II Background

SERNAC’s prosecution of Kellogg’s, Nestlé and Masterfoods is based on supposed infringements of Chile’s Consumer Protection Law (i.e. the Ley 19.496 Sobre Protección de los Derechos de los ConsumidoresFootnote ³ ) and the Nutritional Composition of Food Labelling and Advertising Law (i.e. Ley 20.606 Sobre Composición Nutricional de los Alimentos y su Publicidad, as amended by Ley No. 20.869 Sobre Publicidad de Alimentos,Footnote ⁴ hereinafter LCNAP).

The LCNAP is justified by public health objectives and driven through Chile’s Elige Vivir Sano (i.e. Choose Healthy Living) programme, which aims to reduce the consumption of so-called “critical” nutrients.Footnote ⁵ According to the Ministry of Health, through its policies, Chile seeks to respond to an increasing obesity rate and a widespread lack of consumer consciousness, caused, in part, by the fact that Chileans are moving to cities, consuming more processed food and leading more sedentary lives. In fact, Chile ranks among the top five Organisation for Economic Cooperation and Development countries with the highest prevalence of diabetes and has the world’s sixth highest obesity rate, with 25% of Chileans being obese, and rising obesity in children, according to the Ministry of Health.Footnote ⁶

According to the LCNAP,Footnote ⁷ foods bearing warning messages are prohibited from sale and promotion at elementary and high schools. This instrument also regulates food advertising and, in this sense, expressly prohibits advertising of products that are targeted at children under 14, as well as the use for such products of commercial hooks that attract children (such as, inter alia, gifts, contests or games).Footnote ⁸ The LCNAP also requires that all food advertising in mass media be accompanied by a message (to be determined by the Ministry of Health) promoting a healthy lifestyle.

The provisions of the LCNAP made it necessary to amend, through Decree No. 13 of 16 April 2015 (hereinafter, Decree 13/2015), Decree 977/1996 Reglamento sanitario de los alimentos (hereinafter, the Food Health Regulation, as it is widely referred to in English, although the correct translation would be Food Sanitary Regulation).Footnote ⁹

Decree No. 13/2015, which entered into effect on 26 June 2016, regulates food advertising and, in this sense, expressly prohibits the advertising of products that are labelled with a black octagon with the words “HIGH IN…” sugar, energy, fat or salt when food products exceed certain levels thereof and that are targeted at children under 14. It also prohibits the use for such products of commercial “hooks” that attract children, such as, inter alia, gifts, contests or games. In this case, manufacturers are banned from putting children’s cartoon characters on products such as sugary breakfast cereals. For this purpose, the new Article 100 bis of the Food Health Regulation provides that advertising may be considered to be directed to children under 14 years of age if it uses, among other elements, children’s characters and figures, animations, cartoons, toys, children’s music, if it contemplates the presence of people or animals that attract the interest of children of this age group, or if it contains statements or fantastic arguments about the product or its effects, children’s voices, language or expressions of children, or situations that represent their daily lives, such as school, playground or children’s games.

The limits triggering the “HIGH IN…” labels will be lowered (i.e. made stricter) over time. For example, since 26 June 2016, solid food with 22.5g/100g of sugar (and liquid foods with 6g/100g) need to be labelled with the “HIGH IN SUGAR” label, while, as from 26 June 2017, this obligation will apply to solid foods containing 15g/100g of sugar (and liquid foods containing 5g/100g). As from 26 June 2018, “HIGH IN SUGAR” labels will be required for solid foods containing 10g/100g of sugars (and liquid foods containing 5g/100g). In a similar way, the limits for energy, sodium and saturated fats in solid and liquid foods will be tightened over the same period.Footnote ¹⁰

The LCNAP also prohibits the selling of sweets that include toys, such as Ferrero’s “Kinder Surprise” chocolate eggs, which have apparently been de facto banned in Chile.Footnote ¹¹ The Italian company issued an official statement directed to Chile’s sanitary and health authorities stating that it received with dismay the announcement of a senior official of Chile’s Ministry of Health that the sale of the product “Kinder Surprise” would be banned in Chile from 26 June 2016 because the toy contained in the chocolate egg is a “hook” to attract children. Ferrero emphasised that, since its beginnings more than 40 years ago, the little toy in the “Kinder Surprise” was an essential and integral part of the product, which constituted a single unit. Ferrero argues that the surprise was the very essence of the chocolate egg and, in no case, could be considered a “hook” for consumption. Consequently, Ferrero reserves the right to obtain a legal solution to this situation, which affects the reputation of one of its most popular products.Footnote ¹²

