ASPECTS OF COMPETITIVE ADVERTISING IN THE DIGITAL AGE

25.05.2017

By Lawrence Hoffman

The Ten Commandments provide a still-viable guide for life – whatever your religious beliefs might be. Even the Third Commandment (You shall not take the name of the Lord your God in vain…) (Exodus, 20:7) provides a lesson, at least by analogy for commercial activity in the Information Age.

A March 2017 decision by an Israeli appellate court in a case brought by Food Giant Nestle and its Nespresso® coffee system against an Israeli competitor Espresso Club gives us a good example on the limit of such an analogy. We will look at the Nespresso® case below, but let’s look at the background first.

The Right of Publicity:

Celebrity endorsements are an important advertising vehicle. Imagine a fictional famous basketball player named Aviv Hoffman, to pick a name at random. (Ok, not so random – he’s one of my sons). Aviv’s fame makes him an ideal candidate for use in product endorsements.

Burger King®, back in Israel after some years away, wants to go after the market leader. It creates a TV commercial or a webpage or a social media presence in which Aviv touts Burger King®. The competitor is never mentioned.

But imagine that Aviv did in an interview a while ago, in which he said something favorable about the competitor by name. Or even worse – he did an endorsement for the competitor? Mickey D’s would not be happy with Aviv’s new treasonous alliance and would likely respond, e.g., with a reprise of the interview or the earlier endorsement. This results in Burger King® dropping Aviv’s endorsement.

Now let’s make one little change in the facts. The basketball hero is a real person named Ariel McDonald, but everything else is unchanged. And it really happened.

In the Burger King® commercial, Ariel approaches a Burger King® wearing his team uniform shirt with his surname on the back. He is allowed in only after removing his shirt. Wearing a Burger King shirt, he states, “Listen to McDonald – only Burger King®.”

The McDonald’s response contained a banner reading “Where does Ariel McDonald eat” and a copy of an article about the interview. The voiceover was:

On 12 May 2000, this article was published in the ‘Tel Aviv’ newspaper”; “Ariel McDonald loves life in Tel Aviv. He eats [at] McDonald’s”, “And also in the article: You have guessed correctly, he prefers McDonald’s.”

Ariel sued McDonald’s asserting causes of action for violation of privacy, violation of property, defamation, causing breach of contract, and unjust enrichment. McDonald’s counterclaimed for trademark infringement. Ariel won at the trial level, but in 2004, on an appeal to the Supreme Court, the lower court verdict was reversed, and McDonald’s trademark infringement claim was reinstated.

In Israel, there is a Trademark Law, a Personal Privacy Law, a Commercial Torts Law, and an Unjust Enrichment Law. All remedies had to fit somewhere into this scheme.

Ultimately, the Supreme Court upheld the right of publicity (i.e., the right to exploit one’s persona commercially) based on the Unjust Enrichment Law rather than as an aspect if the Privacy Law. (Some practitioners have criticized this, saying the Personal Privacy Law would have been a more logical home for the right of publicity.)

However that may be, the Court refused Ariel’s right of publicity claim under the special circumstances of the case, despite the fact that the responsive ad was made without Ariel’s consent.

Against the trademark infringement counterclaim, Ariel asserted the right under the Trademark Law to use his own name, but the court was not sympathetic because it felt he was taking advantage of the similarity between his name and the McDonalds’s trademark by using only his surname in the ad.

If trial testimony of a witness with an embarrassing back story must be used, it’s best to bring the problematic information out in the direct case before the opponent can attack on cross examination.

Consider what might have happened if Ariel’s ad said something like “I used to look for my name when I wanted a burger, but now – listen to Ariel – only Burger King®.” Perhaps there never would have been a response by McDonald’s.

In the fictional case of Aviv Hoffman v. McDonald’s, if there was no interview, McDonald’s would have no case. Even if there had been an interview, bringing it out in the ad would still have been the best tactic.

The moral of the story for both Ariel and Burger King®: look before you leap. Perhaps Ariel didn’t even remember the interview, but Burger King® should have checked with him and done some independent research. Then, if Burger King® still wanted to go ahead, the program could have been tailored, perhaps as suggested above, to diffuse a possible counterattack.

In the U.S., the rights of privacy and publicity are governed by state law, either statutory, or under common law. The closest federal analogy is the possibility of protection of one’s name under §32 and/or § 43 of the Lanham Act.

Although there are wins and losses for both sides, depending on the facts, protection of free speech does impose limits on the right of publicity. For example, consider Kirby v. Sega of America, a 2006 decision of a California intermediate-level Court of Appeals. Kirby was a well-known singer who had developed a distinctive persona characterized by “her signature costumes and lyrical expression”, by her distinctive dance moves, and by recurring use of the phrase “ooh la la.”

Sega created a video game with a reporter named Ulala” as a central character. (The name allegedly was a derivative of a Japanese name “Urara,” modified to make it easier for English-speakers to pronounce). Though one feature of the game involved making Ulala dance, the designers denied using Kirby as an inspiration.

