Energizer Australia Pty Ltd v Gillette Australia Pty Ltd [2005] FCA 148 (25 February 2005)

Trade Practices Act 1974 (Cth) s 52(1)

Ingersoll-Rand (Aust) Ltd v Industrial Rollformers Pty Ltd [2000] NSWSC 177
Thomas A Edison Ltd v Bullock [1912] HCA 72; (1912) 15 CLR 679

ENERGIZER AUSTRALIA PTY LTD v GILLETTE AUSTRALIA PTY LTD
NSD 167 OF 2005

HELY J
25 FEBRUARY 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 167 OF 2005

BETWEEN:	ENERGIZER AUSTRALIA PTY LTD APPLICANT
AND:	GILLETTE AUSTRALIA PTY LTD RESPONDENT
JUDGE:	HELY J
DATE OF ORDER:	25 FEBRUARY 2005
WHERE MADE:	SYDNEY

4. Costs be costs in the cause.
5. These orders be entered by the Registry forthwith.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 167 OF 2005

BETWEEN:	ENERGIZER AUSTRALIA PTY LTD APPLICANT
AND:	GILLETTE AUSTRALIA PTY LTD RESPONDENT

JUDGE:	HELY J
DATE:	25 FEBRUARY 2005
PLACE:	SYDNEY

1 Gillette (a term used to describe both the respondent and its overseas affiliates) is the world’s leading manufacturer of shaving products. It dominates the wet shaving product market both in Australia and internationally. Energizer (a term used to describe both the applicant and its overseas affiliates) distributes Schick branded blades and razors, and is Gillette’s main competitor in Australia.

2 Gillette manufactures a product called the Mach 3 Turbo. In May 2004 Gillette launched a new shaver in the United States of America called the ‘M3 Power’. The M3 Power is the first battery operated shaving system marketed by Gillette. The principal difference between the Mach 3 Turbo, and the M3 Power, is the battery operated mechanism. In the second half of 2004 the M3 Power was launched in the United Kingdom, Europe and Japan. The M3 Power razor was launched on the German market on 17 September 2004. Advertising conducted by Gillette in association with that launch claimed that the razor’s micro-pulses lifted the facial hair thereby giving a closer shave.

3 Dr Leffell, a professor of dermatology and Director of Dermatological Surgery at Yale University was asked to express an opinion as to whether there was any scientific basis for the claim that the M3 Power razor has the capacity to ‘raise the hair’ on a man’s face, or that the razor emits micro-pulses which have the effect of causing the facial hairs to stand up (‘the hair raising claims’). On 8 October 2004 Dr Leffell observed a study conducted by Energizer. The key elements of the study may be summarised as follows:

5 Energizer applied to the Hamburg Regional Court in Germany for interlocutory relief in relation to Gillette’s hair raising claim. Dr Leffell gave evidence in support of that application. On 17 December 2004 the Court restrained Gillette from claiming commercially that when shaving with the M3 Power razor, micro-pulses cause the facial hairs to stand up, giving an even closer shave. Gillette then changed its advertising for the M3 Power shaver so as to omit reference to the lifting of the facial hairs. However, the new advertisement explicitly suggested that there was a causality between the vibrations (‘gentle micro-power’) and the special closeness of the shave resulting from the use of the M3 Power razor. On 28 December 2004 the Hamburg Regional Court granted an ex parte injunction restraining that form of promotion of the razor. These decisions are the subject of an appeal which has not yet been determined.

6 In about June 2004 Gillette began to make preparations for the launch of the M3 Power razor in Australia. Between October and December 2004 Gillette conducted trade presentations in preparation for the launch. These presentations included the use of semi-trailers bearing the slogan ‘Feel the Power’ which were parked outside 15 retailers’ headquarters for a period of about four hours at a time.

