Court considers for the first time whether bidding on competitor's mark as keyword is unlawful

South Africa

In Cochrane Steel Products v M-Systems Group (39605/13 ZASGHC), Cochrane Steel Products sought an interdict against M-Systems for bidding on its brand name Clear Vu as a Google AdWords search keyword (Cochrane Steel Products, Paragraph 3).

The applicant did not have a trademark registration for its mark and accordingly relied on unlawful competition. Specifically, it alleged passing off and a new species of unlawful competition, 'leaning on' (Cochrane Steel Products, Paragraph 22).

Judgment was delivered by Nicholls J on October 29 2014. This case is open for leave to appeal, but as yet such application has not been filed. 

Google AdWords is a service offered by the search provider Google. In essence, any person can bid on a keyword to increase the likelihood of a link to its website being displayed in the sponsored links section of the search results. This bid constitutes a price per click (which will be charged to the bidder every time the link is clicked). Whether or not the link is displayed is determined by the ranking of bid. This ranking is determined by the price bid as well as a number of factors including the quality of the website linked and how frequently consumers visit the site. 

The applicant alleged two grounds of complaint. The first, which formed the subject matter of the judgment, related to the bidding on the keyword 'clear vu', which generated an advert containing a link to the respondent’s website. This advert did not make any use of the mark CLEAR VU in its text.

The second ground of complaint related to a similarly generated advertisement which did include CLEAR VU in the text of the advertisement. However, this ground was not considered. The evidence of this conduct was not admitted into evidence for a variety of reasons (Cochrane Steel Products, Paragraphs 15 to 21).

The court considered whether the common law should be developed to recognise 'leaning on' and whether the applicant had established the requisite confusion or deception necessary for passing off. As a result of its answers to these issues, the court declined to decide whether the applicant had established a reputation in CLEAR VU.

The primary authority submitted to establish 'leaning on' as a cause of action was academic argument in its favour by Van Heerden and Neethling (Unlawful Competition (2nd ed) 2008). This species of unlawful competition is defined to occur when “one entrepreneur, in order to advertise his own performance, and in this way promote his goodwill, uses the advertising mark of another entrepreneur (Van Heerden and Neethling, Unlawful Competition (2nd ed) 2008, page 195). There is a substantial overlap between this remedy and passing off, but 'leaning on' extends beyond this in not requiring confusion. Therefore, it would include dilution and misappropriation of advertising value as well as other conduct (Van Heerden and Neethling, Unlawful Competition (2nd ed) 2008, page198 to 200; Cochrane Steel Products, Paragraph 28).

In considering whether the common law should be extended to include 'leaning on', the court noted that South African law is generally opposed to monopolies not specifically provided by statute (Cochrane Steel Products, Paragraph 30; see also Phumelela Gaming and Leisure Limited v Grundlingh 2007 (60 SA 350 (CC)) and that, generally, use of a name, where there is not likelihood of confusion, is not prohibited (Cochrane Steel Products, Paragraph 30; see also Moroka Swallows Football Club v The Birds Football Club 1987 (2) SA 511 (W); Union Wine Limited v E Snell and Co Limited (2) SA 189 (C); Blue Lion  Manufacturing (Pty) Limited v National Brands Limited 2001 (3) SA 884 (SCA)). The court drew specific attention to the fact that the broad genus of unlawful competition is not intended to provide a remedy to a litigant who falls short of the requirements for passing off (Cochrane Steel Products, Paragraph 31; Payen Components A Limited v Bovic CC 1995 (4) SA 441 (A); Blue  Lion Manufacturing (Pty) Limited v National Brands Limited 2001 (3) SA 884 (SCA)).

The court concluded that leaning on, as proposed by the applicant, was not unknown to our courts and that it has, in fact, been considered (albeit under different descriptions) and rejected, often with criticism of the practice of relying on this doctrine (Cochrane Steel Products, Paragraph 35).

