Monthly Archives: October 2015

Your business risk in selling products to a consumer

Articles imagesThe Consumer Protection Act 68 of 2008 (CPA) came into effect on 1 April 2011. A concise definition of consumers are persons to whom goods or services are marketed, who have entered into transactions with suppliers, users of particular goods or recipients/beneficiaries of services and if the consumer is a juristic person then it will be considered a consumer if it has a turnover or asset value of less than R2 million.

Section 55, states that a consumer has the right to receive goods that are reasonably suitable for the purposes for which they are intended, must be of good quality, in good working order and free of any defects.

The above section brings about the implied warranty in terms of section 56 wherein a consumer can within six months after the delivery of any goods return the goods to the supplier, without penalty and at the supplier’s risk and expense. If the goods fail to satisfy the requirements and standards contemplated in section 55, the supplier must, at the direction of the consumer, either repair or replace the failed, unsafe or defective goods or refund to the consumer the price paid by the consumer, for the goods.

It however is the latter part of section 55 regarding products being free of any defects that has made a substantial change to our common law in terms of product liability. In terms of the common law, a seller of goods is strictly liable to a purchaser for any latent defect in goods (ie. a defect which would not be apparent upon inspection by an ordinary person and which makes the goods unfit, or partially unfit, for the purpose for which they are intended to be used).

In terms of the common law, a seller of goods is strictly liable to a purchaser for any latent defect in goods (ie. a defect which would not be apparent upon inspection by an ordinary person and which makes the goods unfit, or partially unfit, for the purpose for which they are intended to be used).

Section 61 of the CPA has now changed the common law position. It provides that irrespective of negligence each producer, importer, distributor or retailer of a particular product is strictly liable for any harm caused wholly or partly as a consequence of:

  • supplying any unsafe goods;
  • had a product failure, defect or hazard in any goods; or
  • the consumer was provided with inadequate instructions or warnings in relation to any hazard arising from or associated with the use of the product.

Each producer, importer, distributor and retailer of the product is jointly and severally liable, meaning that a person who suffers harm from a defective product can bring a claim against any person in this supply chain.

Therefore a consumer will no longer be required to prove that the manufacturer or other person in the supply chain acted negligently in manufacturing or supplying the goods in question.

This is risky for any business, practising as a retailer to end consumers of a product. It is imperative that goods purchased are inspected prior to the resale to consumers. Furthermore, such businesses should ensure that they have well drafted indemnity clauses in their agreements with their suppliers in which their liability is limited by the supplier agreeing to make good any loss or consequential damages that it may incur.

Please do not hesitate to contact our Commercial Department at kevind@kisch-ip.com or merciaf@kisch-ip.com or 011 324 3025/33 with any queries, or for further information on the Consumer Protection Act, or if you require our assistance in drafting or amending your indemnity agreement.

For more information, please contact:

Anola NaidooANOLA NAIDOO
Candidate Attorney
Department: Commercial
Tel: +27 11 324 3060
Email: anolan@kisch-ip.com

Author: Anola Naidoo

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Intent to use, or to abuse? Improper trade mark management

Articles imagesThe facts and circumstances the Supreme Court of Appeal (SCA) was seized with in Etraction (Pty) Ltd v Tyrecor (Pty) Ltd 2015 ZASCA 78 (28 May 2015), are an object lesson for trade mark proprietors, in how not to manage their affairs.

It was common cause that the Appellant, Etraction (Pty) Limited (“Etraction”), had adopted the mark INFINITY in 1995 for its motor vehicle wheel rim products and had established a business and reputation in wheel rim products under that mark.  Until 2008, it had however taken no steps to register this trade mark in respect of wheel rims, or any other related products, although it had registered other trade marks for products it dealt in.

In the interim, in 2006 the Respondent Tyrecor (Pty) Limited’s predecessor in business Falck, commenced importing and selling tyres bearing the INFINITY mark.  This mark had been used internationally by the Al Dobowi Group, following a launch of its INFINITY tyres in Germany in that year.  The Respondent Tyrecor (Pty) Ltd, in which the Al Debowi Group is an indirect shareholder, succeeded in 2008 to the Falck business of importation and distribution of INFINITY tyres.

