The Facts
Company launches prestige brand of argan oil haircare products in Australia
Upon having a hair treatment at an Israeli hairdressing salon, a Canadian tourist liked the treatment so much that she purchased all the salon’s bottles and started distributing the product in North America.
She later acquired the worldwide rights to the product, and in October 2007 set up a new company selling its range of hair care products in several countries.
The company launched its products in Australia in September 2009.
These products were part of a “salon-only professional high-end prestige brand”, and the principal ingredient was argan oil.
Retailer starts selling discounted version of company’s products
The company’s products were a huge success in Australia, and by September 2010 had created a buzz in the hair care industry. They were seen as “on trend” and were reportedly “flying off the shelves”.
In 2011, this prompted a prominent discount retailer to produce and sell its own range of hair care products. It marketed these under its house brand “Protane Naturals”.
The retailer’s Protane Naturals products were consistent with its development strategy of identifying popular products and creating its own cheaper version.
The Protane Naturals products were heavily discounted, offered for sale for a limited time with limited stock and were displayed for sale in a dedicated wire discount bin across the retailer’s network of stores.
In prominent text on the front label of each of these products were the words “Moroccan Argan Oil”.
The packaging also stated that the performance benefits of the products included strengthening hair, making it shiny and healthy and protecting it from styling, heat and UV damage.
Retailer’s discount version causes confusion for company’s customers
Over the next several years, the company received feedback that its customers were confused, mistakenly purchasing the retailer’s products, thinking that they were the company’s products.
For example, one post on a product review website said:
This is a great shampoo & conditioner & if you are lucky enough to get it when it is in special at the [Retailer] grab plenty. It is a real bargain. I got some today & should keep me going until the next catalogue. It really does make a difference to your hair, but I couldn’t afford to pay the top dollars. The [Retailer’s] is the same product but quarter the price. Thanks [Retailer].
+ It makes my hair feel thick and shiny
Company commences legal proceedings against retailer
The company commenced legal proceedings against the retailer on several points, including that it misled consumers by making misrepresentations about its Protane Naturals brand.
The trial judge ruled in favour of the company, finding that the retailer had engaged in misleading and deceptive conduct in relation to the claims it made about argan oil and the performance benefits of the product.
The retailer appealed the trial judge’s ruling to the Full Court of the Federal Court of Australia.
Expert commentary on the court's decision
However, overall, this case reinforces the legitimacy of a business strategy, such as Aldi’s, of identifying “on trend” products and implementing one’s own much cheaper version of them.”
Full Court upholds finding of misleading or deceptive conduct
On 22 June 2018, The Full Court of the Federal Court of Australia, in the matter of Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93, agreed with the trial judge that Aldi Foods Pty Ltd had engaged in misleading or deceptive conduct by representing that argan oil was responsible for the performance benefits of its Protane Naturals argan oil hair care products.
However, on several other grounds Moroccanoil Israel Ltd was not so lucky, and the big discount supermarket chain, Aldi, prevailed.
Aldi’s representation that argan oil is responsible for performance benefits is misleading
The Full Court agreed with the trial judge’s conclusion that in relation to Aldi’s Protane Naturals products, the relevant class of consumer “would infer from the product name that it is argan oil which is wholly or largely responsible for the touted benefits”.
The Full Court accepted the trial judge’s characterisation of the relevant class of consumer as “a person attracted to buying at bargain prices, most likely a woman and shopping at [Aldi’s] supermarkets frequently, infrequently or for the first time”.
The Full Court pointed out that it was not entirely clear what the nature of Aldi’s challenge was in relation to the performance benefit claims.
If it was a failure by the trial judge to take context into account, the Full Court disagreed with this assertion. The court said that it did “not accept that the trial judge did not consider the packaging of the products, or how they were sold in the stores or the prominence of the Performance Benefits claims. Throughout her judgment her Honour was obviously aware of these matters.”
If it was that the trial judge made actual errors, no such errors were made.
If it was an attempt to invite the court to arrive at a different opinion to the trial judge, any difference of opinion that might be reached would not rise to the level of error, and if no error was made, then the appeal must be dismissed.
Therefore, the order stood that Aldi be permanently restrained from advertising and selling any Protane Naturals argan oil hair care products that include the misleading performance benefit claims.
Legal proceedings not a total win for Moroccanoil Israel
Although Moroccanoil Israel was successful on the performance benefits claim, Aldi successfully argued two additional points before the Full Court.
Aldi succeeded in challenging the argument that its Protane Naturals brand misled by implying that the products were made from natural ingredients.
Aldi also succeeded in challenging Moroccanoil Israel’s application to register the word “Moroccanoil” as a trade mark.
The trial judge also made several rulings in favour of Aldi that were not the subject of this appeal. These include dismissing an argument that Aldi tried to pass off its products as Moroccanoil Israel’s products and dismissing an argument that Aldi breached Moroccanoil Israel’s registered trademarks.
