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2020
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[2020] ZAGPJHC 67
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Discovery Ltd and Others v Liberty Group Ltd (21362/2019) [2020] ZAGPJHC 67; [2020] 2 All SA 819 (GJ); 2020 (4) SA 160 (GJ); 2020 BIP 351 (GJ) (15 April 2020)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO:21362/2019
In
the matter between:
DISCOVERY
LTD
First applicant
DISCOVERY
LIFE
LTD
Second applicant
DISCOVERY
VITALITY (PTY)
LTD
Third applicant
and
LIBERTY
GROUP
LTD
Respondent
J
U D G M E N T
KEIGHTLEY,
J
:
INTRODUCTION
1.
The first applicant in this
matter is Discovery Ltd (Discovery). It is the sole shareholder of
the second and third applicants,
Discovery Life Ltd (Discovery Life),
and Discovery Vitality (Pty) Ltd (Discovery Vitality), respectively.
Discovery is the proprietor
of two trade marks, viz. Discovery and
Vitality. The trade marks are registered in relation to insurance
services, among others.
Discovery has permitted Discovery Life and
Discovery Vitality to use the trade marks under section 38 of the
Trade Marks Act (the
Act).
[1]
Discovery Life is a company offering life insurance, sickness and
dread disease cover, disability cover and income protection.
Discovery Vitality’s primary business comprises the Vitality
wellness and rewards programme (the Vitality programme), which
it
administers.
2.
The business of the respondent, Liberty Group Ltd (Liberty), includes
the sale of life insurance and related products such as
sickness
cover, dread disease cover, disability cover and income protection.
It is common cause that Liberty is a direct competitor
of Discovery
Life in this regard. The applicants contend that it also competes
with Discovery Vitality, but this is disputed.
3.
Anyone who is a member of a medical scheme offered within the
Discovery group may elect to become a member of the Vitality
programme.
This involves payment of a monthly membership fee. The
programme encourages members to lead a healthy lifestyle. Vitality
members
earn Vitality points for taking steps in this regard. The
more points a member earns, the higher her Vitality status becomes.
New
Vitality members start out with a Blue status and can progress
through the ranks to Bronze, Silver, Gold and Diamond status.
4.
One of the products that Discovery Life sells is the Discovery Life
Plan (the Discovery Plan). It links a person’s Vitality
status
to insurance risk. An insured under the Discovery Plan can receive
discounts on her premiums and receive payment of a percentage
of
premiums under a cash-back scheme. The higher the insured’s
Vitality status the greater the benefits under the Discovery
Plan.
5.
Liberty markets a policy called the Liberty Lifestyle Protector Plan
(the Liberty Plan). With effect from 1 May 2019 Liberty
introduced an
additional feature to this policy, viz. the Wellness Bonus. In brief,
qualifying customers can elect to disclose
to Liberty their existing
membership of an external wellness programme in order to add the
Wellness Bonus to their Liberty Plan
policy. If the wellness
programme is one recognised by Liberty, the Wellness Bonus permits a
policyholder to receive a portion
of the premiums they paid under
their Liberty Plan policy back from Liberty. The Wellness Bonus is
paid out after four years, but
it accrues on the first anniversary
after the Wellness Bonus is taken out, and thereafter annually.
6.
Critical to the present case is that the amount of the Wellness Bonus
payback is dependent on a Liberty Wellness Score. In turn,
this score
is determined by the particular status that the policyholder has
achieved on her external wellness programme. If a policy
holder is a
member of the Vitality programme and has a Blue status, she will have
a lower Liberty Wellness Score, and will receive
a lower percentage
of her premiums back than another Liberty Plan policyholder who is a
Diamond status member of the Vitality programme.
7.
It is common cause that Liberty does not operate a wellness
programme, although it did so in the past. It is also common cause
that at present Liberty recognises two external wellness programmes
for purposes of the Wellness Bonus addition to the Liberty
Plan.
These are Discovery Vitality, and Momentum Multiply.
8.
The applicants’ complaint against Liberty is two-fold. They say
that Liberty has unlawfully linked its insurance offering,
based on
the Wellness Bonus, to the Vitality Wellness programme. In so doing,
the applicant’s contend, in the first place,
that Liberty has
infringed Discovery’s Vitality and Discovery trade marks. In
the second place, the applicant’s contend
that Liberty has made
unlawful and unfair use of the Vitality programme, its reputation and
the “back-office” that
it entails. By the “back-
office” the applicants refer to, as they say, all the
behind-the-scenes operations, information
and know-how that goes into
maintaining and developing the Vitality programme. In so doing, they
say that Liberty has committed
the delict of unlawful competition.
9.
The applicants seek relief in the form of interdicts against Liberty
prohibiting it from continuing its alleged infringement
of
Discovery’s trade marks, and, its unlawful competition. In
addition, they seek an order directing that an inquiry be held
into
the damages the applicants allege they have suffered from Liberty’s
trade mark infringements. Further, they seek an
order postponing, for
subsequent determination, an enquiry into the damages they allege
they have suffered as a result of the alleged
unlawful competition.
THE
ALLEGED TRADE MARK INFRINGEMENTS
Liberty’s
use of the Trade Marks
10.
Liberty does not dispute that it used the trade marks, Discovery and
Vitality. It also does not dispute that it was not authorised
by the
proprietor, Discovery, to do so. However, it disputes that its use
amounts to an infringement. In order to understand the
applicants’
case on the alleged infringement of the trade marks, and Liberty’s
response to it, it is necessary to set
out in some detail how the
trade marks are used by Liberty.
11.
