South Africa: High Court Ruling On Using Competitors’ Trade Marks As Adwords

Last Updated: 7 November 2014
Article by Christine Strutt

South African Court says competitors may continue to bid on each other's trade marks as Google Adwords

The South Gauteng High Court (Johannesburg) has decided South Africa's first case on the lawfulness of using a competitor's trade mark in a Google Adwords campaign.

The court handed down judgment in the case of Cochrane Steel Products Pty Ltd v M-Systems Group (Pty) Ltd on 29 October 2014. The matter concerned Cochrane's unregistered, but allegedly well-known trade mark "CLEAR VU", and M-Systems' use of the keywords "CLEARVU", "CLEAR VU" and "CLEAR-VU" in its Adwords campaign for a competing fencing product.

Judge Nicholls confirmed that there is nothing inherently unlawful about using a competitor's trade mark in a manner that is not likely to cause deception or confusion. He also held that 'leaning on', which is a form of unlawful competition whereby one person benefits from a positive association with another's brand or business without deceiving or confusing anyone, is not recognised in South African law.

The first part of the decision aligns with international views on the issue of keyword searching and meta-tags. If one considers the sound reasoning applied in similar foreign cases, it may even seem peculiar that Cochrane instituted proceedings at all – given the fact that the trade mark in question was (a) not registered (which would have called for a different assessment of M-Systems' use and dilution of the mark); and (b) allegedly used in a manner that is not visible to consumers and therefore could not be said to deceive or confuse them.

It may also seem peculiar that the court did not consider the use of a competitor's trade mark in the text of the advertisement. This is clearly a misrepresentation and more likely to deceive consumers into believing the two parties are connected or at least provide the same product.

Trade mark owners and their legal advisors should not overlook these two important aspects when analysing the court's decision and its impact on future matters. Visibility of the mark and a statutory claim based on trade mark dilution may well have influenced the court's decision.

The reason Cochrane had to rely on common law grounds such as 'passing off' and 'leaning on' is that its application to register the CLEAR VU mark – a trade mark it had originated, continuously used and legitimately promoted to the extent that it acquired a secondary meaning and reputation – was opposed by M-Systems, thereby delaying the registration of this mark and denying Cochrane any possible statutory claim in the meantime.

It should also be noted that while it seems obvious that using a competitor's mark in a manner which is not visible to the consumer could not constitute 'use in trade' or result in any deception or confusion, Cochrane did in fact submit evidence that M-Systems had used the CLEAR VU mark in the Adword link that connects users to its website. While this use of the CLEAR VU mark was flagrant and obvious, the court refused to consider this evidence on technical grounds and the question remains as to whether this is allowed in South Africa or not.

While many believe this decision will create a clear precedent, it may be the issues that were not considered that lead to more discussion, rather than the issues to which the court was restricted.

The first issue relates to the court's reliance on older cases that reject claims of unlawful competition where there is no confusion, commonly referred to as 'leaning on', that describes the misappropriation and dilution of a competitor's advertising goodwill. In the digital space, a trade mark serves as more than a mere badge of origin and authenticity, but also becomes the means by which consumers search for, and locate, a particular product or service. This mark may become known to users in many ways, but in all cases – whether traditional or online – establishing such goodwill requires effort and investment. An outright denial of 'leaning on' as a cause of action means that a trade mark owner has no way of protecting this goodwill or 'attractive force' which it has acquired and causes consumers to engage with it, unless there is some likelihood of confusion. This may be insufficient in internet matters where the deliberate adoption of similar trade-and domain names, meta-tags and keywords, may well cause a competitor to gain an unfair advantage by associating with an established brand or using its reputation as a springboard to drive internet traffic and accumulate followers on social media. When the importance and link between internet traffic and advertising value is so clear from Google's business model, it is concerning that the value of advertising goodwill to trade mark owners is not respected.

It is also interesting to note that four of the five elements of delict, namely conduct, intent, causation and damage are all present in this scenario. If the court were to find any element of wrongfulness in using a competitor's trade mark in a manner for which it was not intended, the final element of delict will be satisfied and a trade mark owner should be able to rely on delictual remedies.

In pursuing such matters, trade mark owners should perhaps look beyond trade mark laws. A particular set of facts may constitute the practise of 'bait & switch', whereby consumers are lured into a particular scenario with information that proves to be irrelevant or invalid once the consumer has already acted on it, and are then redirected towards a substitute product or service.

It could also be argued that a party that succeeds in misappropriating a competitor's mark to the detriment of the rights holder has been unjustifiably enriched. Unjustified enrichment is a cause of action that is established (without contract or delict) when one party's estate is increased at the expense of another without any legal cause or justification.

Another consideration when the trade mark in question is visible to consumers, is whether such a visual communication falls within the ambit of the Advertising Standards Authority Code. Certainly, the code's definition of 'advertisement' could cover scenarios such as these and allow the rights holder to object to the exploitation of its advertising goodwill. The code also provides for cases of misrepresentation, imitation or other situations where the consumer's trust, lack of experience, knowledge or credulity is exploited.

While there are many avenues to pursue, each case will have to be considered on its own merits. What has been re-affirmed is the difficulty and limitation a rights holder may experience in enforcing its common law rights. All trade mark owners should be reminded that obtaining registered rights to their trade marks is still a worthwhile, and often crucial, investment.

By Christine Strutt, Partner and Trade Mark Attorney, Von Seidels

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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