The Court found that the evidence showed that there was awareness, from the year 2006, of the sale of INFINITY tyres in South Africa – and that the Appellant Etraction was aware of this inter alia because it was an exhibitor, together with the then importer and distributor Falck, at the Tyre Expo Africa 2006 exhibition where the latter was promoting its INFINITY tyres.

Etraction took no steps in 2006 or thereafter to object to Falck’s importation and distribution of tyres under the INFINITY trade mark. Had Etraction objected to Falck’s use in 2006, the objection may then have been warranted. It had a reputation in the mark INFINITY in respect of motor vehicle wheel rims, and might then with some justification have contended that use on tyres would be likely to be associated with the Etraction wheel rim business.

Instead, Etraction sat idly by while Falck from 2006 onwards, and Tyrecor from 2008 onwards, increased distribution and advertising of INFINITY tyres.  Moreover, the Appellants appear on the basis of the following facts cited in the SCA judgement, progressively to have acquiesced in the Respondent Tyrecor obtaining vested rights in its business of promoting and distributing tyres under the INFINITY mark :

  • On 17 and 18 March 2008 Tyrecor addressed e-mails to Etraction offering to supply it with INFINITY tyres. The e-mails enclosed photographs of the tyres that Tyrecor was offering to supply and set out the prices at which it was offering the tyres. On 26 March 2008, Tyrecor sent an e-mail recording a meeting its representative had with the Appellants representative.  It read as follows:

    “I would once again like to thank you for affording me the time to meet with both of you today to introduce our products. We are very proud of the INFINITY brand and believe that we will be able to add value to your organization.
    I sincerely hope that we can establish a beneficial relationship in the near future. Please do not hesitate to contact me should you require any additional information”.
  • Within three weeks after that meeting Etraction applied for registration of the mark INFINITY in relation not only to wheel rims for vehicles, but also to tyres.  It had not, however, conveyed to Tyrecor either at the aforesaid March 2008 meeting, or when shortly thereafter filing its application to register the mark INFINITY that it objected to Tyrecor using the mark.  Nor did it give any notice of its application to Tyrecor until it had secured registration of the mark, which occurred on 19 May 2011.  During the three years between the date of its application and registration, Tyrecor continued to trade and built up its business in the sale of INIFINITY tyres without any inkling that Etraction objected thereto, or that it intended itself to enter the market for tyres under that brand name.  In 2011, Tyrecor’s turnover from this trade exceeded R100 million.

On the basis of these facts and the Appellant’s evidently supine and acquiescing conduct, the SCA confirmed the partial expungement by the Court a quo of the Appellants registration no. 2008/08612, removing “tyres” from the specification, and in so doing upheld the dismissal of Appellant’s claim for infringement by Tyrecor. The basis in law for this finding, which involved a consideration of the meaning of bona fides for two separate and distinct purposes, was as follows:

Trade Mark infringement and the defence of “prior use”

Etraction, on securing registration in May 2011 of its INFINITY mark in class 12 covering both wheel rims and tyres, instituted infringement proceedings against Tyrecor.

Tyrecor raised a defence under Section 36(1) of the Trade Marks Act.  This section precludes a trade mark proprietor from interfering or restraining a third party from using the same (or confusingly similar mark), if that third party had made continuous and bona fide use of the mark in question from a date prior to the registrant’s first use of the mark, or prior to its registration thereof, whichever was the earlier.

The SCA held on the facts summarized above that Tyrecor (initially through its predecessor in business Falck and thereafter itself since 2008) had enjoyed continuous and bona fide use of the INFINITY mark in respect of tyres from a date prior to Etraction’s application (i.e. in 2008) to register the mark in respect of inter alia tyres, and thus that the provisions of Section 36(1) applied.

