Monday 22 November 2010

Darren Olivier

RSA's SCA on cloning and counterfeiting - latest case

Hot on the Puma-sponsored heels of Sebastion Vettel’s F1 win is news of RSA’s SCA decision upholding a Puma appeal in what is likely to be a landmark case involving counterfeit shoes.

Like the F1 result, this decision was not easy to predict; the SCA had held against Puma in favour of copycats Global Warming just a year ago (see Afro-IP here and here) and a statement in the recent Cadak case (see Afro-IP here) would have had the bookies trading bets against a decision in Puma’s favour. One got the sense though that anything could have happened on the day as the “interpretation of the Counterfeit Goods Act remains contentious”. The judgement itself sets the tone in para 1.

The action started at the same time as the preparations for the F1 2010 season. Puma had caused shoes imported by the Rampar (a local shoe retailer) to be detained on suspicion that they were counterfeit about a year ago. Pictures of the shoes and the relevant registered trade mark are helpfully pasted at the end of the SCA judgement.

Rampar sought a declaration that the goods were not counterfeit. They achieved success in the lower court. Two issues arose then, and now on appeal:
  1. Whether, unless the trademarked goods are cloned they cannot be counterfeit. In other words because Puma did not manufacture shoes bearing the registered trade mark in issue (they do produce others shoes) counterfeiting by Rampar could not take place; and
  2. Whether, the shoes were counterfeit within the meaning of the Counterfeit Goods Act.
The Cloning Issue

Can we clone Harms?
 Harms displayed his usual knack of making sense, negotiating the chicane of adverse opinion in Webster and Page (a local textbook authority) and the text of the TRIPS agreement with some ease. In doing so the SCA helpfully set out the applicability of different sections of the Act to different forms of counterfeiting, namely those involving copyright, trade marks and certain merchandise marks. Paras 10-22 are instructional and a worthy read.

The SCA concluded that cloning is not required but not before dealing with its statement in Cadac head on and, it must be said, with a curious lack of persuasion. The SCA simply stated that the potentially debilitating sentence (quoted below) was “in another context to make a different point” without elaborating (see para 22).

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” [ie cloning is required.]

The SCA could have said that “goods” in the sentence (quoted from Cadac and the English case of R v Johnstone – both cases involve counterfeiting) should be interpreted in RSA to mean “protected goods” as defined and interpreted by the SCA in the judgement but chose not to. It is the second definition of “protected goods” in RSA’s Counterfeit Goods Act that Harms relies on to find that counterfeiting extends notional goods (see para 19) ie that cloning is not required.

Afro Leo notes in para 19 that the SCA describes a trade mark right as a positive right eg in describing notional goods as “goods to which the owner could have applied the trade mark” which may end any debate in RSA on whether the nature of a trade mark right is negative or positive.

Afro Leo also notes that the concept of notional goods extends to a “class of goods” in respect of which the IPR can be applied “only with the authority of the owner of the IPR” and therefore could include all infringing goods ie not only those in respect of which the IPR is used and covered by the registered IPR but all infringing uses which, in the case of registered mark in class 25 could be sporting equipment or holdalls or protective clothing. This is obviously good news for brands faced with counterfeiting.

One wonders if this judgement might extend counterfeiting to stop phishing - typically excluded because phishing mostly involves counterfeit services and not goods. However, take for example the phishing site of a bank - is there an argument that the fraudulent use of the bank's trade mark on the phishing site is use of the bank's registered mark covering "electronic publications", using the "notional goods" argument.

Counterfeiting – are the shoes counterfeit?

The second issue was not considered in the lower court and therefore open road for the SCA. Since counterfeiting by nature involves the infringement of a registered mark it follows that if there is no trade mark infringement there cannot be counterfeiting but there must be more. Harms confirms this at para 24, somewhat ironically quoting Cadac:

“That is why it [a counterfeit] must be “calculated to be confused with” or “taken as being” the registered mark and why it involves deliberate and fraudulent infringement of trademarks”.

Rampar attempted to distinguish the reproductions of the registered mark on their three shoes and argued that it was likely to be seen as decorative use or mere ornamentation and not as a trade mark. The SCA disagreed on both counts.

The SCA felt that additions to the registered mark on the shoes were “at best subsidiary and do not touch the essence of the [registered] split form strip”. It is worth analyzing the difference between the three shoes in this case and the registered mark(s) against the shoes and the registered mark(s) relied on the Global Warming case to get the benefit of the judgment, especially if you happen to operate in a copycat environment.

One will also immediately ask the question why Puma had not relied on its split form trade mark in the Global Warming decision and Afro Leo understands that it is because the mark had not been registered at the appropriate time. Had Puma obtained the registered mark (which is not that dissimilar to the marks they relied on) Global's position is likely to have changed from legitimate copycat (albeit that Afro Leo thinks there was dilution in that case) to counterfeiter following the SCA reasoning, illustrating both the need to register trade marks but also the tight line between legitimate business and criminal activity.

Importantly, Harms states that one cannot “use a [registered] trade mark and then argue that it was used as ornamentation” and then cleared up some possible confusion with para 6 of the Global Warming judgment by stating that “It could be different if one is dealing with the changes to mark, for instance, if the registered marks consists of three stripes it would be a question of fact whether the use of two or four stripes would be perceived as decorative or as trade mark use”.

The Court then upheld the appeal.


Vettel adjudges copycats leg before
This case provides a useful interpretation of the Counterfeit Goods Act and is likely to be welcomed by brand owners faced with counterfeiting problems because it clarifies that no cloning is required to get the benefit of protection under the Act. The judgement admits that it is not clear whether the second definition of “Protected Goods” could be applied to copyright piracy so clarification is still required.

The case is also notable, not unlike Vettel, for its speed (any matter to reach a decision in the SCA in just over a year is exceptional) and the performance of relatively new talents (Adv Joubert and Adv Marriott) in presenting before the SCA in a case, one feels, could have gone either way.

Darren Olivier

Darren Olivier

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