Major developments in IP law
Ron Wheeldon Attorneys
South Africa is a country in transition. The economy continues to be a strange juxtaposition of the first and third worlds, with the first-world economy growing dynamically and black economic empowerment efforts boosting the number of black participants in the first-world economy. However, so far this has failed to arrest the growth of the third-world economy of informal trading, poverty and massive unemployment. Demand for the trappings of wealth, particularly upmarket clothing brands, provides rich soil for the growth of counterfeiting.
Another major concern is how to find a way to recognise indigenous knowledge so that communities that have long harboured useful information, which can now be exploited, will reap an income from this information. So far, however, these efforts have failed to produce even a draft law. The Competition Act 1998, aimed at promoting competition by imposing rules similar to EU competition legislation and US antitrust, was designed to dismantle the monopolies that typified the South African economy under apartheid, but brought with it the complications arising from competition in IP interests.
This chapter looks at the major IP developments over the last 12 to 18 months, which have focused on anti-counterfeiting and the law of trademark dilution.
The Trademarks Act 1993 abolished the previous defensive registration system and introduced the concept of dilution, although the word ‘dilution’ is not actually used in any of the provisions. The problem with this concept is that the premise seems to be flawed. Actual dilution by blurring is extremely difficult to prove and was clearly defined in 2006 by the Constitutional Court in South African Breweries (Finance) BV trading as SAB Mark International v Laugh It Off Promotions CC (All SALR (2) 2003 454 (C)).
The facts of the case arose from the use of T-shirt prints as a medium of parody of major brands. The defendant, Laugh It Off Promotions CC, produced a range of T-shirts featuring subtly modified trademarks well known in South Africa which poked fun at the original. One victim was the beer trademark CARLING BLACK LABEL, which is popular in South Africa. The T-shirt used the same graphic layout as the beer label but replaced the words ‘Black Label’ with the words ‘Black Labour’ and the words ‘Carling Beer’ with ‘White Guilt’. In addition, the slogan for the beer, ‘America's lusty lively beer’, was replaced with ‘Africa's lusty lively exploitation since 1652’ and, finally, the words ‘Brewed in South Africa’ were substituted by ‘No regard given worldwide’.
South African Breweries sued Laugh It Off, relying on the provisions of Section 34(1)(c) of the Trademarks Act. The court of first instance was the Cape Provincial Division of the High Court, which had to consider whether the use by Laugh It Off had taken unfair advantage of or had been detrimental to the distinctive character and reputation of the registered mark. Laugh It Off argued that its use constituted social commentary on the mark through parody and was protected speech under Section 16 of the Constitution, which guarantees freedom of speech, including freedom of artistic creativity. Since 1994 the Constitution has been recognised as the supreme law and all other laws are subject to it.
Notwithstanding the constitutional argument, the court found that South African Breweries’ rights had been infringed since the use of the mark bordered on hate speech and exceeded the limits of freedom of speech provided under the Constitution.
A consideration was that the parody had not been harmless or clean, but had gone further by introducing the race factor, which is still a very emotive issue in South Africa. An appeal by Laugh It Off to the Supreme Court of Appeal was dismissed, with the appeal court upholding the lower court ruling. Laugh It Off then appealed to South Africa's highest court, the Constitutional Court.
In the unanimous judgment of the Constitutional Court the critical matter in dispute was whether South African Breweries had proved that Laugh It Off's use of its BLACK LABEL mark was actually likely to be detrimental to the distinctive character or repute of the trademark.
The Constitutional Court stated that it was compelled to construct Section 34(1)(c) in a manner most compatible with the constitutional right to freedom of expression. Moreover, the detriment to a mark's distinctive character and repute required to be shown in terms of Section 34(1)(c) cannot be “flimsy or negligible”, but must be “substantial in the sense that it is likely to cause substantial harm to the uniqueness and repute of the marks”. Accordingly, a trademark proprietor is required to “demonstrat[e] likelihood of substantial harm or detriment which amounts to unfairness”.
Laugh It Off again argued that South African Breweries had not adduced evidence to show that Laugh It Off’s use of the BLACK LABEL mark was “likely to be hurtful, in the economic and trade sense, to the repute of the marks”. South African Breweries contended that the likelihood of it suffering harm was self-evident as: “no right-thinking South African would wish to be associated with the racially insensitive message conveyed by [Laugh It Off] on the T-shirt. The racial slur is likely to erode the exclusiveness of the mark, discourage people from purchasing the respondent's Black Label beer and adversely could curtail South African Breweries’ opportunities to sponsor domestic sport.”
These submissions were dismissed by the Constitutional Court on the basis that the likelihood of detriment to a trademark had to be determined “in the light of established facts and not bald allegations”. The findings of the lower courts were overturned because the probability of an “unwholesome, unsavoury and degrading association” was not to be inferred by judges from the message alone; rather, it had to be inferred from facts consistent with the making of such an inference. However, no such facts had been pleaded.
In the court's opinion: “[The] mere fact that the expressive act may indeed stir discomfort in some and appear to be morally reprobate or unsavoury to others is not ordinarily indicative of a breach of Section 34(1)(c). Such a moral or other censure is an irrelevant consideration if the expression enjoys protection under the Constitution.”
