ESCALATOR FUNDS decision shows how owners of 'limping' marks can protect them

Limping trademarks, as they were described by Jacob J in Philips Electronics NV v Pemington Consumer Products ([1998] ETMR 124), are trademarks that are never used by themselves as they are weak in distinctiveness and gain support from the ‘crutch’ of another, far stronger trademark often referred to as a 'house mark'. The position of limping trademarks was recently considered in South Africa in the case of Discovery Holdings Limited v Sanlam Limited ((8995/2012) [2014] ZAWWCHC 109).

The court had to decide whether ESCALATOR FUNDS should have been registered. In doing so, the court had to determine the meaning of the mark and place itself in the shoes of the average consumer to determine what first impression the mark would create. It also had to determine whether the mark had acquired a secondary meaning through use in a sense that it had become associated in the minds of the public with the applicant’s product and no one else’s.

Discovery Holdings Limited, a well-known financial services and insurance company, was the proprietor of the trademark ESCALATOR FUNDS (Registration No 2007/23913) in Class 36 covering ”insurance, insurance underwriting, including health insurance underwriting; financial affairs, including but not restricted to, medical aid schemes, medical retirement annuities, health care financing; monetary affairs; real estate affairs, services ancillary to the aforegoing”. Sanlam Limited had been using the mark SANLAM ESCALATING FUNDS in relation to insurance services which were covered by the registered trademark.

Discovery sued for trademark infringement and relied on Section 34(1)(a) of the Trademarks Act (194 of 1993), which provides that “[t]he rights acquired by registration of a trademark shall be infringed by the unauthorised use in the course of trade in relation to goods and services in respect of which the trademark is registered, of an identical mark or of a mark so nearly resembling it as to be likely to deceive or cause confusion".

In the alternative, Discovery relied on Section 34(1)(b) of the act, which states that "[t]he rights acquired by registration of a trademark shall be infringed by the unauthorised use of a mark which is identical/ similar to the trademark registered, in the course of trade in relation to good or services which are so similar to the goods or services in respect of which the trademark is registered, that in such use there exists the likelihood of deception or confusion".

Discovery also relied on passing off by alleging that Sanlam’s mark was confusingly similar to its mark, thereby misrepresenting its services to be associated with those of Discovery.

Sanlam contended that confusion was not likely to arise in the market place because Discovery’s ESCALATOR FUNDS trademark was not confusingly similar to its SANLAM ESCALATING FUNDS trademark when the marks were appreciated in their entirety. Sanlam raised a counterclaim for the cancellation of Discovery’s registered ESCALATOR FUNDS mark on the basis that it was descriptive and not distinctive.

The court determined that descriptive marks are weak conceptually and are entitled only to a narrow scope of protection. The court explained that if the qualities, ingredients, effects or other features of the product are indicated naturally and in ordinary language, so that the consumer understands its significance without exercise of the imagination, the words are descriptive.

The court therefore determined that the term 'escalator funds' is descriptive. It was further established by the court that the registered mark was always used with the house mark DISCOVERY and it decided that the failure to use the ESCALATOR FUNDS mark in isolation from its house mark was an indication that the consumer was not given the chance to disassociate the mark from its house mark and the public could not recognise the mark independently. They could not recognise the origin of the products and that they belonged to Discovery.

Therefore, the mark lacked commercial strength and consumer awareness. Furthermore, it was a mark wrongly remaining on the register and Sanlam’s trademark SANLAM ESCALATING FUNDS was sufficient to avoid confusion.

This is an important decision as it determines how owners of limping marks can protect their marks in South Africa. It is important to use weak marks independently from the house mark to allow the public to recognise them and use them to distinguish the goods and services. If the mark can obtain a secondary meaning, it will be afforded protection even if the mark is descriptive, provided it is capable of distinguishing.

Darren Olivier and Maureen Makoko, Adams & Adams, Sandton