Established companies have many legal and commercial weapons at their disposal to protect their position. The financial power of large corporations with established supply agreements can make it almost impossible for newcomers to gain a foothold. Allegations of intellectual property infringement can be levelled at any competitor, regardless of their size.
Preliminary discovery is the latest weapon in the establishment’s arsenal. Usually, a competitor’s internal documents are confidential and only disclosed once court proceedings have been started. However, from 2011, a prospective applicant can make a claim for discovery of documents if it reasonably believes that the documents will help it decide whether to commence proceedings . The applicant need only have a reasonable belief to mire a respondent in court proceedings.
Brisbane-based BrandPoint, a small company of some 20 full-time employees, used to be the sole distributor of Clarisonic facial cleansers into Australia. Clarisonic is marketed to women as a tool for removing makeup and other pollutants, preparing the skin for the application of cosmetics, and reducing the appearance of imperfections. L’Oreal’s French parent company bought the owner of Clarisonic in 2011. Shortly thereafter, L’Oreal replaced BrandPoint as the sole distributor of Clarisonic.
In November last year BrandPoint attempted to re-enter the sonic facial cleanser market with its own product, Purasonic, which it claimed had all the features of the Clarisonic it had previously distributed, at half the price. L’Oreal heard about the new product from one of its retailers, who had received an email from BrandPoint about its product, and contacted BrandPoint, requesting that it substantiate the basis of its claims. When BrandPoint declined to hand over test results, L’Oreal sought an order for preliminary discovery.
Lessons for established distributors
If a newcomer enters the market with claims about a competing product and you have reasonable cause to believe the claims are misleading or deceptive and that you will suffer loss and damage, you can test those claims in preliminary discovery. In this case, loss of customers to BrandPoint was sufficient to establish potential for damage. In markets with a single dominant producer, any newcomer threatens to take customers from the established player, so loss and damage will be easier to establish in court. Particularly in the cosmetics industry, where consumers and retailers are heavily influenced by the results of trials and reputations built over years, established producers can claim misleading or deceptive conduct to scrutinise newcomers and hamstring their entry into the market.
Lessons for newcomers and new distributors
The representations you make about new products will be subject to scrutiny from established producers, consumers, and industry watchdogs like the Australian Competition and Consumer Commission. It may be in your best interests to delay the launch of a new product if your tests are incomplete, or to restrict your representations to results verified at the date of publication. BrandPoint’s website representations and updates over the following 6 months were not discoverable because the representations were limited to verified results from ongoing trials. Progressive updates can also be a marketing tool for your product.
BrandPoint and L’Oreal are the major players in the sonic facial cleansing cosmetic market, having both distributed the Clarisonic facial cleansing brush.
BrandPoint was the original distributor of the Clarisonic range of products in Australia, under an exclusive license granted by Pacific Bioscience Laboratories Inc (PBL) in November 2010 for a period of two years.
In 2011, PBL was acquired by L’Oreal Australia’s French parent company. Consequently, the license to BrandPoint was not renewed in November 2012. Instead, PBL directed BrandPoint to transition the distribution of the products to L’Oreal Australia.
In 2014, BrandPoint re-entered the sonic facial cleansing market, launching the Purasonic product in October as a direct competitor to the Clarisonic product.
The new Purasonic product was promoted to retailers by an email from BrandPoint’s sales director on 29 October 2014 and to retailers and the public on a website launched 3 November 2014.
The email made direct reference to BrandPoint’s prior distribution of Clarisonic and claimed that its new product, Purasonic, had all of the features at half the price.
That representation was supported by a brochure making specific claims about improved appearance of skin and reductions in dry areas, pores, blemishes and other imperfections, under the headings “Efficacy Research” and “Efficacy Research Participant Results.”
The evidence adduced by BrandPoint in court in support of those claims was described by his Honour Justice Beach as:
“thin, if not evasive… it is a fair inference from the material that BrandPoint did not carry out adequate testing prior to the BrandPoint email representations.”
L’Oreal drew direct parallels between the representations made in the email and studies conducted by PBL about the Clarisonic products, suggesting that BrandPoint may have copied those results and ascribed them to its new product.
By contrast, the representations made on the website were updated multiple times to reflect results obtained in further studies. Those studies were specifically referred to by BrandPoint, however the studies came to different conclusions than those represented in the email. On that basis his Honour distinguished the two sets of representations and stated that there was an appropriate foundation for saying that the representations in the email were:
“misleading or deceptive … because:
(a) if statements of fact, they were inaccurate;
(b) if statements of opinion, they lacked reasonable grounds.”
L’Oreal may be entitled to claim for damages
L’Oreal had to show that there was an appropriate basis for saying that it might be entitled to damages or other relief as a result of BrandPoint’s representations to have preliminary discovery ordered.
After the launch of Purasonic, L’Oreal sold less Clarisonic products. BrandPoint’s representations were likely to have influenced retailers to purchase Purasonic rather than Clarisonic. The potentially misleading or deceptive representations of BrandPoint placed L’Oreal at a commercial disadvantage.
You can read the decision here: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2015/2015fca0978
Citation: L’Oréal Australia Pty Ltd v BrandPoint Pty Ltd  FCA 978
 Federal Court Rules 2011, r 5.3.