A parasite does what it says on the tin

On Wednesday, fellow Kat Nicola the Katonomist wrote this thoughtful if provocative piece on lookalike packaging -- a subject on which economists, lawyers, consumers. brand owners and their competitors have not always shared identical views. This Kat was a little surprised that Nicola's post did not prompt an immediate discussion, but he has now received the following response from John Noble of British Brands Group, an organisation representing brand manufacturers and which, as the small print at the bottom of its logo suggests, has been speaking out for 20 years. In keeping with the BBG's tradition of speaking out, John writes as follows:

It is disappointing when things don’t meet expectations, particularly after years of consistency. In this instance it is the recent post from the Katonomist that was, rarely, far from insightful. Some aspects were simply wrong. I refer to “Living together: the symbiosis of lookalike packaging”.

There is a level of unconventional thinking here that suggests she is either being mischievous or that someone else wrote the post – a lookalike? Perhaps she’s just a confused Kat?

Terminology

The terminology she contributes, presumably to be helpful, is not correct: 

-          Products carrying supermarket names, or affiliated to a supermarket, are indeed called “private labels” or “own labels” and we use these terms ourselves. Where these are distinctively packaged products they compete on their own merits and are not implicated, affected or otherwise involved in concerns over similar packaging. It is wrong to conflate the two; 

-           “Lookalikes”, “copycats” or “parasitic copies” are terms that refer to products that mimic the packaging of familiar brands in order to steal sales. They have a further defining feature in our definition – they are illegal under existing law. Many such copies are supermarket products but this is not exclusively the case. Another manufacturer may well produce a copy.

The term “parasitic copying”, the preferred description of the British Brands Group, is not some pejorative term created for manipulative lobbying purposes but a recognised ‘wrong’ in unfair competition law on mainland Europe. We use it as it is both descriptive and highlights the contrast in available effective remedies between the continent (good) and the UK (bad).

Harm to brands

The Kat argues that parasitic copies, far from harming brands, actually grow the market. This is new thinking. It would be a point to debate were she talking about supermarket products but she is talking about parasitic copies (judging from the title of her piece).

To survive and thrive, branded products must add value and benefits to the individual over and above the commodity alternative. They must then communicate that added value through differentiation and be distinctive on shelf to draw shoppers’ attention. The enemy of branding is commoditisation. Where all products in a category look the same, the signal to shoppers would be that they are the same. Shoppers will be unable to distinguish between them and see no reason to pay more for any added value or benefit. There would be less incentive for the brand owner to innovate or build reputation as the benefits could not be communicated from the supermarket shelf.

Ironically, evidence cited by the Kat that parasitic copies don’t harm brands is actually evidence of harm. This is research she knows well as she had some responsibility for it as an Intellectual Property Office (IPO) employee. For example, one of the IPO’s conclusions from this research is that “Consumers are more likely to make mistaken purchases if the packaging of products is similar and there is strong evidence that consumers in substantial numbers have made mistakes” [emphasis added]. This is a consistent finding over two decades of research.

Showers can be fun even
when there's no gel ...

When a shopper buys a copy by mistake, there is a clear and direct loss and harm. Despite the Kat’s argument to the contrary, this does look like a zero sum transaction. Either one product or the copy is purchased. There is no evidence that someone who never buys, say, shower gel suddenly enters the market and buys on seeing packaging that looks like a familiar brand, or that a shower gel buyer, on seeing a copy, buys two packs instead of one. There is also no evidence that a shower gel user showers more often, and thereby uses more gel, driven solely by similar packaging. Such effects would indeed grow the market but just don’t seem plausible.

Choice

The copy does not increase choice, as the Kat argues. The packaging suggests the product is the same so is no choice there. The copy may well be cheaper but that also does not increase choice of price. Copies are rarely cheapest on the market and the same product would be just as cheap, if not cheaper, were it packaged legally and distinctively. It is worth remembering that it is the retailer that controls the price of both the original and the copy. We have always made it plain that brand owners do not seek fines or damages. They just want illegally packaged products re-packaged legally and distinctively and returned to the market. This would preserve both choice and competition.

