Pick &#039;n Pay is crocked by Crocs

In Pick 'n Pay Retailers (Pty) Ltd v Commissioner of South African Revenue Services (Case 13354/2007 [2008] ZAWCHC 24, May 6 2008), the High Court of South Africa has refused to set aside a warrant for the seizure of 19,524 pairs of Crocs beach sandals imported into South Africa from China by Pick ‘n Pay Retailers (Pty) Ltd. The case concerned the procedural and substantive correctness of the detention (in terms of the Customs and Excise Act (91/1964)) and seizure (in terms of the Counterfeit Goods Act (37/1997)) of the shoes.

Pick 'n Pay imports and sells footwear. The fourth respondent (Crocs Inc), a company incorporated in the United States, manufactures and distributes footwear under the trademark CROCS. The design drawings for the Crocs beach sandals were made by Ettore Battiston while employed by L’Artigiana Stampi di Battiston Ettore e C SnC, a company incorporated in Italy. The design enjoys copyright protection in South Africa, as both South Africa and Italy are members of the Berne Convention for the Protection of Literary and Artistic Works. Crocs Inc acquired ownership of the copyright through assignment and appointed Tidal Trade CC as sole distributor of its products in South Africa.

Crocs Inc claims that the shape of its shoe is so distinctive that it is distinguishable from other shoes in South Africa. It therefore claimed that:

the shape of the shoes constitutes a trademark;
the trademark is well known; and
the shape qualifies for protection under Section 35 of the Trademarks Act (194/1993).

Section 35 protects a foreign trademark, even if not registered in South Africa, if it is well known in this country.

Crocs Inc instructed its attorneys in South Africa to make an application (in terms of Section 15 of the Counterfeit Goods Act) to the commissioner for customs and excise for the seizure of all goods which are suspected of being counterfeit in that they resemble the Crocs shoe.

On July 31 2007 the second respondent (Collin Jansen) inspected containers (for customs purposes) in which the seized goods were imported into South Africa. During the examination, he noticed that the imported shoes resembled the Crocs shoes and thus identified the shoes as possible counterfeit goods. The period for a Section 15 application had expired, but he had reasonable grounds for believing that an act of counterfeiting had been or was being committed (see Section 3(4) of the Counterfeit Goods Act).

The respondents brought an application in terms of Section 6(1) of the Counterfeit Goods Act before a magistrate in chambers on an ex parte basis for the issuing of a warrant for the seizure of the imported goods. The magistrate issued the warrant. As a result, Pick 'n Pay launched an application seeking an order that:

the warrant be set aside; and
the seizure of the shoes pursuant to the warrant be declared wrongful.

Pick 'n Pay attacked the warrant on the following grounds:

Jansen failed to apply his mind properly or at all to whether the goods were in fact counterfeit;
Pick 'n Pay was not afforded an opportunity to be heard before the granting of the warrant;
The respondents failed to disclose all material facts; and
The respondents failed to make out a prima facie case that Crocs Inc enjoyed IP rights in the footwear or that such right has been infringed by Pick 'n Pay.

With regard to the first ground, the court stated that the Customs and Excise Act did not require Jansen to apply his mind properly or at all to whether the offending goods were counterfeit. He was empowered to detain the goods simply in order to determine whether the law had been complied with or to ascertain whether the goods were counterfeit. The existence of reasonable grounds for believing that an act of counterfeiting has taken or is likely to take place is a jurisdictional requirement for the granting of such a warrant; the decision as to whether that requirement has been shown to be present was for the court to decide.

The court referred to Commissioner for the South African Revenue Services v Sterling Auto Distributors CC in re Bayerische Motoren Werke v Sterling Auto Distributors CC (Case A1796/04). In this case, the court stated that it is not the role of the customs authorities to decide whether goods are counterfeit, but that it is a matter for resolution in later litigation between the IP rights owner and the importer of the goods in question.

In the present case, regarding the contention that the principles of natural justice found application, the court held that the general rule is that where a statute empowers a public official to make a decision which may prejudicially affect an individual, he or she has a right to be heard unless the statute manifests a contrary intention. It is generally accepted that there may be situations in which the operation of the principles of natural justice would be excluded (see Deacon v Controller of Customs and Excise (1999 (2) SA 905 (E)). The court held that the legislature did not intend the rules of natural justice to be complied with as a pre-requisite for the granting of the warrant under Section 6(1) of the Counterfeit Goods Act.

The third ground was found to be devoid of merit.

With regard to the fourth ground, the court held that the magistrate, on the facts placed before her, had correctly concluded that there were reasonable grounds for believing that an act of counterfeiting had taken, was taking or was likely to take place.

In addition, Pick 'n Pay challenged the contention that the shape of the Crocs shoes constitutes a well-known trademark which enjoys protection under Section 35 of the Trademark act. The court stated that:

"whether the shape performs a trademark function is a factual enquiry the outcome of which is dependent upon whether the members of the purchasing public rely thereon as a guarantee of provenance (see Beecham Group PLC v Triomed (Pty) Ltd (2003 (3) SA 639 (A)). [...] The pivotal enquiry is whether the shape of… the shoe conveys its provenance."

The court concluded that Pick 'n Pay had failed to show that the shape of the shoes did not enjoy trademark protection.

The application was thus dismissed. Pick 'n Pay was further ordered to pay the respondents’ costs of suit on a party-and-party basis (excluding wasted costs.) The respondents were jointly and severally ordered to pay Pick 'n Pay's wasted costs.

A previous case involving Crocs and Shoprite Checkers had shown the ease with which it is possible to obtain a warrant for the seizure of counterfeit goods in South Africa. In that case, Crocs had managed to persuade the magistrate that it had a prima facie case based on rights in the shape of its sandals as a well-known mark, despite it not being registered. Magistrates in South Africa are not specialist IP lawyers. Moreover, there is considerable jurisprudence on registrability/protection in shape marks to consider, as well as the exclusive concept of a well-known mark. Consequently, the provisions of the Counterfeit Goods Act favour rights holders over distributors and consumers, who are often not represented when warrants are requested. Arguably, such favour is justified by the significant problem of counterfeiting (and associated health risks) worldwide.

Msawenkosi Gaxo and Darren Olivier, Bowman Gilfillan Inc, London

Pick 'n Pay is crocked by Crocs

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