Supreme Court of Appeal issues far-reaching decision on trademark use

Over the last decade or so, litigation over ownership of the GAP trademark in South Africa has been a recurring event in the South African courts. The latest tussle culminated in a judgment by the Supreme Court of Appeal, The Gap Inc v Salt of the Earth Creations (Pty) Ltd ((695/11) [2012] ZASCA 68; 2012 (5) SA 259 (SCA) (23 May 2012)), which has developed the way we think about the concept of 'trademark use'.

The appellant, The Gap Inc, carrying on business in San Francisco, California, had sought an order from the Supreme Court of Appeal reversing a decision by the High Court expunging its trademark GAP (Registration No 1994/10423) on the basis of non-use in terms of Section 27(1)(a) and (b) of the Trademarks Act (194/1993).

The relevant parts of Section 27 read as follows:

" (1)… a registered trademark may, on application to the court,… by any interested person be removed from the register in respect of any of the goods or services in respect of which it is registered, on the ground either -       

1. that the trademark was registered without any bona fide intention on the part of the applicant for registration that it should be used in relation to those goods or services by him or any person permitted to use the trademark…, and that there has in fact been no bona fide use of the trademark in relation to those goods or services by any proprietor thereof or any person so permitted for the time being up to the date three months before the date of the application;
    
2. that up to the date three months before the date of the application, a continuous period of five years or longer has elapsed from the date of issue of the Certificate of Registration during which the trademark was registered and during which there was no bona fide use thereof in relation to those goods or services by any proprietor thereof or any person permitted to use the trademark… during the period concerned."

The application for expungement was issued on March 5 2008 and, as such, the relevant period during which the appellant had to prove bona fide use of its trademark was from December 4 2002 to December 4 2007. It argued that such use had been made during two periods, namely August 2002 to May 2003 (the first period) and October 2007 to May 2008 (the second period).

In the High Court, the evidence of use during the first period was as follows: during or about October 2002 and following upon negotiations for a period of almost six months, GAP International BV (The Gap Inc’s subsidiary and licensee of  GAP trademarks) entered into a retailer licence agreement with a South African distributor named Clicks. In terms of this agreement, Clicks undertook to distribute GAP personal care products through its nationwide chain of stores. GAP products appeared in approximately 100 Clicks stores throughout South Africa and, on December 11 2002, the appellant issued an invoice for a total of 2,200 units of its Sense eau de toilette. However, between January and May 2003, Clicks sold only a total of 21 bottles of GAP personal care products.

With regard to the issue of bona fide intention to use, the High Court had regard, primarily, to an affidavit deposed by its chairman in 1999 (five years after the application for registration of the trademark in question) for purposes of separate litigation at that time. It stated:

"The applicants consider, and have for some time considered, much of the world to be a marketplace for its GAP stores and products. My company has considered and does consider South Africa to have the attributes of a country where GAP stores could successfully trade and GAP products and services could be manufactured, sold and offered. My company wishes, and has wished, to enter the South African market at the appropriate time. In fact my company has already sourced products from South Africa under the OLD NAVY BRAND and would like to source products branded with the GAP trademark."

The following evidence was also considered:

• The Gap Inc only took steps to sell Class 3 products in South Africa after November 2001, when its attorney received a letter demanding that the trademark be removed from the Trademarks Register.
• It had commenced advertising and selling GAP personal care products elsewhere in the world in 1994 and, between then and 2002, sold them mainly in the United States, Canada, the United Kingdom, France Germany and Japan, as well as in a few other countries (although the Class 3 mark was registered in 39 countries).
• During the period between 1995 and 2001, it advertised its GAP Class 3 products extensively throughout the world, at a cost from $60 million in 1995 to $422million. However, in South Africa there were no advertisements of GAP personal care products.
• There were no sales of products in South Africa either at the time of application for registration or at any time thereafter for a period of eight years.
• No explanation was advanced for The Gap Inc’s failure to use its trademark in relation to personal care products in South Africa for a period of eight years.

These facts were found to be entirely consistent with the absence of a bona fide intention to use the mark when applying for its registration. The intention to enter the South African market when it was considered commercially appropriate to do so was an "uncertain and indeterminate possibility", which fell short of what is required.

The applicants contended that the facts fell short of establishing that there was bona fide use of the GAP trademark on personal care items. They submitted that, from the chronology, particularly the letter of demand in November 2001 followed by the sudden attempts in February and April 2002 to find distributors in South Africa, the inadequate attempts to get  goods into the South African market, the failure to provide promotional materials when requested, the limited number of personal care goods sold in South Africa, and the sudden inexplicable cessation of sales by Clicks, the inference was warranted that the sale of Class 3 products by Clicks was not bona fide use of the mark. This use, according to the argument, was simply for the purpose of saving the mark, not for the purpose of facilitating and furthering the trading in Class 3 products.

The High Court agreed with the contention that the most natural and plausible inference was that the sale of goods to Clicks was done for an ulterior purpose based on the following:

• There was no explanation for The Gap Inc’s failure to advertise or promote its GAP personal care products in South Africa after it decided to find a distributor for these products in South Africa in February 2002;
• Once it had entered into an agreement with a distributor, Clicks, in October 2002, there was an unexplained lack of urgency in providing the distributor with the point of sales materials it had requested;
• There was no evidence that The Gap Inc had ever attempted to establish the cause of Clicks' sudden loss of interest in continuing to sell GAP personal care products and to deal with the problem; and
• There was no use of the trademark from May 2003 until August 2007, and no explanation of the failure to do anything to market GAP personal care products during that period.

Interestingly, the High Court also found that the 21 100ml-bottles of personal care products proven to have been sold by Clicks between January and May 2003 were "a tiny number and an insignificant volume" and, therefore, did not assist The Gap Inc’s case.