The applicants assert that Liberty uses the trade marks in the course
of its trade in advertising and selling its Liberty Plan,
which
includes the Wellness Bonus as an additional feature. Although the
applicants initially identified a number of documents
that they
contended evidenced Liberty’s unauthorised use of the trade
marks, by the time the matter was ripe for hearing
their complaint
focused on the use of the trade marks in two documents attached to
the founding affidavit.
12.
Both documents are addressed to Liberty customers. The first document
(attached to the founding affidavit as D34) is an online
quotation
that is generated for a customer by an insurance intermediary or
broker (the quotation document), with an attachment
for the customer
(the information attachment). The second document (attached to the
founding affidavit as D35) is an instruction
document issued to
existing policy holders (the instruction document).
13.
For purposes of the case, the applicants obtained and attached a
quotation document (with an information attachment) obtained
by an
independent intermediary, Mr Ghelig, for a potential Liberty Plan
customer, Mr Nel, using an online quotation system.
14.
The quotation document itself is printed under a Liberty banner, and
is titled “Lifestyle Protector Quote”. It includes
the
fact that Liberty is quoting Mr Nel for, among other things, a
Wellness Bonus benefit. The quotation document itself does not
include any reference to the Discovery or Vitality trade marks,
although, as I explain below, the information attachment does.
However, it is apparent from the process involved in generating the
quotation document that the word “Vitality” is
recognised
by the software used to generate the online quotation.
15.
The online quotation process is operated by an intermediary, like Mr
Ghelig, who has a consultation code and can access Liberty’s
IT
system. Access to this system is not available to the general public.
In fact, if a member of the public reads the quick reference
guide
produced by Liberty to explain the Wellness Bonus benefit, they are
told to approach a financial advisor or broker. One of
the documents
attached to the founding affidavit was a question and answer guide
for intermediaries explaining the Wellness Bonus.
It includes a
step-by-step guide to obtaining a quote for the Liberty Plan
including the Wellness Bonus. This guide does not refer
to either
Discovery or Vitality. Instead, it explains that the Wellness Bonus
is based on wellness programmes offered “
outside of
Liberty
”, or “
external wellness programmes
”.
The document also explains that the customer bears the onus of
submitting evidence of her wellness programme status to
Liberty.
16.
The online request for a quotation is made by the intermediary
following the guidelines provided by Liberty. It is common cause
that
the process involves the intermediary (in this case, Mr Ghelig)
asking the customer for relevant information and then entering
that
information in the relevant section of the online form. If the
customer wishes to include the Wellness Bonus in the quote
the
intermediary is prompted to fill in the name of the wellness
programme in respect of which the customer is a member. Mr Nel
must
have advised Mr Ghelig to fill in “Vitality”, which was
recognised by the software embedded in the IT operating
the online
quotation system. Similarly, Mr Ghelig filled in “Diamond”
when prompted to provide Mr Nel’s Vitality
status. Based on
this information, provided by Mr Nel, and entered into and recognised
by Liberty’s IT system, the quotation
document was generated.
17.
The information attachment is attached to the quotation document. As
I have indicated, this document makes direct reference
to the word
‘
Vitality’
(inverted commas are in the original).
Once again, the information attachment is under a Liberty banner. It
states that it is an
explanation of “
your Wellness Benefit,
and depends on the wellness programme disclosed
”. Under the
heading, “
Disclosed Programmes
”, the document
records that: “
You are a member of ‘Vitality’
”
(inverted commas are in the original), and that this programme is
recognised for purposes of the Wellness Bonus. It goes
on to explain
to Mr Nel that: “
Your status on the wellness programme you
disclosed will earn you a Liberty Wellness Score as follows
”.
Below this is a table indicating the various ‘Vitality’
programme statuses with a corresponding Liberty Wellness
Score. Once
again, the word ‘
Vitality’
(inverted commas are in
the original) is used at the top of the table. It is used again under
the heading “
Information required
”, when Mr Nel is
advised that he must provide proof of his ‘
Vitality’
(inverted commas are in the original) status obtained by way of a
pdf document that must be submitted to Liberty.
18.
Further features of the information document include a
reservation by Liberty that: “
Liberty reserves the right to
change or add which programmes are recognised and how any available
information from the Recognised
Programmes is allowed for in the
Liberty Wellness Score
”. A further reservation is made to
Liberty’s right to: “…
use your Personal
Information to verify, from your wellness programme provider, any
information you provided to us. Liberty may
take action as stipulated
in the terms and conditions of the benefit should it be found that
false or inaccurate information has
been provided
.” It is
noteworthy that reference is made to “
your
wellness
programme
” more than once in the information attachment
(emphasis added). The customer is also told to: “
Please
inform Liberty if your membership to the disclosed wellness
programme(s) changes
”, and that in that event, a new
Personalised Wellness Bonus Information Document will be issued.
19.
As to the other document relied on by the applicants, viz. the
instruction document, it also makes reference to both the words
Discovery and Vitality. This document is provided to Liberty Plan
Wellness Bonus customers to assist them to upload their wellness
programme status onto Liberty’s electronic record system. It is
a step- by-step guide under a Liberty banner. The document
advises
the user to: “
Please follow the steps below to obtain proof
of your non-Liberty wellness programme status …
.”
Step 1 tells the user to: “
Click here (if you are a
Discovery Vitality member)
” or to “
Click here if
you are a Momentum Multiply member
”. A hyperlink is
embedded in this instruction which takes the user to either the
Discovery Vitality website, or to the Momentum
Multiply website. At
the bottom of the page, footnoted, it is stated that: “
Discovery
and Vitality are registered trademarks of Discovery Limited
”
and “
Momentum and Multiply are registered trademarks of
Momentum Group Limited
.”
