mardi, novembre 23, 2010

South Africa: Scope of counterfeit law given some clarity (at last)

Scope of counterfeit law given some clarity (at last)

Contributed by Ron Wheeldon Attorneys

 

Introduction
Mechanics of the Counterfeit Goods Act
Cadac v Weber-Stephen
Comment


Introduction

In keeping with its obligations under the Agreement on Trade Related Aspects of Intellectual Property Rights, South Africa enacted a specific anti-counterfeiting law in 1997 when the Counterfeit Goods Act (37/1997) was passed. At the time, the act was roundly criticised as draconian and one-sided in favour of complainants. This made it ideal for abuse, as the definitions are sufficiently vague to permit for an interpretation that equates an allegation of infringement with actual counterfeiting. This has led to many occasions where legitimate traders have found themselves at a distinct disadvantage in what was really a genuine IP dispute.

One check on the abuse was the 2005 case of Cadac (Pty) Ltd v Weber-Stephen Products Company, which arose from seizure of Cadac products as counterfeit Weber products through the Counterfeit Goods Act procedure. This case has finally found its way to the Supreme Court of Appeal, South Africa's highest court for non-constitutional issues. The judgment was handed down last month and has been welcomed for shedding considerable light on a number of crucial issues.

Mechanics of the Counterfeit Goods Act

The complaint procedure is ex parte. A complainant makes a complaint to an inspector, who may apply to a magistrate or judge for a seizure warrant. This is then executed by the police, accompanied by the inspector and a 'knowledgeable person' who can tell the real goods from the fake. Properly applied, it is an effective remedy in cases where it is typically impossible to use normal civil procedure, such as those involving itinerant street vendors, flea markets and inner-city buildings of obscure ownership and tenancy where much of the counterfeit clothing is produced or finished. Where the act has been used in this manner, it has created little controversy and has been somewhat successful in stemming the tide of counterfeits, although the sheer extent of the problem has prevented absolute success.

Where counterfeiting is alleged against reputable traders who are not counterfeiting but are arguably infringing, the use of the act has been controversial, but difficult to challenge successfully. Often, this has been because the cost of High Court litigation is such that many legitimate traders have abandoned allegedly counterfeit goods to destruction rather than incur the cost of mounting a defence.

The arbitrary deprivation of a person of his or her property may not be permitted under any law, according to Section 25 of the Constitution. In practice, at this point the effect of the Counterfeit Goods Act is that a mere allegation of counterfeiting by a complainant is, at the whim of an inspector (who is not a judicial officer), sufficient to result in seizure of goods without warning and, most seriously, without the defendant having any right to be heard. A magistrate is typically approached to issue the warrant and has no means of testing the accuracy of the allegations made before him or her.

Cadac v Weber-Stephen

This is exactly what happened in the Cadac case. The complainant, Weber-Stephen Products Company, is the owner in South Africa of registered trademarks featuring the shape and configuration of barbecue kettle grills. Cadac had also been manufacturing and selling kettle grills for some time, but introduced a new model which, in the opinion of Weber-Stephen, amounted to infringement of its rights, if not counterfeiting of its grills.

A demand was sent to Cadac alleging infringement, which Cadac denied, citing detailed reasons as to why it did not regard the design of its new grill as an infringement of Weber-Stephen's rights. This was followed by a threat of laying a charge under the Counterfeit Goods Act for counterfeiting. Cadac's attorneys denied counterfeiting and stipulated that they should be informed if any charge under the act were in fact filed.

Weber-Stephen's attorneys went ahead with a complaint, using the ex parte procedure, but mentioned nothing of the correspondence or Cadac's refutation of the allegations. A warrant was issued and, during the 2004 Christmas season, the police proceeded to confiscate Cadac products from dealers and remove them to counterfeit goods depots. Cadac responded with an urgent application to the High Court, which was successful; the judge set aside the warrant on the basis that it had been irregularly obtained, because the complainant had failed in its duty in the special circumstances of an ex parte proceeding to disclose all pertinent facts and had been underhand in its conduct. No finding was made as to whether the goods were actually counterfeit within the meaning of the Counterfeit Goods Act and the application by Cadac for damages arising from the wrongful seizure of its goods was postponed sine die (ie, without setting a date for a future hearing). The goods were returned and efforts by Weber-Stephen to appeal the decision were unsuccessful.

So matters remained for three years and two days. Cadac then applied to the High Court in an interlocutory application for directions on how to proceed with the determination of its damages. This raised opposition from Weber-Stephen, which pointed out that there is nothing in the South African court rules to regulate such a proceeding. Weber-Stephen alleged that Cadac was attempting to have an illiquid claim decided by motion proceedings, which a long line of authority has held to be impermissible. The Supreme Court of Appeal held this argument ill founded because the Counterfeit Goods Act states the entitlement to damages and Cadac, having been found to be entitled to damages, was merely seeking to quantify them. The court stated:

"I cannot see any objection why, as a matter of principle and in a particular case, a plaintiff who wishes to have the issue of liability decided before embarking on quantification, may not claim a declaratory order to the effect that the defendant is liable, and pray for an order that the quantification stand over for later adjudication. It works in intellectual property cases albeit because of specific legislation but in the light of a court's inherent jurisdiction to regulate its own process in the interests of justice – a power derived from common law and now entrenched in the Constitution (s 173) – I can see no justification for refusing to extend the practice to other cases. The plaintiff may run a risk if it decides to follow this route because of the court's discretion in relation to interest orders. It might find that interest is only to run from the date when the debtor was able to assess the quantum of the claim. Another risk is that a court may conclude that the issues of liability and quantum are so interlinked that it is unable to decide the one without the other."

Comment

The above judgment is comfort for the legitimate trader that seeks the release of wrongly seized goods by means of an urgent application, since it relieves such a trader from having to bring a separate trial action, with all of its attendant costs and delays, in order to recover damages and makes clear how one should proceed in those circumstances.

More significant is the following passage from the judgment:

"the learned judge thought it unnecessary to express any view about whether or not the Cadac product was counterfeit. This he did in spite of the fact that 'the striking feature about counterfeit cases is that they are legally very simple: they do not involve serious disputes over the boundaries of the trademark owner's rights. In mimicking the goods and the trademarks, the conduct of counterfeiters clearly falls within the ambit of conduct that a trademark owner is entitled to prevent.'(1)

Counterfeiting involves deliberate and fraudulent infringement of trademarks(2) and 'counterfeit cases involve an infringer attempting to reproduce – and substitute for – the goods (not just the trademark) of the trademark owner.'(3) That is why the Act is concerned with trademark and copyright infringements that are criminal in nature. The Act does not permit a rights holder to steal a march on an alleged infringer in order to settle a bona fide dispute about the boundaries of rights. Those disputes should be litigated under either the Trade Marks Act or the Copyright Act." (emphasis added)

These words are a useful indicator that the Supreme Court of Appeal will not tolerate the cheerful abuse of the Counterfeit Goods Act by rights holders as a means of stifling competition (a practice which has become almost customary in South Africa), and a warning to those that cause goods of legitimate traders to be seized as a cheap alternative to conventional litigation.

For further information on this topic please contact Ron Wheeldon at Ron Wheeldon Attorneys by telephone (+27 11 646 6666), fax (+27 11 646 8895) or email (ron@brands-man.com).

Endnote

(1) "Trademark and counterfeit litigation in Australia", Jason Bosland, Kimberlee Weatherall and Paul Jensen, www.law.unimelb.edu.au/ipria/publications/workingpapers.html.

(2) R v Johnstone [2003] UKHL 28.

(3) Ibid.