In mid-July 2016, SERNAC notified McDonald’s Chile and Burger King, to inquire about the measures that the companies are taking to comply with the LCNAP, in particular in relation to advertising and the prohibition to use commercial “hooks” in their premises for foods addressed at children below 14 years of age.Footnote ¹³ Burger King, in its response, indicated that it had already withdrawn all existing communications concerning children’s toys, putting an end to all advertising aimed at children under 14 years and establishing the end of the delivery of toys in all their restaurants.Footnote ¹⁴ The case of McDonald’s “Happy Meal” is different. McDonald’s announced that it would reformulate the products contained in its “Happy Meal” and would continue giving out toys with it. At an inspection of a McDonald’s restaurant in Ñuñoa in early July, it was detected that the chicken nuggets and the mustard in “Happy Meal” menus contained too much salt and would, for the time being, not be allowed to be accompanied by toys. The respective restaurant had to cease selling “Happy Meals”, which were, however, still available in the country’s other 77 McDonald’s restaurants. McDonald’s announced that it would carry out new laboratory testing to make sure that the products in the “Happy Meals” were not high in energy, fat, sugar and salt.Footnote ¹⁵

Between July and September 2016, after receiving several complaints and detecting eventual infringements of the LCNAP, SERNAC notified further food business operators, including Nestlé, Carozzi, Coca Cola, Watts, Danone Chile, Unilever Chile, Soprole, Agrofrut-El Vergel, Ideal, Evercrisp Snack Productos de Chile and Kellogg’s Chile, to inquire about the measures they were taking to comply with the new food labelling laws. In the last 24 months, Coca Cola reportedly changed 59 formulas and lowered the sugar content in as many as 29 of its products. Recipes had to be readjusted with new ingredients, to maintain the flavour of its 68 products, in order to comply with the LCNAP. Coca Cola announced that it planned to use this experience in Peru and Bolivia where similar measures were currently being prepared.Footnote ¹⁶ After receiving the responses of all operators, SERNAC detected that three of them continued using children’s cartoon characters as commercial “hooks” on the packaging of products that are catalogued as “HIGH IN” energy, sugar, fats and/or salt. Chilean politicians have called for a rigorous enforcement of the new rules, noting that there was unfair competition as the majority of operators had removed cartoons from their products that have “STOP” signs and that permitting infringements would reward the cheaters.Footnote ¹⁷

III Comment

Although novel in the food sector, Chile’s measures are part of a trend of public policies aimed at tackling so-called “lifestyle risks” by conveying certain information to the public. While warning messages that reduce the visual appeal of the packaging of products are ubiquitous in the tobacco sector, these types of messages are now also gradually being extended to the alcoholic beverages and food sectors.Footnote ¹⁸

The relevant question to answer is whether the children’s cartoon characters are used by the operators as commercial “hooks” for products that are catalogued as “HIGH IN” energy, sugar, fats or salt. However, Kellogg’s, Nestlé and Masterfoods appear to argue that they have a right to use the illustrated children’s characters as brand symbols, thereby asserting a link to its intellectual property rights. They accompany the products and, in the opinion of the companies, correspond to trademarks protected by Chile’s Intellectual Property Law.Footnote ¹⁹ According to AB Chile, the National Food and Drink industry body (i.e. Alimentos y Bebidas de Chile A.G.), the trademark must be properly registered and subject to the intellectual property rights of each company. Such brand symbols are goods that are protected and the Chilean authorities have been clear in saying that they would not be affected by the LCNAP. SERNAC maintains that the use and application of intellectual property rights, including trademarks, must also comply with the Consumer Protection Law and the LCNAP.Footnote ²⁰ In particular, SERNAC argues that true, verifiable and not misleading advertising be provided and that the three companies are violating both laws by using such cartoons. Therefore, SERNAC is demanding that the three operators be subjected to a fine amounting to around 76 million Chilean pesos (or €106,115)Footnote ²¹ each. SERNAC will continue to closely monitor the media to ensure that all advertising aimed at children under the age of 14 complies with the LCNAP, as well as with the Consumer Protection Law.