20.
The applicants base their case for infringement of Discovery’s
trade marks on sections 34(1)(a) and 34(1)(c) of the Act.
These
sections read as follows:
“
The rights acquired by
registration of a trademark shall be infringed by—
(a) the unauthorized use in the course
of trade in relation to goods or services in respect of which the
trademark is registered,
of an identical mark or of a mark so nearly
resembling it as to be likely to deceive or cause confusion. …
(c) the unauthorized use in the course
of trade in relation to any goods or services of a mark which is
identical or similar to
a trade mark registered, if such trade mark
is well known in the Republic and the use of the said mark would be
likely to take
unfair advantage of, or be detrimental to, the
distinctive character or the repute of the registered trade mark,
notwithstanding
the absence of confusion or deception.”
Alleged
infringement under s34(1)(a): trade mark use
21.
It is established in our law
that in order to provide a basis for an infringement under section
34(1)(a) the use complained of must
be “trade mark use”.
In
Verimark (Pty) Ltd v BMW
AG: BMW AG v Verimark (Pty) Ltd
,
[2]
the Supreme Court of Appeal held as follows in this regard:
“
It is trite that a trade mark
serves as a badge of origin and that trade mark law does not give
copyright-like protection. Section
34(1)(a), which deals with primary
infringement and gives in a sense absolute protection, can,
therefore, not be interpreted to
give greater protection than that
which is necessary for attaining the purpose of a trade mark
registration, namely protecting
the mark as a badge of origin.”
22.
In other words, while the
proprietor of a registered trade mark has a monopoly over its use, it
is not an unlimited monopoly. Not
every use of the trade mark by a
competitor will fall within the ambit of section 34(1)(a) and thus
constitute an infringement.
An infringement occurs when the use of
the trade mark “
affects
or is likely to affect the functions of the trade mark, in particular
its essential function of guaranteeing to consumers
the origin of the
goods
”.
[3]
Use that is purely for descriptive purposes has been held by the
European Court of Justice,
[4]
and echoed by the House of Lords, not to constitute such an
infringement. In
Verimark
the SCA held that:
“
This approach appears to me to
be eminently sensible. It gives effect to the purpose of the Act and
attains an appropriate
balance between the rights of
the trade mark owner and
those of competitors and the public
.
What is, accordingly, required is an interpretation of the mark
through the eyes of the
consumer as used by the
alleged infringer
.
If
the use creates an impression
of a material link between
the product and the owner of the mark there is
infringement; otherwise
there is not
. The use of a
mark for purely descriptive purposes will not create that impression
but it is also clear that this is not necessarily
the definitive
test.”
[5]
(emphasis added)
23.
And also that:
“
There can only be primary trade
mark infringement if it is established that consumers are likely to
interpret the mark,
as it is
used by the third party
, as
designating or tending to designate the undertaking from which the
third party’s goods originate.”
[6]
(emphasis in the original)
24.
It is important to appreciate
that the protection of trade marks under the Act is not designed to
silence commercial speech. The
Supreme Court of Appeal in its
judgment in
Commercial
Autoglass (Pty) Ltd v BMW AG
[7]
made this point by noting that:
“
The object of trade mark law as
reflected in s34(1)(a) … is to prevent commercial ‘speech’
that is
misleading
.
Trade mark use that is not
misleading (in the sense of
suggesting provenance by the trade mark
owner) is protected, not
only constitutionally but in terms of ordinary trade
mark principles
.
As Justice Holmes said: ‘When the mark is used in a way that
does not deceive the public, we see no sanctity in the word
as to
prevent its being used to tell the truth.’”
[8]
(emphasis added)
25.
The question, then, is whether
the particular unauthorised use of the trade mark by the third party
misleads the customer by falsely
identifying the provenance or origin
of the third party’s goods or services with that of the trade
mark proprietor. In other
words, the question is whether, through the
impression created by its use of the trade mark, the third party is
misappropriating
the proprietor’s badge of origin ascribed to
the proprietor’s own goods or services. As the SCA put it in
Verimark
,
would the public perceive the use of the trade mark as performing the
function of a “source identifier” for the third
party’s
goods or services?
[9]
It is this type of material connection in trade that amounts to trade
mark use for purposes of section 34(1)(a) of the Act.
26.
Whether or not this material
connection in trade is established is a question of fact to be
decided in light of the particular circumstances
of each case.
[10]
If a substantial number of customers would be deceived by the third
party’s use of the mark, trade mark use may be established.
[11]
The context within which the trade mark is used must be taken into
consideration. One cannot isolate the trade mark and ignore
the
context of use.
[12]
27.
The
Verimark
and
Commercial Autoglass
cases are good
illustrations of how the application of these principles may lead to
different outcomes depending on the particular
facts of each case. In
Verimark
, a company widely advertised its Diamond Guard car
care kits and car polish by using different cars to demonstrate the
wonders
of its products. One car that it used was a BMW, with the BMW
logo clearly visible in the advertisement. BMW claimed an
infringement
of its trade mark under, inter alia, section 34(1)(a) of
the Act. The court held that:
“
Turning then to the facts of
this case, I am satisfied that any customer would regard the presence
of the logo on the picture of
the BMW car as identifying the car and
being part and parcel of the car. It is use of the car to illustrate
Diamond Guard's properties
rather than use of the trade mark. No-one,
in my judgment, would perceive that there exists a material link
between BMW and Diamond
Guard or that the logo on the car performs
any guarantee of origin function in relation to Diamond Guard.”
