RSA: Finance giants battle over limping trade mark – Discovery v Sanlam

Who says IP doesn’t happen in the Cape! In an intriguing High Court judgement, the court considered an issue one often encounters in practice but which hasn’t, as far as I know, been fully ventilated in our courts - that of the registrability of limping trade marks. Jacobs J (as he then was) coined the phrase “limping trade mark” in the Philips v Remington UK case.  The term denotes a mark that is weak in distinctiveness which is always used together with another, stronger mark, very often a house mark, so that the weaker mark relies on the strength of the stronger mark in order to act as a trade mark.

Unusually, the judgement is littered with references to American sources, which is a refreshing change from the usual European bias!

Discovery, the well-known financial services and insurance provider, owns a registration for ESCALATOR FUNDS covering insurance and financial services, and has used the mark in relation to constant proportion portfolio insurance (“CPPI”) share trading products.  Sanlam, another well-known provider in the same industry, has been using the mark SANLAM ESCALATING FUND in respect of its own CPPI products.

Discovery sued for infringement of its registered mark as well as passing off.  Sanlam counter-claimed for revocation of Discovery’s registered mark on the basis that it is not capable of distinguishing and is entirely descriptive and in common usage.  Ultimately, the court found that Discovery’s mark was liable to revocation on this basis, but still saw fit to consider the infringement issue nonetheless, finding that confusion or deception was unlikely.  Furthermore, given the descriptiveness of the mark, Discovery could not show a reputation in the mark and its claim of passing failed accordingly.

A few points are worth noting here.  Firstly, in determining whether the Discovery ESCALATOR FUNDS mark had acquired distinctiveness through use (so called secondary meaning), the Court found that the mark was always used along with Discovery’s house mark – DISCOVERY.  The court found that the failure to use the ESCALATOR FUNDS mark (product mark) in isolation from its house mark effectively meant that the consumer was not given an opportunity to disassociate the product mark from the house mark, and that the public cannot be said to recognise the product mark as an independent mark as a result.  The Court therefore refused to spare the registration for the product mark on the basis of acquired distinctiveness.  It should be noted that the judgement contradicts that of the then European Court of Justice (ECJ) in Nestlé v Mars in which it was held that use of a mark as part of or in conjunction with another mark is not a bar to the mark acquiring distinctive character in its own right.  Owners of limping marks in SA should take heed and should use the weaker mark independently of the stronger mark, lest it suffers the same fate.

Secondly, the Court did not follow the reasoning of the Supreme Court of Appeal in the ZETOMAX case, where it was held that patients’ involvement in choosing medicines should be given due weight (thereby increasing the likelihood of confusion) despite the fact that prescription medicines reach patients via medical professionals who are less likely to be confused.  Here, the Court found that, because the CPPI products are usually sold via brokers having intimate knowledge of the products, the likelihood of confusion is diminished.  In other words, the involvement of the end user was not given much weight, as in ZETOMAX.  I wonder whether the Court got this right – individual traders are becoming increasingly less dependent on brokers through online share trading platforms and the like.

Finally, and importantly, the Court confirmed that simply adding a house mark to an earlier mark will not necessarily suffice to avoid confusion between the two (in line with the well-known Medion decision of the ECJ).  However, the Court found that if the common element between two marks is weak in distinctiveness, it is unlikely that consumers will be confused unless there are other commonalities.  The addition of the dominant SANLAM element was therefore found sufficient to avoid confusion.