Chile’s measure may be inconsistent with provisions of the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (hereinafter, TRIPs Agreement) and with certain provisions of the WTO Agreement on Technical Barriers to Trade (hereinafter, TBT Agreement), in particular Article 2.2 thereof, which provides that technical regulations need not create unnecessary obstacles to international trade, and Article 2.4, which requires that technical regulations be based on the relevant international standards (i.e. in this case, the Codex Guidelines on Nutrition Labelling; Codex Guidelines for Use of Nutrition and Health Claims and Codex General Guidelines on Claims). In fact, while the legislative procedure was carried out in Chile,Footnote ²² it had been argued within the WTO Committee on Technical Barriers to Trade’s meeting of 5–6 November 2014, that Chile’s measure prohibiting the labelling and advertising (involving, for example, children’s characters, animations, cartoons, animals and toys) for some products could have an impact on protected existing and future trademarks.Footnote ²³

Further to the discussions in the WTO TBT Committee, Chile’s measures and its likely effect on IP rights were apparently not (yet) raised in the Council for Trade-Related Aspects of Intellectual Property Rights (i.e. the TRIPs Council). Normally, the TBT Committee is the appropriate venue for WTO members to voice the concerns of their food industry. Intellectual property (IP) rights may be affected by Chile’s measures and Article 20 of the TRIPs Agreement provides that the “use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings”.

IP protection may indeed sometimes interfere with public policies aimed at enhancing human health. The question is whether IP can be protected as a fundamental right, or as a form of international investment, if this results in limiting governments’ actions aimed at reducing known health risks caused by the consumption of products that are deemed unhealthy. It remains to be seen whether such restrictions (e.g. plain packaging of cigarettes or the prohibition of advertising of products that are targeted at children, with cartoons as well as the use of so-called commercial “hooks” that attract children for such products) are compliant with IP regimes. Another question is whether such measures are also capable of meeting the expectations that exist for public health measures designed to reduce the appeal of packaging and, thereby, to prompt people not to consume potentially harmful products, and to make more educated and supposedly healthier purchasing choices.Footnote ²⁴

The implementation of this new category of regulatory requirements, aimed at protecting public health, raises significant challenges for IP regimes. This is true insofar as measures, such as plain packaging or the use of children’s character’s cartoons tend to limit the ability of IP holders to fully exploit their IP portfolio. These regulatory requirements raise, in particular, three major issues: (1) the nature of rights offered by IP legislation, especially in relation to trademarks; (2) the balancing of IP rights protection with the promotion of public health; and (3) the relationship between IP law and the protection of fundamental rights.Footnote ²⁵

There is an ongoing debate on whether trademark registrations also confer on owners “positive” rights (entitling the trademark owner to use the sign) in addition to “negative” rights (preventing others from exploiting the protected asset). Should one accept that IP rights only confer a negative right, most of the regulatory measures like Chile’s ban – by not affecting such a right – would be compliant with IP laws. Should the positive right argument be preferred, the measures in question would likely conflict with IT regimes as they would nullify or greatly affect that right.Footnote ²⁶ It has been argued that the TRIPs Agreement does not provide a “positive” legal entitlement to use a trademark.Footnote ²⁷ We nevertheless understand that the TRIPs Agreement only requires compliance with a minimum standard in respect of the availability and protection of IP rights at a domestic levelFootnote ²⁸ and that World Trade Organization (WTO) members may provide under national law for the positive right to use a trademark.Footnote ²⁹

There is discussion on the subject of intellectual property, since according to the definition in the law, children’s characters such as Kellogg’s tiger, and Nestlé’s Chocapic dog, could be required to disappear. M&M’s trademark is often associated with the personification of the colourful button-shaped candies as cartoon characters representing each colour. The two “Ms” represent the names of the founders of the company in 1941, Forrest E Mars Sr, and Bruce Murrie, son of Hershey Chocolate’s president.Footnote ³⁰ Kellogg’s trademarked Frosties breakfast cereal (sugar-coated corn flakes with a crunchy taste) is notorious for its mascot known as “Tony the Tiger”, which has been the centre of most Kellogg’s Frosties advertisements since 1952.Footnote ³¹ However, Kellogg’s uses many other cartoon characters to advertise its products and it is not clear which characters have been challenged in Chile and which can actually be considered to form part of the respective brand.

Faced with this situation, the food industry affirms that there is little clarity and that there are many contradictions on the way that brands can use their symbols. Industry also clarifies that intellectual property not only protects brands, but also the figures associated with it.Footnote ³² It appears that the ability of food companies to exploit their IP assets is restricted by Chile’s measure.Footnote ³³ While Chile’s public health objectives constitute very legitimate objectives, in particular as regards children, the extent of the measures, such as the prohibition on “misleading” cartoons, must be carefully assessed with respect to the relevant rules of national and international law. At the same time, it has also been arguedFootnote ³⁴ that children’s characters labels could be perfectly protected in accordance with the provisions of the Chilean Law of Industrial Property (i.e. Ley 19.039 de Propiedad Industrial), but this is a debate that has not yet been settled.Footnote ³⁵

Thus, the legal situation clearly requires more clarity, so that both consumers and business operators can take informed, appropriate and necessary decisions.