Wednesday 17 March 2021

Afro Leo


Cape Horn is a rugged headland that lies at the southernmost point of Terra de Fuego, an archipelago at the very tip of South America. It is notoriously difficult to navigate, with unpredictable weather, high seas, strong winds and turbulent conditions. It is where the Atlantic and Pacific oceans meet and it took a Dutchman Jacob Le Maire to first circumnavigate this cape in 1616. Fast forward 400 odd years and we have a case report of a South African judge navigating the turbulent waters of a trade mark dispute between a licensor and its former licensee involving the brands PACIFIC and ATLANTIC for cigarettes. Can these trade marks mix in the marketplace, was the essential question.

Judge Hughes of the Gauteng Division of the High Court was called upon to decide whether Carnilinx (PTY) Ltd, a former licensee of Open Horizon Ltd’s PACIFIC trade marks (whose license had been terminated for selling counterfeit PACIFIC BLUE cigarettes!), was infringing those trade marks through the use of the mark ATLANTIC. Illustrations of the marks in use are helpfully inserted in the judgment.

The application was launched claiming infringement under Section 34(1)(a) of the South Africa Trade Marks Act 194 of 1994. This section is the identical/similar mark, identical goods infringement provision. It was trite that the goods, namely the sale of cigarettes, were identical and so what lay before the court was to decide whether the use of ATLANTIC infringed one of more of the PACIFIC trade marks owned by Open Horizon. Although there are a number of trade marks to consider, the essential question was whether ATLANTIC was a similar mark to PACIFIC.  Not surprisingly, Judge Hughes, in a well-reasoned judgment, decided that they were not, noting in the process that a number of trade marks co-exit in the marketplace and on the register with “ocean/sea/water” type themes.

The interesting aspect of this case is not so much the decision – few would argue that the marks are too similar (except of course if this was your former licensee who had built up trading goodwill using your brand only to switch it to something arguably similar after selling counterfeit products of your own brand) – but the lessons for licensors.

 In the decision, there is reference to a standard clause in a license agreement requiring the licensee not to impair any right, title and interest in the intellectual property:

 Title to the Intellectual Property

5 1 The Licensee agrees that all right, title and internet in and to the Intellectual Property vests in the Proprietor and that it shall have no claim in and to the Intellectual Property.

5.2 The Licensee may not during or after termination or cancellation of this agreement:

5.2.1 dispute the validity or enforceability of these rights or the Patents;

5.2.2 do anything that contests; or

5.2.2 in any way impairs, any part of that right and title and interest of any of the intellectual property rights which may be the subject of this Agreement and will not direct or assist any other person to do so.’

Now knowing the outcome, the question is how this clause could have been strengthened to avoid such a situation. The good about this clause is that it contemplates that it would survive the termination of the agreement but it would have been better (for the licensor) had it also prohibited the use of marks that contained, for example, “ocean-like connotations” and made it clearer that it did survive termination of the agreement. Hindsight is an exact science but it does illustrate that care should be taken when considering standard clauses and adapting them to one’s brand. Too often short thrift is given to these clauses by licensors.

The second lesson of this case lies in the attempt by Open Horizon to introduce a claim for unlawful competition at the very last moment. The argument is contained in para 41 of the decision:

‘Bearing in mind the history of this matter and the fact that the Respondent was previously licensed by the Applicant and its predecessor-in-title, STIP, there can be no doubt that the only plausible explanation is that the Respondent deliberately adopted its confusingly similar ATLANTIC marks and get-ups in order to imitate the Applicant's successful PACIFIC range of products, thereby obtaining a springboard advantage and taking unfair advantage of the Applicant's fruits and labours. The Respondent is also unlawfully interfering with the Applicant's exclusive rights in its PACIFIC trade marks and PACIFIC get-ups.’   

This argument was not determined by the judge because it was relied on only after pleadings had closed but, in my opinion, is a stronger argument than S34(1)(a) trade mark infringement, especially as the optics do favour the licensor. However, it would have likely required considerably stronger papers to have had any chance of being successful (it is not a slam dunk by an means) and hence would have been more costly to bring. It is telling that the judge simply dismissed it on grounds that it was out of time and did not express a finding on the merits of it at all. This can signal that there is something in the argument.

Afro Leo

Afro Leo

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