South Africa: Grandmark Stands Its Ground

Last Updated: 22 August 2012
Article by Gaelyn Scott

Most Read Contributor in South Africa, September 2016

BMW loses Round 2 of design infringement claim

Design law is an oft-overlooked area of intellectual property law. Yet it's very important, because it allows companies to get design registrations for various product features (most commonly, shape) if those features are new.

In the past, design registrations were available only for aesthetic features, which are described in the Designs Act as features that are "judged solely by the eye". Aesthetic design registrations are still around, of course, and they provide protection for up to 15 years.

A relatively new development, however, has been the creation of the functional design registration, which protects features (again, including shape) that are new and that are necessitated by function. When the Designs Act was amended to make provision for the registration of functional designs, it was also amended to exclude spare parts from its ambit. Section 14(6) of the act reads: "In the case of an article which is in the nature of a spare part for a machine, vehicle or equipment, no feature ... of such article shall afford the registered proprietor of a functional design applied to any one of the articles in question, any rights in terms of this act in respect of such features".

Replacement parts are vehicle parts that aren't manufactured by the original vehicle manufacturers, but by independent companies, many of which are based in China. By all accounts, replacement parts are fit for purpose, and the only real difference is that they're much cheaper than the originals, costing anywhere between a third and half of the price. For obvious reasons, the replacement parts companies pose a serious risk to the businesses of the original vehicle manufacturers. So there has been considerable legal skirmishing in this area, with claims of both design and trade mark infringement.

Grandmark is a South African company that imports and sells replacement parts, and it has a sizable business. Grandmark and BMW have a history. Back in 1999, BMW obtained a consent (uncontested) court order against Grandmark which prevented Grandmark from infringing certain design and trade mark registrations belonging to BMW.

Seemingly unconvinced that Grandmark was complying with the order, BMW obtained a search and seizure order that enabled it to inspect Grandmark's premises. Based on what it found there, it went back to court and asked for an order declaring Grandmark to be in contempt of court, and ordering it to stop infringing various registrations belonging to BMW: four specific aesthetic design registrations, some 150 further less clearly defined design registrations, and certain trade mark registrations.

Grandmark's main defence: the four design registrations are invalid and should be cancelled; alternatively, if the court finds that there is design or trade mark infringement, the matter should be referred to the Competition Tribunal so that it can decide if BMW's practice of registering designs for all of its vehicle parts, as well as aggressively pursuing replacement parts suppliers, is anti-competitive. BMW's riposte: the court doesn't need to consider the validity of the four design registrations, because Grandmark is in contempt of court.

The case was heard by Judge Ranchod of the North Gauteng High Court and he handed down judgment on July 25. He found that there was no contempt of court, because BMWwas unable to prove that Grandmark had deliberately flouted a court order. He found that the validity of the four design registrations was absolutely critical to the matter and therefore had to be decided.

He went on to find that the four registrations – which were for a headlight assembly, a bonnet, a grille and a front fender – we r e invalid for two reasons. First, they had been wrongly registered as aesthetic designs, because the shapes of things like fenders don't, to use terminology from older court cases, "influence choice or selection", have " i ndividual characteristics ... calculated to attract the attention of the beholder", or have something that is "special, peculiar, distinctive, significant or striking about them".

These things are clearly functional, said the judge. "A replacement part for an E46 BMW serves only one function, and that is to replace a part on an E46 BMW. It has to look the same, it has to fit the same, and it cannot look any other way, as BMW itself concedes, to serve its purpose." The judge concluded that BMW had registered the designs as aesthetic designs in "an attempt to circumvent the exclusionary provisions relating to spare parts". Second, the registrations were invalid because they we r e n 't new, in that they weren't different from the "state of the art" at the time of registration.

The judge said that mere trade variants are not new or registrable, and he made the point that in the case of each design registration, Grandmark was able to show that there had been at least one earlier BMW registration that was substantially the same. The judge pointed out that BMW's kidneyshaped grille, for example, has been around so long that it is a "trade mark" of BMW's.

On the issue of the 150 other design registrations, the judge was astounded that BMW had not even attached copies of the certificates of registration to the court papers, and he refused an application that was brought just before the hearing for consent to do so. So there was no proof that the registrations even existed, prompting the judge to say that "in the absence of such proof, there can be no reasonable apprehension that these 'rights' (if they exist) may be infringed in f u tu r e ". He went on to say that the interdict that was sought in respect of the 150 designs "is unheard of and, in my view, would be nothing short of an abuse of BMW's market power and the court processes".

Lastly, as regards the BMW trade marks, the judge noted that it is now well-established that socalled "non-trade mark" use (sometimes also described as "descript ive " or "incidental" use) – in other words, use that doesn't suggest a connection as to origin – of a registered trade mark is lawful. This was made clear in 2007 in a case involving BMW, where the Supreme Court of Appeal said that BMW could not stop Verimark from using a BMW vehicle (which showed the BMW logo) in a TV ad for a car polish, because the use in no way suggested any connection with BMW. In the same way, Grandmark's use of the BMW trade marks suggested no connection with the company – its materials featured statements like this: "Replacement part suitable for BMW E46", and "These products are not manufactured by or under licence from the original vehicle manufacturer ".

The case may well go on appeal, because the implications for the vehicle and replacements parts industries are huge. Watch this space! Gaelyn Scott is a director in and head of ENS's IP department.

Previously Published in the LEGAL TIMES August 10, 2012

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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