Category and brand cues

The Kat, worryingly, does not distinguish between category and brand cues. She argues that similar packaging makes shopping easier, quoting the example of different milk top colours to denote full fat, skimmed and semi-skimmed. These are ‘category cues’, do indeed help shoppers and are generic (i.e. used by many). Brand owners have no issue with these and indeed may use them themselves. They are very different from brand cues, such as red labels for Coca-Cola, the unusual asymmetric pack shape of Head & Shoulders or the tubby, dark glass container with a yellow top that signals Marmite. It is the brand cues that the parasites copy and which are at issue.

It is perhaps worth distinguishing between packaging that tells the truth and packaging that lies. If a product is packaged to look like a familiar branded product, has identical qualities and is made by the same company, then similar packaging would indeed be helpful to shoppers and would be lawful. Shoppers can trust the packaging signals and choose whether to buy accordingly. An example might be a branded product that is also supplied as a supermarket product as was the case with Weetabix and Asda’s Wheat Bisks, mentioned in the Penguin v Puffin case (1997).

In contrast, a product packaged to look like a familiar brand but without the same qualities and/or not made by the same company lies and sends wrong, highly misleading signals to shoppers. In grocery, shoppers make decisions fast and rely particularly on colour and shape of packs to inform their choices. The IPO research confirmed a correlation between similarity of packaging and people’s perceptions that the products came from the same company and/or have higher quality. It also confirmed that similar packaging increases people’s likelihood of buying the product.

That’s the nub. Parasitic packaging – which is packaging that lies and is illegal – increases sales, whether through more mistakes or increasing artificially the appeal of products. It is subtle, dupe marketing, is persistent and is going unchallenged.

Remedies

The Kat is wrong to imply that brand owners want Government to intervene and fight their battles for them. The truth is the opposite. Brand owners want effective tools to deal with the problem themselves. In the UK there are three potential remedies, all with flaws:

-       IP rights may look to offer sufficient protection on paper but using them in practice is challenging. This is due to the high evidentiary threshold required by courts, the difficulty of proving confusion (survey evidence is often not accepted) and difficulties in proving misrepresentation.

There are signs that passing off in particular is moving against brand owners, with the long-standing principle that someone should not seek to take another’s goodwill being replaced with the view that copies can “live dangerously” if they keep a safe distance away (Specsavers v ASDA, 2012). This was followed in the Moroccanoil v Aldi case and amounts to a judicial sanction of “living dangerously”.

Back in 2006, the Gowers Review, commissioned by Government, found that brands were not well protected in the UK and recommended that the new Consumer Protection from Unfair Trading Regulations (CPRs) be given a chance to work.

-       The CPRs provide broader protection than IP rights in making it unlawful to mislead over a product’s quality or equivalence and thereby influences the purchasing decision. However in the UK civil enforcement lies under the control of Trading Standards, not brand owners. Interestingly Government sees one enforcement action in seven years and statements from Trading Standards that they do not have the resources and will not enforce as strong, unchallengeable evidence that enforcement is effective as required in the underlying Directive;

-       Provisions against misleading comparative advertising are also relevant, as parasitic copies make a strong implicit comparative claim: “I am like the brand”. A lawful comparative claim must be objective and quantifiable, but the copy’s claim is broad, inferring it is like the brand in every respect, including ingredients, manufacture, reputation and image. While the Misleading Comparative Advertising Directive requires companies to be protected from such misleading advertising, in the UK only Trading Standards may enforce, not brand owners.

The UK Government has just decided not to grant brand owners civil enforcement powers under the CPRs. It fears unintended consequences and an increase in litigation. The potential to stamp out an illegal practice doesn’t seem to carry weight.

As a result, the CPRs will not have the effect anticipated in the Gowers Review and are unlikely to meet the enforcement performance threshold required by the Directive. That leaves the big underlying question unanswered: how are legitimate brand owning companies in the UK to have effective tools to protect themselves and their customers against illegal packaging? That ball remains firmly with Government.

The Kat, at the start of her post, states she was compelled to put in her two cents worth. She got her pricing just about right.

Readers, what is your view? Do please let us know!