Aldi successfully challenges trial judge’s finding that packaging was misleading
At the trial, Moroccanoil Israel argued that by using the word “Naturals” on its packaging, Aldi had represented to consumers that the products were made either wholly or substantially from natural ingredients. The trial judge agreed and found that Aldi has engaged in misleading or deceptive conduct. Aldi appealed this ruling.
On appeal, the Full Court concluded that the trial judge had erred by asking the wrong question.
After looking at the dictionary definition of the word “natural”, the trial judge focused on whether the ingredients in the products could be described as “natural”.
According to the Full Court, the correct question to ask was what did the use of the word “Naturals” on the packaging convey to ordinary reasonable consumers.
The Full Court concluded that the word “Naturals” did not convey to the ordinary reasonable consumer that the products were comprised substantially of natural ingredients.
The Full Court noted that the word “Naturals” was in smaller font than the word “Protane” and off to the right on the next line. The word was a sub-line of the Protane products and not a statement about the quantity of natural ingredients in the products.
The court also pointed out that these products were sold from the discount bin at a price between $4.99 and $9.99. More specifically, “the ordinary reasonable consumer would approach the packaging on the basis that they were in the cheapest part of one of the cheapest stores. This is not where one expects to find hair care products made substantially from boutique natural ingredients such as argan oil. This is an Aldi supermarket”.
Aldi successfully challenges registration of “Moroccanoil” as a trademark
In late 2011, Moroccanoil Israel lodged an application with the Register of Trade Marks to register the word “Moroccanoil” as a trademark.
Aldi filed a notice of opposition to the registration of this trademark. Subsequently the Registrar refused registration of the mark on the basis that it was not inherently adapted to distinguish Moroccanoil Israel’s goods.
Moroccanoil Israel appealed this decision, and the trial judge ruled that its trademark should be registered.
Aldi appealed the trial judge’s decision to the Full Court of the Federal Court at the same time it appealed the misleading or deceptive conduct claims. The Full Court found in favour of Aldi, ordering that Moroccanoil Israel’s “Moroccanoil” trade mark not proceed to registration.
Section 41 of Trade Marks Act specifies when trade mark application must be rejected
According to section 41 of the Trade Marks Act 1995, an application for the registration of a trademark must be rejected if the trademark is not capable of distinguishing the applicant’s goods or services, in respect of which the trademark is sought to be registered, from the goods or services of other persons.
Section 41 specifies when a trademark is taken as not capable of distinguishing the designated goods or services. One of those reasons is when:
Based on the facts of the case and section 41 of the Act, the Full Court identified that there were two questions to consider.
The first question was whether “Moroccanoil” really just means “oil from Morocco”, so that it does not distinguish Moroccanoil Israel’s goods from the goods of other traders selling argan oil-based hair care products.
The second question was whether, despite such concerns, Moroccanoil Israel’s use of the word “Moroccanoil” meant that the word had become distinctive of its products, even if it was not originally so.
In relation to the first question, the Full Court concluded that “Moroccan oil” means an oil from Morocco in ordinary English, that argan oil was an oil associated with Morocco and many traders were using the words “Moroccan” and “oil” to describe their argan oil hair care products. Therefore, the trademark “Morrocanoil” did not distinguish Moroccanoil Israel’s goods.
In relation to the second question, the Full Court did not think that Moroccanoil Israel’s marketing activities came close to having the effect that the plain word “Moroccanoil” identified the company’s hair care products.
Most of Moroccanoil Israel’s marketing activities were directed towards members of the hairdressing trade, not consumers. Also, the time between the company’s product launch in Australia and its application in to register “Moroccanoil” as a trademark was simply too short for the public mind to have come to associate the word exclusively with Moroccanoil Israel.
Accordingly, the Full Court allowed Aldi’s appeal, concluding that the company’s mark, Moroccanoil, could not proceed to registration.
Aldi not liable for tort of passing off
Moroccanoil Israel also argued before the trial judge that Aldi wrongly tried to pass off its products as having a connection in the course of trade with Moroccanoil Israel’s products.
However, the trial judge rejected this argument, finding that Aldi’s products were not deceptively similar to Moroccanoil Israel’s products.
This finding was not challenged in the appeal to the Full Court.
Aldi did not infringe Moroccanoil Israel’s registered trademarks
At the time that proceedings were brought before the trial judge, Moroccanoil Israel had two trade marks registered in relation to its Moroccan oil hair care products.
The trial judge had to consider whether Aldi infringed upon these registered trademarks, and concluded that it did not.
The trial judge stated that she did not believe that the hypothetical consumer would mistake Aldi’s “Moroccan Argan Oil” mark for Moroccanoil Israel’s registered trademarks. Nor did she think that a consumer would wonder whether the Aldi product was made by Moroccanoil Israel.
This finding was not challenged in the appeal to the Full Court.
Case reinforces legitimacy of Aldi’s business strategy
Articulating what was at the heart of the proceedings between Moroccanoil Israel and Aldi, the trial judge remarked:
Aldi contravened the law by misleading consumers that argan oil was responsible for the performance benefits of its argan oil hair care products.
However, overall, this case reinforces the legitimacy of a business strategy, such as Aldi’s, of identifying “on trend” products and creating a much cheaper version of them.