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PARASITIC COPYING IN EUROPE: DECEPTION IN THE AISLES.

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Presentation on theme: "PARASITIC COPYING IN EUROPE: DECEPTION IN THE AISLES."— Presentation transcript:

1 PARASITIC COPYING IN EUROPE: DECEPTION IN THE AISLES

2 1. What are parasitic copies? 2. How do they work? 3. Why are they an issue? 4. The impact of copying 5. What can be done? 6. Is it worth taking legal action? 7. What is needed for a better-functioning market? CONTENTS

3 WHAT ARE PARASITIC COPIES?

4

5 A parasitic copy is a product in packaging that closely mimics that of a familiar branded product by combining several features associated with the original to create a similar overall appearance, the effect of which is to mislead consumers over the product, its source and/or its quality. WHAT ARE PARASITIC COPIES?

6 SO HOW & WHY DO PARASITIC COPIES WORK?

7 HOW & WHY DO THEY WORK? The copy mimics a combination of some or all of the colours, shape, label design, graphics, font styles and name of the familiar brand. The overall effect is a sufficiently similar pack design that brings to mind the familiar brand. Shoppers associate the similar design with the nature, values and reputation of the original. HOW?

8 An environment in which shoppers make their choices using packaging designs to assist their self-selection. Regular, low-involvement purchases where the decision to buy is made in seconds. Consumers use heuristics (mental shorthand/shortcuts) such as colour, shape and overall look to identify and distinguish between products. HOW & WHY DO THEY WORK? WHY?

9 There are over 10,000 products in many supermarkets. Every day, regularly purchased products. Few shoppers use shopping lists (av. 18%*). Shoppers navigate using heuristics (mental shortcuts), relying on packaging shape, colour and overall appearance. Research shows that decisions are made in less than 2 seconds in many instances. HOW DO SHOPPERS MAKE DECISIONS IN STORE? HOW & WHY DO THEY WORK? * Source: PG, Oxford Symposium 2012

10 Parasitic copies tend to: adopt design elements that are used by shoppers to distinguish one product from another. copy more than one element. It is not parasitic behaviour to copy commonplace category cues (e.g. yellow tubs for margarine). If most products in a category have common features, these may not be distinctive to any one brand and may be more open to legitimate copying. Parasitic copies are not… usually direct copies of registered trade marks. That can be dealt with under TM infringement laws. synonymous with retailers’ private label products, many of which are packaged distinctively. WHERE TO DRAW THE LINE BETWEEN A PARASITIC COPY AND OTHER PRODUCTS: HOW & WHY DO THEY WORK?

11 WHY IS PARASITIC COPYING AN ISSUE?

12 Research indicates that, the more similar the packaging, the more likely it is shoppers will buy products by mistake. Research indicates that similar packaging suggests to shoppers the products all come from the same manufacturer and have the same qualities and reputation when they do not. Similar packaging destroys the distinctiveness of the original. With products looking the same, it is harder and more time consuming to make choices in store. By free-riding on the reputation of the original, the copy is able to sell more and/or charge higher prices than would otherwise be possible. Consumers express a strong preference for distinctive packaging. WHAT’S THE PROBLEM? WHY IS PARASITIC COPYING AN ISSUE?

13 EXAMPLES OF PARASITIC COPIES: WHY IS PARASITIC COPYING AN ISSUE? THESE ARE JUST PLACE-HOLDER PHOTOS THAT MEMBERS SHOULD REPLACE WITH SOMETHING MORE ARRESTING

14 They divert sales and loyalty from your brands to your competitors, sometimes by well over 10%*. They destroy the distinctiveness of your brand, making it harder for shoppers to identify it or reducing its ‘voice’ on-shelf. They increase your costs, if you seek to tackle the problem or re-package to re-assert your distinctiveness. They undermine the perceived value of your brand, if shoppers believe they can buy the same quality for less. If shoppers buy the product thinking it is yours and are disappointed by its quality, your reputation will suffer. WHY ARE THEY BAD FOR YOUR BUSINESS? WHY IS PARASITIC COPYING AN ISSUE? * Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011

15 If you fail to act, distinctive features of your brand become generic, open to copying by others. Your products will no longer stand out on the shelf, becoming harder to recognise. Copying makes it easy and cheap for your competitors to achieve trial and build loyalty, while your business model becomes high cost and less sustainable. Regaining lost consumers is costly and time-consuming. In the case of a private label copy, it has a halo effect on other private label products, reinforcing misconceptions that they are all made by the same manufacturer. WHY IS IT VITAL TO DO SOMETHING ABOUT PARASITIC COPIES? WHY IS PARASITIC COPYING AN ISSUE?