7 On the evidence so far before me, I find that whilst Energizer executives expected in 2004 that Gillette would launch the M3 Power razor in Australia, and that the launch would probably occur in about March 2005, they had no firm intelligence to this effect until about the end of January 2005, nor did they know until about the end of January 2005 what claims would be made by Gillette for the product, particularly in the light of the opinions which had been expressed by Dr Leffell, and the judgments of the Hamburg Regional Court. As late as 12 January 2005 (Exhibit B) an internal email from Energizer’s Business Manager for Blades in Australia and New Zealand (Mr Nuich) noted that Energizer was preparing its legal position in preparation for the M3 launch, and that whilst there was a possibility of a ‘pre-emptive move’ more information was required regarding the launch before any such move could be undertaken.

8 On 28 January 2005 Gillette commenced distribution of the M3 Power razor to distributors and retailers in Australia. Also on 28 January 2005 a motion for preliminary injunction and complaint for injunctive relief was made by Energizer in the United States District Court for Connecticut. On the evidence so far called, I accept that it was not until about this time that Energizer came to learn that Gillette intended to make the hair raising claim in relation to the Australian launch.

9 On 3 February 2005 Mr Nuich received an M3 Power retail pamphlet from Woolworths. That pamphlet had been distributed by Gillette in connection with the launch of the M3 Power razor and asserted that the launch would be supported with ‘an unprecedented $10M media spend and a truly innovative PR campaign’. Among the product benefits listed for the M3 Power razor was the following:

10 On 4 February 2005 a letter of demand was sent from Energizer’s Australian solicitors to Gillette. On 5 February 2005 the M3 Power razor became available in retail stores in Australia. On 8 February 2005 Gillette’s Australian solicitors responded to the letter of demand. That letter included the following:

11 On 8 February 2005 I heard an application by Energizer for ex parte injunctive relief. The orders which I made on that occasion included:

(i) further distributing to retail outlets the M3 Power razor packaged in the form of Exhibit A ("the M3 Power razor"); or

(ii) further promotion or advertising of the M3 Power razor to the extent that such conduct would involve the making of any of the representations set out in paragraph 1 of the application;

(i) withdraw any advertising or other promotional material for the M3 Power razor to the extent that such advertising or other promotional material makes any of the representations set out in paragraph 1 of the application other than instore and point of sale material already distributed to retailers and used for the storage and display of the M3 Power razor or M3 Power razor stock which has already been supplied by the respondent to third party distributors or retailers in Australia.

12 Paragraph 1 of the application seeks a declaration that in making the representations described in pars 1(a) to (k) of the application, the respondent has engaged in conduct, in trade or commerce, which is misleading or deceptive or likely to mislead or deceive in contravention of s 52(1) of the Trade Practices Act 1974 (Cth) (‘the TPA’). The representations referred to in pars (a) and (b) are:

The representations in pars (c) to (j) consist of various claims made in relation to the razor (such as, for example, that it gives a closer and/or more thorough shave than all other men’s system razors) either because of the matters represented in par (a) or because the razor emits ‘micro-pulses’ or vibrations or has a pulsing action. The representation in par (k) is a representation that the respondent had reasonable grounds for making each of the representations set out in pars 1(a) to (j) of the application.

13 On 17, 18 and 21 February I heard an application for a continuation and expansion of the injunctions granted on 8 February. The expansion sought is that Gillette should use its best endeavours to withdraw all M3 Power razor stock and all point of sale material containing the representations from third party distributors and retailers.

14 Gillette ceased shipping the M3 Power razor pack containing the representations complained of on 8 February 2005 following the making of the interim orders. Very substantial quantities of the product were shipped prior to that date, and substantial amounts of product that were due to have been shipped since that date have been stopped.

15 The packing in which the M3 Power razor is distributed states, inter alia, that:

Variants on that theme are to be found in point of sale material, retail pamphlets, a booklet which has been distributed to the trade and on the Gillette website.

16 The central representation, which Energizer submits is false, is that the razor emits ‘micro-pulses’ or vibrations or has a pulsing action that stimulates, raises or lifts facial hair up and away from the skin giving a closer and/or more thorough shave than all other men’s system razors. In some instances the benefit is not said to be a closer and/or more thorough shave, but (for example) the best shave ever.

17 Gillette has announced an ‘unprecedented’ proposed media expenditure of $10 million in connection with the launch of the product. The proposed television and print advertising will make the representations which Energizer claims are false. On the materials before me I accept Energizer’s submission that looming on the horizon in Australia is a massive media blitz promoting the M3 Power razor, the focus of which will be the representation that Energizer alleges to be false.

