or deceptive conduct by having intentionally adopted a get-up for its CHÉRI product with the purpose of appropriating Careline's reputation in the CHANTELLE product.
The Decision
On 20 April 2017, Justice Burley of the Federal Court held that Homart had breached the ACL by engaging in conduct that was misleading or deceptive or likely to mislead or deceive. His Honour also dismissed Homart's original claim and awarded costs in Careline's favour.
Careline's Cross-Claim
In relation to the cross-claim, his Honour held that the unique combination of features that comprise the get-up of the CHANTELLE product are "eye-catching". Those features include the size, shape and internal arrangement of the box and lid (both when displayed to consumers open or closed), the use of the carry bag and the bronze gold colour of the packaging. His Honour held that the combination of these features in situ provided strong visual cues by which a consumer would remember the CHANTELLE product from the overall impression created by those visual cues.
His Honour held that Homart had appropriated all of those visual cues and that, in so doing, had misrepresented to consumers that the CHÉRI product was the same as, or associated with, the manufacturer of the CHANTELLE product, being Careline. His Honour also found that, on the basis of the evidence led at trial, the adoption of the get-up by Homart was intentional.
The Court held that the representation conveyed by the get-up was not dispelled sufficiently by the use of the "CHÉRI AUSTRALIA" brand name. In Justice Burley's view, the "CHÉRI" mark was a weak mark for distinguishing the otherwise identical products for the three reasons set out below:
The reputation that Homart had in the CHÉRI mark was weak and had been dissipated by its choice to use the CHÉRI mark with product packaging for the bio-placenta product which was distinctly different to the product packaging used for the balance of the CHÉRI product range.
The phonetic and visual similarities between the first two letters of both CHANTELLE and CHÉRI "(Ch)" diminish the effect of the use of different words on the product packaging. Both names are French sounding and, to those not familiar with French, would serve as a weak means of distinguishing otherwise identical products.
The addition of the geographic reference "Australia" to the "CHÉRI" brand has a similar geographic connation to the addition of "Sydney" to the "CHANTELLE" brand.
In light of the above, his Honour found that a not insubstantial number of persons within the relevant class (consumers of Chinese ethnic origin) who were aware of the CHANTELLE product would have been diverted from searching for that product by the CHÉRI product. Furthermore, a consumer from the relevant class that was familiar with the CHANTELLE get-up may well have purchased the CHÉRI product believing that product to be one and the same. In sum, Homart was pulling the wool over consumers' eyes.
Homart's claim
Although his Honour considered each of the impugned communications carefully (including the letter of demand in question), the Court dismissed Homart's claims under the ACL.
Even though his Honour's decision on Homart's claim was positive for Careline, the case serves as a timely reminder to ensure that communications about alleged copycats are measured and controlled (including on social media) and do not expose companies to unwanted legal action.
For further information, please contact:
Lisa Ritson, Partner, Ashurst
Lisa.ritson@ashurst.com
