African courts flex their muscles

Whether tackling issues surrounding AdWords or shape marks, recent decisions serve as a reminder that Africa should not be overlooked as a source of articulate and progressive reasoning on legal trademark development

Policy making and implementation in most African countries is perceived as slow, and often imitates European or US practices that are not particularly suited to emerging economies. External challenges such as political instability, poverty, corruption and disease hamper many African states and limit investment in innovation, education, trade and other drivers of competition and IP development.

However, in recent months various African courts have decisively addressed trademark issues that are subject to international debate. These courts have dealt with questions regarding the lawfulness of bidding on a competitor’s trademark in a Google AdWords campaign; recognition of product shapes as trademarks; the enforceability of ‘limping’ marks; and new methods of trademark comparison. While some of these decisions have yet to become final, they raise pertinent considerations for trademark owners and practitioners. Many have become the source of public debate and have reinforced an appreciation for the complexities of applied trademark law.

This article highlights recent decisions that demonstrate the evolution in the application of certain rules, establish new precedents and serve as a reminder that Africa should not be overlooked as a source of articulate and progressive reasoning on legal trademark development.

A CLEARVU on AdWords

The High Court of South Africa’s ruling in Cochrane Steel Products Pty Ltd v M-Systems Group (Pty) Ltd (39605/2013, 2014 JDR 2724 (GJ)) is its first decision regarding the use of a competitor’s trademark in a Google AdWords campaign.

The matter concerned Cochrane Steel Products Pty Ltd’s well-known trademark CLEARVU and M-Systems Group (Pty) Ltd’s use of the keywords ‘clearvu’, ‘clear vu’ and ‘clear-vu’ in an AdWords campaign for a competing fencing product. Uniquely, the CLEARVU mark was not registered. Without recourse to statutory remedies, Cochrane had to rely on common law principles of unlawful competition. Two causes of action were raised and considered.

In the first instance, the court had to consider the practice of ‘leaning on’, whereby one party misappropriates the advertising value established and contained in another party’s trademark, trade dress or advertising campaign and obtains a benefit from doing so, but without deceit or confusion. In the case at hand M-Systems would have had difficulty showing that it had not been unjustifiably enriched by its intentional adoption of a competitor’s widely promoted trademark in a scheme aimed at directing potential clients – already familiar with the competitor’s trademark – towards a competing product. However, influenced by previous court decisions, the court ruled that the tort of leaning on has no basis in South African law and a general claim of unlawful competition should not be made because the complainant had no identifiable cause of action. This left Cochrane with only a passing-off claim.

The well-established delict of passing off occurs when one party misrepresents or infers an association with a recognisable enterprise through the adoption of a similar mark or trade dress and, in so doing, causes that entity reputational or financial harm. An important feature of passing off claims is that the average consumer must be deceived or confused as to whether the relevant parties are associated or whether the goods emanate from the same source.

In this context, the court reasoned that modern consumers are familiar with internet advertising and would not assume that an ad appearing on the search results page was connected with the search term searched without any additional inference, such as the particular trademark appearing in the ad text or special circumstances causing confusion.

Neither the word ‘clearvu’ nor the phrases for which M-Systems had bid appeared in the Google ad submitted to the court. Therefore, Cochrane failed to establish a likelihood of confusion and the passing off claim failed, leaving M-Systems in the clear and confirming that bidding on a competitor’s trademark without any further representation that the parties are connected is not considered to be an act of unlawful competition.

Some maintain that this practice is a clear appropriation of a competitor’s goodwill in a specific trademark with the intention of diverting customers and causing the trademark owner prejudice by effectively increasing the price of a successful bid and forcing it to raise the ‘price per click’. However, the court followed the reasoning applied by its international counterparts in similar cases and confirmed that bidding on a competitor’s mark is not inherently objectionable.

Cochrane lodged a similar complaint with the South African Advertising Standards Authority (ASA), whose code provides for cases of misrepresentation, imitation or other situations where consumers’ trust, lack of experience, knowledge or credulity is exploited.

The code definition of ‘advertisement’ includes “any visual or aural communication, representation, reference or notification of any kind which is intended to promote the sale, leasing or use of any goods or services”. Although Google’s terms and conditions specifically incorporate “any applicable advertising codes of practices”, the ASA decided that it lacked jurisdiction to rule on the practices of Google AdWords as its focus is published advertisements, not keywords purchased “behind the scenes”. It acknowledged that there is a relationship between the ad displayed and the keyword that triggers it, but did not regard the keyword as part of the ad itself.

If the court’s reasoning and the distinction drawn by the ASA are followed, the matter might have been decided otherwise had the disputed term been visible on M-Systems’ Google ad or had it made any other inference to Cochrane’s product.

