In a recent case heard before the Chilean Council for the Self-Regulation and Ethics of Advertising (CONAR), Diageo Chile Ltd., a subsidiary of high-end alcoholic beverage producer Diageo Plc., and HITES, a Chilean retailer, clashed over a HITES credit card promotional offer. By holding in favor of HITES, CONAR affirmed retailers’ ability to incorporate high-end products in promotional offers and sell high-end products at lower prices.
In late 2006 and early 2007, HITES offered to sell Baileys and Johnnie Walker, which are Diageo products, at reduced prices to store credit card users who spent a designated amount. The advertisement included a picture of the HITES credit card, a picture of a bottle of Baileys and a Johnnie Walker red label, as well as the regular and reduced prices of the bottles.
Diageo Chile Ltd. brought a lawsuit against HITES before the CONAR, claiming that HITES had damaged its image or goodwill. Diageo claimed that HITES had violated Article 13 of the CONAR Code of Ethics, which states as follows:
“Advertisements may not unjustifiably or derogatorily use the name, initials, or distinct graphic, visual, or auditory signs of any firm, company, institution, or a product or service’s mark.”
“Advertisements may not take advantage of the “goodwill” or acquired image attached to a commercial name and/or another firm or product’s symbol, or the “goodwill” or image acquired by a mark or advertising campaign.”
According to Diageo, the Johnnie Walker and Baileys brands are associated with exclusivity, superior quality, excellence, and modernity. Diageo was concerned about preserving the refined image it had created for its elite, upper-class consumers. It claimed that as the owner of the brand, it had the right to shape its image by: (1) defining and limiting its target audience to upper-class consumers; (2) maintaining the price high in efforts to convey the product’s superior quality; (3) engaging in selective distribution of its products; and (4) controlling the aesthetics of the products’ advertisements, which Diageo described as conceptual, artistic, and intellectually stimulating.
In response, HITES, represented by Albagli Zaliasnik, asserted that the advertisement conformed to the norms of the CONAR Code of Ethics and that the products were legitimately acquired. HITES argued that, in the interest of promoting free competition, the producer, importer, or seller could not exert control over products after they were sold, in accordance with the doctrine of the exhaustion of intellectual property rights.
HITES further argued that Diageo engaged in offensive and discriminatory practices by limiting access to its products to upper-class consumers. HITES emphasized that it did not pose as the owner or producer of the products and thus, did not confuse the public. In addition, industry custom demonstrated that the brand’s owner is not the only party that may advertise the product.
CONAR held that HITES did not breach any ethical standards of advertising. The use of the products in the promotional offer did not diminish the goodwill or taint the image of the brands. To the contrary, the use of the high-end products in the promotional offer bolstered the image of the brands, because it acknowledged that the products were valuable. At stake, was not the image or goodwill of the high-end products; but rather, discriminatory practices among producers of high-end products, and clarity and transparency in advertising.
CONAR established the following criteria for evaluating similar cases in the future:
- A promotional offer must provide detailed information about the products it seeks to advertise.
- Mentioning and showing an image of a product in a promotional offer, so long as it is justified, does not constitute taking advantage of the product’s goodwill.
- On the other hand, if it is not merely mentioned or described; but rather, if the product becomes the primary subject of the advertisement, then it could affect the image of the brand, and the advertiser/seller must receive authorization.
- Sellers/advertisers must avoid undermining the image of the third party company.
- To avoid confusion among consumers, the advertisement must include the regular price of the product.
By holding in favor of the retailer, the court signaled its interest in giving consumers, regardless of socio-economic status, access to high-end products and guaranteeing that consumers have the information they need to make informed buying decisions. The court’s decision represented a victory for retailers engaged in the advertising and sale of high-end products to the masses.