Comparative advertising is a risky method of advertising. But if care is taken to address those risks, comparative advertising can be an incredibly effective tool for your business. It also has an important part to play in regulating competition and educating consumers.

Comparative advertising compares a product produced or service provided by the advertiser to an equivalent product or service produced or provided by a competitor (or competitors). The comparison is made to illustrate that the latter is inferior in a material respect.

Comparative advertising is subject to the same prohibitions as any other method of advertising and no higher standard applies to its application. However, comparative advertising is likely to be subject to increased scrutiny by your competitor, who will not take kindly to being the subject of your campaign which is designed to discredit its business.

So that your campaign is built to withstand that scrutiny, you must take care to ensure that:

1. in making the comparison, you are not presenting consumers with a “half-truth” by omitting material necessary to make the comparison fair;
2. any information necessary to make the comparison fair is adequately disclosed to consumers;
3. the basis for the comparison made is substantiated at the time the comparison is made; and
4. you are not infringing your competitor’s intellectual property rights.

We elaborate on these tips below.

Consumer law and intellectual property prohibitions

The following framework of consumer law prohibitions and protections regulate comparative advertising:

Fair Trading Act 1986 (FTA)

As part of the FTA’s key focus, the Act prohibits businesses from:

1. Engaging in misleading or deceptive conduct (s 9), including conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose or quantity of goods (s 10).
2. Making false or misleading representations that goods are of a particular kind, standard, quality, grade, etc (s 13(a)), or with respect to the price of any goods or services (s 13(g).
3. Making an unsubstantiated representation (i.e. a representation for which a person has no reasonable grounds) (s 12A).

Advertising Standards Authority Code (ASA Code)

The ASA Code aspires to ensure that advertising is responsible. It must be legal, decent, honest, and truthful and respect the principles of fair competition to foster consumer confidence.

Regarding comparative advertising, the ASA Code provides: comparative advertisements, or advertising that identifies a competing product or service, must be factual, accurate, make clear the nature of the comparison, must not denigrate competitors, and must be of ‘like’ products or services available in the same market (r 2(d)).

The intention behind the advertisement must be to educate consumers and not to denigrate your competitors.

Trade Marks Act 2002 (TMA)

Your competitor will likely have its name or logo registered as a trademark.  

Under the TMA, you can use a competitor’s trademark for the purposes of comparative advertising providing you use the trademark(s) “in accordance with honest practices in industrial or commercial matters”. The use of a competitor’s trademark will constitute an infringement (under s 89) if its use “without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark.” (s 94)

The use of your competitor’s trademark ought to be only for the purposes of identifying or distinguishing the retail source of the products or services advertised.

Copyright Act 1994 (CA)

A competitor’s copyright might subsist in its logo, packaging, marketing, or general livery, or a combination of those features.

“Copyright in a work is infringed by a person who, other than pursuant to a copyright licence, does any restricted act [described in s 16, but including copying the work and making an adaptation].” (s 29)

Consequences for breach

Your competitor may seek urgent injunctive relief from the courts to restrain an alleged breach of the FTA (but not including a breach of s 12A), TA or CA, the consequences of which might bring your campaign to a premature end. They may also claim damages or an account of profits for a breach of the TA or CA.

Your competitor may also complain to the Advertising Standards Authority (ASA) that the advertising has breached the ASA Code. If the ASA concludes that the complaint has merit, it will issue a directive that the advertising be removed. Compliance is voluntary but non-compliance may attract negative publicity.

Alternatively, your competitor may refer an alleged breach of the FTA to the Commerce Commission (NZCC) who may seek injunctive relief, a conviction and fine or corrective advertising or publication orders. The NZCC may also investigate any alleged breach on its own initiative.

Our top tips: A campaign built to withstand scrutiny 

Comparative advertising can have immediate and lasting consequences for your competitor. In those circumstances, your competitor is likely to be highly motivated to complain or even seek to put a stop to the campaign. Before undertaking comparative advertising, you must consider whether your campaign is built to withstand that increased scrutiny.

Our top tips are:

In making the comparison, ensure that you are not presenting consumers with a “half-truth” by omitting material necessary make the comparison fair

Your comparison may be literally true. However, it is necessary to consider whether this literal truth is the entire picture. This will depend on the nature of the comparison made. For example, if you are making a price comparison, you are representing to consumers that your products or services are “like for like” in all other material respects. If your products or services are not “like for like”, you are not presenting your consumers with the whole picture.

Ensure any information necessary to make the comparison fair is adequately disclosed

To ensure you are not presenting consumers with “half-truths” and to ensure your comparison is not otherwise misleading, deceptive, or unfair, comparisons need to be adequately disclosed to consumers. If you are making a pricing comparison, ensure you disclose the source of that pricing information and the date that it was obtained.

Not only must that material be disclosed, it must be sufficiently prominent to the comparison. Prominence is context-specific and will depend on the advertising medium used. Whether the disclosure is sufficiently prominent to qualify the comparison will be assessed by reference to the overall impression created by the advertising.

Ensure that the basis for the comparison made is substantiated

The basis for the comparison made must be substantiated by actual evidence at the time the comparison is made and certainly before a campaign is launched. Substantiation has a dual purpose. First, it ensures that the comparisons made are accurate and that you have considered what material information might need to be communicated to consumers. Second, it guards against any investigation by the NZCC that you have made unsubstantiated representation in breach of the FTA. What evidence is required to substantiate your claims will depend on the claims you are making. It might include research, reports, and even independent, real-world testing in certain cases.

Ensure that you are not infringing your competitor’s intellectual property rights

You can use your competitor’s trademarks for the purposes of comparative advertising under the TMA. However, the use must be in accordance with honest practices and must not, without due cause, take unfair advantage of or be detrimental to the trademark.

The CA provides no such exception. Use your competitor’s logo, packaging, marketing, and livery with extreme caution. A conservative approach is to not use this at all, and to consider identifying your competitor’s products and services in other ways.

Conclusion

Comparative advertising is high risk but high reward. Those risks can be addressed by thinking critically about your campaign and considering it from the perspective of your competitor.

If you have any questions or want to understand more about how the above issues are relevant for your business, please contact one of our experts.