Crocs bitten back in High Court decision

In Moresport (Pty) Limited v Commissioner for the South African Revenue Service (Case 36853/2006 [2008] ZAGPHC 95, March 27 2008), the High Court of South Africa has set aside a search and seizure warrant issued by a magistrate in respect of 5,015 pairs of alleged counterfeit Crocs beach shoes.

Moresport (Pty) Limited conducts business as an importer and distributor of footwear, among other things. Crocs Inc, which is incorporated in the United States, operates in a similar field of activity.

The original design drawings of the Crocs beach shoes were created by Ettore Battiston in the employ of L'Artigiana Stampi di Battiston Ettore ec SNC. As a result, copyright vested in the employer. Copyright in the design was subsequently assigned to Crocs.

Moresport purchased 5,015 pairs of shoes from Holey Soles Holdings Limited, which is located in Vancouver. Crocs alleged that the imported goods were imitations of its Crocs shoes (Crocs is a registered trade name in South Africa) and were therefore counterfeit in terms of the Counterfeit Goods Act (37/1997). Crocs made an ex parte application to the Cape Town Magistrate's Court for a search and seizure warrant to seize Moresport's imported goods. The application covered both Crocs's trademark and the design of the Crocs beach model shoes. In the application, Crocs did not disclose Moresport's possible defences as stated in the communications between Crocs and Moresport's attorneys. The court granted the application.

Moresport subsequently sought an order setting aside the Magistrate's order, among other things. Moresport's possible defences were as follows:

• Under Section 15(3A) of the Copyright Act (98/1978), the copyright in an artistic work of which three-dimensional reproductions have been made available to the public is not infringed if someone, without the consent of the copyright owner, manufactures or makes available to the public three-dimensional reproductions or adaptations of the authorized reproductions, provided that the authorized reproductions primarily had a utilitarian purpose and were manufactured by an industrial process. Moresport maintained that this exemption was applicable in this case and that the right of the commissioner for the South African Revenue Service to control the reproduction of the footwear in a three-dimensional form ended when Crocs distributed authorized three-dimensional versions of the footwear worldwide.
  
  
• Crocs had not satisfied the infringement provisions of the Copyright Act (in particular, Section 23(2)). Therefore, Crocs had not satisfied the requirements of the definition of 'counterfeiting', as contained in the Counterfeit Goods Act.
  
  
• At the time of importation of the goods at issue into South Africa, Moresport was not aware that Crocs was the owner of any alleged copyright.

Therefore, according to Moresport, the initial detention of the goods was and remained unlawful.

The High Court referred to National Director of Public Prosecutions v Basson (2002 1 SA 419 (SCA)), in which the Supreme Court of Appeal held that:

"where an order is sought ex parte, it is well established that the utmost good faith must be observed. All material facts must be disclosed which might influence a court in coming to its decision and the withholding of such facts entitles a court to set aside an order."

In the present case, the High Court held that:

"unless there are very cogent practical reasons why an order should not be rescinded, the court will always frown on an order obtained ex parte on incomplete information and will set it aside even if relief could be obtained on a subsequent application by the same applicant."

The court further stated that the defences raised by Moresport were "relevant and material and should have been disclosed to the magistrate", and that "there was no justifiable reason why the said communication was not disclosed to the magistrate". The court thus found that failure to disclose all the material facts rendered the decision of the magistrate susceptible to be set aside.

The commissioner for the South African Revenue Service was ordered to pay, on a party-and-party scale, the costs of Moresport (which included the costs consequent upon the employment of two counsel). The court did not deem it necessary to deal with other issues raised.

Darren Olivier and Msawenkosi Gaxo, Bowman Gilfillan Inc, London