April 14, 2016
Although the Competition Act 2010 does not cover the concept of parasitic copying or copycat packaging, in its recent order against Dawn Foods, the Competition Commission broadened the scope of deceptive marketing practices – which are strictly prohibited under Section 10 of the Competition Act 2010 – by recognising unfair competition through the practice of parasitic copying and copycat packaging for the first time in Pakistan.
Facts
K&N’s Foods (Private) Limited is engaged in the poultry business and the processing, marketing and sale of frozen and processed meat products. Dawn Foods is engaged in the manufacturing, processing, marketing and sale of a variety of food and frozen food products.
The main issue before the Competition Commission was whether Dawn Food’s product labelling and packaging was misleadingly similar to that of K&N’s and – if so – whether the confusing resemblance was deceptive and amounted to the “fraudulent use of another’s… product labelling or packaging” under Section 10 of the Competition Act.
Analysis
The Competition Commission relied on the interpretation of the term ‘fraudulent’ in a previous case (DHL Pakistan (Private) Limited), which stated that:
“while interpreting Section 10 of the Act; one needs to be conscious that the interpretation of fraudulent use of trademark has to be in the context of deceptive marketing and would thus have a broader scope. Rather than making it too complex by focusing on subjective “intentions” of the Respondents, in our considered view, it is best if we adopt a simplistic approach i.e. if it can be demonstrated that the Respondents by use of the trademark, intended to deceive the customer/consumer to gain all advantage. Keeping in view the nature of contravention, it is not the subjective intent but the objective manifestation of that intent that will establish the fraudulent use.”
The Competition Commission examined the issue of parasitic copying, as it involves an element of deceit as well as anti-competitive effects in the relevant market. The Competition Commission relied on the definition of ‘parasitic copying’ or ‘copycat packaging’ in Giuseppe Abbamonte’s Copycat Packaging, Misleading Advertising and Unfair Competition, which describes it as:
“the practice of designing the packaging of a product in a way that gives it the general look and feel of a competing, well-known brand (typically the market leader). Copycat packaging is distinct from counterfeiting, since normally it does not infringe intellectual property rights. The risk posed by copycat packaging is consumer confusion, and consequently, distortion of their commercial behaviour.”
In cases of parasitic copying and a contravention of Section 10 of the Competition Act, there is an element of wilful deceit along with free riding and passing off. Therefore, where evidence exists that an undertaking has used parasitic copycat packaging – with the foreseeable effect of misleading and causing deceitful confusion in the mind of the ordinary consumer – that constitutes a violation of Section 10 of the Competition Act as “fraudulent use of another’s trademark, firm name or product labelling or packaging”.
Regarding the prevalent practice of copycat packaging, parasitic copying or slavish imitation and their purpose, effect and direct correlation to the fraudulent use of another party’s product labelling or packaging, the Competition Commission, among other things, made the following observations:
- Mimicking the packaging of familiar established brands is a common misleading and deceptive tactic which aims to boost sales;
- The aim of parasitic copycat packaging is based on the consumer perspective. A potential consumer is more likely to mistake and perceive products that employ parasitic copying to be of better quality than they are, or as being of the same quality as the aggrieved competitor or market leader’s products;
- The copycat incurs minimal general costs and none of the investment or innovation of design costs that the market leader has spent to build the goodwill and reputation of its brand in the relevant market;
- When examining a potential violation of Section 10 of the Competition Act it is best to examine the packaging and product labelling of a finished product as a whole – which may include visually confusing resemblances in terms of colour scheme, layout, design, images, labels and font – instead of examining individual similarities in isolation; and
- The worldwide consumer-survey based consensus is that when copycat packaging is deployed for a particular commodity, price becomes the main and sometimes only criterion which affects a consumer’s choice of purchase. When price becomes the sole determining factor for the exercise of choice between two products with no other distinguishing factors between them, the presence of parasitic copying becomes evident.
Decision
The extent of Dawn Foods’ imitation of K&N’s packaging led the Competition Commission to conclude that Dawn Foods had violated Section 10 of the Competition Act by resorting to parasitic copying in an attempt to capitalise on the goodwill and reputation that K&N enjoyed.
Penalty
In addition to restraining Dawn Foods from using the copycat packaging within a period of one month from the date of its order and instructing it to submit a compliance report to the Competition Commission in this regard, a cumulative penalty of PRs20 million was also imposed for deceptive marking practices in violation of Section 10 of the Competition Act. (By Vellani & Vellani)