Friday, March 31, 2006

The issue of the “theft,” or, phrased euphemistically, the adoption of a foreign trade mark, has to be seen in the light of the so-called principle of territoriality, being that there is nothing, generally speaking, to prevent a person from asserting a proprietary right in South Africa, if no one else has in the territory asserted a similar right.  This principle was confirmed in the recent decision of the Supreme Court of Appeal in AM Moolla Group Limited v The Gap Inc. The principle has featured in the context of both the rules of the common and statutory law.  Insofar as the common law is concerned, the original position can be illustrated by reference to the following two decisions.  In Slenderella Systems  Incorporated of America v  Hawkins 1959 (1) 519 (W) the court held that the overseas proprietor wholly failed to establish that it has any right of property in South Africa and the fact that it carried on business in other jurisdictions and that magazines containing their advertisements were circulated in South Africa, cannot by themselves confer on it any such right.  A similar approach was followed in the decision in Tie Rack plc v Tie Rack Stores (Pty) Limited 1989 (4) SA 427 (T).  A conducted business in England and a number of foreign countries, but not in South Africa.  A used the trade mark Tie Rack along with a distinctive logo.  B conducted business in South Africa under a similar trade mark.  A sought relief on the basis of, amongst others, passing off and unlawful competition.  A relied on spill-over advertising, and affidavits were also filed by South Africans who were acquainted with A.  The court stated that the essential question is whether an assailment of goodwill has been established.  The court came to the conclusion that A simply did not have any goodwill here.  These decisions can be understood by having regard to the approach that trade mark rights are territorial in nature.  It is of interest to have regard to a comment made by the court in McDonald’s Corporation v Joburgers Drive-Inn Restaurant (Pty) Limited 1997 (1) SA 1 (A) on the issue of protection of overseas plaintiffs.  The then Appellate Division said that it was clear that South African (and English) courts have in fact not protected the owners of foreign trade marks who did not have a goodwill in the country.  It was stated that, to this extent, the common law of passing off has not been sufficient to constitute compliance with article 6bis of the Paris Convention.
The current position regarding the issue is contained in the case of Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd. 1998 (3) SA 938 (SCA).  The approach of the court was the following.  Firstly, the SCA considered the view of the court a quo.  The latter held that the ordinary rules of jurisdiction apply and that the plaintiff must thus establish that his goodwill extends to the jurisdiction of the court.  The existence of a goodwill “generated by sales,” within the jurisdiction of the court must be proven.  The SCA indicated that the latter view combined two divergent issues, namely the elements of passing off, and the requirements for jurisdiction.  It was stated that the only component of the goodwill of a business that can be damaged by means of passing off is its reputation. It was also stated that it is incorrect to equate goodwill with reputation. The court mentioned that the fact that, under certain circumstances, the locality of a business might be a component of goodwill, does not mean that goodwill can only exist where the business is located.  Decisions to the contrary were held not to be good law anymore.
The court then (page 950 A – C) set out the legal position as follows:
“The correct question can be distilled from the judgments on passing-off of this Court mentioned earlier … In general terms, it appears to me to be whether the plaintiff has, in a practical and business sense, a sufficient reputation amongst a substantial number of persons who are either clients or potential clients of his business.  As far as the ‘location’ of reputation is concerned, it must subsist where the misrepresentation complained of causes actual or potential damage to the drawing power of the plaintiff’s business.  Otherwise the misrepresentation would be made in the air and be without any consequences.“
The position in relation to this specific aspect is not unlike that prevailing in terms of section 35 of the Trade Marks Act 194 of 1993, which provides protection although a person does not carry on business or has any goodwill in this country, which was, at that stage, radically different from the common law position.  This section featured in the “well-known” McDonald’s decision where the trade mark rights of the overseas hamburger chain was protected.  Currently, there is considerable harmony in this regard between the statutory and common law.  This appears further when regard is had to the McDonald’s decision, wherein the SCA stated (page 21 C – D, own emphasis) the following:
“The Legislature intended to extend the protection of a passing-off action to foreign businessmen who did not have a business or enjoy a goodwill inside this country, provided their marks were well known in the Republic.  It seems logical to accept that the degree of knowledge of the marks that is required would be similar to that protected in the existing law of passing-off.”
There are, of course, differences to bear in mind, such as the requirement that use must be in relation to the same or similar goods, which applies to the infringement of well-known marks, but not to passing off.  Leaving that aside, however, the court’s view, to a large extent, places the protection provided by section 35 on the same footing as that available by way of passing off.  A reputation that is sufficient for passing off is thus seemingly sufficient for section 35 as well, and to this extent the tests are similar.  Notionally, passing off, of course, relates primarily to marks that are (merely) distinctive (or have acquired secondary meaning) and not necessarily perceived to be, on some basis, to be (also) “well-known”.
When regard is had to the above position, it would seem that a foreign trade mark does receive protection against “theft” by a local entrepeneur, even though no trade is conducted here.  However, a mark that does not have a reputation here, or is not well-known, will, in general, not receive protection.  This implies that an overseas mark that falls outside these categories, can be adopted in South Africa without an import “licence.”
 Dr Wim Alberts is a partner of Bowman Gilfillan Inc.