It has come to light that Coca-Cola in South Africa has sent a cease-and-desist letter to SodaStream, claiming that the latter had infringed its trademarks and was engaging in unfair competition. The action related to SodaStream’s use of discarded Coca-Cola containers in an outdoor marketing campaign intending to make a point about how environmentally friendly its own products are. The matter raises some interesting questions about exhaustion of rights, as well as best course of action when an offensive approach could have an adverse effect on brand perception.

Israeli company SodaStream manufactures soda siphons that allow consumers to carbonate their own drinks at home. To highlight its environmental credentials, SodaStream created a number of exhibits consisting of a wire cage filled with discarded soft drinks cans and bottles. A significant number of those happened to be Coca-Cola containers – perhaps unsurprising given its dominance of the beverage marketplace. These exhibits have popped up in various locations around the world, including one in OR Tambo International Airport in Johannesburg, South Africa.

Coca-Cola South Africa promptly sent a cease-and-desist letter to the Israeli company claiming that its installation in the airport infringed Coca-Cola’s trademarks and amounted to unlawful competition. However, the Israeli company has refused to comply; and if the matter reaches court, the soft drinks giant will have to convince judges that SodaStream really is using Coke’s marks to advertise its own products. But Megan Reimers, a partner at Spoor & Fisher in Pretoria, thinks that SodaStream’s displaying of waste packaging would most likely not constitute use in commerce in terms of South African law. “Consumers would not see the cans and automatically see a connection, in a trademark sense, with Coca-Cola,” she says. “This would apply both to trademark infringement and unlawful competition.” Reimers notes that a key precedent in this regard is Verimark (Pty) Ltd v BMW AG ([2007] SCA 53(RSA)).

Coca-Cola also claims that SodaStream has violated the terms of South Africa’s Advertising Standards Authority Code. Reimers confirms that this is often used by companies as an effective mechanism to prevent comparative advertising. “However, the only possible application of the code in this scenario is the clause relating to disparagement,” she says. “But this clause specifically states that an advert is not necessarily disparaging if it is factual and in the public interest.”

Despite the seeming difficulties of building a solid trademark case against SodaStream, this situation presents an interesting dilemma for Coca-Cola. If it takes no action, then the soda siphon manufacturer can continue to try to influence public opinion on the alleged negative environmental impact of Coke’s (and other soft drinks companies) packaging. But in deciding to accuse SodaStream of IP infringement and unfair competition, Coca-Cola and its cease-and-desist missive may have attracted further attention to the issue and its competitor’s marketing efforts, as well as sparking negative media coverage. While the cage was not a direct attack on Coke – rather a comment on the disposal of drinks cans and bottles – the issue has become one which is now being framed as Coca-Cola versus SodaStream.

A statement from Daniel Birnbaum, SodaStream’s CEO, that Coca-Cola should “clean up [its] own garbage” if they “claim to still own these bottles” suggests that the Israeli company believes it can’t do much wrong in this situation; while the setting up of a virtual cage on Facebook, resplendent with a ‘Coke wants to shut it down’ sticker, shows that the company is quite content with the publicity generated by Coca-Cola’s current course of action (furthering the coverage by then taking the display to Atlanta, home of the World of Coca-Cola museum).

Reimers thinks that Coca-Cola’s quandary should be framed as an operational, rather than purely a trademark-related, issue. “The value of a trademark is inextricably linked with the quality of a product and the way in which it is perceived by the public, so whatever decision Coca-Cola makes can impact on the value of its brands,” says Reimers. “But it is an operational decision as to how best to manage the fallout of the allegations that its products are not entirely environmentally friendly.”

Furthermore, this predicament raises the perennial question of exhaustion of rights. There are a range of difficulties for brand owners when trying to make special considerations for their products once they are placed in the market. “Once a product is in the market, there’s not much a trademark owner can do to control its continued onward sale, destruction or neglect,” explains Reimers. “And although trademark counsel can police fake goods, we certainly can’t police the manner in which genuine goods are used or destroyed.”

In response to SodaStream’s marketing activities, Coca-Cola could point to its ongoing sustainability activities to counter allegations that it is environmentally unfriendly and use social media to promote its activities in this area. In essence, though, the incident highlights a dilemma familiar to many trademark counsel – whether to take action and risk escalating the dispute or let a competitor continue marketing efforts that could reflect negatively on your brand.