The court also noted that passing off (and the common law in general) protects goodwill, not a trademark per se, and on this basis concluded that passing off and other common-law remedies to do not provide protection against dilution (Cochrane Steel Products, Paragraphs 37 to 39). Such protection, according to the decision, is to be found under the Trademarks Act 1993 (Cochrane Steel Products, Paragraphs 37 to 39).

Further, the court made extensive reference to foreign cases relating to Google AdWords. It made particular reference to InterCity Group (NZ) Limited v Nakedbus NZ Limited (2014 NZHC 124), Google France SARL v Vuitton Malletier SA (Joined Cases C-236/08 and C-238/08), Interflora Inc v Marks and Spencer (2013 EWHC 1291(Ch)) and Cosmetic Warriors Limited v (2014 EWHC 181 (Ch)).

The court noted that these cases do not provide authority for the submission that using the trademark of another as a search keyword is prohibited or, as a general rule, likely to cause confusion but, rather, that such conduct is legitimate unless it can be shown that confusion is likely and that this will cause detriment to the ability of a trademark to act as a source indicator (Cochrane Steel Products, Paragraph 44). It noted that, where a court accepts a likelihood of confusion, this must be done in light of the specific facts of that case (Cochrane Steel Products, Paragraph 45).

The court confirmed that the test for confusion applied in the foreign cases, which is that confusion will be likely only if, in light of the text of the advertisement, a reasonably well-informed internet user cannot determine if the goods advertised originate from the brand owner or its competitor (Cochrane Steel Products, Paragraphs 46 and 47). It also took cognisance of the trend in foreign cases which holds that where an advertisement triggered by a sponsored link promotes alternative goods which are not simply imitations, this is likely to be fair competition (Cochrane Steel Products, Paragraphs 46 and 47). The court noted that internet users are accustomed to sponsored advertisements and the need to filter their search results (Cochrane Steel Products, Paragraph 51).

Nicholls J concluded that the consumers who were exposed to the respondent’s advertisements were highly unlikely to be confused or deceived into believing that the goods advertised were those of the applicant, particularly in light of the multiplicity of suppliers whose websites were returned in the search results (Cochrane Steel Products, Paragraph 55). The court specifically mentioned that this was particularly the case where the text of the advertisement itself did not make use of the mark concerned (Cochrane Steel Products, Paragraph 56).

Accordingly, the court rejected the applicant’s claim on the basis of passing off, and dismissed the application (Cochrane Steel Products, Paragraph 57 and order). The court did note that this case specifically related to a claim in the absence of a registered trademark, which differs from the majority of the foreign cases. However, it pointed out that even a claim on the basis of a registered trademark would succeed only if confusion could be shown (Cochrane Steel Products, Paragraph 54). In the context of the judgment, this should not be read to limit the ability to bring such claim on the basis of dilution or unfair advantage in terms of Section 34(1)(c) as this remedy is recognised elsewhere in the decision (see, eg, Paragraph 39), but rather a comment on the likely requirements for a claim for direct infringement on the basis of Sections 34(1)(a) and (b).

This decision has brought much-needed clarity to the legal position surrounding the practice of bidding on competitor keywords. It has confirmed that such conduct should conform with the general approach to passing off and trademark infringement, which is that the core test is whether a likelihood of confusion exists. It establishes that the presence or absence of this must be evaluated on the basis of the advertisement itself, and the goods advertised (in the context of appropriate surrounding circumstances) and that this is not altered by the fact that the advertisement is generated by the use of a keyword bidding service.

It indicates that advertisers who wish to bid on competitor’s trademarks as keywords may do so, provided that they are careful to ensure that these advertisements are clear and not confusing or otherwise do not take unfair advantage of the advertising value of a registered trademark. As a result of this, traders will also need to adapt their marketing and brand protection strategies to ensure that they adequate deal with the risks such practices pose to their brands and market share.

Darren Olivier and Ian Learmonth, Adams & Adams, Johannesburg

The authors acted for M-Systems in this case

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