Monday, 5 May 2014

RSA: Trade mark damages/reasonable royalty – fault or discretion?

In an apparent first for South African trade mark law, the Western Cape High Court has considered whether the remedy of damages or a reasonable royalty for trade mark infringement requires the claimant to prove fault in the form of negligence or intention.  The judgement can be found here.

I won’t bore you with the complete factual matrix which is far too complicated for a post-long-weekend Monday morning.  Suffice it to say Terespolsky, of Col'Cacchio fame, owned the trade mark MORITURI in respect of pizzerias and opened a pizzeria in Claremont in the 90s called “Morituri by Col’Cacchio”. He sold that business with the terms permitting the purchaser to use the name Morituri only in respect of the Claremont premises.  Terespolsky seems to have a habit of naming his restaurants irreverently - Col’Cacchio apparently means “up yours” and Morituri “those about to die”.  The fare served at these establishments is however anything but irreverent – my unshakeable belief is that Morituri in Claremont serves the best pizza in Cape Town (which pretty much makes it the best pizza in the country).

The defendants, unaware of the terms of the sale, purchased the Claremont business and proceeded to open Morituri branches in Stellenbosch and Lakeside, prompting trade mark infringement proceedings by Terespolsky.  The defendants admitted the infringement and consented to interdictory relief, but opposed payment of a reasonable royalty (one of the remedies afforded to trade mark owners in the Act).  Terespolsky argued that once infringement has been established, a right to damages/reasonable royalty followed as a matter of course, i.e strict liability without fault.  The defendants in turn argued that because section 34(3) of the Act states that the court “may” grant such relief, as opposed to “shall”, the court has a discretion whether to order payment of damages/reasonable royalty.

Although the court wasn't called upon to address the question of whether damages require fault, the court gave support to the view expressed in Webster & Page that ordinary delictual principles should apply and that fault is required, given the rule of interpretation that a statute does not alter the common law beyond its clear terms.  Notably, the court found that damages flowing from use occurring between publication and registration of a mark do not require fault but are discretionary, given that our common law would not recognise a claim in respect of that period.

The court was, however, called upon to consider whether a reasonable royalty requires fault.  The court found that because a claim for a reasonable royalty does not exist at common law, ordinary delictual principles do not apply and the word “may” in the Act should be given its ordinary meaning.  In other words, the remedy of a reasonable royalty does not require fault and the court has a discretion to decide whether it is just and equitable to grant the remedy.  The court declined to order the remedy in respect of the Lakeside pizzeria on the basis of triviality, but did order an enquiry to quantify the royalty in respect of the Stellenbosch business.

There does appear to be a contrary view on this, from none other than the authors of Webster & Page (at para 12.56).  Given that payment of a reasonable royalty is stated to be “in lieu of" damages in the Act, the authors hold that the same principles applicable to payment of damages (i.e. fault based liability) should be applicable to payment of a reasonable royalty.

Given the already significant difficulties faced by claimants in proving damages, the court's comments (albeit obiter) that fault needs to be shown could make claiming damages less attractive. Whether the court's finding that an equitable discretion applies to a reasonable royalty claim will make that remedy more or less attractive will probably depend on the facts.  One thing is clear though, it does introduce an element of uncertainty given the nature of discretion.

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