[13]
28.
In
Commercial
Autoglass
, on the other
hand, the company in question supplied windscreens for cars,
including BMWs. However, the windscreens were not original,
in the
sense that they were not made by or under BMWs authorisation. It
listed its windscreens for sale in advertisements by providing
a
price alongside descriptions such as “BMW E30 3 Series 83-92”.
Similar descriptions were repeated in its quotations
and in its
invoices, for example, it described the goods sold as “BMW E36
2 DR 92-97 WS”. The company argued that it
was using the BMW
trade mark in a purely descriptive sense, i.e. simply to inform the
public that it was selling windscreens that
fit BMW cars, not that
the windscreens were original BMW windscreens. Both the High Court
and the SCA rejected the company’s
argument. The SCA found that
the nature of the use of the BMW trade mark was such that a
substantial number of people would be
deceived by interpreting the
actions of the company as representing that the windscreens were
genuine BMW parts.
[14]
As such, the company’s use of the trade mark amounted to trade
mark use, and its defence did not succeed. Unlike the situation
in
Verimark
,
the use of the trade mark in
Commercial
Autoglass
plainly misled
the public as to the source identifier of the company’s goods:
it created the impression that they were windscreens
authorised by
BMW when they were not.
29.
In the matter before me Liberty contends that its use of Discovery’s
trade marks (as outlined above) does not amount to
trade mark use.
The applicants vehemently dispute this. The first issue I need to
determine for purposes of deciding whether there
has been an
infringement under section 34(1)(a) is whether Liberty or the
applicants are correct on this question. If I find it
is not trade
mark use there will not be an infringement under that section.
30.
I must examine Liberty’s use of the words “Discovery”
and “Vitality” in the context in which they
are used. The
words were used in two documents, viz. the information attachment to
the quotation document, and the instruction
document. The information
attachment uses the word ‘Vitality’ in inverted commas.
Throughout the document it is made
clear that ‘Vitality’
is a reference to the
customer’s
wellness programme,
which the
customer
has elected to disclose: the document makes
frequent reference to “
your wellness programme
”;
“
your wellness programme provider
”; “
you
are a member of ‘Vitality
’”; “
your
status on the wellness programme you have disclosed
” etc.
It is difficult to comprehend how the use of the Vitality trade mark
in this document could reasonably be interpreted
by the customer as
misleading her into believing that Liberty was claiming provenance of
the Vitality programme, or misappropriating
Discovery’s badge
of origin in that programme. As an existing Vitality member the
customer would know full well that the
Vitality programme originates
from Discovery. The information attachment captures the customer’s
disclosure of that information
and informs the customer what
cash-back benefit she will be entitled to receive from Liberty based
on the customer’s existing
membership of a wellness programme
from a different source, viz. Discovery Vitality.
31.
The broader context in which the mark Vitality is used in the
information attachment supports this interpretation. The quotation
and the attachment are not advertised to the public at large (as in
the case of
Verimark
or
Commercial Autoglasss
).
Instead, they are generated by an intermediary who has access to
Liberty’s online system and the step-by-step guide provided
by
Liberty for that purpose. The step- by-step guide makes it clear to
intermediaries that the Wellness Bonus is linked to wellness
programmes “
outside of Liberty
” of which customers
may be members, but which Liberty may recognise for purposes of the
Wellness Bonus. The step-by-step
guide also makes it clear that it is
the customer who must provide the information identifying their
wellness programme. In other
words, intermediaries will know that
this information is not available to Liberty without the customer’s
disclosure, as it
surely would be if there was a material association
in trade between Discovery Vitality and Liberty.
32.
It is an important feature of this aspect of the case that the
applicants do not contend that
intermediaries
will be confused
by Liberty’s use of the trade marks. It follows that it is
reasonable to infer that customers who liaise
with those
intermediaries will be given accurate information, and will
themselves not be confused. They will not be confused into
thinking
that Liberty’s use of ‘Vitality’ in the information
attachment means that Liberty is operating or claiming
provenance of
the Vitality programme. They will have provided the information about
their wellness programme to the intermediary,
and it is this action
that triggers the use of the term ‘Vitality’ in the
information attachment. It will thus be clear
to the customer that
when ‘Vitality’ appears in the information attachment it
does not indicate that the Vitality programme
is a Liberty wellness
programme, or that there is a material association in trade between
the customer’s insurance provider
and its wellness programme
provider.
33.
This is further reflected in the document that is available to the
general public, viz. the quick reference guide referred to
earlier.
That document explains the Wellness Bonus addition to the Liberty
Plan in broad outline. It explains, throughout, that
the Wellness
Bonus operates on the basis of evidence of “
your wellness on
recognized
external
wellness programmes
”
(emphasis added). It tells the public that in order to qualify they
must be a member of “
an external wellness programme
recognised by Liberty
”.
34.
As far as the instruction document is concerned, it uses the terms
Discovery and Vitality to direct the customer to the correct
link in
order to upload their wellness programme status to Liberty’s
electronic record system. The user is told to “
Click here
(if you are a Discovery Vitality member)
”. The same
instruction (with an obvious change in name) guides users who belong
to Momentum Multiply. As I have already noted,
the purpose of the
document is to assist the customer in obtaining proof of “
your
non-Liberty wellness programme
”. A customer using this
guide would have gone through the process of selecting to include the
Wellness Bonus to their Liberty
Plan through the intermediary. The
same contextual considerations that applied in respect of the
information attachment apply to
the use of the trade marks in this
document as well. On top of this, the user is reminded that the link
provided to “
Discovery Vitality
” is based on their
own disclosed membership of that particular “
non-Liberty
wellness programme
”. For good measure, Liberty notes at the
bottom of the document that those terms are trade marks of Discovery.
