TRADE MARK LICENSEES AND PASSING OFF

Wednesday, April 11, 2007
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TRADE MARK LICENSEES AND PASSING OFFBy Wim Alberts

Introduction
It frequently happens that a foreign company, for instance, licenses a local entity to manufacture or distribute a particular product. The local entity might invest considerable time and resources in building up the brand name over many years. It could then be faced with the situation where another company commences use of a confusingly similar trade mark, in circumstances where there is a likelihood of confusion. There is, prima facie, passing off. There is no trade mark registration in place, and the licensor would accordingly like to rely on the common law. Would he, however, have locus standi to do so?

Passing off

Rights to a film name using the words "The Somme" in relation to a film on World War I was at issue in Kinemas Ltd v African Theatres Ltd 1928 WLD 100. A was granted the "sole and exclusive" right by the British owners of the copyright to exhibit a film in South Africa. B disputed A’s locus standi. The court held (page 103) that A was a mere licensee, and had no proprietary interest in the film, nor did a cession of rights take place. In Taylor and Horne (Pty) Ltd v Dentall (Pty) Ltd 1991 SA 412 (A) it was also said (page 422 H-J) that the contractual arrangement between an importer and manufacturer cannot have effect on third parties:

"It would mean that for as long as the sole agency endures the appellant would enjoy a monopoly, akin to that derived from a patent, in regard to the distribution of Impregum in this country. It would also mean that the agreement which created purely contractual rights between the parties thereto would in effect bind would-be competitors no matter from what source or however honestly they obtained supplies of Impregum ."

The authors Van Heerden and Neethling Unlawful Competition (1995) however point out (page 168 note 115) that it is not correct to state that a "bare licensee" will never have the right to obtain relief. This is evident from the decision in Prok Africa (Pty) Ltd v NTH (Pty) Ltd 1980 (3) SA 687 (W). This case dealt with the unlawful use of confidential information relating to hydraulic lifting devices. The owner of the information was an Australian company that did not feature in the proceedings. A and B were the exclusive licensee and marketing agent of the owner’s products respectively. C took a point in limine to the effect that they had no locus standi as they had no proprietary interest in the subject matter (page 691 E). The court noted that previous cases (for instance Dun and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau (Cape) (Pty) Ltd 1968 (1) SA 209 (C)) dealt with proceedings instituted by the owner of confidential information. It then ruled (page 696 F) that there was no reason in principle to limit protection to the owner, as the cause of action was the broad delict of unlawful competition, and not the invasion of rights of property.

Can the licensee or importer establish a proprietary interest in at least some cases? In Salusa (Pty) Ltd v Eagle International Traders 1979 (4) SA 697 (C) the same products (stop smoking devices) were imported. The court however found (705 A-B):

"…[T]he conclusion must be drawn that the name and pack in which the holders are marketed have become identified with the concern to whom DG has undertaken to sell the holders exclusively. To make it pertinent to the plaintiff the name and the pack identify the holders as plaintiff’s goods…Defendant cannot..be restrained from purchasing the unnamed and unpacked holders….but he must use another name and pack for them so as to distinguish the holders it sells from those sold by the plaintiff."

The decision in Easyfind International (SA) (Pty) Ltd v Instaplan Holdings 1983 (3) SA 917 (T) dealt with a method for advertising businesses on sheets of paper, with particular emphasis on a calendar. A operated under licence from B, an Australian company. C produced a similar calendar. C alleged that A did not have locus standi, it being merely permitted by licence to do what it could not otherwise do (page 921 H). A in turn averred that an own reputation attached to its calendar. The court made (page 922 G – 923 A) the following finding:

"This is not a case where [A] is a mere conduit for the goods of another. It prints its own planner, albeit that the essential layout of the calendar is derived from Australia. The planner is designed for use in South Africa…I do not think that any user of the planner could possibly think that it is an Australian product…It is accordingly clear that [A] markets its own product under its own name…[A] expressly distinguishes between itself and its Australian counterpart."

In some instances the local entrepreneur might very much want not to be found to have established (only) an own reputation. In Premier Trading Co (Pty) Ltd v Sporttopia (Pty) Ltd 2000 (3) SA 259 (SCA) A imported roller skates with the trade mark BLADELINES. To this was added the trade mark JOKARI. B, the Australian owner of the former mark, commenced the importation of products under that mark. A launched passing off proceedings. The court made (page 270 D – F) the following ruling:

"The appellant qua importer/distributor was not simply an inactive link in the chain of distribution. It caused to be imprinted on the product its own imprimatur or stamp of identity, selection and approval…[A’s] distinguishing symbol is Jokari, not Bladeline. Any reputation it acquires as importer/distributor would therefore adhere not to the word Bladeline but to the word Jokari."

Can after-sales service bring about an own reputation? This issue featured in two interesting Canadian cases, namely Seiko Time Canada Ltd v Consumers Distributing Co Ltd 50 CPR (2d) 147 (High Court) and 60 CPR (2d) 222 (Court of Appeal). Details of these cases were set out in the ruling in Frank & Hirsch (Pty) Ltd v Roopanand Brothers 1987 (3) SA 165 189 E – H. A distributor imported and sold goods under the manufacturer’s trade mark, but also assisted with information on their use, point of sales service, a warranty and after-sales service. The High Court held that the goodwill in the mark generated by these marketing practices vested in the distributor, and entitled him to restrain a third party from selling the genuine goods under the mark. The Court of Appeal however decided that the mark denoted the goods of the manufacturer and not the "package" of services provided by the distributor. The use of the mark on goods made by the manufacturer was, consequently, held not to be passing off.

What is the test? In the Frank and Hirsch decision 189 H – I the following was said:

"The enquiry is in every case one of fact. Where, however, the distributor has not added to or adapted the mark in any way, his task in establishing the requisite reputation is particularly hard, even if one accepts, as I do, that it is not incumbent upon him to show that the mark has lost all significance as a manufacturer’s mark. It would in my view be sufficient for him to show that the mark enjoys a reputation as indicative, not only of the fact that the goods come from a particular manufacturing provenance, but also that they have been distributed or otherwise dealt with by him."

Statutory infringement

The usual position in cases of statutory trade mark infringement is that the proprietor of the mark will institute infringement proceedings in terms of the Trade Marks Act 194 of 1993. In this regard section 38(4) of the Act would be relevant, if the local entity has been registered as a registered user. It provides as follows:

"Subject to any agreement subsisting between the parties, a registered user…shall be entitled to call upon the proprietor thereof to institute infringement proceedings, and if the proprietor refuses or neglects to do so within two months…the registered user may institute proceedings…in his own name as if he were the proprietor…"

This situation thus differs considerably from that in terms of passing off, although the registered user ‘s rights may be limited by a contract containing a stipulation on the issue.

Summary

It appeared that the general rule is that a licensee cannot institute passing off proceedings where there is no own reputation in relation to the goods. A different approach was followed in so far as unlawful competition in general was concerned. An own reputation could be established where there is a reputation that the goods are distributed by the licensee. The position of the licensee or distributor, if recorded as a registered user in terms of the Trade Marks Act, is that he may have the right to institute infringement proceedings.