Supreme Court swings trademark law back to European roots

One of the debates raging in the world of intellectual property concerns the rational limits of IP protection and where the line should be drawn between granting monopolies and allowing free competition. In some circles IP protection has become a label for blatant anti-competitive behaviour, and the US Supreme Court’s recent ruling on patent protection in KSR v Teleflex has been seen as a welcome limitation of runaway patent monopolies. In the trademark field, the reining in of the dilution theory by the US Supreme Court in Victoria’s Secret was echoed in South Africa in the Laugh it Off Case. Both cases support the widely held view that dilution (at least by alleged blurring) is a fiction. However, despite the guidance provided by these cases, the proliferation of dilution statutes, the recognition of rights where there is no local registration and the criminalisation of counterfeiting – often so loosely defined that innocent infringement can be characterised as counterfeiting – have increased the risks inherent in ordinary, honest competition and are threatening to hamper seriously the development of small and medium-sized enterprises.

For those involved with the South African vehicle spare parts industry there was little surprise when BMW sued telemarketer Verimark for trademark infringement for showing a BMW vehicle, complete with badge, in an infomercial for a car polish. However, the decision by the Transvaal Provincial Division of South Africa’s High Court to refuse to grant BMW an injunction may have been less predictable. BMW clearly considered the judgment to be incorrect and appealed to the Supreme Court of Appeal. The Supreme Court’s judgment in Verimark (Pty) Ltd v BMW AG [2007] SCA 53(RSA) was handed down on May 17 2007 and confirms, in no uncertain terms, the correctness of the High Court’s finding.

In recent years there has been growing unease with the popular interpretation of the infringement provisions of the Trademarks Act 1993 - namely, that any use of a registered mark, whether as a trademark or not, infringes. In the opinion of many practitioners, the only legitimate concern of trademark law is where a mark is used to confuse or deceive consumers as to the source of the goods offered. Following this reasoning, the sale of aftermarket spare parts that are branded with the manufacturer’s trademark, but also carry the name of the vehicle they are intended to fit, is clearly allowed and does not amount to counterfeiting or even infringement. In the same way, an honest comparison where the competitor’s goods are identified by the competitor’s mark should not be judged to be infringing.

It has seemed as if South Africa might be plotting its own unique course on trademark law and that the function of a trademark as a designator of origin had fallen away. This was the conclusion of the Cape Provincial Division in the 1999 case Abbott Laboratories v UAP Crop Care (Pty) Ltd, which concluded that brand comparative advertising – where the competing party’s brand is used to identify its product – amounted to trademark infringement. Critics of the judgment pointed out that, if correct, it meant that South Africa was seriously out of step with EU law. Moreover, according to the explanatory memorandum that accompanied the Trademarks Act at bill stage, this was the opposite of what the act had been designed to achieve.

Although the SCA subsequently stated that the primary function of a trademark was still to designate origin, it did this without actually overruling Abbott. The result was that certain elements still believed that Abbott was good law. For this reason, the Supreme Court’s ruling in the BMW Case specifically distances the law from Abbott. The Supreme Court has taken the opportunity to make it plain that a “trademark serves as a badge of origin”, a fact the court describes as “trite”. The ruling thus brings South Africa back into line with EU law by specifically adopting the European Court of Justice’s test for infringement - namely, that the use must create “the impression that there is a material link in trade between the third party’s goods and the undertaking from which those goods originate”.

The effect of this judgment should not be overstated: each judgment is true to its own facts and in this case it was clear that to grant BMW relief would have been absurd. When dealing with spare parts and alleged counterfeits the issues are not always black and white. However, it seems clear that it is no longer possible to allege that, for example, a headlight in a HELLA box and bearing the HELLA trademark, but also a white block printed with, for example, 3 SERIES 1986-1993, infringes the trademark and is thus a counterfeit. A similar light in a box emblazoned BMW is, if not put in that box by or with the authority of BMW AG, very much an infringement and plainly counterfeit, which is as it should be.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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