Intent to use, or to abuse? The consequences of improper trade mark management

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7 October 2015

The 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, 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, 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.