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Focus: Food law

29 April 2010

In this issue: we look at the consequences of inaccurate product packaging claims in two recent cases; new US fast food nutrition labelling laws and the likelihood that similar legislation will be introduced in Australia; a recent case involving two similarly branded enhanced water products and the last instalment in the Kit Kat shape mark saga.

'Australian owned' claims – a cautionary tale

In brief: Heinz Company Australia has recently given enforceable undertakings to the ACCC, after admitting to making misleading 'Australian owned' claims in relation to the Golden Circle brand. Lawyer Katherine McMahon reports.

How does it affect you?

  • Pack claims must be continually monitored to ensure that they remain accurate. While they may be accurate at the time that they are introduced, changes in your business may render them misleading.
  • Keep an eye on your company's website to ensure that depictions of products (in which pack-claims are visible) are up-to-date and that inaccurate pack-claims don't linger unnoticed on your website after they are identified and addressed elsewhere.
  • Include a review of product packaging and related advertising material in any business acquisition due diligence process, to identify any 'Australian-owned' claims, assess whether those claims will continue to be accurate post-acquisition and, if not, ensure that they are amended beforehand.
  • Consequences of misleading conduct include being required to publish corrective advertisements in major newspapers throughout the country and install corrective signage in supermarkets alongside your products (in addition to having to dispose of or apply over-labels to the offending packs).

Background

In 2008, Heinz's US parent company acquired Golden Circle, but Heinz continued to represent that the Golden Circle products were Australian owned. The claims were made on packs and on the Golden Circle website. Heinz had been in the process of rolling out new packaging, without this claim, but the process was protracted, and some products still bore the claims up until January 2010. The claims came to the attention of the Australian Competition and Consumer Commission (ACCC) which concluded that they were misleading and deceptive or likely to mislead or deceive.

Outcome

Heinz has given enforceable undertakings to the ACCC that it will cease making the 'Australian owned' claims on Golden Circle branded products, use its best endeavours to ensure that corrective signage appears next to Golden Circle products on supermarket shelves and publish corrective advertisements in major newspapers throughout Australia. Heinz has also donated more than 800,000 affected cans of fruit and vegetables to Australian welfare agencies.

In this case, the claims were clearly misleading or capable of misleading once Golden Circle was wholly acquired by a US company. However, in other cases, the situation might not be so clear. What if a company is part-Australian owned? Is it still permissible to make Australian-owned claims? The ACCC has sought to clarify the approach it takes to this issue, explaining that it is the ACCC's view that if a company is claiming to be 'Australian owned' it would need to prove that at least 51 per cent of its ownership is held in Australia and would need full local ownership if it is claiming to be '100% Australian owned'. Of course, it would ultimately be up to a court to decide whether conduct was misleading or deceptive, if such conduct is not admitted. However, it seems likely that a court would adopt the same approach.

New US fast-food nutrition labelling laws – will Australia be next?

In brief: US chain restaurants with 20 or more locations will soon be required by law to include nutritional information on their menus and drive-through signs. Similar changes are being considered in Australia. Lawyer Katherine McMahon looks at the new US regulations and similar developments within Australia.

How does it affect you?

  • Growing concern surrounding public health issues have motivated US and Australian governments to start the process of implementing new food labelling laws.
  • Business should be aware of this policy process and be aware of the potential cost and changes to food labelling laws.

US health care legislation

In March 2010, the US House of Representatives passed new health care legislation, which included a new nutrition labelling requirement to be imposed on US chain restaurants with 20 or more locations.

Under the new legislation, chains will be required to provide nutritional information for standard menu items as well as individual salad bar or buffet items. However, there will be an exemption for limited release items and daily specials.

The requirement will be fleshed out in regulations to be proposed by the US Food and Drug Administration within the next year. That is no guarantee, however, that the requirement will be in force any time soon.

Currently, as is the case in Australia, many US chains already provide calorific information on pamphlets available in their restaurants, or on their websites. However, the reforms require chains to provide that information to customers as they are ordering their food.

The reforms are aimed at tackling obesity, by making diners think twice about eating high-calorie food and thereby coaxing chain operators into making their menus healthier.