Accordingly, “a party that seeks to oust an expressive conduct protected under the Constitution must, on the facts, establish a likelihood of substantial economic detriment of [such party's] mark. In essence the protection is against detriment to the repute of the mark; and not against the dignity of the mark.”
Even accepting that the racial slur could be considered unsavoury, no evidence had been put forward by South African Breweries that such unsavoury connotations had tarnished or were likely to tarnish the selling power of its BLACK LABEL mark. Therefore, the court granted Laugh It Off's application for leave to appeal and set aside the judgments of the appeal court and the court of first instance.
Counterfeit Goods Act
The Counterfeit Goods Act is a draconian piece of legislation aimed at dealing effectively with the difficulties that assail brand owners trying to prevent the sale of blatant counterfeits on city streets by informal traders, many of whom have no fixed abode and are illegal aliens. It allows for a complaint to be made ex parte, thereby disposing of one of the prime tenets of the law, namely that the other side should have a chance to be heard. There is, of course, provision for a seizure warrant to be set aside on application to the High Court, but the cost and complexity of such an application, together with the fact that it might be opposed by the complainant, render the remedy one of cold comfort. Where the provisions of the Counterfeit Goods Act are used against informal traders, little difficulty generally arises. However, the practice of using the Counterfeit Goods Act against legitimate traders has emerged. One of the best illustrations of this arose late in 2004 in Cadac (Pty) Ltd v Weber Stephen Products Company (Case No 04/30677).
The case concerned an application brought by Cadac (Pty) Limited for an order for the return of goods seized under a warrant issued in terms of the Counterfeit Goods Act. The warrant had been issued at the instance of Weber Stephen Products Company, the registered proprietor of a number of trademarks relating to the shape of barbecue kettle grills.
Cadac had marketed kettle grills with a shape and configuration similar to that of Weber's kettle grills. Although this was known to Weber, no action was taken against Cadac until November 2004, when Cadac commenced distribution of its Charcoal Pro kettle grill. Weber claimed infringement, stating that the Cadac product was substantially similar to Weber’s 57-centimetre Weber kettle grill. Cadac denied infringement, claiming that Weber's trademark was invalid and vulnerable to expungement under the Trademarks Act 1993. Passing off was also denied as there were a number of competing products on the market with the same shape as Weber's kettle grills.
Weber then claimed that Cadac was contravening the Counterfeit Goods Act and that complaints would be lodged with the relevant authorities. Cadac denied any such contravention but requested that, in the event that Weber decided to proceed with its threatened action, it be informed so it could oppose the action.
Although Weber refused to comply with this request, it did undertake to furnish Cadac with a copy of any warrant together with the complaint following its issue. This undertaking was not honoured and Cadac became aware of the issue of the warrant only when a number of Cadac's kettle grills were seized. Cadac sought urgent relief from the High Court.
The High Court found that the seizure of Cadac's kettle grills had been unlawful, holding that the ex parte application brought had been defective. Weber had a duty to disclose all material facts that could influence the issue of a warrant. Non-disclosure of any material facts would not be countenanced in the absence of compelling reasons.
Weber was aware that Cadac had a defence to raise and had undertaken to inform it at least of the issue of a warrant. The full facts should have been brought to the attention of the magistrate from whom the warrant had been sought. Therefore, the court ordered that the kettle grills be returned to Cadac. In conclusion, the court remarked: “It should be borne in mind that the far-reaching remedies made available to the complainant in terms of the Counterfeit Goods Act are directed at stopping a fraud as a preliminary to criminal or civil proceedings. The object of the [act] is not to give a party to a genuine trademark dispute a weapon to be used in terrorem against its opponent.”
Two other significant cases in counterfeiting are Sterling Auto Parts CC v Commissioner of Customs & Excise (under appeal at present) and LA Retail Group v B&J Meltz (Pty) Ltd. The second is important because it clarifies that trademark infringement in itself does not amount to counterfeiting.
The matter concerned Ralph Lauren's world-famous trademark POLO, with its mounted polo player device. This mark has been registered in South Africa by a company unrelated to Ralph Lauren and which defeated an attempt by Ralph Lauren to reclaim the mark in 1977 under the old law which recognised only geographical rights.
The majority of South African consumers are unaware of the difference in ownership and believe that they are buying the famous brand. B&J Meltz bought clothing intended for the US market featuring the wording ‘US Polo Association since 1890’, together with depictions of mounted polo players, and a quantity of POLO by RALPH LAUREN goods, and offered them for sale.
In October 2003 the police seized these goods as counterfeits. A director of B&J Meltz was prosecuted criminally for counterfeiting and a civil action, alleging both counterfeiting and infringement, was brought. Both matters came before the courts in November 2004.
The criminal court found that the goods were not counterfeit and dismissed the charges, while the civil court came to the same conclusion, but found that some of the goods infringed. It declined to accept survey evidence as proving that the marks were deceptive and should be cancelled, but did find the seizure of the goods to have been unlawful. These cases have sought to deter abuse of the draconian counterfeit laws in cases concerning ordinary IP disputes between traders.