Wednesday, 12 May 2010

Franchise halaal - almost. The Wrap It Up decision

The facts of this latest case from downtown Durban, South Africa, are an example of what happens when it all goes wrong in a franchise relationship and exposes some of the risks in what the Franchise Association of SA describe on their home page as "one of the most successful business formats". It also gives us a clue to what you cannot do when relying on intellectual property rights eg you cannot sue for infringement if the registered trade mark has lapsed. Elementary, you may say, well...

The "Wrap It Up" halaal fast food franchise decision was ultimately decided on principles relating to passing off and that incredibly versatile and sometimes vacuous amoeba - unlawful competition.

When one does not have a full set of papers it is difficult to comment on the application of the law to facts but in this case it seems that the goodwill was found in the business represented by the trade marks, without proof of reputation but because it was "generated by their intellectual property" and with, apparently, none of the normal evidence to support this (see paras 33-36 and 42). At this juncture the case looked like one where principles of passing off would be applied. Not so it seems.

The Applicants’ case was then summarised by the Judge "that the Respondents intentionally misrepresented that they had a right to deal with Second Applicant’s intellectual property for their benefit". At para 51 it was then held that the Applicants had failed to show such intentional misrepresentation and hence that he could not find "unlawful competition". Since fraudulent intent is not part of the law of passing off it is not clear whether the Judge is distinguishing between the two legal heads ie unlawful competition and passing off or whether his finding turned on "misrepresentation".

The literal translation of the Arabic word "Halal" is "lawful" which almost transpired to be accurate in this case; the Applicants were not entirely unsuccessful as they became entitled to certain documents and information that had been withheld. Costs were accordingly shared.

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