The reforms have met with approval from the US National Restaurant Association, which has praised them as a win for consumers and restaurateurs because they replace a patchwork of different state and local regulations with a uniform national standard, thus reducing compliance costs for chains and ensuring consumers receive a consistent message. However, some states will continue enforcing rules that are more stringent than this new federal requirement.1

Recent changes to labelling laws

Although the Australian Government is yet to give any clear indication that it intends to adopt chain store nutrition labelling requirements akin to those introduced in the US, two recent developments in Australia appear to indicate that any reforms to nutritional content labelling laws in Australia are unlikely to be limited to fast-food outlets.

In April 2008, the Preventative Health Taskforce was established to provide recommendations to the Australian Government on future health policy. The Taskforce was asked to develop a national health strategy for 'tackling the burden of chronic diseases currently caused by tobacco, obesity and excessive consumption of alcohol.'2 That strategy was launched on 1 September 2009, and includes an extensive list of action items recommended for completion between 2010 and 2020. Action item 2.5 proposes the introduction 'of food labelling on front of pack and menus to support healthier food choices, with easy to understand information on energy, sugar, fats, saturated fats, salt and trans fats, and a standard serve/portion size within three years.' 3 The strategy recommends that this national food labelling system be implemented after a national trial of appropriate approaches across a sample of products. It would be applied consistently throughout Australia, based on nutrient reference values and dietary guidelines, and, once implemented, would be actively enforced with appropriate penalties. It is unclear at this stage whether this recommendation will be adopted.

In another development, in October 2009, the Australia and New Zealand Food Regulation Ministerial Council appointed a review panel to undertake a comprehensive review of food labelling law and policy in Australia and New Zealand. On 5 March 2010, the committee released an issues consultation paper. The consultation paper summarises the issues that have been raised in the first round of submissions and in the media and industry literature in recent years. The issues paper scopes out a number of issues to be considered as part of the review. This includes consideration of whether specific health warnings should be required for food labelling and examining ways in which food labelling can be used to support health promotion initiatives. The review panel's report will be provided to the Ministerial Council in December 2010 and to the Council of the Australian Governments in early 2011. The closing date for the public to make written submissions to the Review Panel is 14 May 2010. Further information about the review can be obtained at www.foodlabellingreview.gov.au

Misleading product packaging claims – Unilever v Goodman Fielder Consumer Foods

In brief: Goodman Fielder Consumer Foods, manufacturer of popular non-dairy cholesterol-lowering spread Logicol, has had pack product claims declared misleading by the Federal Court under sections 52 and 53(a) of the Trade Practices Act after an action was brought by Unilever Australia, manufacturer of competitor brand Flora Pro-Activ. Lawyer Michelle Freeman looks at the case.

How does it affect you?

  • Even where an individual claim is strictly factually true, courts look to the overall impression given by the packaging when assessing whether a consumer might be misled or deceived.
  • Rival manufacturers will seek to leverage any competitive advantage available – if a claim is misleading or deceptive, potentially expensive and damaging court action may result.
  • The outcome for Goodman Fielder, however, is not likely to deter other manufacturers from taking advantage of 'line-call' misleading or deceptive claims and risking possible attack by competitors.

Background

In late 2009, Unilever Australia sought declarations in the Federal Court that Goodman Fielder had breached the Trade Practices Act 1974 (Cth) (the TPA) with its Logicol pack claim '#1 RECOMMENDED for dietary change'. Unilever Australia also sought injunctions to restrain similar conduct in the future.

By the time of the hearing, Goodman Fielder had stopped production of the allegedly misleading packaging and stickered remaining stocks of Logicol to conceal the disputed claim in the marketplace.

Justice Buchanan considered that the results produced by the small survey sample on which Goodman Fielder's claim was based were at best 'statistically insignificant', and that the positioning of the claim on the pack in close proximity to the National Heart Foundation 'Tick' logo 'created a real chance' that consumers might consider that the representation was an endorsement by the foundation – which it was not.

