Monday, 20 September 2010

LAST WEEK’S BURNING ISSUE

Judge Harms, Deputy President of the Supreme Court of Appeal, had a busy week. The ink had barely dried on his Woodlands Dairy judgment (available here http://www.saflii.org/za/cases/ZASCA/2010/104.html) in which he spelt out the extent of the powers that the Competition Act granted to the Competition Commission, when he was faced with one aspect of the ongoing kettle grill saga.
Weber has litigated extensively to protect its trade marks relating to the shape and configuration of barbeque kettle grills, and here it objected to Cadac’s new kettle grill model. First came correspondence alleging trademark infringement, which was denied by Cadac. Weber then alleged counterfeiting, to which Cadac provided a ‘detailed refutation’. Despite this, and without notice, Weber laid a compliant in terms of the Counterfeit Goods Act 37 of 1997. An inspector appointed under the Act then obtained a warrant for seizure of the Cadac kettle grills, and confiscated a number of these grills during the 2004 December Christmas shopping rush. Cadac understandably alleged a loss of profits due to this confiscation. It managed to have the warrant set aside in February 2005, and Judge Schwartzman, hearing the application, found that the warrant had been obtained irregularly and ordered return of the goods. He did not consider it necessary to make a finding on whether the Cadac product was counterfeit.
Cadac had also asked for an inquiry into damages in terms of s17(1) of the counterfeit Goods Act, which entitles a person who suffered loss caused by wrongful seizure to claim compensation. Schwartzman J postponed this prayer sine die, and only three year later did Cadac take further steps, by applying for directions for the conduct of the inquiry. Weber replied that, until a finding was made that the goods were not counterfeit, Cadac had no claim for damages.
Harms dealt with the distinction between infringement and counterfeiting in a passage that will no doubt be quoted in all future such matters. He states, in para [6]:
Counterfeiting involves deliberate and fraudulent infringement of trademarks and ‘counterfeit cases involve an infringer attempting to reproduce – and substitute for – the goods (not just the trademark) of the trademark owner.’ That is why the Act is concerned with trademark and copyright infringements that are criminal in nature. The Act does not permit a rights holder to steal a march on an alleged infringer in order to settle a bona fide dispute about the boundaries of rights. Those disputes should be litigated under either the Trade Marks Act or the Copyright Act.

This warning is timely and valuable. In the recent decision Commissioner, South African Revenue Service and others v Moresport (Pty) Ltd and others 2009 (6) 220 (SCA), the SCA dealt with the duties of the officials acting in terms of the Counterfeit Goods Act, but not with the liability of the complainant. Here, allegedly fake Croc shoes were the subject of a confiscation order. Again, the respondent had alleged that it had a defence, and, after grant of the order, applied to have the warrant set aside. This was upheld by the judge in the court of first instance, who held that the defence raised in the first respondent’s letter was relevant and should have been disclosed to the magistrate who granted the warrant. The court confirmed that all material facts must be disclosed to a court when an order is sought ex parte, and that failure to do so entitles the court to set aside an order (National Director of Public Prosecutions v Basson 2002 (1) SA 419 (SCA) ).
Although the rights owner and the alleged infringer had settled their dispute, the CSARS persisted with its appeal to the Supreme Court of Appeal as it considered the matter of importance in the execution of its duties. On appeal, Tshiqi AJA reaffirmed the principle that an applicant in an ex parte application must disclose ‘relevant and material facts’ (para [9] 223G-H). But he distinguished from this the necessity to disclose that the respondent claimed to have a defence. This he viewed as possibly ‘an ethical duty to bring to the attention of the judicial officer issues of law that might affect his or her decision’ (para [9] 223H-I) but clearly not as a legal duty. His reasoning was that when a warrant is sought, the presiding officer is not required to determine whether the goods are counterfeit, but merely to decide whether there are reasonable grounds for believing that an act of dealing in counterfeit goods has taken place. So the CSARS need only satisfy the court that a prima facie case exists, but need not prove on a preponderance of probabilities that the goods are indeed counterfeit. (This is difficult to reconcile with a decision by the same court the previous year, referred to in this judgment. In Commissioner, South African Revenue Service v Saleem 2008 (3) SA 655 (SCA) (para [14] 662 C-D), Combrink JA said as follows: ‘The case is an important one for the appellant dealing as it does with the conduct and duties of his officials … the powers, like any other administrative powers, must be exercised fairly and reasonably in accordance with the purport and spirit of the Constitution and with due regard to the rights of the individual’.)
Fortunately, in the Cadac decision, the focus shifted to the complainant. Even if it is only ‘an ethical duty’ to disclose any alleged defence, the grant of permission by Harms DP to hold an inquiry into damages might make complainants more cautious about alleging counterfeiting as a shortcut, rather than instituting infringement proceedings.
Harms DP also dealt at length with aspects of the’ inquiry into damages’ procedure, the basis of Cadac’s claim and possible prescription of such claims.
For those who want to study this further , the judgment is reported at http://www.saflii.org/za/cases/ZASCA/2010/105.html

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