A Federal Court judge says Aldi’s business practices have been brought into “sharp focus”, after finding the discount supermarket chain breached Australian Consumer Law when making claims about its Moroccan Argan Oil hair products.
In a judgment handed down on August 31, the Federal Court ruled against Aldi in a case brought against the retailer by Moroccanoil Israel Ltd [MIL], the company considered to be the market leader in oil treatment products for hair.
Moroccanoil claimed Aldi’s own ‘Moroccan Argan Oil’ product infringed on its trademark for its extensive range of oil-based hair care products, saying Aldi’s product was ‘deceptively similar’ due to the similar turquoise background used on both products, and the use of the term “Moroccan Oil”.
Moroccanoil’s products use the oil found within the argan nut, which is said to be beneficial for nourishing and moisturising both skin and hair. The company was founded in 2007 and is stocked in a number of beauty retailers both online and in-store.
The company’s second argument against Aldi related provisions of Australian Consumer Law, which Moroccanoil argued the retailer was in breach of due to the use of the word “natural”.
“[Moroccanoil] alleges that, by its use of the word ‘naturals’, including on packaging, Aldi has represented that each of those products contains only or substantially natural ingredients, that such a representation is false, and that, in making the representation, Aldi has engaged in misleading or deceptive conduct,” the judgment reads.
Ruling on the case, Judge Katzmann dismissed Moroccanoil’s first claim against Aldi, saying despite Aldi’s use of “Moroccan Argan Oil”, she was “not satisfied” it was deceptively similar to Moroccanoil’s trademarks.
“Having regard to the extent to which the word mark “moroccanoil” is inherently adapted to distinguish the designated goods and MIL’s use and intended use of the mark, I am satisfied that the mark does and will distinguish the designated goods as MIL’s goods,” Judge Katzmann said.
However, Judge Katzmann upheld MIL’s second claim against Aldi, ruling the retailer was in breach of Australian Consumer Law over the use of the term “natural”.
“In my opinion, the ordinary or reasonable consumer shopping for hair care products, seeing the reference to “naturals” on the bottles or their containers, would consider that they were made, either wholly or substantially from natural ingredients,” Judge Katzmann said.
“There is no logical reason why a trader would choose to call a product line “naturals” unless it intended to convey to the consumer that the product was “natural” or was comprised of substantially natural ingredients.”
Katzmann also called into focus Aldi’s business practises, saying the company’s slogan “Like brands, only cheaper” was both an advertising slogan and “a business model”.
“This proceeding brings these business practices into sharp focus, as its genesis lies in concerns that some of Aldi’s products are not just “like brands” but deceptively like a particular brand and so contravene Australian trade mark and consumer protection laws,” she says.
An Aldi employee in its corporate buying department gave evidence to the court regarding the development of Aldi’s product range, saying, “Aldi’s practice was to introduce its own ‘version’ of a product in ‘an on-trend product category’”.
“In developing ‘Aldi versions’ of these products, the packaging used by competitors is considered in order to ensure that the Aldi ‘house brand’ packaging was ‘consistent with’ the trend. As part of this process, a ‘benchmark’ product is selected from a range of ‘on-trend products’,” the judgment reads.
“The purpose of identifying a benchmark, [the worker] explained, is to enable Aldi to identify ‘cues’ that customers may associate with ‘the product type generally’ and then adapt them.”
These benchmarks include colour, product description, potential benefits of the product, and packaging.
Speaking to SmartCompany, commercial lawyer with King & Wood Mallesons Melissa Monk believes Aldi has been upfront with their “on trend” practices, and despite Judge Katzmann’s comments, it’s “unlikely” the company will stop.
“[Aldi] has to date navigated consumer and trademark law very carefully by ensuring they have a number of points of difference with their own products so that they don’t cross the line,” Monks says.
“Given their success so far, it’s unlikely that Aldi will stop this strategy, but they’ll undoubtedly be much more careful in future in the look and feel that they create for their own products, and in confirming the truth of the claims that they make.”
In a statement to Fairfax, Aldi said it was “in the process of making changes to the labelling of some products in light of what the court has found on some other aspects” and the product would continue to be available after these changes.
In a statement to SmartCompany, the company said “this matter is isolated to four products in our hair care range and has no impact whatsoever on any other products across our range”.
Stakeholders should check claims before product launch
“This case highlights how important it is for businesses to ensure that what they claim on pack and in advertising is accurate and can be substantiated. That means verifying claims through reasonable testing (not relying on assumptions), credible information and/or warranties from any third party suppliers,” Monks says.
Monks believes the best way to do this is via an internal approvals process, which she says doesn’t “need to be fancy or complicated, but it should require all key stakeholders to carefully check proposed claims and be accountable for what ultimately goes into market”.
“It’s not just important to get claims right from a legal perspective, but even moreso, from a consumer trust and confidence perspective,” she says.
Aldi has been ordered to pay MIL’s legal costs and to cease selling the products with the use of the “natural” term. Additionally, the court allowed the Moroccanoil trademark to be registered in Australia.