Private labels under new pressure - Legal View - Column

With every turn down the aisle of a supermarket or drug store, consumers are confronted with an array of name brand products and private label imitations. The inexpensive private label versions of name brand medicines, perfumes, and countless other consumer products bear claims such as, "Compare to Brand X. And, if you like X, you'll love Y. " One might wonder how private labelers get away with this, and the answer is that while they have in the past, their luck may be changing.

Name brand manufacturers invest a lot of time, money, and manpower into creating a distinctive "trade dress" for their product--the overall appearance of size, shape, color, labeling, etc. Private labelers then adopt the trade dress of the brand for their own lesser-priced products and substitute their name for the name brand.

Manufacturers charge private labelers with taking a "free ride" on brand investment made by marketers. Countering, private label manufacturers defend their actions, saying that although they are imitating the trade dress of branded products, they are providing an important benefit to consumers who understand that a private label product with a similar trade dress to a branded product is an alternative product for a lower price.

Courts have been persuaded by the defense of private labelers that the presence of their name brand on the product alleviates confusion between private label and name brand products. These decisions departed from prior rulings in favor of name brand manufacturers. For example, courts found in favor of private labelers in cases where: a private labeler mimicked design features of a microwave oven; copied the trade dress of a leading mouthwash; a third had similar packaging to a name brand pain reliever.

The private labelers won those battles for the same reason: the private label name was predominately displayed on the packaging.

However, late last year, a federal district court in Michigan pushed the pendulum towards brand marketers and found that a private labeler of an OTC pharmaceutical product had infringed the trade dress of a branded product. Arbor Drugs, a maker of generic OTC products, did not dispute that its product packaging for ARBOR ULTRA LACTASE, a digestive aid for lactose-intolerant persons, was similar to McNeil's Consumer Products packaging for LACTAID ULTRA. However, Arbor argued that its private-label name was prominently displayed on the packaging and the packaged contained both a "Compare to" statement and a disclaimer that the product is not manufactured by McNeil, the distributor of LACTAID ULTRA. After reviewing both product's packaging, the court found that McNeil's packaging was "inherently distinctive" and entitled to protection against copying by Arbor.

Private labelers may have even greater difficulty prevailing in future cases if the proposed Trade Dress Protection Act, introduced earlier this year, is enacted. This bill is intended to clarify the legal standards for protectable trade dress, including packaging and product designs. Among the provisions included in the bill is the requirement that a manufacturer asserting trade dress protection bears the burden of proving that its trade dress is not functional; that is, it is not a feature essential to the use or purpose of the product, or affects the cost or quality of the product, so that trade dress protection would not significantly hinder effective competition.

Under the bill, if the trade dress is not functional, It is entitled to protection without the need to show that it has become distinctive, but only with a showing that the consuming public is likely to recognize the trade dress a an indication of source--the same standard applied to trademarks. Accordingly, a company like McNeil could lawfully stop Arbor's use of a similar trade dress regardless of the "benefit" provided to consumers by private labelers.

As the law currently stands, the rule appears to be that private-label products that have been competing on the shelves with name brand products for a substantial period of time, and imitate the trade dress of the name brand, can do so if the private label name is prominently displayed on the packaging.

However, newcomers in the private label industry cannot adopt a name-brand trade dress (according to the Eastern District of Michigan) even if the private labeler prominently displays the private label name on the packaging. And in the future, if the proposed law is enacted, private labelers may not be able to adopt a name brand trade dress at all.

Jeffrey Edelstein is a partner at Hall Dickler Kent Friedman & Wood, NY, which specializes in advertising and trademark law.

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