35.
The applicants contended that the fact that the instruction document
includes a hyperlink to the Discovery Vitality website
would give
rise to the impression that Liberty and Discovery Vitality share a
material association in trade, thus indicating trade
mark use. In my
view, there is no merit in this submission. There is nothing magical
about a hyperlink. In these days of increasing
use of IT systems, it
is not unusual to find hyperlinks in documents inserted for the
convenience of the user. In any event, the
insertion of the hyperlink
cannot be considered on its own. When considered within the full
context in which Liberty has used the
trade marks, as discussed fully
above, the insertion of the hyperlink takes the applicants’
case no further.
36.
The same goes for the applicants’ contention that Liberty’s
reservation of the right to use the customer’s
personal
information to verify the customer’s status with her wellness
provider creates the impression that Liberty has a
material
association in trade with Discovery Vitality. Again, when seen in the
full context of Liberty’s use of the trade
marks, the
reasonable customer would not, in my view, be misled as suggested.
37.
The applicants also contended that the manner in which Liberty has
used Discovery’s trade marks would mislead customers
into
thinking that Liberty was one of Discovery Vitality’s many
reward partners. The applicants explained that Discovery
Vitality has
entered into commercial relationships with many suppliers of services
such as pharmacies, gyms, food retailers and
exercise clothing
retailers. Through this partnership arrangement, suppliers may use
the Vitality trademark. In exchange, members
are rewarded through,
for example, reduced gym fees, by the providers of those services.
According to the applicants, Liberty’s
use of the Vitality
trade mark will mislead Vitality members into believing that Liberty
is one of Discovery’s partners.
38.
Once again, this argument must be examined within the full context
within which the trade marks are used by Liberty. When considered
as
a whole, I am satisfied that the reasonable customer would not be
misled in this way. Nowhere is there any suggestion by Liberty,
through its use of the trade marks, that it is a Discovery Vitality
rewards partner. Liberty makes it plain throughout in its use
of the
trade marks that Discovery Vitality is referred to as one of the
external and non-Liberty wellness programmes it recognises
for
purposes of the Wellness Bonus policy. Liberty’s limited use of
the trade marks, as I have discussed in some detail,
gives no
indication that Liberty claims to be one of Discovery Vitality’s
rewards partners. Indeed, if there was any scope
for that suggestion,
it would be cancelled out by the manner in which customers are
exposed to Liberty’s use of the trade
marks. That exposure
occurs through an intermediary whom we know, for purposes of this
case at least, is not in any state of confusion
about the actual
relationship between Liberty and Discovery Vitality.
39.
For these reasons I conclude that Liberty’s use of the trade
marks in the information attachment to the quotation document,
and in
the instruction document is not trade use for the purposes of section
34(1)(a). Liberty has used the trade marks in a limited
manner,
restricting the use to those two documents. The purpose of the use is
to inform Liberty Plan customers that Liberty recognises
Discovery
Vitality membership as membership of an external, third party
wellness programme that will qualify the customer in terms
of the
Wellness Bonus policy. It uses the trade marks to capture, in the two
documents, the information that is supplied by a customer
who is a
member of Discovery Vitality. It uses the name of the programme
disclosed by the customer in order to identify the external
wellness
programme operated and maintained by Discovery Vitality. As such, its
use is descriptive and not trade mark use. Liberty
does not usurp the
provenance of the Discovery wellness programme.
40.
The reasonable customer would not get the impression, through
Liberty’s use of the trade marks, that it is the source
of the
Vitality programme, or that it shares with Discovery, authority to
claim provenance of the programme. Discovery Vitality
members will
understand, from the context within which the trade marks are used,
that while their membership of that wellness programme
may give them
a Liberty benefit, the provenance of the Vitality programme remains
that of Discovery. Conversely, they will understand
that the benefit
they receive from the Wellness Bonus addition to the Liberty Plan,
falls separately within the provenance of Liberty.
In this manner,
the correct balance is achieved, as noted by the SCA in
Verimark
,
between the rights of Discovery, as the trade mark proprietor, and
those of Liberty as a competitor (at least with Discovery Life),
and
the public, who should not be unnecessarily hindered in their freedom
of commercial choice when it comes to available insurance
policy
products.
41.
It follows that the applicants’ complaint of an infringement
under section 34(1)(a) cannot succeed.
Alleged
infringement under section 34(1)(c)
42.
What of the applicants’ case that Liberty committed an
infringement under section 34(1)(c) of the Act?
43.
Under this section an infringement will occur if the trade marks in
question are well known in the Republic, and if the unauthorised
use
will take unfair advantage of, or be detrimental to the distinctive
character or repute of the registered marks. It is not
necessary to
establish that the use of the trade marks is likely to cause
deception or confusion. In this respect, the test under
this section
is distinguishable from that under section 34(1)(a).
44.
It is common cause that the trade mark Discovery is well known in the
insurance market in South Africa. There is some dispute
whether the
same may be said of the trade mark Vitality. It is not necessary to
make a determination on this issue, and I will
assume that this
requirement has been met in respect of both trade marks. The question
then is whether Liberty’s use of the
marks will take unfair
advantage of, or will be detrimental to, the distinctive character or
repute associated with the marks.
45.
It was held by the SCA in
Verimark
that
the requirement of trade mark use, associated with section 34(1)(a),
is not a pre-condition for liability under section 34(1)(c).