With regard to the second period, The Gap Inc purported to rely on evidence of its efforts to appoint a local distributor for its products, as evidence of bona fide use, as opposed to actual sales of those products.

The evidence of its vice-president and deputy general counsel was that, in August 2007, the chief executive officer of Stuttafords met with representatives of The Gap Inc to place orders for GAP apparel. During this meeting, the Stuttafords representatives were also shown GAP body care products and this culminated in an order being placed in October 2007. A confirmation of this order being placed was attached to the affidavit of Stuttafords’ group marketing and merchandising director, who also stated that she had discussed the issue of introducing GAP-branded personal care items into Stuttafords in a meeting in New York with the chief executive officer of Stuttafords on August 14 2007. Following on various communications, she said, on October 3 2007 Stuttafords placed an emailed order for 800 units of various body lotions. A copy of the purchase order (which was processed on December 7 2007) was attached to her affidavit.

According to the argument, the use by The Gap Inc of its trademark during the negotiations to extend the range of goods marketed by Stuttafords in South Africa to include personal care goods, including when The Gap Inc executed the order for the goods and issued the purchase order describing the goods, constituted use of the GAP mark 'in other relation' to Class 3 products. This was said to be in accordance with the provisions of Sections 2 and 3 of the act, namely that ‘use’ in relation to goods shall include use upon, in physical or other relation to such goods.

The evidence of ‘use’ within the extended meaning of the term was not disputed, but it was contended that the evidence did not support an inference that the use of the mark was bona fide and, therefore, that on the facts set out, it should be inferred that the use was not bona fide. 

The High Court dealt with the argument as follows:

“First, the point was not relied upon in the respondent’s answering affidavits. [The Gap Inc’s deponent] referred to these matters by way of background and in order to establish her evidence that The Gap Inc always had the intention to use the Class 3 mark in South Africa and no attempt was made to establish that such use was in South Africa… the point had not been canvassed in the papers, and, as a result, neither party dealt with the issue in its heads of argument. It was raised for the first time during argument before the court… Even if it is accepted that the matter was pertinently raised, it appears that the negotiations took place in New York and that the mark was used once in an email to Stuttafords and once in an order form. It is not clear whether the latter document was seen in South Africa. In my view, the respondent has not established bona fide use in respect of the goods sold to Stuttafords”.

Based on the above, it appeared as if The Gap Inc’s prospects of success on appeal were minimal. However, the Supreme Court of Appeal took the position that the dispute could be determined by leaving out of the reckoning the evidence of use adduced in respect of the first period, but considering only the evidence in respect of the second period.

It follows from this approach that the evidence concerning the surrounding circumstances, which was influential in the High Court, would necessarily be omitted from consideration as it relates to events occurring prior to the second Pperiod. 

The Supreme Court of Appeal resolved that the question for it to answer was whether the evidence established that there had in fact been bona fide use of the trademark in South Africa during the second period. The question may be paraphrased as follows: does evidence of negotiations taking place in New York, coupled with use on a single email and an order form (which may not have been seen in South Africa) amount to proof of bona fide trademark use for purposes of section 27 of the act?

With regard to the negotiations in New York, the Supreme Court of Appeal stated that:

“it is […] somewhat artificial to suggest that if the negotiations were to have occurred within the borders of this country that would have constituted use, but where, as occurred here, the negotiations took place outside of our borders that cannot constitute use. What is of significance… is that the negotiations involved South Africans representing a South African company taking steps to use a South African trademark in South Africa”. 

The Supreme Court of Appeal relied heavily on the High Court judgment in K-Mart (Pty) Ltd v K-Mart Corporation (13942/86 TPD 1987). In that case, the respondent, carrying on business in the United States, led evidence that it had for many years had an active interest in establishing trading outlets and other business connections in South Africa. In promoting this interest, it had extensively advertised its goods and services in magazines and periodicals which were distributed in South Africa. Copies of pages from numerous publications circulated in South Africa were annexed. It was not disputed that the goods advertised for sale in those publications were available, and could have been delivered in South Africa if anyone reacted to the advertisement. The respondent had had discussions and corresponded over several years from 1978 to 1985 with Edgars Stores Limited thereby promoting and advertising its business services and goods. Price lists were also sent. The court held that this use of the trademark was sufficient for purposes of defeating an expungement action based on non-use.

Although the facts were clearly different and the court’s eventual finding was not based solely on the evidence of use during negotiations, the K-Mart judgment is authority for the proposition that use of a trademark in South Africa during negotiations and other efforts aimed at introducing a business or goods into the market under a trademark, but prior to actually placing any goods on the market or rendering services, may constitute trademark use for purposes of Section 27.

What is less clear is whether there is any legal precedent in South Africa for the Supreme Court of Appeal’s position regarding the use of the GAP trademark outside of South Africa. No precedent was cited. Therefore, the finding that it is an artificial distinction whether or not the alleged use takes place within the borders of South Africa constitutes a new development in our law.

If the evidence of use of the trademark outside of the country, as well as the order form not established to have been seen in South Africa, was taken out of the equation, all that would have been left is a single email.

The High Court in Wistyn Enterprises (Pty) Ltd v Levi Strauss & Co (1986 (4) SA 796 (T) at 816H) held that:

“…the extent of the use within the relevant period is not material to the question of bona fides except insofar as the extent of the use may afford guidance on the question whether its purpose was or was not that which would make the use bona fide…If the necessary object and intention were present, even use to a minor extent may defeat an application for expungement.”

Apparently this could mean that even a lone email may suffice in appropriate circumstances, although there may be scope for application of the de minimis principle.

Reggie Dlamini, Spoor & Fisher, Pretoria