18 Consumer research conducted in the USA demonstrates that the message that the M3 Power razor ‘raises hair higher to cut’, is one which is conveyed by Gillette’s advertising, and is one which resonates with consumers.

19 As already indicated, Dr Leffell’s brief was to provide an opinion as to whether there was any scientific basis for the hair raising claims made in relation to the M3 Power razor. The study conducted on 8 October 2004 was designed to demonstrate whether an oscillating razor could by virtue of its impact on the skin, cause hair to stand up. Shortly stated, Dr Leffell’s evidence in these proceedings, as it was in the Hamburg proceedings, is that there is no physiologic or other scientific basis for the claim that an oscillating razor can cause facial hair to stand up proud in the manner shown in Gillette’s advertising in Germany and the USA. As a scientist and skin specialist of many years, Dr Leffell was of the opinion that the mild vibrative effect of the razor applied to the skin would not have any effect on the hairs such as to cause them to be raised up, or stand proud. The study clearly showed that the application of the razor to the skin did not cause the facial hairs to be raised up or to stand proud of the skin.

20 Dr Leffell was cross-examined and the methodology of the study which he observed was criticised, in particular by Dr Saker, an engineer and research scientist employed by Gillette. Dr Saker’s ultimate conclusion was that the study conducted by Energizer does not ‘exhibit the requisite rigour or expertise necessary to determine whether the hair extension effect produced by an oscillating razor that my colleagues and I have recorded at Advanced Technology Centre does not, in fact, occur’ (emphasis added). Whether the criticisms levied by Dr Saker are made out, and if so with what result, is a matter for determination at the final hearing.

21 But more needs to be said about Gillette’s claimed ‘hair extension effect’, if only because Mr Kohler, who responded to Dr Saker’s affidavit, has confirmed that Energizer’s tests were designed to observe hair raising, not hair extension. Dr Leffell confirmed that this was so. To Dr Leffell there is a significant difference between the notion of hair ‘raising up’ or ‘lifting’ away from the face, and the notion of hair ‘extending’. The lifting or raising of hair involves a move of the hair towards a vertical position, with a change in the angle between the hair and the face. Whilst ‘hair extension’ is not a term with which Dr Leffell is familiar, he understands the term to refer to the hair moving in and out of its follicle, but maintaining the same angle against the face, rather than moving towards a vertical position.

22 In essence the ‘hair extension effect’ is an alleged increase in the observable length of beard hairs which is said to be triggered by micro-pulses produced by an oscillating razor, such as the M3 Power razor. Dr Powell, an engineer by training who joined Gillette in January 1995 and who is now the Laboratory Director of Gillette Advanced Technology Centre, explained the hair extension effect, and the reason for its occurrence, as follows:

23 Dr Powell has no medical training. He agreed in cross-examination that this expression of opinion is one which requires dermatological expertise which he does not have, but he said that it is ‘within the boundaries of my team members’.

24 Many of the studies relied upon by Gillette to sustain the claims made in relation to the M3P razor were conducted before Dr Powell joined Gillette. None of the studies involved the use of the M3 Power razor, although two studies involved the use of a prototype. The studies were conducted by Gillette personnel and are unpublished. There was no peer review. The following table summarises the results of these tests.

DATE TEST RESULT
1990/1991 KLP1 An oscillating razor produced an increase in
observable hair length.

1990 KLP2 Neither the agitation associated with the
application of shave preparations, nor any
chemical or surfactant effects incidental to
preparing the face for shaving triggered the
hair extension effect.

1992 KLP3 Physical agitation of hair and skin produced
a hair extension effect. Once the hairs
were extended, the hairs did not appreciably
retract afterwards.

2003 KLP4 An oscillating cartridge of a M3 Power
prototype produced statistically significant
hair extension effects comparable to those
observed in earlier tests. The observed
differential translates into approximately
3 hours of beard hair growth.

