Comparative advertising and IP

Article  \  23 Mar 2021

Comparative advertising can be an extremely effective business tool.

When done correctly, comparative advertising can:

  • enable consumers to make informed decisions about their purchases by highlighting relative differences in competing products or services; and
  • result in mutually beneficial, back-and-forth advertising campaigns between competitors (think ‘brand wars’), which are often engaging and popular with consumers—regardless of where their loyalty lies.

Comparative advertising is also, however, one of the riskiest forms of advertising in a legal context. If the relevant guidelines and laws are not followed, it can easily ruffle feathers within market sectors and prompt Advertising Standards Authority (ASA) complaints, New Zealand Commerce Commission (NZCC) referrals or legal action from target competitors.

Legal framework

Under the Advertising Standards Code (ASC), all advertising must be legal, decent, honest and truthful, and respect the principles of fair competition.[1] For comparative advertising specifically, the nature of comparison must be clear, of like products or services in the same market, and must not denigrate competitors.[2] The ASC reflects the Fair Trading Act 1986 (FTA), which prohibits misleading and deceptive conduct,  and the making of unsubstantiated, or false or misleading representations.[3]

For intellectual property (IP), use of a competitor’s copyright work (such as a logo or packaging) is generally prohibited under section 29 of the Copyright Act 1994, which provides that copyright is infringed by anyone who, without the authority of the copyright owner or licensee, does any restricted act – which includes copying.[4]

Use of a competitor's registered trade mark, however, can be okay if done correctly. Section 94 of the Trade Marks Act 2002 (TMA) provides an exemption from infringement for comparative advertising purposes—as long as the use is in accordance with honest commercial practices and does not take unfair advantage of, or is not detrimental to, the distinctive character or repute of the trade mark.[5]

Consequences and redress options when issues arise

When issues around social responsibility or truthful presentation arise in comparative advertisements, they are often dealt with via the ASA complaints process or referred to the NZCC.

Anyone can make a complaint with the ASA. Complaints usually take two to three weeks to be processed, and the ASA will consider whether the advertisement complies with the ASC, and order removal or amendment for those found to be in breach. In many instances, an advertisement which is the subject of an ASA complaint will be withdrawn before an ASA decision is even made.

The ASA complaints process works well for traditional, ‘quick-fire’ forms of advertising as it is efficient, and compliance is generally high due to a willingness for self-regulation within the advertising industry and the risk of negative publicity for non-compliance.

For ads referred to the NZCC, the NZCC can investigate potential breaches of the FTA on its own accord or apply to the court for injunctive relief, convictions, fines, corrective advertising or publication orders.

Where issues around IP in comparative advertising arise, legal advice and analysis is often required—particularly with regard to the use of trade marks. Despite the infringement exemption in the TMA, if a competitor’s trade mark is used extensively or as more than a ‘badge of origin’ for the goods or services being compared, it could still amount to trade infringement.

Examples of such use might include featuring a competitor’s trade mark throughout your website content (including in page titles or URL links), or in your social media posts (which may be accessible for some time). These actions have the potential to go beyond the scope of s 94, as they could be viewed as:

  • putting the competitor or its products and services down generally, rather than making specific and factual comparisons, which could be considered detrimental to the distinctive character/repute of the trade marks being used; and/or
  • attracting consumers based on the goodwill or reputation in the competitor’s trade marks, which could amount to taking unfair advantage of the distinctive character/repute of the mark.

Activity such as the above could also amount to passing off and/or breaches of the FTA. If court action is taken, remedies can include fines, injunctions, compensation for loss or damage and delivery up of infringing material.

How to avoid issues

To avoid issues, ensure that your comparative advertising campaigns:

  • are accurate and factual, with evidence to back up any claims made;
  • are clear about the nature of the comparison/s being made;
  • are specific, and in relation to ‘like’ products or services;
  • only use a competitor’s trade mark for the purpose of identifying the source of the products or services compared;
  • do not feature a competitor’s copyright works (such as logos, marketing material);
  • do not denigrate competitors, directly or indirectly; and
  • do not take unfair advantage of any goodwill associated with competitors, including through the use of trade marks.

If you require advice or assistance with your comparative advertising campaigns, please contact us.

[1] Advertising Standards Code 2018, Principles 1 & 2.

[2] Advertising Standards Code, rule 2(d).

[3] Fair Trading Act 1986, sections 9, 12A and 13.

[4] Copyright Act 1994, section 9.

[5] Trade Marks Act 2002, section 94.

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