16 EXAMPLES OF PARASITIC COPIES: WHY IS PARASITIC COPYING AN ISSUE? THESE ARE JUST PLACE-HOLDER PHOTOS THAT MEMBERS SHOULD REPLACE WITH SOMETHING MORE ARRESTING

17 EXAMPLES OF PARASITIC COPIES: WHY IS PARASITIC COPYING AN ISSUE? THESE ARE JUST PLACE-HOLDER PHOTOS THAT MEMBERS SHOULD REPLACE WITH SOMETHING MORE ARRESTING

18 EXAMPLES OF PARASITIC COPIES: WHY IS PARASITIC COPYING AN ISSUE? THESE ARE JUST PLACE-HOLDER PHOTOS THAT MEMBERS SHOULD REPLACE WITH SOMETHING MORE ARRESTING

19 THE IMPACT OF PARASITIC COPYING

20 Recent research indicates that around two fifths (39%) of consumers have purchased a product by mistake due to the similarity in packaging. This equates to some 40 million purchases across Europe. "I have accidentally bought the wrong grocery shopping item because the packaging item was similar to the one I wanted”. N.B. Some respondents neither agreed nor disagreed, so country numbers do not total 100 THE EFFECT ON CONSUMERS AND THEIR BUYING DECISIONS: (1) an increase in mistaken purchases THE IMPACT OF PARASITIC COPYING Sources: AIM consumer survey, “A Study into the Impact of similar Packaging on Consumer Behaviour”, Nov, 2011 BBG consumer survey, “A Study into the Impact of similar Packaging on Consumer Behaviour”, Jan, 2009

21 The more similar the packaging, the more likely consumers are to believe the brand owner made both the original and the copy. This re-affirms the belief amongst consumers that most private label products are made by brand manufacturers. AIM research found that, in most instances, shoppers were more likely to think a parasitic copy was made by the manufacturer of the brand whereas they were less likely to make this assumption about distinctively packaged products. For example, 42% of German shoppers thought Garnier Fructis and AS were likely to be made by the same manufacturer, versus only 25% for Garnier Fructis and Hair Care*. THE EFFECT ON CONSUMERS AND THEIR BUYING DECISIONS: (2) an increased belief that the brand owner makes the copy THE IMPACT OF PARASITIC COPYING * Source: AIM consumer survey, “A Study into the Impact of similar Packaging on Consumer Behaviour”, Nov, 2011

22 The consistent high quality of brand name products has a particular appeal for consumers. Parasitic packaging uses the brand’s visual signals to suggest the copy has the same quality and reputation. By using the same signals, the copy unfairly and unduly enhances consumers’ perceptions of product quality*. THE EFFECT ON CONSUMERS AND THEIR BUYING DECISIONS: (3) unfounded increase belief / confidence in product quality THE IMPACT OF PARASITIC COPYING * Source: Jean Noel Kapferer “Stealing Brand Equity: Measuring Perceptual Confusion Between National Brands and ‘Copycat’ Own-Label Products”, 1995

23 Branding on packaging acts as an important cue to guide and speed consumer choice in the retail environment. Consumers take longer to shop in categories which contain products in similar packaging. Consumers make more errors when shopping in categories with similar packaging. So, similar packaging distracts and/or confuses consumers, impairing their ability to find the product they are looking for. In some cases they buy the wrong product. THE EFFECT ON CONSUMERS AND THEIR BUYING DECISIONS: (4) disruption of consumers’ buying decisions THE IMPACT OF PARASITIC COPYING Source: Mountainview Learning, “The Effect of Branding on Consumer Choice”, 2012

