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Designed to deal with unlawful competition

Published

2012

Thu

14

Jun

By: Jodi Coxwell, associate in IP department & Janine Lee, senior associate in Litigation department

 

Intellectual property law comprises four major areas: patent law, trade mark law, copyright law and design law. Of these four, design law is probably the least understood.  And, of the registrations available, the design registration is certainly the least used.

 

It’s possible to get a design registration for, amongst other things, the shape of a product. The most important requirement for registration is that the design must be new. The design can be functional or it can be aesthetic - if it’s functional the protection lasts for ten years, whereas if it’s aesthetic it lasts for 15. The registration allows the owner to stop a competitor making or selling any article that embodies the particular design, or any design that’s similar. In other words, a design registration gives the owner a qualified monopoly that’s very powerful. And, to top it all, a design registration is easy to obtain, because there’s no examination on the merits of the application.

 

Yet relatively few South African companies seek design registrations. In fact, the first time many of them ever get to hear about design registrations is when they consult with an IP attorney to complain about the fact that a competitor’s making a similar-looking product.  And by that stage it’s far too late to get a design registration, because the design’s no longer new. ‘But surely there’s something we can do about this copying, even if we didn’t get a design registration?’ It’s a question that attorneys hear all too often. And the answer is a very unsatisfactory:  ‘Well... maybe, but probably not.’

 

There was a time when you could claim copyright infringement in the case of product copying, but those days are long gone – the law is now quite clear that the reverse engineering of an industrial product that’s in the market does not infringe copyright.  That leaves you with just one possible remedy: the rather airy-fairy world of  unlawful competition.

 

So what’s unlawful competition all about then?  In South Africa competition is, of course, lawful, in fact the Constitution positively encourages it – Section 22 provides that every citizen has the right to choose their trade, occupation or profession freely.  But, as with all rights, there are limits.  And any conduct  that oversteps the boundary of acceptable competition is regarded as unlawful competition.  Competition’s regarded as unlawful when it’s unfair or dishonest, and when it offends against the general sense of justice of the community. This brings some rather elastic notions into play, like fair play, and the morals and business ethics of the industry sector involved. 

 

But when exactly does competition overstep the mark?   The best known form of unlawful competition is passing off. This occurs when one party misrepresents that its products are connected with those of a well-established competitor. Although passing off usually involves the use of a similar brand name, it might conceivably occur through the use of a similar product shape. But passing off of this type is rare. And if there are any external factors that effectively reduce the likelihood of consumer confusion – such as differences in branding and get up - there will be no passing off.

 

Competition may also overstep the mark if there’s been theft of a trade secret or confidential information.  Something’s that rare, but that may possibly occur when a company induces an employee of a competitor to jump ship. In a 1972 case, Stellenbosch Wine Trust Ltd v Oude Meester Group Ltd, the court said this: ‘I have no doubt that the trader who filches information from a competitor, information which he knows to be secret and confidential, and which has been developed by the competitor’s skill and industry, is acting unfairly and dishonestly if he uses the information for his own profit and to the detriment of his rival. His conduct amounts to deliberate misappropriation of a business asset which was acquired by another’s skill and industry.’

 

Competition may also be unlawful if it’s accompanied by base motives - so, for example, if a company copies a competitor’s product not because it sees a real business opportunity, but because it wants to put the competitor out of business.  In the famous case of Bress Designs (Pty) Ltd v GY Lounge Suite Manufacturers (Pty) Ltd the court said this: ‘In my view a clear line should be drawn between acts of interference with the interests of another when the object is the advancement of a person’s own interest and such acts whose sole or dominant purpose is the infliction of harm for its own sake. Whereas in law the advancement of one’s own economic interests is, generally speaking, a legitimate motive for action, there can be no doubt that the community would condemn as contra bonos mores (against good morals) the malicious destruction or jeopardizing of a sound business through the marketing of identical furniture at cut-throat prices for reasons of personal vindictiveness. I have no doubt that not only by the community in general but also in the field of the ethics and morality of the furniture manufacturers such conduct is not acceptable, though copying each other’s product may be the order of the day.’

 

But what about the straight copying of a product, without the infringement of any intellectual property right, without any consumer confusion, without any theft of trade secrets, and without any base motives?  Is the mere copying of a product ever unlawful?  Copying is not illegal per se, and the fact a product can be lawfully replicated once a patent expires certainly suggests that we, as a society, don’t regard copying as being contrary to the sense of justice of the community. But there was a famous case in 1986 called Schultz v Butt which suggests that, in some rare cases, copying might be unlawful. In that case Butt had spent an extraordinarily long time developing  the hull of a boat (25 years), and he had been unable  to get a design registration because of the legislation that applied at the time. Despite the fact that there was no question of confidentiality or trade secrets (because Butt had put his product out there in the market), the court held that Schultz’s copying was unlawful. Said the court:  There can be no doubt that the community would condemn as unfair and unjust Schultz’s conduct in using one of Butt’s hulls (which were evolved over a long period, with considerable expenditure of time, labour and money) to form a mould with which to make boats in competition with Butt.’

 

So there may be cases where simple copying of a product is unlawful. But these cases will be rare.   Factors that may be relevant include the work and effort that went into the product’s creation and development, the amount that’s been invested in the product, the extent to which the product’s been copied, the norms of the industry and the extent to which copying does take place, the technical and commercial feasibility of product differentiation in that industry, and the economic sense or nonsense of requiring investment in redesigning a satisfactory product from scratch. And, quite possibly, the court may want to know why no registration was obtained.

 

It makes no sense to assume that, if your product is one day copied, the courts will come to your aid and hold that there has been unlawful competition. What does make sense, though, is to consult with an expert at the early development stage to see what, if any, registered protection may be available.

 
Source: Epic Communications (Pty) Ltd
 
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