This is
because the purpose of this provision is to go further than merely
safeguarding the proprietor’s badge of origin
in respect of its
goods or services. Section 34(1)(c) is aimed at protecting the
reputation, advertising value or selling power
of a mark that is well
known.
[15]
This sentiment was echoed by the Constitutional Court in
Laugh
It Off Promotions CC v SAB Intl (Finance) BV t/a Sabmark Intl
(Freedom of Expression Institute as Amicus Curiae)
:
“
The section strives to protect
the unique identity and reputation of a registered trademark. Both of
these attributes underpin the
economic value that resides in the
mark’s advertising prowess or selling power. As it is often
said that the mark sells the
goods and therefore its positive image
or consumer appeal must be safeguarded.”
[16]
46.
Despite this important characteristic of the protection against
infringement provided under section 34(1)(c), the Court in
Verimark
went on to state the following rider:
“
But that does not mean that the
fact that the mark has been used in a non trade mark sense is
irrelevant; to the contrary, it may
be very relevant to determine
whether unfair advantage has been taken of or whether the use was
detrimental to the mark. …
the
provision is not intended to enable the
proprietor of a well-known
registered mark to object as a matter of course
to the use of a sign which
may remind people of his mark; there is a general
reluctance to apply this
provision too widely; not only must the advantage
be unfair, but it must be of
a sufficiently significant degree to warrant
restraining of what is,
ex
hypothesi
,
non-confusing use
; and that
the unfair
advantage or the detriment
must be properly substantiated or established
to the satisfaction of the court: the court must be satisfied by
evidence of actual detriment, or of unfair advantage.”
[17]
(emphasis added)
47.
The Constitutional Court made similar pronouncements in
Laugh It
Off
:
“ …
properly read the
section requires that an infringement of a trademark may occur only
if ‘unfair advantage’ or ‘unfair
detriment’
is shown. Equally clear is that the detriment relied upon must not be
flimsy or negligible. It must be substantial
in the sense that it is
likely to cause substantial harm to the uniqueness and repute of the
marks. Therefore, on its terms the
section has internal limitations.
It sets fairness and materiality standards. The section does not
limit use that takes fair advantage
of the mark or that does not
threaten substantial harm to the repute of the mark, or indeed that
may lead to harm but in a fair
manner. What is fair will have to be
assessed case by case with due regard to the factual matrix and other
context of the case.
A Court will have to weigh carefully the
competing interests of the owner of the mark against the claim of
free expression of a
user without permission.”
[18]
The
Court found further that for purposes of a claim based on section
34(1)(c) the claimant would have to establish a likelihood
of
substantial economic detriment to its mark.
[19]
48.
The applicants contend that Liberty has taken unfair advantage of the
repute existing in Discovery’s trade marks in the
form of
“blurring” or “dillution”. In other words,
Liberty’s use of the trade marks impairs the exclusivity
associated with them, and reduces the advertising effectiveness of
the trade marks, which Discovery spent large sums of money developing
and promoting. The applicants say that Liberty is taking unfair
advantage of the trade marks by selling its insurance products
to
Vitality members, and by using the Vitality and Discovery marks to do
so. The applicants do not provide evidence of actual harm
or
detriment. They suggest that the harm in this case is self-evident,
as the inherent uniqueness of the Vitality mark is weakened
when any
person can use the mark in this manner without permission.
49.
There are fundamental difficulties with the applicants case under
this cause of action. As I have found, the use of the trade
marks in
this case did not amount to “trade mark use”. This
remains a relevant factor for purposes of a section 34(1)(c)
inquiry,
in that it goes to the fairness of the advantage Liberty is alleged
to have taken in respect of the trade marks. If (as
I have found) the
use was not such as to mislead the public for purposes of determining
trade mark use, it would in my view require
additional case-specific
facts to establish that any advantage Liberty may gain from such use
is nonetheless unfair. The applicants
do not set out additional facts
to establish this. Instead, they aver that harm is likely to be
caused to Discovery Life because
sales of the Liberty Plan are likely
to be at the expense of Discovery Plan policyholders, and that this
economic harm is self-evident.
50.
It is common cause that Discovery Life and Liberty are direct
competitors in the insurance market. It is also common cause that
both are what may be described as major players in this market.
Discovery Life is a newer, but growing competitor, whereas Liberty
has been offering insurance products for decades. It is only
realistic to accept that there will be fierce competition between
them. Competition usually inures to the advantage of consumers. This
is one of the reasons why the courts have cautioned against
section
34(1)(c) being too easily used to stifle fair, and hence protected,
competition.
51.
In
Laugh
It Off
the Constitutional
Court warned courts: “
to
be astute not to convert the anti-dilution safeguard of renowned
trademarks usually controlled by powerful financial interests
into a
monopoly adverse to other claims of expressive conduct…
”.
[20]
Although the facts in
Laugh
It Off
were somewhat
different to those in this case, the principle remains the same:
section 34(1)(c) should not be used in such a way
that it prevents a
proper balance between the competing interests involved. Those
interests involve not only the trade mark proprietor
and its
competitor, but also the general public.
52.
The applicants aver that Liberty is simply using Discovery’s
trade marks to trade off their unique and well known and
respected
reputation. However, the applicants do not dispute Liberty’s
assertion that it has its built up its own considerable
reputation as
an insurer in South Africa and in Africa; that its products
conspicuously bear its own trade mark; and that it has
no need or
desire to be associated in any way with the applicants. Its stance is
supported by the facts outlining the nature in
which it has used
Discovery’s trade marks in this case.