Orders of the court

On 13 November, the court declared that Goodman Fielder had engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive, thereby contravening section 52 of the TPA. Justice Buchanan also declared that Goodman Fielder had contravened s53(a) of the TPA, which relates to representations regarding the standard or quality of goods.

The court, however, declined to order injunctive relief, even though a consideration of internal Goodman Fielder working documents showed that 'there was a substantial element of calculation, and risk taking, in the final decision to proceed with the [disputed] logo'. His Honour also noted that 'arrangements [had been previously] made for the relatively rapid substitution of new forms of labelling should it become necessary' – which Goodman Fielder did. Justice Buchanan reminded the parties that injunctive relief is 'not granted simply as a form of punishment nor as a gesture signifying that one party has prevailed over the other', and that, in this case, even an appropriately worded order would be both burdensome for the court to supervise and unnecessary as it would be 'surprising if ... Goodman Fielder felt able, consistently with its legal obligations, to make any future claim of [the same] kind [in the future].' Because the false and misleading claim at the centre of this case is prohibited by the TPA, the court was unwilling to make an injunction in substantially similar terms as the legislation where there was no evidence of repeated breaches. Justice Buchanan, however, did suggest that where 'any future conduct proceeded upon some different basis', then repeat infringements would be taken into account by the court.

Where to from here?

It is critical not only to review individual claims for accuracy, but also to check the label as a whole. In this case positioning the Heart Foundation logo near the '#1 Recommended' claim made the whole label misleading. Where an error is found it is important to quickly correct it. In this case quick action enabled Goodman Fielder to avoid an injunction.

Similarities not enough in passing off claim

In brief: The Federal Court recently dismissed an application by Nutrientwater Pty Ltd against Baco Pty Ltd on the basis of a claim that the branding of Baco's enhanced water product was strikingly similar to Nutrientwater's product. Nutrientwater alleged passing off and contravention of section 52 of the Trade Practices Act 1974. Partner Sarah Matheson and Lawyer Kelly Griffith review the case.

How does it affect you?

  • It is essential for any potential claimant to be able to demonstrate that it has established a reputation in particular product features or get up that it is trying to protect, in order to rely on actions in either passing off or misleading or deceptive conduct. It will not be enough that there are similarities between the products in question.
  • Establishing a reputation in the particular features or get up of a product is harder for traders operating in a field of competitors with similarly branded products.

Background

Since November 2005, Nutrientwater Pty Ltd has manufactured, promoted and sold a range of enhanced waters in Australia. Nutrientwater's enhanced water products at the centre of the proceeding are depicted in Figure 1 below.

Figure 1: Nutrientwater range. Image reproduced from judgment of Federal Court in Nutrientwater Pty Ltd v Baco Pty Ltd [2010] FCA 2.

In February 2008, Coca-Cola Amatil launched a range of enhanced waters in Australia (Vitaminwater). Vitaminwater was launched in the United States in 2000 and, by 2006, Vitaminwater ranked among the top 10 sellers in the US. The popularity of Vitaminwater in the US was highly publicised.

Throughout 2007 and 2008, other brands of enhanced waters entered the Australian market, including Emma & Tom's, Bickford's Vitamin H20 and Schweppes' Smart Water.

Baco's entry into the market

In January 2008, Baco briefed its designer to create labels for a range of enhanced water products that Baco intended to produce and sell. Baco supplied its designer with samples of the Nutrientwater products, the US Vitaminwater products, Emma & Tom's products and Schweppes' Smart Water products. Baco contended that it provided the Nutrientwater product to its designer as an illustration of a successful enhanced water product in the Australian market.

In May 2009, Baco launched the Grassroots product depicted in Figure 2 below in Australia.

Figure 2: Baco's Grassroots enhanced water range. Image reproduced from judgment of Federal Court in Nutrientwater Pty Ltd v Baco Pty Ltd [2010] FCA 2.

Nutrientwater commenced proceedings against Baco in June 2009.

Reputation in the get-up?

The tort of passing off prevents persons from misrepresenting that their goods or services are the goods or services of another trader or that there is an association or connection between their goods and services and those of another trader. To succeed in an action for passing off, Nutrientwater needed to establish that it had the necessary reputation in the elements of packaging or get-up in question at the date when Baco launched its product range.

