FRENCH MONOPOLY

(© Article by Lightyears, Inc.)

The French luxury goods industry is particularly edgy about competition, particularly from upstarts who are nibbling at their lunch. Their answer? Pass a law! Forbid competition! Protect the rights of the rich to enjoy luxury products untainted by suggestions that cheap substitutes, affordable by the less wealthy, can do the same job at a fraction of the cost. L'Oreal doesn't like having its perfumes compared to low cost knock offs and luckily for L'Oreal, in Europe the law protects L'Oreal's haughty attitude. Recently it came down do this --

L'Oreal launched a battle in the UK against "smell alike" fragrances -- knock offs -- that advertised themselves as cheaper substitutes for certain L'Oreal fragrances. They weighed their price against the price of the L'Oreal original and showed consumers how they could enjoy great savings. At no point was it shown by L'Oreal that it had lost a penny due to this competition. Nor was there a showing by L'Oreal that consumers had misidentified the knock offs as being authentic L'Oreal products. But in Europe, none of this matters. Big, rich, luxury goods companies do not welcome competition from upstarts. European law gave L'Oreal a slam dunk victory.

Lord Justice Jacob, trying the case in the UK, was not pleased with the rules as interpreted by the European Court of Justice (ECJ) but he noted that he was required to uphold the law as it existed. And, as European law regarding competition exists, the following three points are law --

(1) A list of price comparisons between knock offs and famous brands is considered illegal "comparative advertising" rather than simply providing information (which would be legal) and is thus ... NOT ALLOWED.

(2) Even when there is no confusion in the mind of the consumer and it is clearly understood that a product is a knock off rather than the genuine famous brand, if the intention of the knock offs' advertising is to ride on the back of the famous brand's reputation, this strategy is ... FORBIDDEN.

(3) Even when the famous brand can show no real damage from the sale of the knock off, if the knock off is riding on the back of the famous brand's reputation, its advertising can be ... BANNED.

To his credit, Lord Justice Jacob was not happy with his ruling. In his ruling he pointed out that the law was "preventing the defendants from telling the truth," rendering consumers as the losers. In his words, "only the poor would dream of buying the defendants products" as "the real thing is beyond their wildest dreams."

On top of the problem for the defendant's cheap perfumes, Lord Justice Jacob worried about the overall impact of European law on freedom of trade and competition. How can one brand claim it is equal to another brand but cheaper (think toilet paper for example) under the laws of Europe? It can't! Not a happy situation.

If you are European operating under Europe's laws of trademark and competition, I'd love to receive your thoughts on this matter. To me the situation appears like this --

You build a brand, a famous name and famous product and it's yours, entombed in law, for eternity -- in Europe. Profits roll in for years and you have no competition.

In the U.S. you build a brand a famous name and a famous product and, as soon as others become aware of the profits you are making, they go up against you in ways big and small. To survive in the market you must keep developing your product, making it better -- and you have to keep working to develop new products, ready to launch on the day that your competitors finally make too great an inroad on your original product's profits.

This second case seems to me to lead to a more dynamic marketplace -- and a more dynamic society.