The South African court case involving Nestle, owners of the Kit Kat brand, and Iffco, makers of a chocolate product called Break, has attracted considerable interest. The judgment, which was handed down on 28 November 2013 in the Gauteng Division of the High Court, contains a lot of law.
The facts were as follows. Iffco sold finger-shaped chocolate wafer barsto major South African retailers like Shoprite- Checkers. The product's packaging featured the name 'Break' in very large script, below the name 'Tiffany' which appeared in much smaller script. The packaging also featured depictions of the products. The company had trade mark registrations for Tiffany Break and Quanta Break.
Nestle claimed that Iffco was infringing it rights. These rights included trade mark registrations for trapezoidal-shaped, chocolate-coated bars (the 'Shape Registrations'), and registrations for the following slogans: Have a break...Have a Kit Kat; Have a break, Have a Kit Kat; Have a break; and Take a break ('the Slogan Registrations'). Nestle also claimed that it was entitled to protection under the well-known marks provision, and that there was passing off. Iffco, as part of its defence, claimed that the Shape Registrations were invalid.
So what did the court make of it all? It first dealt with the claim that the Shape Registrations were invalid - Iffco had argued that a shape that's necessary to obtain a technical result, or a shape that results from the nature of the goods, cannot be registered in terms of the law, that the trapezoidal shape was a necessary part of the moulding process, and that the technical result obtained was the easy release of the chocolate bars from the mould. Nestle, on the other hand, claimed that the shape had been chosen for aesthetic reasons, and that the shape was non-obvious, and in fact technically difficult and inconvenient when it was first introduced.
Judge Louw referred to the main South African authority on shape marks, the case of Beecham Group plc v Triomed (Pty) Ltd 2003 (3) SA 69 (SCA), where the court - after referring to the famous Philips shaver case in Europe - said that the intention of the technical shape prohibition was to 'preclude the registration of shapes whose essential characteristics perform a technical function, with the result that the exclusivity inherent in the trade mark right would limit the possibility of competitors supplying a product incorporating such a function or at least limit their freedom of choice in regard to the technical solution they wish to adopt in order to incorporate such a function in their product.'
The judge accepted Nestle's version. In any event, he said, the prohibition is limited to cases where the mark consists 'exclusively' of the shape which is necessary to obtain a technical result. This was not the case here. The Shape Registrations had non-functional, decorative or imaginative features, including the fingers themselves and the apron around the bottom of the edges: 'These features are not minor arbitrary elements in the three-dimensional marks... they are, in my view, important non-functional elements of the registered marks.' The Shape Registrations were, therefore, not 'solely shapes of goods which only incorporate a technical solution', and the attack on them failed.
So Nestle's registrations were valid but had they been infringed? On the issue of conventional (confusion as to origin) infringement, the judge held that the Shape Registrations had not been infringed because customers would see the depictions of the products on the Break packaging as nothing more than an indication of what was inside - the depictions would not create an impression of a material link between Nestle and Iffco's products. And if customers wouldn't be deceived by the packaging, they wouldn't be deceived by the shape of the products when they opened the packaging. As for the Slogan Registrations, there was no infringement either. The judge gave a number of reasons for this: the word 'break' was not the dominant feature of Have a break... Have a Kit Kat; there was no evidence of any actual confusion over the period of nine years that Break had been on the market; there were sufficient visual, aural and conceptual differences between the two sides' marks; and, importantly, 'break' was an ordinary word and Nestle had disclaimed exclusive rights to the word in three of its four registrations.
So what about dilution? This form of protection is limited to marks that are well known, and it requires proof that the alleged infringer has obtained an unfair advantage or that there has been detriment to the distinctive character or repute of the trade mark. The judge was happy to accept that Kit Kat - on the market for over 50 years and the 3rd largest chocolate brand in the world - is well known. But, as he pointed out, the Supreme Court of Appeal had in the famous case involving BMW & Verimark said this of dilution: 'Not only must the advantage be unfair, but it must be of a sufficiently significant degree to warrant restraining'. On top of that, 'the unfair advantage or detriment must be properly substantiated or established ... the court must be satisfied by evidence of actual detriment, or unfair advantage.'
Judge Louw did not believe there was unfair advantage or detriment here. Nestle had argued that sales of the Break product were increasingly steadily, which meant that there would be blurring as consumers associated finger- shape trade marks with two different parties. The judge disagreed: the growth in sales of Break could have been down to all sorts of reasons. So no dilution of the Shape Registrations. As for the Slogan Registrations, the judge didn't buy the argument that Nestle could no longer advertise around the 'Have a break' concept and theme, and that the trade marks' selling power had been harmed.
As for the special protection that's given to 'well-known marks' (under the Paris Convention), the judge held that this isn't available to a company which has a registration in SA, because 'such a proprietor has all the protection it requires.' And as for passing off,the judge wasn't convinced by Nestlé's argument that there was a type of double passing off here, involving both the finger wafers and the word 'Break', and that the cumulative effect made confusion very likely. The judge said this: 'The get-ups of the applicants and the respondents are so different that no customer will, in my view, think that the respondent's products emanate from Nestle or that there is an association.'
The judge dealt with a further matter, a procedural one that will be of interest to lawyers. The Shape Registrations had been filed without any clear indication that they were intended to be product shape trade marks – Nestle has simply filed drawings. During the application process of one of the marks Nestle amended the application by adding the statement: 'The mark consists of the distinctive shape or appearance of the goods.' Iffco claimed that such an amendment was impermissible, as it fundamentally affected the nature of the mark, transforming it from a logo to a shape mark. The judge disagreed for two reasons. First, he felt that most people would have understood the drawings as referring to shapes rather than logos. More importantly, however, he held that the prohibition against making material changes to the mark only applies in the case of registered trade marks, and does not extend to pending applications. This finding may have a significant impact on trade mark practice if it is not overruled by a higher court.
As I said at the outset, a lot of law in one judgement!
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