[youtube=http://www.youtube.com/watch?v=9A7iT-1iOhg]

“What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different businesses in the same trade (….) The goodwill of a business is one whole.” – Lord MacNaughten in The Commissioners of Inland Revenue v Muller & Co’s Margarine Limited [1901] AC 217 223-224.

According to a recent Consumer Insight survey, Ariel by Procter & Gamble East Africa (PGEA) enjoys a market share of 25 per cent, Omo by Unilever Kenya (UK) is at 18 per cent, Sunlight also manufactured by UK is at 17 per cent, Toss by Kapa Oil Refineries is at 6 per cent and Ushindi by PZ Cussons is at 6 per cent. According to this survey, despite Ariel’s re-entry into the Kenyan market, it has become “the leading brand” and has “successfully captured a loyal following” thanks to it’s Enzymax formula and ‘one wash’ campaign which has really “connected with consumers”.

The Business Daily now reports that PGEA has been sued by UK with respect to its “one wash” detergent advertising campaign for Ariel which the Omo manufacturer alleges is non-factual. The adverts in question (an earlier version of which is available above in Swahili) promote Ariel as the best stain removal detergent “in one wash” and is compared as a superior choice to the “other popular powder detergent in the market” (an alleged reference to UK’s Omo detergent). UK contends that the adverts thus depict Omo as incapable of removing the stains in “one wash”, arguing that the claim is not based on any independent research. Therefore UK alleges that PGEA’s ‘one wash’ advertisements are unlawful. From an intellectual property (IP) perspective, advertisements are important mode of building and promoting IP rights.

The High Court last month granted UK interim orders restraining PGEA from “running or airing the Ariel One Wash campaign advert in its current form at all media houses and all forms of print and electronic media” until the matter is back in court. Subsequently, it was reported that the court directed that the suit be referred to a Tribunal of the Advertising Standards Board of Kenya.

Comment:

The central question which arises in the present case is whether one manufacturer may compare its product in an advertisement with that of his competitor and indicate that its product is better or that there are defects in its competitor’s products.

This practice is known as comparative advertising.

According to Prof Owen Dean, IP Chair at Stellenbosch University, a trader who resorts to comparative advertising is “attempting to “ride on the back” of a well known and successful product and to use the repute of that product as a platform from which to generate sales of his own product.”

Kenya has a broad framework of national and international legal frameworks that have a direct impact on the regulation of comparative advertising. First and foremost, the Paris Convention, signed and ratified by Kenya, contains important provisions on competition. Article 10bis reads as follows:

“(1) The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition.
(2) Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
(3) The following in particular shall be prohibited:
– false allegations in the course of trade of such a nature as to discredit the establishment, the goods or the industrial activities of a competitor;
– indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quality, of the goods.”

In addition Article 2 of the TRIPs Agreement requires members of the WTO to comply with the substantive provision of the Paris Convention as highlighted above.

Nationally, comparative advertising is regulated through common law and statute.
Kenya’s principal legislation governing false or misleading advertising is the Competition Act. For our present purposes, it is important to note the definition of asset in this Act which includes both “asset” includes both “intellectual property” and “goodwill”.

Most notably, section 55 of the Act makes it an offence to engage in false or misleading advertising. The section reads as follows:

“55. False or misleading representations
A person commits an offence when, in trade in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, he―
(a) falsely represents that—
(i) goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;
(ii) services are of a particular standard, quality, value or grade;
(iii) goods are new;
(iv) a particular person has agreed to acquire goods or services;
v) goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have;
(vi) the product has a sponsorship, approval or affiliation it does not have;
(b) makes a false or misleading representation—
(i) with respect to the price of goods or services;
(ii) concerning the availability of facilities for the repair of goods or of spare parts for goods;
(iii) concerning the place of origin of goods;
(iv) concerning the need for any goods or services; or
(v) concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.”

In common law, the torts of passing off and injurious falsehood relate to forms of conduct which constitute an infringement of a competitor’s right to attract custom whose object is the trader’s goodwill. The common law action of passing off is expressly recognised in section 5 of the Trademarks Act. Whereas the common law tort of injurious falsehood seems to have received tacit recognition in section 6 of the Trade Descriptions Act which states as follows:

“6. (1) It shall be an offence for any person, in the course of any trade-
(a) to make a statement which he knows to be false; or
(b) recklessly to make a statement which is false, as to any of the following matters-
(i) the provision in the course of any trade of any services, accommodation or facilities;
(ii) the nature of any services, accommodation or facilities provided in the course of any trade;
(….)
(2) For the purposes of this section-
(a) anything(whether or not a statement as to any of the matters specified in subsection (1)) likely to be taken for such a statement as to any of those matters as would be false shall be deemed to be a false statement as to that matter; and
(b) a statement made regardless of whether it is true or false shall be deemed to be made recklessly, whether or not the person making it had reasons for believing that it might be false.”

Thus far, it appears that the relevant law cited is in favour of UK’s claim of false, misleading advertising. However PGEA may seek to refute UK’s claims by relying on South African case law as well as the Constitution of Kenya, 2010.

In South Africa, the question of comparative advertising arose in the case of Post Newspapers (Pty) Ltd v World Printing & Publishing Co Ltd 1970 where both parties were publishers of two newspapers – Post and The World. Both papers targeted the same potential readership and so they competed for advertising. Under the cover of a circular letter, the respondent sent a market review to some advertising agents. In it, Post was unfavourably compared with The World as an advertising medium. The applicant sought an interdict prohibiting the dispatch of those documents. Nicholas J referred with approval to some English cases, in which it had been said: “The general position in law is: comparison – yes; but disparagement – no.”

In refusing the application, the court held that:

“To the extent that the statements complained of involved merely a comparison of The World and Post, they are not actionable. There are, however, statement which amount to a disparagement of Post as an advertising medium. If these statements were shown prima facie to be untrue, the applicant would be entitled to relief. The applicant does not, however, say that these statements are untrue, nor is there any evidence that they are untrue.”

Therefore in terms of South African case law, purely comparative advertising is not unlawful – unlawfulness only occurs if the competitor is discredited by untrue allegations. This precedent would bolster PGEA’s case against UK. However South African scholars in the law of torts, Van Heerden & Neethling disagree with the holding in this case. They argue that comparative advertising always entails a disparagement of a competitor’s goods and therefore it constitutes an impairment of the latter’s goodwill and it is unlawful unless there are grounds for justification.

Aside from reliance on South African precedent, the makers of Ariel may chose to focus on the protection of intellectual property rights expressly guaranteed under the Constitution. In this connection, counsel for PGEA would argue that the state must balance consumer rights (Article 46) as advanced by UK together with the IP rights of PGEA in its advertisements (Article 40). Connected to this right to property is PGEA’s constitutional right to freedom of expression which is also enshrined in Article 32.

This blogger has previously discussed here and here the various intellectual property rights that may be owned within the context of advertising, most notably copyright in all literary, artistic and audio-visual works and trademark rights with respect to brand names, logos and slogans. In this regard, it is important to note that UK has not disputed PGEA’s IP rights relating to the adverts. Therefore by ordering that the Ariel ‘One Wash’ adverts be removed from media circulation, it may be argued that the courts have infringed on PGEA’s IP rights in the adverts. Article 40(5) compels the courts to support, promote and protect the IP rights of the people of Kenya. Any limitation of rights under the Constitution must be justified under Article 24 of the Constitution. PGEA would also argue that the restraining order by the court is a deprivation of property and therefore would have to comply with Article 40(3) of the Constitution.