2001/2002 KLP6 10 per cent more of the observable hairs were
removed with a single stroke of an oscillating
razor (the M3 Power prototype) than in the case
of the M3 Power prototype in non-oscillating
mode.

1991 KLP8 Application of a transparent hemispherical
dome to the skin and face near a hair revealed
individual hairs releasing and extending from
the hair follicles in a manner consistent with
Gillette’s research.

2003 KLP10 An oscillating M3 Power razor produced stress
waves in the skin surface.

25 These studies are relied upon by Dr Powell as supporting the notion that hairs otherwise bound to the skin will ‘pop up’ above the skin level. If that occurs, the tip of the hair will be at a greater height by virtue of its having ‘popped up’ or extended, than it was beforehand.

26 The conclusion which Dr Powell draws from these studies is expressed in his affidavit as follows:

27 Paragraph (e) appears to be based upon consumer research conducted in the USA in early 2004 which found that randomly selected and geographically diverse groups of adult male wet shavers:

28 Dr Powell does not suggest that any of the studies support the suggestion that the effect of the oscillating razor is to cause the hair to raise itself from the skin at an angle. The studies do not demonstrate any change in hair angle. All they show is hair extension.

29 Evidence has been filed by an expert statistician, Dr Jarrett, which is critical of the Gillette tests, and dismisses them as being more in the nature of preliminary studies, rather than independent scientific studies. Dr Leffell also asserts that the Gillette tests do not provide any significant level of support for Dr Powell’s views. Again, the validity and effect of these criticisms is not capable of resolution at the level of an application for an interlocutory injunction.

30 Dr Leffell says that in his clinical and teaching experience as a dermatologist he has not encountered the concept of ‘hair extension’ as presented by Gillette. He is not aware of any scientific basis for Dr Powell’s assertion (par 22 above) that facial hair becomes ‘bound’ within the hair follicle by sebum deposits and corneocytes adhering together, so that it does not fully release above the skin surface. Dr Leffell also states that Dr Powell’s assertion is inconsistent with his own observations of facial hair structure and function during more than 20 years of experience. Dr Leffell gives reasons why the claim made by Dr Powell as set out in par 22 above is without scientific merit, and inconsistent with his experience as a dermatologist. Even if that effect did occur, in Dr Leffell’s opinion the oscillating action of the M3 Power razor would not have the effect attributed to it by Dr Powell because washing or shaving the face (even with a non-oscillating razor) would be likely to remove the build up of corneocytes.

31 Both Dr Leffell and Mr Kohler have sworn that whilst they were not retained by Energizer to consider whether the M3 Power razor had a ‘hair extension’ effect, if there were such an effect, and if it were of practical significance, they would have expected to observe it during the course of the study (unless, in the case of Mr Kohler, the hairs were standing at or around 90 degrees to the skin’s surface), but did not do so.

32 However, the study of 8 October 2004 did not involve measurements, and Dr Leffell accepted in cross-examination that measurement (as opposed to optics) is the only true way to determine whether hair extension is occurring.

33 Energizer is in the course of developing, or at least investigating the development of, its own battery powered oscillating razor to compete with the M3 Power razor. Depending upon the precise facts, that might lead to an inference that Energizer believes that such a razor will provide enhanced shaving performance to users of such a product, although no particular inference can be drawn as to the claims which Energizer would make in relation to that product should it proceed to the stage of commercialisation.

34 This matter was not disclosed on the application for an ex parte injunction. It should have been disclosed: Thomas A Edison Ltd v Bullock [1912] HCA 72; (1912) 15 CLR 679 at 681-682. It is, however, profitless to consider whether the ex parte order should be set aside on that account, because even if set aside, Energizer could nonetheless move for interlocutory relief as to the future, which in substance, is what has occurred.

35 Energizer has not sought to make out a case in these proceedings that use of the M3 Power razor does not produce a closer shave, but the evidence referred to above establishes at least a prima facie case that micro-pulses do not cause facial hair to stand up, in the sense of moving to a vertical position, with a change in the angle between hair and face. Dr Powell does not suggest that his studies establish that an oscillating razor will produce this effect.