53.
The principles laid down by our courts are clear: advantage through
the use of another’s trade mark is not per se an infringement
under s34(1)(c). It is not sufficient, as the applicants have done
here, simply to broadly assert that Liberty’s use of
Discovery’s trade marks will lead to the sale of Liberty Plan
policies and that this will be to the detriment of Discovery
Life.
Such a broad assertion ignores the reputation that Liberty itself has
in its own trade mark, and its prominent use of its
own trade mark in
the same documentation in which it makes relatively limited, non-
confusing and descriptive reference to Discoveries
trade marks.
54.
Furthermore, the applicants adduce no evidence in support of its
asserted likelihood of significant detriment to its reputation.
This
is not a case where such detriment is self-evident. Competition
between Discovery Life and Liberty may be self-evident, and
the sale
of Liberty Plan policies may give Liberty an advantage over Discovery
Life. However, this is a far cry from establishing
that Liberty’s
use of the trade marks will result in an unfair advantage to it, or
in detriment to Discovery’s reputation
to so significant a
degree that the court should stifle the competition between them.
55.
In the circumstances, I find that the applicants have failed to
establish liability on the part of Liberty under section 34(1)(c)
of
the Act.
The
exception under section 34(2)(b)
56.
As part of its defence to the trade mark causes of action, Liberty
relied on the exception in section 34(2)(b). That section
provides
that a registered trade mark is not infringed by the use of any
bona
fide
description or indication of the kind, quality, quantity,
intended purpose, value, geographical origin or other characteristics
of the third party trade mark user’s goods or services. Such
use must also be consistent with fair practice.
57.
There is substantial overlap,
in a case like the present, between the considerations necessary for
purposes of this section and
those necessary for both section
34(1)(a) and section 34(1)(c). As the SCA pointed out in
Commercial
Autoglass
, whether
particular use is trade mark use for purposes of section 34(1)(a) is
closely connected with the exceptions under section
34(2).
[21]
Further, the element of fair practice contained in the exception
overlaps with the unfair advantage element of the infringement
under
sections 34(1)(c). For these reasons, and given the extensive
consideration I have given to both sections 34(1)(a) and 34(1)(c),
it
is not necessary for me to discuss the defence raised under section
34(2)(b) in any detail.
58.
Suffice it to say that on the facts before me, and for the reasons
already given, I am satisfied that Liberty has established
that its
use of the trade marks is
bona fide
and in accordance with
fair practice within the ambit of section 34(2)(b). It uses the trade
marks in a non-trade mark manner, for
descriptive purposes. Liberty
uses the names “Discovery” and “Vitality” in
a context which makes it clear
that it is doing so to describe one of
the wellness programmes that it recognises for purposes of its own
product, viz. the Wellness
Bonus element of the Liberty Plan. As I
have already found, it does not use it in a manner that would give
the customer the impression
that Liberty is the proprietor of the
Vitality programme or has a material trade association with
Discovery.
59.
Insofar as it is necessary for me to make a finding on the exception
defence raised by Liberty, I conclude that the defence
is well
founded. For this reason, too, the applicants have failed to
establish their cause of action under section 34 (1) of the
Act, and
their application in this regard falls to be dismissed.
60.
It remains to consider the applicants’ cause of action based on
unlawful competition.
UNLAWFUL
COMPETITION
61.
Our law has long recognised the
right of a competitor to protect itself against the unlawful trade
practices of a rival trader.
That protection lies in the delict of
unlawful competition, which seeks to prohibit competition that is not
fair and reasonable.
The main difficulty with this
Aquilian
cause of action is to
determine the dividing line between lawful and unlawful interference
with the trade of another.
[22]
Our courts have recognised that as a general rule, every person is
entitled freely to carry on her trade or business in competition
with
her rivals, provided that the competition remains in lawful bounds.
Further:
“
In order to succeed in an
action based on unfair competition, the plaintiff must establish all
the requisites of
Aquilian
liability, including proof
that the defendant has committed a wrongful act.”
[23]
62.
These principles were laid down
prior to our Constitutional era. However, they have been recognised
and appropriately moulded to
fit comfortably within the
constitutional context. Thus, in
Phumelela
Gaming and Leisure Ltd v Gründlingh and Others
,
[24]
the Constitutional Court echoed the common law principles, with
reference also to the Bill of Rights:
“
The delict of unlawful
competition is based on the
Aquilian
action and, in order to
succeed, an applicant must prove wrongfulness. This is always
determined on a case by case basis and follows
a process of weighing
up relevant factors, in terms of the boni mores now to be understood
in terms of the values of the Constitution.”
[25]
63.
The Constitutional Court went
on to point out that the process of determining the limits of lawful,
and hence non-actionable, competition
necessitates the weighing up of
many interests that may be in conflict. The test for wrongfulness has
evolved over the years, and
is premised on the
boni
mores
or reasonableness
criterion:
[26]
“
The question is whether,
according to the legal convictions of the community, the competition
or the infringement on the goodwill
is reasonable or fair when seen
through the prism of the spirit, purport and objects of the Bill of
Rights. Several factors are
relevant and must be taken into account
and evaluated.
These factors
include the honesty and fairness
of the conduct involved, the
morals of the trade sector involved, the
protection that positive law
already affords, the importance of competition in
our economic system, the
question whether the parties are competitors,
conventions with other
countries and the motive of the actor
.”
[27]
(emphasis added)
64.
The Court noted that the
Constitution protects both the right to property, in section 25, and
the right to freedom of trade, in
section 22. The consequence of this
latter right is competition.
