Breakthrough on private label goods – What does it mean for brand owners?

Danielle Jepson

By Danielle Jepson

In November 2013, the Australian Food and Grocery Council (AFGC) announced that it had reached an agreement with Australia’s two largest supermarket retailers, Coles and Woolworths, on the terms of a Food and Grocery industry Code of Conduct (“the Code”). A copy of the draft Code is available here.

For brand owners, who have made substantial investments in protecting and building the value of their products, logos and packaging, the new code could lead to greater recognition for their role in driving product innovation, and to fairer working relationships with retailers. We are optimistic that this code will help to ensure that creating and protecting market leading brands will continue to be profitable for all companies.

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Overall, the stated aim of the Code is to detail a set of principles relating to the way in which retailers and suppliers work together, within the Food and Grocery Industry. As many Australian consumers are aware, there has been a significant increase in private label products (being most often ‘home brand’ goods provided by a contract manufacturer to a retailer and then sold under the retailer’s own brand), for all types of goods, appearing on supermarket shelves over the past 18 to 24 months. This has been associated with significant shelf reductions and de-listing of large numbers of well known and even historic brands which are being replaced by cheaper private label brands.

The key aspects of the new Code which relate to established brand owners specifically include:

• Greater transparency on the basis of shelf allocation;

• Stronger restrictions on de-listing a supplier’s grocery products;

• Recognition of the importance of intellectual property rights and confidentiality in driving innovation and investment in new products; and

• A low cost and fast track dispute resolution mechanism.

It is currently proposed that the Code will be prescribed as a voluntary code by the Federal Government under the Competition and Consumer Act 2010 (Cth). This is important to note as those retailers that volunteer to participate will only be bound once they have signed up, and will be able to withdraw from the Code at any time. However, a retailer’s withdrawal from the Code will not affect any dispute arising in relation to a period where the retailer was bound by it.

We have provided a brief summary of each of the key points for brand owners, in the paragraphs below.

Shelf Allocation

Retailers who sign up to the Code will be required to provide greater clarity with regards to shelf allocation for branded and private/home label products. Specifically, retailers will have to provide suppliers with a set of product ranging and shelf allocation principles which must be applied without discrimination in favour of the retailer’s own brand products. Further, suppliers will no longer be forced to pay for the right to secure prime shelf positioning, with an exception for sponsored promotions.

Product De-listing 

With regards to the de-listing of a supplier’s grocery products, retailers will only be able to do so if the termination is within the terms of the Grocery Supply Agreement and only for genuine commercial reasons. The Code provides several examples of what constitute genuine commercial reasons and notes that de-listing cannot result as punishment for a complaint, concern, or dispute raised by a supplier, under an agreement or the Code.

Intellectual Property 

The Code states that retailers and suppliers will respect all intellectual property rights in connection with each other’s grocery products including, but without limitation, intellectual property rights in their branding, packaging and advertising.

The Code goes further and states that retailers will not infringe any intellectual property rights held by a supplier in connection with the supplier’s grocery products when developing retailer own brand products, and the brand names, packaging designs and advertising in relation to such products.

Many are questioning the legal significance of these points, as there are existing laws for trade mark infringement, misleading and deceptive conduct, as well as passing off. However, this commitment should not be dismissed lightly, as this provision may allow the Australian Competition and Consumer Commission to intervene if there is an alleged breach of these intellectual property rights. As many brand owners would be aware, pursuing one of the nation’s largest retailers for intellectual property infringement can be a hugely daunting proposition.

This should also be seen as a step in the right direction by retailers towards acknowledgment of the significance of the brands, logos, aspects of packaging and overall established reputations of some of the nation’s most well known and well loved products.

Dispute Resolution 

The Code provides mediation and arbitration dispute resolution mechanisms to resolve issues as they arise in an expedient and cost effective manner. These mechanisms will not prevent suppliers from bringing other actions such as commencing court proceedings for trade mark infringement and/or passing off.

Implementation 

Whilst the Government has responded positively to the development of the Code there has been no commitment to a timetable for making the required regulations to give effect to the Code. However, the Code is being reviewed by Government and the ACCC and we can expect a detailed assessment with recommendations for any changes to be handed down in due course.