Judge Sher of the Western Cape Division of the Supreme Court recently handed down a judgment dealing with unlawful competition and copyright infringement in .
The judgment is a useful reminder of an often overlooked area of IP law, unlawful competition. The judgment is long and it is technical, but in this article we'll be concentrating on important legal aspects.
Unlawful competition
Technical Systems ("TS") manufactures livestock and poultry feed-conveying products which include 'auger' (a form of spiral wire) and feed chain. TS claimed that Feed Chain Industries ("FCI") was competing unlawfully and it sought an interlocutory injunction and damages.
TS's issue with FCI was set out as follows - FCI had wrongfully 'misappropriated and acquired confidential information and technological 'know-how' belonging to it, pertaining to its set-up and process for the manufacturing of feed chain, as well as other trade secrets, in order that they could set about manufacturing the same product in unlawful competition with it.'
Copyright infringement
TS also alleged copyright infringement, which is known to be inherently complex and often involve technical nuances that require a deep understanding to fully address. It further said that FCI had 'infringed the copyright which the plaintiff enjoyed in certain protected technical drawings of the production process and works of craftsmanship, which constitute component parts of it, by wrongfully copying, adapting and/or reproducing these drawings and parts.'
Switching sides
An important aspect of this case was that the 2nd defendant, Christiaan Kurz (Kurz), had been employed by TS as a plant engineer from 2001 to 2009, when he resigned and started FCI.
The trial
The evidence established that Kurz had transferred approximately 34,000 electronic files from his former TS computer to his personal computer. According to the judgment 'these files largely contained drawings which belonged to the plaintiff, of its confidential production processes and machinery, which 2nd defendant had no right to have in his possession after leaving the plaintiff's employ.'
The judgment
Observations on unlawful competition
Judge Sher made these observations:
- Honesty and fairness: In an unlawful competition case, the plaintiff must establish that a wrongful act has been committed. This will be determined with reference to issues of honesty and fairness in trade.
- Limitations: Competition is lawful, but it must remain within lawful bounds.
- Moral underpinning: The 'moral underpinning' for an unlawful competition action is set out in these maxims - 'thou shalt not steal' and 'thou shalt not reap that which thou hasn't sowed'.
- Confidential information: The misappropriation or misuse of another person's confidential information and trade secrets is a well-established delict (tort) under South African law. To qualify as confidential information or as a trade secret the information must: relate to, and be capable of, application in trade or industry; be secret or confidential and not public knowledge; be of economic value to the plaintiff.
- Novelty: Novelty is not a requirement in an unlawful competition claim. What is required is that the source has 'used his brains' and has thereby 'produced a result which can only be produced by somebody who goes through the same process'.
- Morals of society: To succeed in a common law claim based on unfair competition the plaintiff must establish that the defendant has committed a wrongful act - wrongfulness is determined with reference to the morals of society, having regard for the requirements of honesty and fairness in trade.
Observations on copyright infringement
The judge said that:
- To be 'original' for copyright purposes a work must have been produced by means of 'original skill and labour'.
- Drawings are defined to include any drawing of a 'technical nature'. The technical drawings in issue in this matter qualify as artistic works.
- Copyright is infringed by any person who, without authority, does or causes any act which the owner has the exclusive right to do or to authorize.
- The Copyright Act envisages that an order may be made that the defendant must deliver-up the machinery and/or device by which it has made, infringing copies of the works concerned.
Confidentiality
The judge said that 'whilst the manufacturing of feed chain from stainless steel strips using a progression press and heat treatment... are in general terms processes which are in the public domain, the plaintiff's setup and application of these processes is not and is confidential, unique and particular to it.'
Economic value
The judge said that 'the processes which the plaintiff uses to make its feed chain are the result of more than 20 years plus of experimentation and the expenditure of considerable skill, effort and money.'
The judge went on to say that whereas the information pertaining to these processes 'constituted valuable trade secrets in the hands of the plaintiff and gave it a competitive edge and advantage in the market. ..such information was clearly not information which 2nd defendant as an ex-employee was entitled to impart or disclose to others, nor was he entitled to appropriate it for his own use in competition with the plaintiff'.
The judge ended by saying that FCI 'reproduced every material aspect of the works in which the plaintiff enjoyed copyright and that accounts for the substantial similarity in the parties' works'.
Relief
TS was granted an interdict to prevent FCI from infringing on its copyright, confidential information and trade secrets. Additionally, Judge Sher ordered an inquiry to assess and determine the nature and quantum of the damages due to the copyright infringement, and the misuse of confidential information and trade secrets. While this amount is not included in the judgment, public reports have indicated that the amount is over R180 million.
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.