South Africa: A Clearvu On AdWords: An Update

Last Updated: 1 July 2016
Article by Gaelyn Scott

Most Read Contributor in South Africa, September 2018

"The degree of consumer care is becoming more heightened as the novelty of the Internet evaporates and online commerce becomes commonplace."

This quote, which comes from a United States ("US") decision, is quoted in the South African Supreme Court of Appeal's ("SCA's") judgment in the so-called "Clearvu case" – Cochrane Steel Products (Pty) Ltd v M-Systems Group (Pty) Ltd and Another (unreported case no. 227/2015, 27 May 2016).

The Clearvu case (which we covered in a previous ENSight) was South Africa's first reported case dealing with whether or not it is unlawful for a company to buy (bid on) the trade mark of a competitor as a keyword or search term, with a view to ensuring that when Internet users search that trade mark, or variations of it, they see the purchasing company's sponsored links or adverts.

Unlike most of the foreign judgments that have been handed down on this issue, the Clearvu case was based on passing-off rather than trade mark infringement. The reason for this was that Cochrane had not yet managed to obtain registration of its trade mark Clearvu, because M-Systems had opposed its application. The claim, therefore, was that, as the Clearvu trade mark was well-established, M-Systems was guilty of passing-off by buying Clearvu (or variations of it) as a keyword. The first court rejected the claim on the basis that there was unlikely to be any confusion.

The SCA considered a number of the foreign trade mark infringement judgments that have been handed down on the issue. The SCA paid particular attention to the United Kingdom decision of Cosmetic Warriors Ltd and another v amazon.co.uk Ltd and another [2014] EWHC 181 (Ch) (10 February 2014) (the "Lush case"), as well as the case of Interflora v Marks and Spencer plc [2009] EWHC 1095 (Ch) (22 May 2009) (the "Interflora case"), which involved Marks and Spencer's use of Interflora as a keyword in respect of its flower delivery service. The SCA said that these decisions emphasise the fact that consumers are familiar with sponsored adverts, that they expect to see the trade mark that they have searched for appear in the advert itself, and that if they do not see the trade mark, they're unlikely to be confused into thinking that there is any connection.

The SCA also referred to US and Canadian judgments in which the courts have made it clear that the nature of the goods and the type of consumer are highly relevant in determining likelihood of confusion.

It also referred to the recent New Zealand decision of Intercity Group (NZ) Ltd v Nakedbus (NZ) Ltd [2014] NZHC 124 (12 February 2014), in which the court found that consumers would not believe that Nakedbus was using the name of its rival, Intercity, as a trade mark.

With the foreign trade mark cases focusing on the likelihood of confusion, the SCA was able to apply them to passing-off. It reminded us that, in the leading South African decision of Capital Estate and General Agencies (Pty) Ltd & others v Holiday Inns Inc & others 1977 (2) SA 916 (A), the highest court said that passing-off requires reputation, as well as a "reasonable likelihood that members of the public may be confused into believing that the business of the one is, or is connected with, that of another". In applying this to AdWords, the court said: "The question is whether the advertisement itself gives rise to the likelihood of confusion and not whether the bidding by one competitor on the trade mark of another is itself unlawful."

So, would there be confusion? The SCA made the point that, although consumers searching "Clearvu" are confronted with advertisements for a multiplicity of suppliers, they are smart and resilient: "Consumers will assume, as all internet users do, that they will have to separate the wheat from the chaff in deciding which hyperlinks appearing as a result of their search should be clicked. That presumably will cause irritation and perhaps even annoyance but it does provide the consumer with alternatives, thereby fostering competition."

The SCA felt that there would not be any confusion. It made the point that the various adverts appear on different parts of the screen, and that they are also clearly distinguished from natural search results (those that are not paid for). It said that if an advert contains no reference to the trade mark owner, then consumers will assume that it's not linked to the trade mark owner. Even if the consumer does go on to the advertiser's website, the branding there will make it clear that there is no connection with the trade mark owner.

In South Africa, passing-off is regarded as a species of the wider field of unlawful competition. The SCA discussed unlawful competition in some detail and made its pro-competition position clear when it said that the starting point is that it is every person's "liberty" to trade without unlawful interference by others. It reminded us of these utterances from an earlier South African case: "Imitation is the lifeblood of competition ... the bare imitation of another's product, without more, is permitted." The SCA added: "Competition by a rival trader necessarily involves an interference with the exercise of this right in that it results, to some degree, in the diversion of such custom to the rival trader."

The SCA went on to say that, in order to decide whether or not the competition crosses the line of acceptability, one needs to look at public policy and the legal convictions of the community. If the result of the competition is that there is a likelihood of confusion, then the competition will be dishonest and unfair. This, however, was not the case in this matter.

In conclusion, two points will be of particular interest to trade mark experts. The first is that the SCA briefly referred to the concept of "initial interest confusion", something that it referred to in the earlier SCA decision of Orange Brand Services Ltd v Account Works Software (Pty) Ltd (unreported case no. 970/12, 22 November 2013). However, the SCA felt that the concept has no application in the case of AdWords, and it referred to certain US and Canadian cases as authority.

The second point is that the SCA briefly referred to a trade mark's advertising function – the theory is that advertising is a further function of a trade mark, the main function being to indicate origin. The SCA referred to the Interflora decision and said that the use of another's trade mark as a keyword does not affect the advertising function of the trade mark, even if the result is that the trade mark owner has to pay a higher price-per-click than the competitor to make sure that its advert appears first. 

There's a lot of law in this fairly short judgment.

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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