South Africa: Trade Mark Ownership: Morality And Territoriality

Last Updated: 17 July 2014
Article by Gaelyn Scott

Most Read Contributor in South Africa, November 2017

The question of who actually owns a trade mark in an important one in South African law. That's because the Trade Marks Act provides that a trade mark cannot be registered by a party who doesn't have a bona fide (good faith) claim to ownership of that trade mark.  It goes on to say that a trade mark cannot be registered if the application is made mala fide  (in bad faith). An application for registration of a trade mark can be opposed on the basis of a lack of good faith, and a trade mark registration can be cancelled on this basis.

In SA, trade mark ownership became something of an issue during the apartheid years. The reason: a large number of international companies decided not to do business in the country, and certain local companies used the opportunity to adopt the trade marks of international companies.  The thinking presumably was that this would give them an advantage, because these trade marks would be known by many local consumers, especially those who travelled abroad and those who read international publications. This thinking may well have persuaded a SA retail chain to adopt and register the trade mark Victoria's Secret. The US company that owned the trade mark took the local company to court, and the matter went all the way to the Supreme Court of Appeal (SCA). The SCA stressed the territorial nature of trade marks and  said that a company was perfectly entitled to adopt a trade mark that had been used abroad but not in SA, provided that there wasn't 'something more',  by which it meant a prior relationship between the companies, or some other evidence of sharp practice.  There wasn't anything more in this case, so the adoption of the trade mark by the local company had been legitimate and the registration was valid.
The issue of whether this territorial approach is still appropriate in today's interconnected world comes up from time to time. The SCA had occasion to consider it a few years ago in the case of New Balance v Dajee, where the question was whether a local businessman had been entitled to claim ownership and apply for registration in South Africa of a trade mark that had been used abroad by New Balance since the 1930s. The court followed the Victoria's Secret decision and found that the businessman's conduct had been perfectly legitimate. But the court also acknowledged the problem, one that is highlighted by the fact that Section 35 of the Trade Marks Act does now give protection to 'well-known trade marks'  – trade marks that are well-known in South Africa despite the fact that they haven't been used in the country.   It decided that it didn't have the power to deal with the issue:

'Much of the argument was directed instead to inviting us to depart from the territorial approach to trade marks and to embrace in its place a trans-territorial concept, having the effect that foreign proprietorship of a mark should cling to the mark when it is used in this country. The concept of territoriality, it was submitted in short, has become outmoded in the global village. ...Territoriality is imbedded... in the is not open to a court to alter the statute...that is a matter for the legislature.'

The issue of whether territoriality is still appropriate was raised again recently in the case of Reynolds Presto Products Inc v P.R.S Mediterranean Limited and the Registrar of Trade Marks. The judge said this: 'Section 35 of the Act affording protection to well-known foreign trade marks favours greater recognition to be given in general to the goodwill and reputation arising from worldwide sales which attach to the trade marks of transnational and multinational corporations.'    But once again the court managed to avoid dealing with the problem, because it felt that the trade mark registration in issue should be cancelled on the basis of bad faith because of the relationship between the parties.

In this case a former licensee registered the trade mark of its former licensor.  Although it only applied for registration after the relationship had ended, it adopted the trade mark for itself whilst the relationship was still in place.  What was interesting here was that, although the original licence agreement included a clause which provided that the licensee would never adopt the trade mark for itself (even after termination), that agreement had been replaced by a later 'settlement' agreement which did not repeat the clause.  The judge, using concepts of ethics and morality, said that the issue of a bona fide claim to proprietorship 'involves an ethical value judgment'. He went on to say  that the licensor had a 'better moral claim to ownership in South Africa' than the licensee for various reasons, including the fact that it had originated the trade mark, and the fact that it had sought to protect it by way of contractual arrangements.

The judge was scathing of the licensee's conduct: 'Any claim by it to proprietorship has been tainted by an element of sharp practice and unethical dealing ... especially considering that the appropriation occurred before the contractual relationship between the parties had expired.' Dealing with the fact that the earlier agreement had been superseded by the later one, the judge said this: 'While strictly speaking the contractual obligation imposed... by the 1996 agreement not to adopt the trade mark subsequent to the termination of the 1996 agreement may well have expired by reason of the express terms of the 2001 settlement, the sharp reliance on those terms... falls short of the ethical standards of acceptable commercial behaviour.'
Given that amendments to the Trade Marks Act don't happen very often, the territoriality approach is likely to be with us for some time. We do have well-known trade mark protection, but it only applies in cases where the trade mark is well known in South Africa.  So is there any other recourse for the international trade mark owner whose trade mark is adopted in South Africa?

The Code of the Advertising Standards Authority (ASA) may provide a solution.   Clause 9.1 relating to 'Imitation', reads as follows: ' An advertiser should not copy an existing advertisement, local or international, or any part thereof in a manner that is recognisable or clearly evokes the existing concept and which may result in the likely loss of potential advertising value. This will apply notwithstanding the fact that there is no likelihood of confusion or deception.'

In a 2007 case successfully handled by the writer, Carma Laboratories v Avid Brands, the ASA Appeal Committee upheld a claim by the US company, Carma that the white and yellow colour combination that it used internationally in relation to a lip balm product had been unlawfully copied by a local company. This notwithstanding the fact that there would be no confusion as a result of the companies using very different brand names.  Carma was previously advised that it was unable to take action based on trade mark infringement (as it had no trade mark registration covering the colour combination used on the product packaging) or passing-off (given its very limited use and reputation in South Africa).

It is worth bearing the ASA route in mind – it can be a very effective means of preventing the adoption of a foreign trade mark in South Africa in the absence of a South African registration or reputation.  The safest route is, of course, to apply for trade mark registration as early as possible!

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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