Wednesday, August 10, 2011

Following on our article of last month dealing with to an introduction to the registration of business names in terms of the Consumer Protection Act (the “Act”), this month we will delve a little deeper into the registration process and limitations.
Section 80 sets out the registration and cancellation procedure, while section 81 sets out the registration criteria.
Before discussing these, it is important to once again highlight that the business name sections of the Act are not yet in force. The Minister of Trade and Industry needs to set a commencement date, presumably after which suppliers will be given a window to get their business name affairs in order. At this stage, no date has been set and as far as we are aware, no steps have been taken to set up the business names registry.
As mentioned above, section 80 sets out the registration procedure. This section needs to be read together with regulation 39 and annexure “H” of the regulations, both of which govern the registration process. Section 80 and the regulations basically state that a person may apply to the Registrar of Companies (the “Registrar”) to take one of the following actions:
·         To register any number of business names being used (or to be used);
·         To register the same business name translated into any number of official languages  of the Republic;
·         To change a registered business name; or
·         To transfer a registered business name to another person.
The regulations state that a person needs to pay the prescribed fee which is currently set at a low R50.00. This is significantly less than the official fees for a trade mark or company name registration. Annexure “H” contains a copy of the rather comprehensive form which needs to be completed by or on behalf of the applicant when registering a business name. This form contains all the information one could expect for this type of registration.
Section 80(3) of the Act states that, if the Registrar believes that a business name registration falls foul of section 81 (discussed here below) he should notify the applicant and institute proceedings for resolving the name dispute as set out in the Companies Act 61 of 1973. It is interesting to note that reference is made to the previous Companies Act and not the new one which came into force recently. Section 80 goes further to state that the Registrar may cancel a business name registration if he reasonably believes that it has not been in use for a period of six months, and if the person to whom the name is registered either fails to respond to a notice or cannot show cause why the name is not in use.
The next section deals with the criteria for business name registrations in terms of the Act. Section 81 broadly states that a business name may comprise words in any language irrespective of whether they are normal or invented words and irrespective of whether they contain any numbers, certain symbols or the like.
Concerns have been raised in certain circles on the use of symbols in business names. The Act provides that +, &, #, @, % and + may be used, as well as any others which are published in the regulations. At the moment the regulations do not contain any further symbols. The concern is that many of these symbols are not compatible with banking software or with search ‘wild cards’ on for instance trade mark databases. Time will tell whether these will cause difficulties in trade or industry.
Section 80(2) is an important sub-section dealing with prohibited business names. The sub-section states that a business name must not be the same as, or confusingly similar to:

i.      A name of juristic person incorporated in terms of the Companies Act 1973, the Close Corporations Act 1984 or Co-operatives Act 2005;
ii.     A registered trade mark belonging to another person which has been filed in the Republic for registration as a trade mark or a well-known trade mark as contemplated in terms of section 35 of the Trade Marks Act 2005, unless the applicant for the registration of the business name either:
a.      Is the registered owner or applicant for the registration of the mark; or
b.      Has been granted a license to that mark; or
iii.    A mark, word or expression, the use of which is restricted or protected in terms of the Merchandise Marks Act 1941, except to the extent permitted in terms of that Act. 
It is interesting to note that the business name register is not mentioned above. This may lead to the rather peculiar situation that an identical business name can be registered to more than one person, but it may not overlap on any of the other registries.
The criteria also do not differentiate between trade mark classes and it is therefore entirely possible that two legitimate owners of an identical trade mark in non-conflicting classes may pose a bar to one another on the business name registry.
The sub-section goes on to state that the business name must not falsely state, imply, mislead or lead persons to incorrectly believe that: the business is associated with another business; is an organ of State; is owned or managed by persons with a certain educational designation; or is owned, sponsored, operated or endorsed by any head of state or international organisation.
Neither of these sections are particularly complicated although the practical implementation thereof may be problematic. The registration process appears to be simple and depending on factors such as the time lines and the examination carried out by the Registrar, it appears as if the registration will not be overly expensive. No provision is made for a renewal so presumably, once registered, a name will stay on the register until it is removed by the Registrar as set out above. It is also interesting to note that no third party objections are available under the Act. It is assumed at this stage that the Registrar will take action if he is informed of any discrepancy by an interested third party.
The section which is likely to be most important in the franchising relationship, is section 81(2)(a)(ii)(bb) (numbered ii(b) above). The major concern raised is that any person who is granted a license to use a registered trade mark may register a business name containing that trade mark. A franchise agreement is nothing more than a complicated license agreement and, if normal interpretation rules are applied, this will mean that any franchisee may register a business name containing a trade mark of the franchisor. This situation is untenable. We are therefore left in a position to attempt to administer these sections of the Act as smartly and efficiently as possible.
A possible solution which has been suggested in the industry is to have one’s franchise agreement contain a clause setting out that the franchisee will take steps to register a business name as set out in the Act. One then needs to have the franchisee sign a power of attorney authorising the franchisor to cancel or transfer the business name as soon as the franchise arrangement (and consequently the license agreement) is terminated.
Although practically this may be the most elegant solution, from a legal point of view the situation is not ideal. As a franchisor one wishes to avoid a situation in which the franchisee has any registered rights to the brand. The solution suggested above will also place an administrative burden on the franchisor which needs to be avoided if possible.
An alternative solution is to list the franchisor as the proprietor of the business name and license its use to the franchisee. Although it is not specifically provided in annexure “H” and although questions may arise whether this still performs the function of identifying the supplier as envisaged by section 79, we believe this is the preferred solution since it does not provide the franchisee with any registered rights. An alternative to this would be to register the business name in the name of the franchisor with a phrase to the effect that it is registered for use by the franchisee. The form should then set out the details of the franchisee for identification purposes.
It is hoped at this stage that further regulations will be published when the minister announces the commencement date. These should for instance make provision for a ‘registered user’ type situation in which the franchisor can register the business names on behalf of its franchisees and manage the register on behalf of the franchise system.
Whether or not further regulations will be published is moot. We are of the opinion that it is unlikely and as such the first solution suggested above will in all probability have to be followed.
As mentioned in the introduction to the first article, the sections relating to business name registrations are contentious and are likely to lead to difficulties going forward. As a franchisor you are advised to take all possible steps to protect the franchise brand and trade marks. As soon as it is possible the marks should be registered in terms of section 80 of the Act. If the individual franchisee names need to be registered as well, you are advised to manage it as efficiently as possible so as to ensure that the brand is not damaged.

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