Etraction’s contention that Tyrecor did not have rights arising from its distribution of INFINITY tyres (i.e. in that it was itself not the manufacturer that had applied the mark to the tyres, and was thus not the proprietor of the mark), was dismissed on the basis that Tyrecor had established user rights in its business in the distribution and promotion of INFINITY tyres – and more specifically that its interest in a business in goods under that mark, was a protectable interest for purposes of Section 36(1).

Intent to use, or to abuse?

The second context in which the meaning of bona fides was considered on appeal, was in relation to Etraction’s own intention to use the INFINITY mark in respect of tyres. On the facts, the court found that Etraction had never had any bona fide intention to use the mark INFINITY on tyres, holding in this connection that its conduct in obtaining a registration covering tyres was for an ulterior purpose, and that it was carried out surreptiously. It accordingly confirmed that its registration was liable partially to be expunged by the removal of tyres from its specification.

The judgment canvasses in detail Etraction’s failure in 2006, when it learnt of Falck’s commencement of the distribution of INFINITY tyres, to object to that distribution – and the adverse inferences to be drawn from that failure to object. This finding begs the question:  had Etraction objected to Falck commencing distribution of INFINITY branded tyres in 2006, would continued use have been “bona fide” use of the INFINITY mark for purposes of a defence under Section 36(1)?

The SCA in making its finding on the issue of Etraction’s bona fides, cited with approval the judgment in Rembrandt Fabrikante en Handelaars (Edms) Bpk v Gulf Oil Corporation [1], wherein it was held that:

“…an ulterior purpose, unassociated with a genuine intention of pursuing the object for which the Act allows the registration of a trade mark and protects its use, cannot pass as a bona fide user”;

and also the judgment of Harms JA in AM Moolla Group Ltd v The Gap Inc [2], wherein it is stated:

“For present purposes, it suffices to say that “bona fide” user means a user by the proprietor of his registered trade mark in connection with the particular goods in respect of which it is registered with the object or intention primarily of protecting, facilitating, and furthering his trading in such goods, and not for some other, ulterior object”.

Similarly, the court referred to the European Court of Justice case of Ansul, where it was stated that: “When assessing whether use of the trade mark is genuine, regard must be had to all the facts and circumstances relevant to establishing whether the commercial exploitation of the mark is real…”.

Conclusion

The essence of a trade mark is its capacity to distinguish one trader’s goods and services, from those of competing traders.  This fundamental characteristic is the basis of the well-known dictum in Kinetex Africa (Pty) Ltd v Coverite (Pty) Ltd 1967(3) SA 307(10) , citing Kerr On Injunctions – “the life of a trade mark depends on the promptitude with which it is vindicated”.

The facts in the Etraction/Tyrecor matter illustrate what occurs when rights in a trade mark are not promptly vindicated – and that failure to assert rights as soon as third party conduct impinges upon them, allows such third parties to acquire vested rights.  It shows further that obtaining a trade mark registration, while simultaneously acquiescing in the establishment of competing third party rights, will be of no avail, and will be regarded by our Courts as sharp practice.

[1] 1963 (3) SA 341 (A) at 351 C-F

[2] (123/2004) [2005] ZASCA 72; [2005] 4 All SA 245 (SCA) at para 42

For more information, please contact:

Zama ButheleziZAMA BUTHELEZI
Attorney
Department: Trade Mark
Tel: +27 11 324 3027
Email: zamab@kisch-ip.com

Author: Zama Buthelezi

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Can you rely on your suretyship in business rescue?

Articles imagesSo you think it’s safe to offer credit to a company or close corporation just because you have a suretyship in place? The Companies Act 71 of 2008 (“the Act”) and recent case law may change your thinking.

Once business rescue commences, the company enjoys a personal moratorium in terms of section 133(3) of the Act which precludes a creditor from claiming against a company, including in respect of suretyships which the company stood surety for, as this action is suspended for the duration of business rescue. Should a creditor wish to retrieve the company debt, the creditor would need to enforce a suretyship against those who stood as surety/ies for the company debt.

It is important to note that while a creditor’s claim against the company is suspended, so is the legal time limit to institute legal proceedings there for, however, prescription is applicable when enforcing the suretyship and therefore it is imperative that a creditor knows when the outstanding debt became due and payable in order to avoid the prescription of the creditor’s debt.