36 Some of the television advertisements used overseas (for example, Exhibit IN5: ‘A Power so Awesome’) show what appears to be an electronic wave moving over hairs on the face, with the hairs immediately standing up as a result. Whilst the television images are fleeting, they do appear to show facial hairs moving to a vertical position with a distinct change in the angle between hair and face. But another television advertisement used overseas (Exhibit IN5: "M3 Power’) appears to be different. As the male voice over states: ‘Turn it on and the micro-pulses raise the hair so the blades can shave closer’ an image is shown depicting hairs extending at an angle (as if they are growing). The hairs do not appear to be bending towards a perpendicular position but rather continue their extension at the same angle at which they started at the beginning of the image.

37 I was shown three versions of Gillette’s proposed Australian television commercial (Confidential Exhibit CJB7). A 15 second version does not display any image of the claimed hair raising effect. My impression of the two 30 second versions is that they depict hairs extending at an angle (as if they are growing) and then bending towards a perpendicular position with the skin.

38 However, my focus in the present application is not on any particular advertisement, but on the more general question of whether Energizer has established that the claims referred to in the application particularly paragraphs 1(a) and (b), are misleading and deceptive, which, in the context, necessarily involves a consideration of whether an oscillating razor produces a hair extension effect, and if so, whether that effect is sufficient to sustain the claims in question.

39 According to Dr Powell, ‘hair extension’ raises the tip of the hair up and further away from the surface of the skin, leaving more hair available to be cut. The micro-pulses produced by the M3 Power razor are sufficient to trigger this effect. Gillette contends that this is sufficient to sustain the claim that micro-pulses emitted by the M3 Power razor stimulates, raises or lifts facial hair up and away from the skin.

40 However, the evidence of Mr Kohler and Dr Leffell denies that any hair extension effect arises from the use of the M3 Power razor. I do not agree with Gillette’s submission that this evidence does not constitute expert evidence of any utility because it fails to set out the reasoning process on which the opinion is based. Dr Leffell relies upon the following matters as justifying his opinion that the vibrations from the M3 Power razor do not produce a hair extension effect:

41 There is thus a serious question to be tried as to whether the vibrations from the M3 Power razor do produce a hair extension effect. If that issue were resolved favourably to Gillette, a further issue would or may arise as to whether a particular advertisement conveys that the M3 Power razor causes hairs to stand up or stand proud of the skin. On the evidence as it currently stands, there is at least a serious question to be tried as to whether such a claim would be sustained by reference to the hair extension effect, if that effect were established.

42 Contrary to the submission put on behalf of Gillette, in my view, it does not matter that Energizer’s evidence as to the absence of a hair extension effect arose only in reply. That is simply a reflection of the way in which the application unfolded. Energizer contended that Gillette was making hair raising claims for its product; Gillette responded by denying that it was making those claims and set up the hair extension effect as supporting its product claims; Energizer’s riposte was that the micro-pulses emitted by the M3 Power razor do not produce that effect.

43 Both parties made detailed criticisms in final submissions of the other’s evidence including assertions of ineffectual cross-examination and failure to cross-examine, which it is not appropriate or necessary for me to deal with in detail at this stage of the proceedings. It is sufficient for present purposes for me to say that on the materials before me there is a serious question to be tried, and Energizer’s case cannot be dismissed as a weak one.

44 The M3 Power razor is a new product on the Australian market, and the matters of which Energizer complain in these proceedings are to be at the heart of an imminent nationwide advertising campaign of unprecedented scope to launch the product. If the representations are false, then consumers will be mislead into buying a much more expensive product than the Mach 3 Turbo on a false premise. The fact that a study undertaken in the USA has shown consumer satisfaction with the M3 Power razor in terms of shave closeness, smoothness and comfort is not really to the point if it be shown that the claims which Gillette makes about the new product of which Energizer complains are unfounded. There is evidence from Mr Nuich of Energizer, which I accept, that innovations in razor technology are a strong driver for commercial sales, and may enable a premium price to be charged for the product.