24 Shoppers generally have a higher propensity to buy a similarly packaged copy than one that is distinctively packaged*. This may affect other products in the category (consumer choice now includes a product perceived to have brand quality for less money). THE EFFECT ON CONSUMERS AND THEIR BUYING DECISIONS: (5) increased propensity to purchase the product THE IMPACT OF PARASITIC COPYING * Sources: AIM consumer survey, “A Study into the Impact of similar Packaging on Consumer Behaviour”, Nov, 2011 BBG consumer survey, “A Study into the Impact of similar Packaging on Consumer Behaviour”, Jan, 2009

25 Cost of removing the copy from the marketplace. Cost of minimising consumer confusion through marketing and trade initiatives. Cost of re-packaging and promoting new designs to consumers, to re-assert distinctiveness. Potential negative impact on trade relationships when addressing copies. THE IMPACT ON THE COMPANY OWNING THE COPIED BRAND: (1) increased costs THE IMPACT OF PARASITIC COPYING

26 Success in FMCG markets depends on the ability to stand out. Differentiation is a core brand strategy, allowing consumers to distinguish between products quickly and easily. Parasitic copies destroy brand distinctiveness, turning a branded product into a generic commodity product in consumers' eyes. The practice is widespread. 71.4% of brand owners reported that their products had attracted a parasitic copy during *. THE IMPACT ON THE COMPANY OWNING THE COPIED BRAND: (2) lost distinctiveness THE IMPACT OF PARASITIC COPYING * Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011

27 Parasitic copies unfairly divert sales from the original brand*. Brand owners that tracked the sales effect of a copy estimated an average loss of 9% of their product sales*. Parasitic copying reduces return on innovation investment: in the current economic climate innovation is key but investment may be discouraged if new products are copied very quickly after, or even before, launch. High similarity in packaging between manufacturer brands and private labels is one of the top factors driving private label success**. Stronger consumer belief that retailers' private labels are made by brand manufacturers drives private label growth across the board**. THE IMPACT ON THE COMPANY OWNING THE COPIED BRAND: (3) lost revenue and competitiveness THE IMPACT OF PARASITIC COPYING * Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011 ** Source: AiMark study, “A Global Study into the Drivers of Private Label Success”, 2004

28 Reputation for quality is damaged if the copy does not meet consumers' expectations (and they believe the product to be made by the brand manufacturer). Reputation for being unique is damaged when consumers see products they consider the same. Reputation for value is damaged when consumers see a product they assume to be the same as the brand, but at a cheaper price. THE IMPACT ON THE COMPANY OWNING THE COPIED BRAND: (4) damage to reputation THE IMPACT OF PARASITIC COPYING

29 Deception caused by copying damages returns on innovation investment. Brand owners share NPD plans with retailers 6-12 months (or more) before launch to secure shelf space, giving a possible copier a market head start. Poor returns on NPD may delay roll-out of new products to markets prone to copying, depriving consumers of new products. THE IMPACT ON THE COMPANY OWNING THE COPIED BRAND: (5) damage to innovation THE IMPACT OF PARASITIC COPYING

30 An undeserved increase in reputation and perceived quality. A potential ‘halo’ effect for their other products in distinctive packaging (e.g. raising the reputation of a retailer’s private label range generally). An undue increase in sales*. An undeserved ability to charge more**. THE IMPACT ON THE COPIER: THE IMPACT OF PARASITIC COPYING * Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011 ** Source: L’Oréal v Bellure, C-487/07, 18 June 2009

31 They must compete for sales against competing products with an unfounded higher reputation. They must compete for display space against a competing product with an unfounded higher reputation. Disrupting consumer purchasing reduces the consumers’ readiness to buy from the category. Parasitic copies may increase the reputation of retailers' private label products. THE IMPACT ON OTHER COMPANIES IN THE CATEGORY: THE IMPACT OF PARASITIC COPYING

32 Establishing the reputation of a new private label range by legitimate means takes time and effort and is more expensive. An undue high reputation of private label damages retailers without such ranges (typically smaller retailers). So, retailers that play by the rules are put at a cost and competitive disadvantage. The net effect is distorted retail competition. THE IMPACT ON OTHER RETAILERS: THE IMPACT OF PARASITIC COPYING

33 The deliberate deception of shoppers, leading to unintended purchases and wasted money. The dilution and loss of distinctive, clear packaging. An environment hostile to new ideas and investment in strong reputations (because others may easily reap the rewards). THE IMPACT OVERALL: THE IMPACT OF PARASITIC COPYING

34 WHAT CAN REALISTICALLY BE DONE?

35 Distinctive designs with shelf-standout get noticed by consumers. Distinctive, non-generic designs are more resistant to copying. Distinctive designs are easier to register under IP law and tend to receive stronger protection. PREVENTING COPYING: (1) be distinctive WHAT CAN BE DONE?