Cochrane has been granted leave to appeal and has discovered a Google ad in which M-Systems uses the term ‘Clear Vu’. The visibility of the mark may well influence the court’s decision in the next round, creating a clear set of rules for this scenario.

Shaping up for another round

An ongoing dispute between Nestlé and International Foodstuffs Company (Iffco) culminated in Nestlé’s successful appeal against Iffco’s sale of two and four-fingered chocolate wafer bars that resembled Nestlé’s KitKat product and three-dimensional shape marks (Société des Produits Nestlé SA v International Foodstuffs [2015] 1 All SA 492 (SCA)).

The first-instance court held in favour of Iffco, finding that since the shape of the product was revealed to consumers only after purchase, there was no real likelihood of confusion between the products, which differed in their outer packaging and trade names. Interestingly, the court also decided that the depiction of the product shape on Iffco’s outer packaging was insufficient to create a link between the products in the consumer’s mind.

The appeal court disagreed, stating that this depiction went beyond a descriptive indication of the packaged content and increased the likelihood of confusion. The appeal court also refused Iffco’s attempt to invalidate Nestlé’s registered rights by alleging that the shape was purely functional and contravened the prohibition on registering a trademark that consists exclusively of a shape that is necessary to obtain a specific technical result. In this case, the technical result would be separating the chocolate fingers. The court decided that the bars had fanciful additions, such as the plinth at the bottom of each finger, which saved the mark from being purely functional.

In addition to finding that Iffco’s product and its packaging infringed Nestlé’s registered rights and affected Nestlé’s ability to distinguish its goods from competing products, the court made a significant ruling that Iffco’s product would dilute the commercial value attached to the KitKat shape mark. Following the decision in Laugh It Off Promotions CC v South African Breweries International (2005 BIP 201 (CC)), the relevant section of the Trademarks Act appeared to be diluted, based on the court’s strict approach in assessing the likelihood of economic loss.

The appeal court’s decision is noteworthy insofar as it was prepared to consider allegations of significant detriment that were self-evident from the facts to justify the restriction of Iffco’s use of a particular product shape. By its own reasoning, the court concluded that Nestlé’s unique claim to the shape of the KitKat bar as a distinctive attribute would ultimately result in a loss of selling power, which would dilute its shape mark and cause it economic harm.

The ruling came in the same week that Nestlé lost its KitKat shape mark in Singapore and the UK Intellectual Property Office rejected Nestlé’s application to trademark the four-finger KitKat shape following opposition from a competitor.

shutterstock_172278146.jpg

In a dispute between Nestlé and International Foodstuffs Company, the court concluded that Nestlé’s unique claim to the shape of the KitKat bar as a distinctive attribute would ultimately result in a loss of selling power, which would dilute its shape mark and cause it economic harm

Picture: urbanbuzz/shutterstock

Trademark comparisons evolve

In Lucky Star Ltd v Lucky Brands (Pty) Ltd (4890/2014 [2014] ZAWCHC) the court dealt with an infringement claim and addressed the issue of whether to consider only the manner in which a mark is used or any hypothetical or notional use of the offending mark.

The LUCKY STAR trademark is well known in relation to canned seafood products and is particularly recognisable as part of a distinctive device in which the phrase appeared in bold white lettering above a yellow star on a bright red or pink background. Lucky Brands identified its seafood restaurant and fast-food chain using the LUCKY FISH trademark, depicted in a light blue font on a white background. It also registered several company names incorporating the phrases ‘lucky fish’ and ‘lucky brands’.

Previously, courts would compare the actual use of the offending mark with the goods and services covered by the complainant’s trademark registrations. In this case, the court took a broader view by not only considering how the marks were actually used, but also speculating subjectively on how they might be used in a “fair and normal” manner. It also considered the get-up and context in which the marks were used to justify its initial impression that the marks were not similar – turning the infringement enquiry into a passing off-type examination.

By doing so, the court found that the consistent use of the word mark LUCKY STAR as part of a prominent device diverted attention from the phrase itself. The court felt that consumers associated the trademark with this device and were unlikely to confuse it with another ‘lucky…’ trademark appearing in a different stylisation.

The court’s approach reflects that of the European Court of Justice (ECJ) in Specsavers v Asda, which assessed the likelihood of confusion by considering the manner in which the mark was used, as opposed to restricting the enquiry to the form in which the mark was registered.