When a business rescue plan fails to provide for suretyships, the common law position becomes applicable. The common law position is that the obligation of a surety is accessory in nature, thus the extinction of the principal obligation extinguishes the obligation of the company. It is this position that questions the enforceability of a suretyship against the sureties of a debtor company. The two recent court judgments, Turning Fork (Pty) Ltd t/a Balanced Audio v Greed and Another 2014 (4) SA 521 (WCC) and New Port Finance Company (Pty) Ltd v Nedbank Ltd (30/2014) ZASCA 210 are vital to understanding the enforceability of a suretyship.

From the above it is generally accepted that the principal debt is discharged by an agreement between the principal debtor and the creditor or by the release of the principal debtor, the surety is released unless the deed of suretyship provides otherwise.

Some light can be found in section 155(9), in that a compromise does not affect the liability of any person who is a surety of the company and thus the rights of a surety are preserved. Therefore, you may proceed against a surety for the debts of a company in business rescue at the commencement of the business rescue proceedings when the company is enjoying the protection of the personal moratorium, which protection the surety cannot invoke. However, when the business rescue plan is silent on the creditor’s right against such surety, you may not proceed against the surety for the debts of the company which is in business rescue after such plan is adopted and which provides for the discharge of the debt by agreement between the principal debtor and the creditor or release of such company’s obligations to the creditor.

So what should you do? A creditor must ensure that when entering into a suretyship to recover the debts incurred by the company, that the surety relinquishes the benefit of excussion (the right to require the creditor to claim from the principal debtor before claiming against the surety) and agrees to pay the debt of the company should the company enter into business rescue regardless of what is stipulated in the business rescue plan. Furthermore, creditors of the company in debt must ensure that they attend the meeting of creditors when called by the business rescue practitioner. Creditors must furthermore ensure that at the meeting, the business rescue plan takes into account suretyships and the ability for creditors to enforce same regardless of the fact that the company in debt is in business rescue.

Please do not hesitate to contact our Commercial Department at kevind@kisch-ip.com or merciaf@kisch-ip.com or 011 324 3025/33 with any queries, or for further information on suretyships or business rescue, or if you require our assistance in drafting or amending your suretyship agreement.

For more information, please contact:

Anola NaidooANOLA NAIDOO
Candidate Attorney
Department: Commercial
Tel: +27 11 324 3060
Email: anolan@kisch-ip.com

Author: Anola Naidoo

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Protection of clothing IP

Articles imagesA number of businesses in South Africa are related, directly or indirectly, to the design and manufacture of clothing, garments, apparel and fashion accessories. For these companies the issue of protection of Intellectual Property presents a number of challenges that other manufacturing sectors do not face.

Clothing design and manufacture is a rapid process, with even small labels being expected to launch relatively large product ranges on a seasonal basis. This makes blanket protection of products prohibitively expensive and places severe constraints on the forms of IP which can be used. For instance, clothing design generally occurs in a space where mass manufacture limits the available copyright that can be applied. The clothing industry is also a relatively mature technological space, which significantly limits the scope of protection which can be obtained. By the same token, however, a small difference from the prior art (such as a single distinguishing feature) can form the basis for a successful application.

With these issues in mind, there are still a number of avenues open for protection of IP in the clothing and fashion industries. Where a technological innovation is present that sufficiently differentiates an invention from the prior art, protection by means of patent may be used. Designers or manufacturers seeking to protect only the visual aspects of their products may instead rely on registered designs and trademarks.

Registered designs, like patents, are territorial in nature and require novelty. Here this means that the design itself must not form part of the state of the art prior to registration or release. Registered designs are also required to be original or not commonplace in the art, both of which can be broadly understood as meaning that the design must be the original work of the applicant.

Once granted, registered designs can provide a number of advantages for designers seeking to protect a product; as they are relatively cheap to lodge and can be rapidly used to provide protection. In addition, an applicant can register a design up to six months after it is released to the public. Registered designs can also be applied for a number of products common to the clothing industry; including the garments themselves, fabric patterns, and logos or visual designs applied to garments. Finally, registered designs can be applied to sets of items in certain circumstances.

