South Africa: Getting The Basics Right

Last Updated: 25 April 2017
Article by Delene Bertasso

Most Read Contributor in South Africa, July 2017

The recent South African Supreme Court of Appeal ("SCA") decision of Herbal Zone v Infitech Technologies doesn't contain ground-breaking law. However, the SCA's passing-off judgments are rare, so it is a case worth discussing. The lessons to be learnt from this decision are that it's important to get the basics right – make sure that a trade mark is registered and ensure that there is a clear agreement between the trade mark owner and the distributor.

The facts were messy and the case dealt with a number of issues. Essentially, the case related to an aphrodisiac product called Phyto Andro for Him. This product is imported from Malaysia and has been sold in South Africa since 2006. For a number of years, Infitech was the sole distributor of the product in South Africa, having been granted rights of distribution by Herbal Zone.

When the distribution agreement came to an end, Infitech continued to sell a product in South Africa under the name Phyto Andro for Him in very similar packaging. Herbal Zone informed retailers that Infitech was selling a counterfeit product and arranged for a raid under the Counterfeit Goods Act, 1997. Herbal Zone also sued Infitech in the High Court. As Herbal Zone did not have a trade mark registration, its case was based on passing off.

The SCA accepted that Phyto Andro is a term that can enjoy rights: "The name Phyto Andro is not descriptive of the product, but is an invented mark attached in order to distinguish it from other products of a similar type".

The court then went on to set out the requirements for a passing-off claim in very simple terms. "Proof of passing off requires proof of reputation, misrepresentation and damage. The latter two tend to go hand in hand, in that if there is a likelihood of confusion or deception there is usually a likelihood of damage flowing from that."

The court considered whether there was a reputation and, if so, who owned it. This is where things started getting difficult. Firstly, the parties decided against submitting much in the way of evidence, apparently believing that the evidence should be kept for other proceedings before the Registrar of Trade Marks, where both parties are seeking registration.

What the court did have, however, was the distribution agreement between Herbal Zone and Infitech. This agreement made it quite clear that the reputation didn't belong to Infitech. The agreement said that Infitech was simply a distributor, that Herbal Zone was the owner of all the "rights, titles, trademarks and logo", and that Infitech would protect Herbal Zone's interests and not pledge, cede, assign, make over or encumber its IP. The court said this: "In the face of that disavowal it is difficult to see on what possible basis Infitech could nonetheless acquire the very rights it agreed did not belong to it, much less do so by its conduct in performing its obligations in terms of the distribution agreement."

Infitech, in its claim to be the proprietor of the trade mark Phyto Andro, went on to argue that it had spent considerable time and money in establishing a market for the product. The court rejected this, saying that there was already a market for the product before Infitech became a distributor. The court also wasn't impressed by Infitech's claim that it had used the term "exclusively distributed" together with its name on the product. The court said that none of this "came anywhere near establishing that proprietorship in the mark vested in Infitech".

So, what about Herbal Zone, surely it owned the rights? This wasn't straightforward either, because the Herbal Zone that was before the court was a South African company, whereas all the evidence suggested that the product emanated from a Malaysian company called Herbal Zone International – the packaging certainly identified Herbal Zone International of Malaysia as the manufacturer. The court said this:

"I appreciate that a trademark's function as a badge of origin does not require that the mark should identify the corporate entity that is the proprietor of the mark or, in the case of an unregistered mark, the entity in which the reputation attaching to that mark is vested. Nonetheless, when the public material associated with the product and the mark points to a particular entity as the manufacturer of the product, the ordinary inference will be that this is in fact the origin or source of the product. Where large corporate groups consolidate all their intellectual property rights in a single subsidiary that is done by way of formal agreements such as an assignment of rights – a situation that is not present here."

This effectively also made Herbal Zone little more than a distributor. The court acknowledged that an importer or distributor can acquire a reputation in goods that are marketed under a name or get-up that indicates that they emanate from the distributor. But that hadn't happened here. The court said this: "Herbal Zone's failure to establish on a balance of probabilities that it had added anything to the mark or get-up under which the capsules were produced to identify itself as the source of the goods and disturb the indications that the manufacturing provenance lay with Herbal Zone International meant that this submission could not succeed."

So, neither of the parties before the court had enforceable rights. This is a strange case, but it's one that does contain some important lessons.

Reviewed by Gaelyn Scott, director and head of ENSafrica's IP department.

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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