36 Register your designs as trade marks and designs. Register not just words but also the label designs and pack shapes to extend your protection. Build a reputation for rigorously defending the distinctiveness of your brands and protecting your trade marks, design rights and other intellectual property. PREVENTING COPYING: (2) protect that distinctiveness WHAT CAN BE DONE?

37 Protection (in most countries) applies only to trade marks actually registered. Words, phrases/slogans, labels, 3-D packaging designs and colours must be distinctive, non-descriptive and capable of being represented graphically. The right prevents a competitor using a mark (or design) that is the same or confusingly similar. Wider protection is afforded to trade marks which have gained a strong reputation/are well-known. Trade marks, once registered, are valid indefinitely if the registration is renewed but they must be genuinely used within five years of registration and must continue to be used. INTELLECTUAL PROPERTY, THE LAW: (1) trade mark rights WHAT CAN BE DONE?

38 Unfair competition laws in all EU Member States except UK and Ireland (which both have the tort of passing off) but wide variations. Different elements necessary to commence proceedings; depends on national laws. Leads to different remedies and results. Passing off: difficult to prove as depends on court finding that a misrepresentation has been made which affects a trader's goodwill and evidential links to show that this causes the trader damage. INTELLECTUAL PROPERTY, THE LAW: (2) unfair competition / passing off WHAT CAN BE DONE?

39 Parts/shape, e.g. packaging, get-up elements, logos, combinations of colours and shapes. More suited to some industry sectors than others. NB: global novelty requirement Registered designs: easier to get than trade marks BUT: in particular for shapes, constitutes protection until the shape can be a trade mark protected based on acquired distinctiveness. finite duration (e.g. Community Designs = 5 years, renewable to maximum of 25 years). no prior examination means more possibility of facing invalidation actions. Unregistered designs: automatic protection BUT: can be supplemented by trade mark registration. limited duration (3.g. 3 years from design first made available to the public within the territory of EU. must prove copying and date of disclosure: this may prove difficult. INTELLECTUAL PROPERTY, THE LAW: (3) design rights WHAT CAN BE DONE?

40 Protects original literary and artistic works; goes beyond authors/artists to all “literary work” – e.g. advertising copy/surface decoration/wording on packaging but not a mere representation of a product. Copyright is an unregistered right. Protection/enforcement on the basis of national law. Proof of ownership can be difficult: Mark with ©, author’s name, year of creation. Ensure proper contracts/assignments are in place with third parties (e.g. artists, agencies, etc). INTELLECTUAL PROPERTY, THE LAW: (4) copyright WHAT CAN BE DONE?

41 Copiers design around registered trade mark rights. Copiers design around registered design rights. Almost impossible to get upfront trade mark protection for product/container shapes and colours; design protection not available for shapes that are not novel. The copies are often not sufficiently close to infringe copyright. Hard to prove consumer confusion to a court as it is difficult to determine what was in the mind of the consumer at the point of sale. Important commercial relationships with retailers may inhibit action, to the detriment of consumers. INTELLECTUAL PROPERTY, BUT... WHAT CAN BE DONE?

42 Provisions against practices that mislead consumers and affect consumers’ buying decisions. Incorporates a banned practice that will always be deemed unfair: Promoting a product deliberately to suggest it comes from one manufacturer when it does not (Clause 13 of Annex 1). Enforcement varies by Member State, sometimes limited to public authorities, in others open to civil actions by companies. WHAT CAN BE DONE? CONSUMER PROTECTION LAW: UNFAIR PRACTICES DIRECTIVE

43 Parasitic copying is a banned practice in the Unfair Commercial Practices Directive. However, in some Member States enforcement may only be taken by public authorities. In such countries, public authorities do not have the resources to enforce these provisions. CONSUMER PROTECTION LAW, BUT... WHAT CAN BE DONE?