Nutrientwater also alleged that Baco had engaged in misleading or deceptive conduct in contravention of section 52 of the Trade Practices Act 1974 (Cth.). The court held that, unless Nutrientwater had a reputation in those features of its get-up that it sought to protect, Baco's use of the features relied upon by Nutrientwater was unlikely to convey misrepresentations such as to amount to misleading or deceptive conduct.

At trial, the features of the get-up that Nutrientwater relied on most heavily included the choice of colours and the use of bright horizontal bands of colour on the labels corresponding to the beverage colours. As part of its defence, Baco claimed that Nutrientwater had substantially copied the packaging of the Vitaminwater products, including the features upon which Nutrientwater sought to rely. The court found, on the balance of probabilities, that Nutrientwater did copy features of the US Vitaminwater products. A comparison of the Nutrientwater and Vitaminwater products is depicted in Figure 3 below.

Figure 3: Comparison of Nutrientwater and Vitaminwater product range. Image reproduced from judgment of Federal Court in Nutrientwater Pty Ltd v Baco Pty Ltd [2010] FCA 2.

Given Nutrientwater's copying of the US Vitaminwater product and Vitaminwater's subsequent entry into the Australian market, the court did not accept that Nutrientwater had established a degree of distinctiveness in the colours of the Nutrientwater product range (or any other feature, alone or together) to justify its submission that it had a discrete reputation in those colours or some other feature of the get-up.

The court found that Nutrientwater had no established reputation in the get-up of the product by the time Baco entered the market in May 2009. Any reputation that might have existed in those features had been lost due to the entry of other competitors in the market by May 2009.

As to whether the outcome would have been different if Nutrientwater had been able to establish the necessary reputation, the court concluded that because Baco applied its own trade marks to clearly distinguish its products, a consumer was not likely to believe that the Baco products came from the same source as the Nutrientwater products, and consumers would not be misled into thinking that Baco products were Nutrientwater products or that there was any connection or association between the Baco products and Nutrientwater.

Lessons

This decision demonstrates that a claimant will not succeed in an action for either passing off or misleading or deceptive conduct merely due to similarities between the products in question. It is essential for any potential claimant to be able to demonstrate that it has established a reputation in particular features or get-up, in order to rely on actions in either passing off or misleading or deceptive conduct for protection.

In this case, the court accepted that certain features or get-up can become associated with a particular trader, such that use by another trader could give rise to misleading and deceptive conduct or passing off. However, a claimant will need to establish that the particular feature or get-up alleged to have been appropriated is identified in a special way with the claimant in the mind of members of the public. Only in such circumstances may a court find that a trader has engaged in misleading or deceptive conduct by reason of the appropriation of that particular feature or get-up by another trader.

Nestle registers Kit Kat shape trade mark

Nestle has recently secured a trade mark registration for the shape of its Kit Kat chocolate bar. We reported on the Federal Court proceeding in our Intellectual Property Bulletin.

Other registered shapes in the food industry include the Freddo Frog shape (TM 706623), the Toblerone bar shape (TM 706789), the Coca-Cola bottle shape (TM 812147) and the packaging for a three-pack of Ferrero Rocher chocolates (TM 922350). In contrast, Chocolaterie Guylian N.V. failed to obtain registration for its seahorse shaped chocolate (TM 936483). The Trade Marks Office held that the shape was not capable of distinguishing Guylian's goods and this decision was confirmed by the Federal Court of Australia4.

Recent ACCC guidelines on food labelling

From time to time the ACCC publishes guidelines on food labelling, to help organisations understand their obligations under the Trade Practices Act 1974 (Cth) in relation to labelling, packaging and advertising claims, and how the ACCC interprets those obligations. The most recent guidelines were published in mid-2009.

Footnotes
  1. New York State is likely to continue requiring chains with 15 or more locations to provide nutritional information to customers.
  2. http://www.preventativehealth.org.au/
  3. Australian National Preventative Health Taskforce, Australia The Healthiest Country by 2020.
  4. Chocolaterie Guylian N.V. v Registrar of Trade Marks [2009] FCA 891.

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