Tuesday, November 18, 2008

Comparative Advertising: Puff no more...

In an earlier post, I had mentioned that the Madras High Court had decided a case involving claims of commercial disparagement through comparative advertising. I have now been able to access the judgment, and it raises several difficult questions (and provides equally difficult answers) on the law relating to “puffery”. In another post dealing with the issue earlier, based on a judgment by the Delhi High Court, I had suggested that “Merely puffing one’s goods is not actionable, unless this results in slander of the plaintiff’s goods.” The Madras High Court judgment (Colgate Palmolive v. Anchor, O.A. Nos. 493 and 494 of 2008 in C.S. No. 451 of 2008) takes a different view.

The judgment of the Madras High Court makes use of the Consumer Protection Act, 1986; indicating that a comparative advertising claim involves not just the rights of the two parties but also the interests of the consumers. The Judge mention, “I have my own doubts regarding the applicability of English decisions to the issue of disparaging advertisements.”Importantly, the Court stated (para 67 of the judgment):

The law as it developed from the decision of the Calcutta High Court in Reckitt Colman v. M.P.Ramachandran upto Godrej Sara Lee case(Delhi High Court), on the basis of English precedents, 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. To permit 2 rival traders to indulge in puffery, without denigrating each other's product, would benefit both of them, but would leave the consumer helpless. If on the other hand, the falsity of the claim of a trader about the quality and utility value of his product, is exposed by his rival, the consumer stands to benefit, by the knowledge derived out of such exposure. After all, in a free market economy, the products will find their place, as water would finds its level, provided the consumers are well informed. Consumer education, in a country with limited resources and a low literacy level, is possible only by allowing a free play for the trade rivals in the advertising arena, so that each exposes the other and the consumer thereby derives a fringe benefit. Therefore, it is only on the touchstone of public interest that such advertisements are to be tested. This is why the Supreme court held in Tata Press case that "Public at large is benefited by the information made available through the advertisement." As a matter of fact the very basis of the law relating to Trade Marks is also the protection of public interest only, since the courts think of an unweary purchaser, who may buy a spurious product on the mistaken impression that it was brand 'x'. The same logic should form the basis for an action in respect of disparaging advertisements also.

Further, the Court went on to the following 7 principles in relation to the law on comparative advertising (para 68 of the judgment):

(a) Publication of advertisements being free commercial speech, is protected by Article 19(1) (a) of the Constitution, as per the dictum of the Apex Court in Tata Press case.

(b) There are a few restrictions on the aforesaid right, which would satisfy the test of reasonableness under Article 19(2). These restrictions could be traced to the definition of the term "unfair trade practice" in Section 36 A of the Monopolies and Restrictive Trade Practices Act, 1969 and Section 2(1)(r) of the Consumer Protection Act, 1986.

(c) Therefore, only if a case of disparaging advertisement falls within the definition of the term "unfair trade practice", an action may lie. It would lie before a Consumer Forum, at the instance of a consumer or a group of consumers or a voluntary consumer association or even the Central or the State Government (see the definition of the word "complainant" under Section 2(1)(b) of the Consumer Protection Act). It may even lie before the MRTP Commission. (or the Competition Commission after it is constituted).

(d) An action may lie against such an advertisement before a civil court both at the instance of a manufacturer or marketer and at the instance of a consumer (since Section 3 makes the Consumer Protection Act an additional law and not a law in derogation of any other law), provided that the advertisement in question contains a false representation coming within the 4 corners of sub-clauses (i) to (x) of Clause (1) of Section 2(1)(r) of the Consumer Protection Act.

(e) A careful scrutiny of all the sub-clauses in Section 2(1)(r) of the Consumer Protection Act would show that 4 types of representations are categorised as "unfair trade practices" namely (1) false representations falling under sub-clauses (i), (ii) and (iii); (2) representations which may not necessarily be false but are nevertheless incorrect coming under sub-clauses (iv) and (v); (3) warranty or guarantee coming under sub-clauses (vii) and (viii); and (4) false or misleading representations falling under sub-clauses (vi), (ix) and (x). If an advertisement contains a false representation within the meaning of sub clauses (i) to (iii) or an incorrect representation within the meaning of sub clauses (iv) and (v) or a warranty or guarantee within the meaning of sub clauses (vii) and (viii) or a false or misleading representation or fact within the meaning of sub clauses (vii), (ix) and (x) of Clause (1) of Section 2(1)(r) of the Consumer Protection Act, then an action may lie.

(f) In the light of the above statutory prescription, it is doubtful if false claims by traders, about the superiority of their products, either simplicitor or in comparison with the products of their rivals, is permissible in law. In other words, the law as it stands today, does not appear to tolerate puffery anymore. I do not know if "Puffing" which is only a twin sister of "bluffing", permitted by English courts in the past, still has the sanction of law even in England, after the advent of 'legacy regulators' such as CAP, Oftel, Ofcom, Clearcast etc., and the issue of The Control of Misleading Advertisement Regulations,1988 (as amended by Regulations of 2000) and the enactment of the Communications Act, 2003.

(g) An advertisement which tends to enlighten the consumer either by exposing the falsity or misleading nature of the claim made by the trade rival or by presenting a comparison of the merits (or demerits) of their respective products, is for the public good and hence cannot be taken to be an actionable wrong, unless 2 tests are satisfied namely (i) that it is motivated by malice and (ii) that it is also false. This is on account of the fact that a competitor is more well equipped to make such an exposure than anyone else and hence the benefit that would flow to the society at large on account of such exposure, would always outweigh the loss of business for the person affected. If 2 trade rivals indulge in puffery without hitting each other, the consumer is misled by both, unless there is increased awareness or Governmental intervention. On the other hand, if both are restrained from either making false representations/incorrect representations/ misleading representations or issuing unintended warranties (as defined as unfair trade practice under the Consumer Protection Act), then the consumer stands to gain. Similarly, permitting 2 trade rivals to expose each other in a truthful manner, will also result in consumer education.

(Emphasis supplied)

The impact of this decision is that comparative advertising claims are to be looked at taking into account the principles of “unfair trade practice” and the Consumer Protection Act. At first glance, the following points arise:

  1. Is there not a separate tort of commercial disparagement? Why is the content of that tort to be determined by the Consumer Protection Act and not independently?

  1. If “puffing” a product does indeed lead to harming the interests of consumers, why not leave that for a separate action by a consumer? Why give an additional ground to the competitor?

  1. The judgment does not cite the latest decision of the Delhi High Court in Reckitt Benckiser v. Hindustan Lever, 2008 (38) PTC 139 (Del), which appeared to maintain that mere puffery is not actionable. It considers the line of cases upto Godrej Sara Lee, 2006 (32) PTC 307 (Del). It then goes on to disagree with this string of cases on the issue of puffery. It is worth mentioning that the judgments which allowed puffery did so in the context of tort claims between competitors. They did not in any way sanction puffery if it violated statutory provisions of the Consumer Protection Act. They drew a clear line in viewing the tort separately. The Madras judgment does not provide a sound reason as to why this distinction should not be maintained.

In view of the judgment, it will be useful if the Supreme Court admits an appeal and resolves the conflict among the High Courts (preferably, going the Delhi way).

(Update: I have posted on this judgment on Spicy IP. The post is linked here)

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