While registered designs can protect the product itself, trademarks allow a designer or manufacturer to protect their brand. Here the purpose of a trademark is to protect a ‘mark’ (defined as any sign capable of graphical representation) for the purpose of distinguishing goods and services from one another. Trademarks are therefore required to be distinctive in relation to similar goods and services, and must be either in use or intended for use as a trademark.

Trademarks, once registered, have significant advantages over other forms of IP protection. They apply to the brand rather than a given product, and can serve to ward off competing services which would seek to capitalise on the brand’s reputation by means of mimicry or misrepresentation. A trademark, once filed, can also (theoretically) last for as long as it is renewed. Finally, trademarks may be applied concurrently with registered designs where logos are concerned. However, the registration of trademarks has significant time and cost implications.

Given the short lifespan of individual clothing designs when compared to the long lifespan of a brand or label, many existing fashion houses have chosen to simply forgo design protection in favour of trademarks. A careful mixture of approaches may still, however, yield the best results when judiciously applied. Patents may be considered for specific cases where critical technology is concerned, while registered designs may be applied more broadly to individual designs or sets of similar designs. Trademarks, in turn, may be used to protect the brand the products reside in, and may be augmented by other measures such as defensive company name registration.

In deciding the right mix of protection to use, the designer or owner should carefully weigh the time and cost of protection against the benefits it provides on a case-by-case basis.

For more information, please contact:

THOMAS GERARD SCHMIDT
Candidate Attorney
Department: Patents
Tel: +27 11 324 3031
Email: thomass@kisch-ip.com

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

 

Mobile apps – how do you protect them?

Mobile_Apps

During the last few years, there has been a staggering growth in the number of mobile applications (‘apps’) that have become available for download in leading app stores, and there is no sign of this trend slowing down anytime soon. The question that all developers face is whether it is possible to protect the underlying concept(s) of my newly developed app, or any other computer program for that matter and if so, how do I go about protecting same?

In terms of South African copyright law, computer programs (including apps) as such qualify for copyright protection. Therefore, as soon as an original computer program is reduced to a material form, it is automatically protected by way of copyright. Unfortunately, copyright protection only extends to the particular embodiment of the source code and layout on the screen of a mobile device, and will not afford any protection against copying of the concept(s) on which the computer program is based. The result is that in very few instances copyright would afford a computer program sufficient protection.

So, if it turns out that copyright does not provide an app with the desired degree of protection, is there another option that developers could look into in order to protect their apps? The answer to this question could be a patent. According to South African patent law, any invention is patentable in general if it is new, involves an inventive step and is useful in trade, industry and agriculture. Although our Patents Act (‘the Act’) does not define what an invention is, it at least provides a list of items that are not regarded as patentable. One of the listed items is a “program for a computer”. Fortunately, the Act states further that the list of items is unpatentable “only to the extent to which a patent or an application for a patent relates to that thing as such”. The reason for listing computer programs as such might well be for the fact that they are the subject of copyright protection.

Our South African courts have unfortunately not yet been asked to adjudicate on the patentability of computer-implemented inventions. However, the European Patent Convention, which deals with the granting of European patents, includes a similar exclusion relating to computer programs, and there has been a significant amount of case law in Europe in this regard. The approach that the European Patent Office follows, and which should be followed in South Africa, is that computer-implemented inventions, as with all inventions, are patentable only if they have technical character, are new and involve an inventive technical contribution to the prior art.

Therefore, once a new app has been developed, it is advisable to approach and obtain the inputs of a patent attorney as soon as possible and before the app is disclosed to the public. Otherwise, if it later turns out that the app is of a technical character and has a unique functionality and no patent application was filed in respect of same, the developer would not be in a position to prevent others from developing another app performing a similar function.

For more information, please contact:

Werner van der MerweWERNER VAN DER MERWE
Associate Attorney
Department: Patents
Tel: +27 11 324 3073
Email: wernerv@kisch-ip.com

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).