A similar approach was taken in another recent case concerning Browns’ trademark EVOLVE, used on men’s wedding bands, and Shimansky’s Evolym range of engagement rings (see Shimansky v Browns the Diamond Store (pty) Ltd 2013 BIP 286 (WCC)). The court assessed the conceptual meaning of the marks by considering Shimansky’s marketing materials, which informed the public that the word ‘evolym’ was ‘my love’ written backwards. It further considered that a wedding band or engagement ring is purchased with particular care and penalised Shimansky for not proposing a realistic scenario in which the marks would be confused.

The same appeal court decided a dispute between Adcock Ingram and Cipla regarding the ZETOMAX and ZEMAX trademarks, both of which were registered and used in the treatment of hypertension (Adcock Ingram Intellectual Property (Pty) Ltd v Cipla Medpro (Pty) Ltd 2012 BIP 113 (SCA)). The rationale for finding that the marks were confusingly similar was based largely on the fact that patients form part of the decision-making process even when medication is prescribed by a medical professional, and consequently their views as to whether the marks are confusingly similar and how they interact with the mark must be considered.

Shortly afterwards, the context in which conflicting marks are used was the deciding factor in Mettenheimer v Zonquasdrif Vineyards CC ([2014] 1 All SA 645 (SCA)), in which the court considered the use of the trademark ZONQUASDRIFT in relation to wine and the trading name Zonquasdrift Vineyards CC, which had been adopted by the complainant’s neighbour in relation to farming services and grapes.

This appeared to be a textbook case of adopting a virtually identical mark in relation to similar goods and services, which inferred a likelihood that consumers would be deceived or confused into believing that the two parties were connected. However, deciding that there was no real likelihood of deception or confusion, the court considered:

  • the respective uses and users of the goods and services;
  • the physical nature of the goods;
  • their respective trade channels;
  • whether in practice the goods were likely to be found alongside one another; and
  • the extent to which the goods or services were competitive.

In a Kenyan case regarding the use of the METROTRANS mark in relation to competing urban commuter transport services (Kyumwa Mutulu v Omurwa Rosana [2014] eKLR), the court ruled against the complainant, finding that the evidence put forward to show how the marks were used in trade was insufficient for the court to consider the issue of confusion and stressing the importance of providing the court with adequate documentary evidence to comprehend fully the context in which the marks are applied.

The provision of such evidence may result in the court’s confident application of trademark principles. In Mumias Sugar Company Limited v Option Two Limited ([2014] eKLR) the same Kenyan court confirmed an Anton Pillar order against a former distributor of the complainant’s sugar products which had been imitating the complainant’s trademark and product packaging.

Therefore, it seems that the courts favour a less theoretical comparison of marks and are considering marks in the context in which they are used. This may be a positive development for trademark owners, which may prefer this commercially orientated outlook to the legalistic approach of trademark practitioners.

Limping off the escalator

An interesting discussion in Discovery Holdings Ltd v Sanlam Ltd (2015 (1) SA 365 (WCC)) had the court consider the issue of registering ‘limping’ marks – that is, a mark used in conjunction with a more distinctive mark (often a core brand or house mark) to overcome its lack of inherent distinctiveness.

Discovery Holdings Ltd accused Sanlam Ltd of trademark infringement and passing off in relation to Discovery’s ESCALATOR FUNDS mark, while Sanlam defended its use of the SANLAM ESCALATING FUND mark on the grounds that Discovery’s mark was descriptive and common. Discovery failed to show that its mark had acquired secondary meaning since the mark was always used in combination with its core mark, DISCOVERY.

The ruling somewhat contradicts the 2005 ECJ decision in Société des produits Nestlé SA v Mars UK Ltd (C-353/03), in which it was held that the use of a mark in conjunction with another does not bar the mark from acquiring its own distinctiveness.

Bad faith and intention

In recent months various African courts have taken a firm stance against bad-faith registrations. Further, it seems that a trademark applicant’s intent when filing an application has become more relevant.

In Namibia, a court found invalid a registration for the trademark ELISENHEIM in relation to property development and hospitality services where the applicant was aware of the complainant’s reputation and was contractually precluded from using part of its guest farm for non-farming purposes and from competing with the complainant’s adjacent property development (see Elisenheim Property Development Company (Pty) Ltd v Guest Farm Elisenheim (A 295/2012 [2013] NAHCMD).

Although use is not a requirement for registration, the court observed that any suggestion that the trademark applicant intended to use the mark after the contractual restriction had expired could not be entertained, as this would occur only five years after the registration date, when the registration would be vulnerable to cancellation based on non-use. This indicates that an applicant’s true intent for the mark may affect its validity.