45 Gillette’s preparations to launch the product on the Australian market began before the Hamburg proceedings. The evidence does not establish the date upon which Gillette became practically committed to continue with the launch. However, to the extent that Gillette persevered with its launch plans after the Hamburg proceedings, it did so with its ‘eyes wide open’ to the possibility that Energizer would institute proceedings for injunctive relief in this country as well: Ingersoll-Rand (Aust) Ltd v Industrial Rollformers Pty Ltd [2000] NSWSC 177 at [11]. When Gillette commenced the distribution of the M3 Power razor to distributors and retailers in Australia on 28 January 2005, it was aware of the judgments in the Hamburg proceedings. Gillette did not undertake any further testing of the M3 Power razor to support its claims, or give Energizer any notice of its intention to launch in this country.

46 The launch of the M3 Power razor in the United Kingdom, supported by representations similar to those the subject of these proceedings, was highly successful, with the new razor securing a very significant section of the market in a matter of months. A similar result can be expected to occur here if Gillette launches the product in association with its projected media campaign. I accept Energizer’s evidence that a similar performance in Australia would have a very serious effect on Energizer’s business, and that this effect may well endure even if the advertising ceases as a result of a final hearing. I also accept Energizer’s evidence that it is likely to be very difficult, if not impossible, for Energizer to calculate its actual loss if the M3 Power razor is launched using the claims the subject of these proceedings in its advertising campaign.

47 The continuation of the interim injunctions will cause considerable harm to Gillette’s commercial interests in terms of wasted expenditure on advertising and promotional material for the M3 Power razor which contains the representations complained of by Energizer. However, the harm which Gillette will suffer in this respect is likely to be quantifiable, and is covered by Energizer’s undertaking as to damages. I also accept Gillette’s evidence that a likely consequence of the continuation of the injunction is that the launch may have to be cancelled, and the product re-launched in about three months by which time television advertisement and packaging omitting the matters of which Energizer complains are likely to be available. Again, the harm is likely to be capable of estimation. This is one of those cases in which significant financial loss will be sustained by one party or the other in consequence of either the grant or refusal of interlocutory relief. There may also be some reputation damage to Gillette if interlocutory relief is granted.

48 But, in my view, Energizer has not been guilty of any delay in instituting the proceedings. It moved for an ex parte injunction as soon as it learnt that the M3 Power razor was to be launched in Australia in conjunction with the claim that micro-pulses emitted by the razor stimulate hair up and away from the skin, that being the same claim as was restrained in the Hamburg proceedings. Mr Bruce, Gillette’s Business Manager for Grooming conceded in cross-examination that it was feasible for Gillette to have removed the hair raising claims from its advertising materials in late 2004 prior to the Australian launch until the propriety of making these claims had been adjudicated upon by the Hamburg Court. He also agreed that if the claim is in fact false it would be extremely damaging in his opinion for Gillette to continue to make that claim.

49 I do not accept Gillette’s contention that harm to consumers is not demonstrated if the matters of which Energizer complains are untrue. The argument that consumers will suffer no harm even if those claims are wrong because (for whatever reason) the razor in fact shaves closer assumes that to be the case. There is no evidence that the M3 Power razor in fact shaves closer than other razors, hence the argument cannot be sustained. In any event, it overlooks the evidence that claimed innovations in shaving technology are a strong driver for commercial sales, and at a premium price.

50 The balance of convenience favours the continuation of the interlocutory injunction until the hearing of these proceedings or further order. The hearing of the proceedings should be expedited. I decline to extend the operation of that injunction in the manner which Energizer seeks because I accept Mr Bruce’s evidence as to the time and cost which would be involved in complying with the order as extended, and the likelihood that it would not be productive of material practical benefit.

4. Costs be costs in the cause.
5. These orders be entered by the Registry forthwith.

I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Counsel for the Applicant:	F M Douglas QC, M J Darke

Solicitor for the Applicant:	Gilbert & Tobin

Counsel for the Respondent:	A J L Bannon SC, C Dimitriadis

Solicitor for the Respondent:	Allens Arthur Robinson

Date of Hearing:	17, 18, 21 February 2005

Date of Judgment:	25 February 2005

Federal Court of Australia

Energizer Australia Pty Ltd v Gillette Australia Pty Ltd [2005] FCA 148 (25 February 2005)