South Africa: Grey Goods – It’s A Package Deal

Last Updated: 6 June 2012
Article by Reggie Dlamini

The term "grey goods" refers to products which are manufactured by a trade mark holder in one country and imported into another country by a party other than the official representative of the trade mark holder in the importing country. As a result, although the goods are genuine they are typically marketed in the importing country without the consent or involvement of the authorised trader in that territory. This article briefly discusses the key provisions of the Consumer Protection Act No. 68 of 2008 (CPA) relating to grey goods, in comparison to the corresponding clauses of the preceding statute.

Prior to the CPA the sale of grey goods in South Africa was regulated under the Consumer Affairs (Unfair Business Practices Act) No. 71 of 1988 in terms of General Notice No. 107 of 2007. The relevant sections of the notice provide as follows:

1. In this notice, unless the context indicates otherwise:

1.1. ...

1.2. ...

1.3. 'Branded product' means an imported product which bears, on the product and/or packaging thereof, the registered trade mark of the originator of such product.

1.4. 'End-users' mean any person including a consumer who purchases a product for his/her own use and not for resale.

1.5. ...

1.6. 'Sellers' are persons who promote, display, offer for sale or sell any branded product to end-users.

1.7. 'Unauthorised branded product' means a branded imported product imported without the express authorisation given by or on behalf of the owner of the trade mark and includes any tangible object or product promoted or offered in the ordinary course of business for sale or supply to end users.

1.8. 'Business practice means':

1.8.1. the business practice whereby branded products imported without the trade mark owner's authority are advertised, promoted and/or offered for sale to end users and where end users have not been alerted by the seller that it:

  1. is not designated by or on behalf of the trade mark owner as an authorised distributor of the branded product; and
  2. that the authorised South African distributor is under no obligation to honour the manufacturer's warranties/guarantees and/or after sales support.

1.8.2. the business practice whereby the sellers of unauthorised branded products do not include, in all forms of advertising or promotion, including in-store promotions, websites and brochures, when every such product is advertised or promoted, the following wording in conspicuous size, without change: 'The authorised South African distributor of this product is under no obligation to honour the manufacturer's guarantees/warranties or to provide after sales service'....

2. The business practice is hereby declared unfair and therefore unlawful and persons are hereby directed to:

  1. refrain from applying the business practice;
  2. refrain at any time from applying the business practice.

The Unfair Business Practices Act has now been repealed by the CPA and the above provisions have been replaced (and supplemented) by section 25, read with regulation 8, of the CPA which provides as follows:

25(1) A person who offers or agrees to supply, or supplies, any goods that-

  1. have been reconditioned, rebuilt or remade; and
  2. that bear the trade mark of the original producer or supplier,

must apply a conspicuous notice to those goods stating clearly that they have been reconditioned, rebuilt or remade, as the case may be.

25(2) A person who markets any goods that bear a trade mark, but have been imported without the approval or licence of the registered owner of that trade mark, must apply a conspicuous notice to those goods in the prescribed manner and form.

Regulation 8 states the following:

8(1) The notice contemplated in subsections (1) and (2) of section 25 of the Act must be applied –

  1. In a place on the goods and the marketing material of the goods where a consumer is likely to see that notice; and
  2. In an easily legible size and manner,

to the goods and all forms of advertising or promotion, including in-store promotions, packaging, websites and brochures, when these goods are advertised or promoted, stating clearly that they have been reconditioned, rebuilt or remade, as the case may be.

8(2) The supplier must when selling goods to the consumer –

  1. expressly draw his or her attention to the notice prescribed in subregulation (1)
  2. in plain language explain the meaning of the notice to the consumer; and
  3. the notice contemplated in section 25(2) of the Act must be applied –

    1. in a place on the goods and the marketing material of the goods where a consumer is likely to see that notice; and
    2. in an easily legible size and manner;

to the goods and all forms of advertising or promotion, including in-store promotions, packaging, websites and brochures, when these goods are advertised or promoted, stating clearly, if the goods bear a trade mark, that they have been imported without the approval or license of the registered owner of that trade mark and that no guarantee or warranty in respect of such goods will be honoured or fulfilled by any official or licensed importer of such goods.

The provisions of the CPA are wider than the corresponding sections under the Unfair Business Practices Act. Arguably, they are also clearer. For instance, it would appear from the definitions of "end-users" and "unauthorised branded products" in 1.4 and 1.7 (above) that the notice prescribed in 1.8 was required only in the case of sales of grey goods directly to consumers, and not in the event of sales for purposes of further on-sale. That would have meant, for example, that distributors, who sold goods exclusively to wholesalers for supply to retailers may not have fallen within the ambit of the provisions of the Unfair Business Practices Act.

Subject to certain exemptions, the provisions of the CPA generally apply to every supply of goods or services in South Africa by a seller acting in the ordinary course of business, provided that the consumer is a natural person or a juristic person whose total asset value or annual turnover at the time of the sale is less than R2 million.

One of the main differences between the CPA and the Unfair Business Practices Act is that the latter did not contain any provisions dealing with reconditioned, rebuilt or remade goods bearing the trade mark of the original producer or supplier. If the trade mark was registered, its unauthorised use in the course of trade on such goods could in principle be prevented by way of trade mark infringement proceedings. The CPA does not do away with the trade mark infringement remedy in such cases, but it now imposes the additional requirement that a conspicuous notice must be applied stating clearly that the goods have been reconditioned, rebuilt or remade, as the case may be. Accordingly the trade mark infringement remedy would still be available in appropriate cases, notwithstanding the presence of the notice in terms of section 25(1) of the CPA.

In the event of unauthorised use in the course of trade of a registered trade mark on or upon grey goods (genuine goods), as opposed to goods which have been remade, rebuilt or reconditioned, a defence against trade mark infringement would be available in terms of section 34(2)(d) of the Trade Mark's Act 194 of 1993.

Unlike the Unfair Business Practices Act, the CPA prescribes that the 'grey goods notice' must also appear on the packaging of the goods in question. As far as consumers and trade mark owners are concerned this is likely to be one of the most significant provisions. Previously it would, for instance, not necessarily have been impermissible for the notice to be included together with the applicable terms and conditions in a user manual or in a separate pamphlet (which would have been concealed inside the packaging). This new requirement therefore necessitates new packaging materials containing the requisite notice for grey goods, which will make it easier for consumers to identify such goods.

The provision in section 25(2) that approval or licence be obtained from the "registered owner" of the trade mark may have unintended consequences. On a literal interpretation this provision requires only that the 'grey goods notice' be applied solely in instances where the trade mark applied to the goods in question enjoys registered trade mark protection in at least one territory. In the (admittedly unlikely) event that the trade mark in question is not registered at all in any country the provisions of section 25(2) would presumably not apply. Even if this scenario does not arise, the reality is that in most countries the trade mark registration process generally takes a number of years to complete, which does not appear to have been considered by the legislature.

Section 85 of the CPA establishes the office of the National Consumer Commission, which is charged with enforcing the provisions of the CPA. It can, among other things, issue compliance notices setting out details of the nature of non-compliance, any steps that are required to be taken, the period within which those steps must be taken and any penalty that may be imposed in terms of the CPA if those steps are not taken. In terms of section 100(4) a compliance notice remains in force until it is set aside by the Tribunal or a court or the commission issues a compliance certificate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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