44 IS IT WORTH TAKING ACTION?

45 Legal action can be expensive and time-consuming. Is it worth taking action? YES. Taking action tends to yield a positive result*. Potential to address the short term problem Sends a strong message that such copying will be challenged Helps protect the distinctiveness of all your products Creates a disincentive to copying IS IT WORTH TAKING ACTION? * Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011

46 Set up a procedure for effective market monitoring. Set up an internal process that brings in wider perspectives than just the commercial trade context. Speed is important (the longer the copy is on the market, the more damage it may do and the harder it may be to take effective action). KNOW YOUR MARKET: IS IT WORTH TAKING ACTION?

47 A combination of actions were taken on most occasions (42%). Discussions between respective legal counsel was the most common approach (32%). Litigation was also instigated (24%). Discussions with the other party at commercial level also adopted (19%). TAKING ACTION AGAINST ANOTHER MANUFACTURER’S COPY: IS IT WORTH TAKING ACTION? Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011

48 A combination of actions were taken on most occasions (36%). Discussions with the other party was the most common single initiative (32%). Discussions between respective legal counsel also took place (26%). Litigation was also instigated but on half as many occasions as against manufacturers (12%). TAKING ACTION AGAINST A RETAILER’S COPY: IS IT WORTH TAKING ACTION? Source: AIM survey, “Parasitic Copies in Europe”, Nov, 2011

49 Remember: the surveys show that taking action tends to yield a positive result*. However, take into account: Potential impact on commercial relationship if copier is a retail customer. Implications for brand distinctiveness if legal challenge fails (distinctive non-registered elements may become adopted by other competitors): Potential publicity. But if action is not taken, also consider: Implication for brand distinctiveness (allowing copies to persist attract other copiers and may make future prosecution difficult). Your reputation. Will you be seen by others as a ‘soft-touch’? Potentially reinforcing consumer belief that made the copy. IS IT WORTH TAKING ACTION? FACTORS TO CONSIDER:

50 WHAT IS NEEDED FOR A BETTER FUNCTIONING MARKET?

51 Wider recognition that parasitic copying harms consumers and companies that invest in reputation and innovation. Clear guidance at European and national level on the scope and enforcement of the Unfair Commercial Practices Directive. At national level, effective implementation of legislation (particularly reflecting the nature of supermarket shopping) and effective remedies. Involvement of national IP offices also vital. INITIATIVES FOR A BETTER FUNCTIONING MARKET: WHAT IS NEEDED FOR A BETTER FUNCTIONING MARKET?

52 Primary aim: misleading packaging to be removed from the market. Note: this means manufacturers too... Consumers would have the same choices of available products sustaining competition but the copies that are currently parasites would instead be repackaged distinctively. HOW? GOALS: WHAT IS NEEDED FOR A BETTER FUNCTIONING MARKET?

53 A focus on the broad problem and ramifications, not the specifics of one case. Access to consumer and competition studies and evidence. Access to legal analysis across all Member States. A media spokesman, commenting on parasitic copying generally, not specific instances. A single, collective voice to policymakers and those who influence policy. HOW? WORK WITH YOUR TRADE ASSOCIATION: WHAT IS NEEDED FOR A BETTER FUNCTIONING MARKET?

54 Parasitic copying is a significant issue across Europe, which, if left alone, will continue to grow. Parasitic copying can result in confused shoppers, mistaken purchases, lost sales and an adverse effect on brand reputations. Brand owners must adopt and then protect distinctive packaging design so their products stand out. It is often difficult for branded goods manufacturers to protect their brands because of legal shortcomings, costs and trade relationships. However, surveys show that action tends to yield positive results. We need to: Establish wider recognition of the issue; get clearer guidance on how to enforce the Unfair Commercial Practices Directive; implement effective legislation and remedies at all levels, national and EU. IN CONCLUSION:

55 THEY ARE OUR BRANDS. OUR CONSUMERS VALUE THOSE BRANDS. PROTECT THEIR DISTINCTIVENESS. WE INNOVATE. DIFFERENTIATE. COMPETE. WE SHOULD NOT TOLERATE PARASITES.


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