Distinctive Packaging, Unfair Competition and Damages: a Milan IP Court Ruling

The IP Court of Milan recently issued a ruling of some interest in the matter of distinctive packaging, unfair competition and related damages claims (ruling no. 11010/14 of 17/09/2014).

A primary Italian player in the potato chips market had filed a lawsuit against a direct competitor, claiming that the latter had imitated a distinctive series of potato chip packs that it had introduced to the market first, and later also registered as national trademarks. Below is a picture of one of the packages involved.

The plaintiff filed a claim of trademark infringement and two distinct claims of unfair competition, one for conduct causing consumer confusion and the other for parasitic exploitation, seeking injunction, damages and the publication of the ruling in major newspapers.

The Milan Court recognised that the plaintiff’s packaging possessed distinctive character by virtue of the “minimalism” expressed by its sober and pared-down graphics, in contrast to the multi-coloured, flashy and stuffed design typical of the relevant market sector. The Court also supported the plaintiff’s claim that the defendant’s packaging reproduced the main elements (dominant white background, image of the product in the middle, description of the product in minimalistic writing, company logo on top, two coloured edges) of the plaintiff’s. Nevertheless, the Court ruled out any likelihood of confusion, based on the simultaneous presence on the defendant’s packaging of some graphical elements of distinction and of the defendant’s well-known trademark, as well as the fact that the distribution channels used (mass distribution for the plaintiff, hotels, restaurants and catering for the defendant) were different.

Accordingly, the Court dismissed both the trademark infringement claim and the claim of unfair competition based on the risk of confusion.

The Court held instead that the copying of the main features of the plaintiff’s packaging, although not likely to cause confusion, constituted an act of unfair competition by exploitation.

In particular, the Court observed that the launch of the defendant’s new line of products in a package similar to that which the plaintiff had already made reputable within the market with consistent investments, in a field—that of consumer products—where the packaging has a major impact, although unable to cause confusion on the origin of the competing products, had resulted in the exploitation of a competitor’s efforts by giving the plaintiff an undeserved advantage.

On these grounds, the Court granted the injunction sought by the plaintiff and found the defendant liable for damages.

In assessing the damages, the Court applied principles partly introduced into the Italian legal system following the implementation of the so-called “Enforcement” Directive (Directive 2004/48/EC).

Specifically, the Court observed that, although national provisions implementing the Directive allowed the taking into account of profits made by the infringer, general principles of tort liability mandated that evidence be provided for a direct causal link between the alleged losses and the infringement; in that regard it would not be legitimate to assume that every sale made by the infringer would have been a sale made ​​by the right-holder. However, the Court remarked, the judge may of his own motion set damages on the basis of the hypothetical royalty or fee that the infringer would have paid, had they requested the granting of a licence by the injured party (“reasonable royalty”).

Furthermore, according to article 125 paragraph 3 of the Italian IP Code, by way of an alternative to compensation or damages, or to the extent that they would exceed such compensation, the right-holder may request the recovery of profits made by the infringer.  This remedy, according to the Milan judges, is conceptually distinct from the proper compensation for damages, which aims to restore to its prior state the property of the injured party; it is, instead, rooted in the doctrine of unjust enrichment, and requires an express application from the interested party.

Applying these principles to the case before it, the Court noted that the plaintiff, on the one hand, had not proven a decline in sales as a result of the defendant’s infringement, and, on the other, had not applied for the recovery of profits. The judges felt thus compelled to use the “reasonable royalty” criterion to assess lost profits, while actual damages were quantified on the basis of the advertising investments made by the plaintiff for the launch and advertising of the packaging that the defendant had exploited. For the actual calculation, the judges relied on an expert witness report.

The Court however observed in passing that, even if the plaintiff had applied for the recovery of profits, it would still have had to prove that all of the profits it wanted to recover had been lost as a direct consequence of the infringement.