In this article, we'll discuss a recent judgment of the South African Supreme Court of Appeal ("SCA") that deals with unlawful competition, Siqalo Foods (Pty) Ltd v Clover SA (Pty) Ltd. In particular, we'll look at the issue of how a company that trades in contravention of a statute is not just committing an offence, but may also be unlawfully competing with its competitors.
This article is technical, but it does illustrate an important principle, and we have tried to keep the issues as simple as possible.
The parties
The Appellant in this case, Siqalo Foods (Pty) Ltd, has as one of its products the STORK range of margarine spreads. The Respondent, Clover SA (Pty) Ltd, manufactures and sells a range of goods including a "modified butter product" under the trade mark BUTRO.
THE DISPUTE
Clover alleged that Siqalo was offering its STORK margarine spread as a butter product, when it is, in fact, a "modified butter product" and not true butter. Clover claimed that Siqalo's product label, which read STORK BUTTER SPREAD, misrepresented the nature, substance, attributes, character and composition of the product.
Clover referred to the Agricultural Product Standards Act, 1990 (the "APSA"), and the regulations that have been published under it. There is an offence that relates to the size of the trade marks that may be imprinted on a product label or container. A further offence relates to the use of any trade mark that conveys or creates, or is likely to convey or create, a false or misleading impression as to the nature, class or identity of a product.
THE FIRST COURT
Clover applied to the Gauteng High Court for an interdict restraining Siqalo from unlawfully competing with it by trading in contravention of the APSA. The application succeeded, with the Gauteng High Court granting Clover an interdict (injunction) preventing Siqalo from selling or marketing modified butter products with packaging featuring the terms "modified butter product" or "butter" as a dominant feature. The court required the removal of the "offending label" within seven days, alternatively, destruction of the material.
THE APPEAL BEFORE THE SCA
Judge Ponnan handed down the judgment, dismissing the appeal. He dealt with a number of issues, but we'll deal with those we regard as the most important.
Modified butter
The judge kicked off by talking butter. It is, he said, "common ground that the product is not butter, but something entirely different – namely, a modified butter. Butter is...a product derived solely from or manufactured solely from milk...by contrast, modified butter merely has the general appearance of butter, but it is not pure butter."
Dimensions
Judge Ponnan went on to make the point that on the label for STORK BUTTER SPREAD, "the word 'butter' is, when compared to all other words on the label, dimensionally oversized and, therefore, visually accentuated". In contrast the trade mark STORK, which appears above the word 'butter' is "dimensionally of a much smaller size". These aspects, together with certain others, "serve to under-accentuate the words 'MODIFIED BUTTER'."
Does Siqalo's product label misrepresent the product? The test to be applied
Clover argued that Siqalo's STORK BUTTER SPREAD product label, viewed as a whole, not only contravenes the APSA's statutory labelling prohibitions, but also misrepresents or is likely to create the misleading impression that Siqalo's modified butter product is, in fact, a pure butter product.
Although Siqalo had not applied to register or registered STORK BUTTER SPREAD as a trade mark, both parties agreed that the test to determine whether trade marks convey or create a false or misleading impression as to the nature, class or identity of a product is the same as the test applied by courts to determine the likelihood of deception or confusion for the purposes of trade mark infringement and passing-off. In other words, the court needs to transport itself into the marketplace, consider issues such as first impression, dominant features, and the fact that confusion may be fleeting.
The journey from Buttery to Butter Spread
Judge Ponnan discussed the fact that Siqalo had initially considered using the sub-brand BUTTERY, but had dropped that name because people surveyed found it confusing, with some thinking it was margarine with a butter flavour or texture. It was then that the name BUTTER SPREAD was conceived. A survey suggested that consumers saw this as meaning that the product was a "butter" or "pure butter", but not a "modified butter". A marketing report found that this term would "grab and hold" the consumer's attention in the first three to five seconds.
The intention was obvious
The judge had some interesting things to say. As regards the BUTTER SPREAD label – "it is difficult to resist the suggestion that the product label was fashioned to focus consumer attention on the word 'butter'." As for the survey, although this was of limited value, it did support the impression that Siqalo had, "in adopting the product label, acted out a 'common charade'... sailing as close to the wind... without brewing up a storm of deception".
If Siqalo has contravened the APSA, does that constitute unlawful competition?
Judge Ponnan had no hesitation here: "It does not appear to be in dispute that if the appellant trades in contravention of a statutory prohibition, such trade would also constitute an actionable wrong under the common law, namely unlawful competition (which is actionable even if the misrepresentation is innocent)."
The upshot – the appeal was dismissed and Siqalo remained bound by the order of the Gauteng High Court.
As we said at the outset, very technical but important nevertheless. Proprietors should therefore always seek professional advice to make sure that not only are they not infringing another party's intellectual property rights, but that they are also complying with any applicable labelling requirements, or they may find themselves facing an unlawful competition claim.
Reviewed by Gaelyn Scott, 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.
