The facts of the L’Oréal case concerned so-called "smell-alike" or imitation perfumes and the use of well-known registered marks (TRESOR, MIRACLE, NOA and ANAIS-ANAIS) in price and smell comparison charts. The case also involved infringement under Article 5 (2) of the Trade Marks Directive of L’Oréal’s registered marks for bottle shapes and packaging in respect of the defendant’s look-alike packaging (which did not incorporate L’Oréal’s word marks). The defendants were using the registered trade marks for the purposes of comparing the characteristics, in particular the smell of the goods, in such a way that it did not cause confusion, did not impair sales under the well-known mark, did not jeopardise the essential function of the trade mark as a guarantee of origin, and did not tarnish or blur the registered trade mark. The question was whether this could still amount to the taking of "an unfair advantage".
Article 5(2) protects marks with a reputation against three types of injury
1. detriment to the distinctive character of the mark ("dilution" or blurring of the mark);
2. detriment to the repute of the mark ("tarnishment" or degradation of the mark); and
3. unfair advantage taken of the distinctive character or the repute of the mark ("free-riding" or parasitism).
The CJ decision, firstly, clarified that it is not necessary to show all three types of injury to infringe the trade mark; any one will suffice. It follows that there can be a finding that unfair advantage has been taken of the repute of a registered mark under Article 5(2) without the need to show any detriment to the distinctive character (dilution) or detriment to the repute of the registered mark (tarnishment). All the usual factors, including the likelihood of confusion, dilution or tarnishment, will be taken into account as part of a global assessment, but none of these are necessary ingredients for an unfair advantage to be found.
Secondly, the CJ held that "where a third party attempts, through the use of a sign similar to a mark with a reputation, to ride on the coat-tails of that mark in order to benefit from its power of attraction, its reputation and its prestige, and to exploit, without paying any financial compensation and without being required to make efforts of its own in that regard, the marketing effort expended by the proprietor of that mark in order to create and maintain the image of that mark, the advantage resulting from such use must be considered to be an advantage that has been unfairly taken of the distinctive character or the repute of that mark”.
A pre-condition to establishing infringement under Article 5(2) is that the relevant public must make a connection between the allegedly infringing sign and the registered mark, or establish a “link” between them, which results from the similarity between the mark and the sign. In the case the defendants’ own witnesses had said that the perfume packaging was designed to give “a wink of an eye” towards the original perfumes. There was no confusion: the public knew that the look-alike perfumes were not the real thing and had no trade connection with L’Oréal but the “link” that was made enabled the defendants to charge higher prices and helped them to market their products.
The CJ judgment decided that a trade mark owner can prevent use not only where the essential function (namely, the guarantee of origin) of the mark is jeopardised but also where any of the mark's other functions are affected, such as the guarantee of quality of the goods or services, and those of communication, investment or advertising.
The focus in L’Oréal is on the commercial advantage obtained by the defendants rather than damage to the trade mark owner’s business. Even if no one is confused and there is no harm, the competitor may have still benefitted from the investment which has gone into creating the iconic status or cachet of the well-known brand. All the trade mark owner need show is that the defendant has obtained a commercial advantage from the reputation of his mark by establishing a link with the well-known mark through use of an identical or similar sign. While the goods in L’Oréal were the same, a point to note is that Article 5 (2) applies whether the goods in question are similar or dissimilar.
Such a form of trade mark infringement is broadly comparable to the continental concept of unfair competition or “parasitical trading” and, at least for the particular circumstances of this case involving well-known marks used on look-alike or imitation products, goes well beyond what would be protected by common law passing off in the UK. For those who consider the UK has historically not given adequate protection against “unfair competition”, for example against supermarket own brands which copy the get-up of the leading brand, the ruling has been welcomed. Others who consider the pendulum has swung too far in the direction of protecting brand owners point out that the prevention of “free-riding” on goodwill, where there is no confusion about origin, no damage of any kind, no blurring and no tarnishment, is wider than, say, US anti-dilution laws.
We now await the judgment of the English Court of Appeal which will apply the legal questions decided by the CJ to the particular facts of the case. There remain unanswered questions. Is it necessary to have a specific intention to “free-ride”? Subsequent English cases which have considered L’Oréal, such as the High Court in Daimler v Sany , assumed that it would be necessary to show an intention “to ride on the coat-tails” of the mark with a reputation. In a case involving shape marks for kitchen mixers, the Court of Appeal in Whirlpool Corporation v Kenwood Limited  held that there was no intention by Kenwood to ride on the coat-tails of Whirlpool since Kenwood had its own goodwill. Even if a commercial advantage had been obtained as a result of the perceived similarity between the shapes of the mixer, there was no evidence that this was unfair. Although it might be possible for something other than intention to turn an advantage into an unfair one, no other factor had been identified. Where exactly the line will be drawn between unfair and fair advantage is therefore another area where there is scope to interpret the ruling in different ways. Possibly, too, English judges may be more reluctant to find the necessary reputation which enables trade marks to benefit from the enhanced protection of Article 5 (2). The meaning of “without due cause” also needs to be clarified in this context: if there is no other way of describing the characteristic of a product such as the smell, except by reference to a registered mark, so that potential customers know what they are buying, is that “due cause”?
On 21 May 2010 the English Court of Appeal reluctantly followed the CJ judgment in holding that the comparison lists were clearly free-riding of the sort condemned by the CJ. Lord Justice Jacob said his duty as a national judge was to apply the CJ judgment but he did not agree with or welcome what he said amounted to a "pointless monopoly", muzzling honest and truthful statements about lawful products, preventing consumer choice and restricting competition. In particular he criticized the failure to draw a line between "permissible free-riding" and "impermissible free-riding". It will be interesting to see whether the Max Planck Institute which is currently reviewing EU trade mark law agrees that the CJ should reconsider its decision in this case.