Similar questions were examined in the South African cases of Etraction (Pty) Ltd v Tyrecor (Pty) Ltd (16926/11) [2014] ZAWCHC) and Reynolds Presto Products Inc v PRS Mediterranean Ltd (2014 (5) SA 353 (GP)).

At first instance the court emphasised that a bona fide claim to ownership is a primary requirement for registration. Etraction’s adoption of the INFINITY trademark, which was already being used by its supplier Tyrecor, fell short of this mark. In the second case, the parties’ disagreement regarding an exclusive licence over use of the GEOWEB mark was settled in favour of the licensor and originator of the mark, disregarding issues surrounding the exact geographical scope and content of the licence. The court adopted a wide interpretation of bad faith, considering moral business ethics, and accepted that bad faith in relation to ownership claims does not necessarily require breach of a legal or contractual obligation. The judgment highlights the ad hoc nature of objections based on ownership and bad faith.

An attempt to secure rights in the ULKER BISKREM mark in Djibouti failed when the originator of the mark sued a local entity which had been buying and distributing ULKER BISKREM products in Djibouti, Ethiopia, Somalia and Eritrea for several years. The court determined that the application had been made in bad faith by a party that was not applying the mark to its own goods and was not authorised by the mark’s originator to register it. The decision may have been simplified by the fact that the trademark owner had both a prior local registration and prior use of the mark in Djibouti and elsewhere.

Another bad-faith case is ongoing in Rwanda over the AZANIA mark. Mark owner Mikoani was unsuccessful in its bid to annul registration of its AZANIA mark by Tanzanian rival Bakhres. Mikoani objected, claiming that Bakhresa’s conduct was in bad faith and aimed purely at preventing Mikoani from trading under its own mark and expanding its business (and concomitant rivalry with Bakhresa) into Rwanda. The matter was not decided on the merits, but rather rejected on the basis that Mikoani’s evidence was inadequate to show that Bakhresa had acted in bad faith. The court penalised Mikoani for “not acting fast enough” to secure registered rights in its own mark in Rwanda. Pending appeal, Mikoani cannot sell its AZANIA-branded products in Rwanda.

Trademarks in other domains

Mark owners are increasingly facing the threat that their marks will be included in African company names and domain names.

An example is the Kenyan case of Webtribe Limited T/A Jambopay v Jambo Express Limited ([2014] eKLR). The issue concerned the complainant’s JAMBOPAY trademark, which was adopted by another party in the company name Jambo Express Limited and the domain name ‘jambopay-express.com’. The complainant was a platform that enables secure mobile payments and online shopping in East Africa, while the defendant ran a separate online payment system known as UMOJAPAY.

The court recognised that trademark registrations and company names and domain name registrations, which are administered by different registries, often conflict. In deciding whether the complainant’s trademark rights could override the defendant’s company name registration, the court held that the defendant’s intention when adopting the mark was decisive (ie, whether it had intended to cause confusion and to capitalise on the complainant’s goodwill in the online payment services market). However, the court did not rule on the issue, as it held that the material submitted by the complainant was insufficient to warrant the injunction sought.

In another Kenyan dispute regarding a rival business’s adoption of the company name Metrotrans East Africa Limited, Metrotrans Limited accused the defendant of misappropriating the goodwill that it had acquired in the METROTRANS mark (Mutulu v Rosana [2014] eKLR). The six-month period within which to object to registration of the company name had expired. As there was no evidence to show the complainant’s actual use or goodwill in the mark, the defendant’s use of the mark or other circumstances of passing off, the court took a formalistic approach in comparing the company names and found that the trading names were insufficiently similar.

In the Lucky Star case discussed above, one element of the enquiry concerned various company names incorporating the word ‘lucky’. The court decided that the phrases ‘lucky star’ and ‘lucky fish’ were not similar, especially considering numerous other company names incorporating the common element ‘lucky’. The court reinforced this decision by stating that the company names would appear on corporate stationery (eg, contracts, invoices and letterheads), which would be seen not by the ordinary consumer, but rather by suppliers, landlords, wholesalers and other knowledgeable persons dealing with the company which were unlikely to be confused as to its true identity.

It appears, therefore, that company names and domain names require closer resemblance and additional circumstances in order for a claim of passing off or infringement to be upheld.

Looking ahead

Trademark owners and practitioners should take note of these trends and evolving practices. Particularly noteworthy is the courts’ less theoretical approach to comparing marks and their appreciation of business ethics when determining bad faith. Further, issues of trademark law should be assessed in context, with a practical view of how the marks may be used in trade for packaging, domain names, AdWords and company names. With this in mind, practitioners should submit sufficient evidence to show the context in which competing marks are used.

Christine Strutt is a partner at Von Seidels 
[email protected]

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