Foreign companies that do business in South Africa through local agents or distributors may be encouraged by a recent South African trade mark decision. The decision covers a wide range of issues including passing off, the revocation (cancellation) of a trade mark registration, an objection to a company name, and an objection to a domain name registration.

The facts in the case of Global Vitality Incorporated v Enzyme Process Africa (Pty) Ltd (21 August 2015, Western Cape High Court) were straightforward. Global Vitality, a US company, sells dietary nutritional supplements in a number of countries. These products are sold under the trade mark "Enzyme Process". The company uses distributors in the various countries to sell its products. In South Africa it appointed a distributor, who subsequently formed a company called Enzyme Process Africa (Pty) Ltd.

During the period that the distribution arrangement was in place, the local distributor acted in an inappropriate manner, in that it purchased unbranded dietary nutritional supplements from other foreign manufacturers and then sold those products in South Africa under the trade mark Enzyme Process, registered Enzyme Process as a trade mark in South Africa, registered a company under the name Enzyme Process Africa and last, but not least, registered the South African domain name, Needless to say, the relationship between the parties came to an end, and the US company took legal action seeking redress on a number of grounds:

Passing off: The US company claimed that the local distributor was guilty of passing off. Judge Cloete agreed. The judge rejected the local distributor's argument that it, in fact, owned the goodwill and reputation in the trade mark Enzyme Process. The judge made the point that an agent who adds nothing to the product does not acquire a goodwill of its own.

But there were other factors too, including:

  • the fact that the US company had been selling its product in South Africa for a number of years before it appointed the local distributor;
  • the fact that the products that the US company sent to the local distributor all had the Enzyme Process trade mark applied to them, notwithstanding the fact that the local distributor sometimes also applied a separate label with its own contact details; and
  • the fact that the local distributor had basically acknowledged its status as a mere distributor of another company's products, by referring to itself on its website as the "African distributor" of the Enzyme Process range.

Revocation: The US company, which itself had applied to register the trade mark Enzyme Process, had also applied for the cancellation of the earlier trade mark registrations that the local distributor had obtained. This attack was based on various grounds, including bad faith and the claim that the local distributor did not have a bona fide (good faith) claim to proprietorship of the trade mark.

Once again, Judge Cloete found for the US company. She acknowledged that under South African law you don't need to be the originator of a trade mark in order to be the true owner. In fact, the famous case of Victoria's Secret Inc v Edgars Stores Ltd 1994 (3) SA 739 (A) tells us that a South African company can lawfully adopt or appropriate the trade mark of a foreign company that hasn't yet used its trade mark here.

But this rule doesn't apply where the appropriation is, in the words of the court, "attended by something more". "Something more" would include "dishonesty, breach of confidence, sharp practice or the like". The judge said that there had clearly been something more here. The local distributor had registered the trade mark Enzyme Process "in an attempt to secure rights in South Africa to effectively prevent the applicant (the US company) from continuing to sell its goods here in the event of the distribution agreement being terminated".

Company name: The US company also applied for an order requiring the local distributor to change the name of its company, Enzyme Process Africa. It relied on section 11 of the Companies Act, 2008, which says that such an order can be made in cases where the name of a company is the same as, or confusingly similar to, a trade mark that is either registered or pending, or if it falsely suggests association with another company. The judge had no hesitation in finding that this name contravened the provision, and she ordered that the name be changed.

Domain name: Finally the US company asked the court to order that the local distributor hand over the domain name Although matters of this nature are generally handled through the Alternative Dispute Resolution (ADR) Regulations that exist in South Africa, the judge said that the high court also has jurisdiction. She found that this domain name was an "abusive registration" as defined in the ADR Regulations, in that it took unfair advantage of, and was unfairly detrimental to, the US company's rights. The domain name therefore had to be transferred to the US company.

So, a resounding victory for the US company, and a decision that's certainly encouraging. But, the one thing that the decision shouldn't encourage is complacency. Clearly, a distribution or agency agreement must set out and deal with issues pertaining to intellectual property rights, such as the ownership of trade marks and the parameters of use of the intellectual property during the subsistence of the distribution or agency relationship. It goes without saying that any company selling its products in South Africa through a local distributor or an agent should, at the very least, obtain its own South African trade mark registrations.

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