Kirby’s lawsuit alleged common law infringement of the right of publicity, and other state law misdeeds, and violation of §43 the Lanham Act. Sega moved for summary judgment, alleging lack of genuine issues of fact, and in any event, protection under the first amendment. The motion was granted by the trial court on the basis of the first amendment, and was affirmed on appeal.

The Court of Appeals found that there were genuine issues of fact, but that the broad protection of freedom of speech under California law required only “significant transformation” of the celebrity’s image. Citing California state Supreme Court authority, the court held that the transformation is sufficient if “the “celebrity’s likeness is so transformed that it has become primarily the defendant’s own expression” of what he or she is trying to create or portray, rather than the celebrity’s likeness”. It held that Sega’s transformation was sufficient. Further, the court stated that the transformation did not need to involve parody or satire.

This is an area of law in flux, but the Sega case is hardly unique.

Consider now an endorsement that contains false or misleading information,  but that a purchase motivated by the endorsement  leads to a personal injury. Might the endorser have any exposure? A quick search didn’t reveal cases of endorser liability either in the U.S. or Israel, though there has been some litigation in the U.S.

However, the U.S. Federal Trade Commission has its eye on this industry. In Part 255 of Title 16 of the Code of Federal Regulations, it has published a Guide Concerning the Use of Endorsements and Testimonials in Advertising (available here). As amended in 2009, it states:

  • Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser and may not convey any express or implied representation that would be deceptive if made directly by the advertiser  (§ 255.1(a).
  • When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given and the advertiser must have good reason to believe the endorser continues to be a user while it continues to run the advertisement (§ 255.1(c).
  • Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. Endorsers also may be liable for statements made in the course of their endorsements (§ 255.1(d)
  • 255.5 also requires disclosure of a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience).

The Guide does not have the force of law, but endorsers and advertisers alike must consider the possibility of enforcement actions. Likewise, endorsers and their advisors should exercise their own due diligence concerning products they endorse lest the law evolves to impose negligence, or strict liability on them for misrepresentations or in connection with product-related injuries.

Tweaking Your Competitor’s Nose:

Now, let’s look at the Nespresso® case. Here, a celebrity endorsement was the target of parody in a competitor’s advertising.

Nestle sells the Nespresso® coffee system consisting of an espresso machine and coffee capsules. Espresso Club is a tiny Israeli competitor. In its business model, machine is free, but the customer contracts to purchase an agreed number of capsules per month.

World-famous actor George Clooney is a widely-recognized spokesman for Nespresso®. His ads are humorous with a high-class sophisticated theme. Espresso Club took the humor a step further. In 2015, it began by running ads using a Clooney-lookalike. The ads carried a legend that the actor was not George Clooney.

The parody came through loud and clear. The idea was to make Nespresso® look like the high and mighty, nose in the air brand, but that ordinary people could enjoy the same experience from down-to-earth Espresso Club. One of the ads showed an Espresso Club customer drinking his coffee in a tee shirt.

Nestle was not amused. Nespresso® sued Espresso Club in the Tel Aviv-Yafo District Court for trademark and copyright infringement, trademark dilution and unjust enrichment. In March 2017, the court dismissed the case, and ordered Nespresso® to pay Espresso Club’s expenses, including legal fees of NIS 110,700 (about $25000). Reportedly, the Supreme Court refused to take the case on appeal.

In its opinion, the District Court described the Espresso Club commercial as depicting:

an amusing, slightly satirical situation, which was meant to emphasize the difference between Espresso Club and its competitors…The central idea arising from the commercial is merely that the Espresso Club Company provides a simple alternative to the experience of drinking coffee from capsules, without mannerisms of dress and conduct, with the primary message being the [difference in the competing business models].

The Court further stated:

One must remember that today’s average viewer is sophisticated and exposed to a great deal of information and commercials on various media, able to distinguish between a funny commercial, a humorous jab or actual slander.”

Espresso Club did all the right things here. The ad was based on the happy coincidence that a look-alike was available because Clooney was the essence of the Nespresso® persona. The disclaimer made clear that use of the look-alike was part of the parody. Moreover, with Clooney himself not a plaintiff, invasion of his rights of publicity and privacy were not in issue.

A more typical parody ad situation involves a brand persona that is not tightly associated with a celebrity endorser. For an example, see the December 2016 decision of the U.S. Second Circuit Court of Appeals in Louis Vuitton Malletier, S.A., v. My Other Bag, Inc. (here) where the parody was directed to the distinctive decoration of the Louis Vuitton handbags.

Or my favorite, an April fool’s post from a parody website ThinkGeek which took aim at the pork-farmers trade association, The National Pork Board. The Board owns several U.S. registrations of the trademark THE OTHER WHITE MEAT. The parody product was “canned unicorn meat”! The “advertizing” on the ThinkGeek website read: “Pate is passé. Unicorn, the new white meat”. Not surprisingly, that one never got to court.

 

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