[28]
In this regard, the Court said:
“
In consideration of all the
above factors, the promotion of the spirit, purport and objects of
the Bill of Rights cannot be confined
to the impact of section 25 of
the Constitution alone … . The process of weighing up must
include consideration of other
provisions of the Bill of Rights which
might be relevant to the issue, for example, as has already been
mentioned, the right to
freedom to trade.”
[29]
65.
The case before me is a good illustration of these two competing
interests: underpinning their claim is the applicants’
interest
in their right to property. Liberty, on the other hand, protests that
it is doing no more than lawfully exercising its
right of freedom to
trade. Essentially the questions in this case are whether the
applicants have satisfied the test of wrongfulness,
and hence, where
the line is correctly to be drawn between the parties’
competing interests within the context of the constitutionally
directed
boni mores
of our society today.
66.
The applicants describe Liberty’s alleged unlawful conduct
using two labels. First, they say that Liberty has “misappropriated
the applicants’ performance”, not only in using a
customer’s Vitality status to calculate the Wellness Score,
but
also in indirectly appropriating the underlying Vitality programme
and business system (what was earlier referred to as the
“back-office”) to do so. The complaint is that Liberty
has not bothered to use its expertise and resources to develop
its
own system, but instead, has leapfrogged over that hurdle by simply
adopting and using the Vitality status system for its own
commercial
purposes. In the second place, they say that Liberty’s conduct
also amounts to an “appropriation of the
goodwill in the
Discovery and Vitality name”, without taking the reasonable
step of acquiring a licence to do so.
67.
Misappropriation of a rival’s
performance and appropriation of goodwill do not,
per
se
, fall within the
category of clearly recognised illegalities constituting unlawful
competition in our common law. These recognised
illegalities have
been listed as including trading in contravention of an express
statutory prohibition; the making of fraudulent
misrepresentations by
a rival trader; passing off; the publication by a rival trader of
injurious falsehoods concerning a competitor’s
business; and
the employment of physical assaults or intimidation directed at a
rival trader.
[30]
Of course, this does not mean that the applicants do not have a case.
The real question is whether the conduct complained of, however
it is
labeled, is wrongful.
68.
That question depends on the facts. In this case, many of the
relevant facts are common cause:
68.1. Liberty accepts that Vitality is
a wellness programme offered to the public by, and is the primary
business of, Discovery
Vitality. It accepts that the Vitality
programme took time and effort to develop and continues to take time,
effort and resources
to maintain. It also does not dispute that the
Vitality programme is continuously enhanced on the basis of ongoing
research and
knowledge gained within the Discovery group of
companies. Claims experience gained by Discovery Life feeds into this
process.
68.2. Further, it accepts that the
science, proprietary algorithms, data and modelling which underpin
the Vitality programme and
which are used to determine a member’s
Vitality status is confidential information which is proprietary to
Discovery Vitality.
68.3. It is common cause that Liberty
does not have access to, and has not misappropriated, this
confidential, proprietary information.
68.4. It is also common cause that a
Vitality member’s Vitality status does not form part of
Discovery Vitality’s confidential,
proprietary information. It
is the members’ personal information, and they are free to make
it public.
68.5. Vitality members pay for their
membership of the Vitality programme, and there is no lawful
restriction on them disclosing
their Vitality status to Liberty. The
applicants accept that this disclosure is made voluntarily to Liberty
by customers.
68.6. Discovery Vitality generates
revenue in the region of R2,3 billion annually from Discovery
Vitality membership fees, and this
covers the cost of maintaining the
Vitality system.
68.7. Liberty accepts that it uses a
customer’s Vitality status as a risk proxy for their expected
long-term mortality and
morbidity risk for purposes of the Wellness
bonus element of the Liberty Plan.
68.8. It is also common cause that
risk proxies are commonly used in the insurance industry.
68.9. Liberty has not been licensed by
Discovery Vitality to use the Vitality status of customers for
purposes of the Wellness Bonus
element of its Liberty Plan.
68.10. Liberty and Discovery Life are
competitors for the provision of life insurance. Both use a
customer’s Vitality status
for purposes of determining whether
and to what extent customers are entitled to a cash-back payment
under their respective Liberty
Plan and Discovery Plan policies.
Discovery also gives discounts to Vitality members on premiums
payable under its Plan.
69.
While it is common cause that Liberty and Discovery Life are trade
competitors, it is not common cause that Liberty is a competitor
of
either Discovery or Discovery Vitality. Liberty does not operate a
wellness programme, and Discovery Vitality does not offer
life
insurance. On this basis Liberty points out that the two companies
are not trade competitors. Discovery is a holding company
and does
not trade. For this reason, Liberty points out that Discovery, too,
is not Liberty’s trade competitor. Whether or
not the parties
are trade competitors is one of the factors that falls for
consideration in determining whether the conduct in
question is
wrongful.
70.
This issue has further implications. The proprietary information
which results in the calculation of the Vitality status tiers
is that
of Discovery Vitality. It does not belong to Discovery or to
Discovery Life. The crux of the applicants’ case is
that
Liberty has engaged in unlawful competition by making indirect use of
the back-office, i.e. the business system and operations
underpinning
the Vitality programme, to win customers away from Discovery Life.
The difficulty for the applicants in this regard
is that it is not
Discovery Life’s back-office, nor Discovery Life’s
confidential information, that is the subject
matter of the
complaint. Instead, it belongs to Discovery Vitality, and Discovery
Vitality does not compete with Liberty in selling
life insurance
policies. In other words, there is a disconnect between the subject
matter of the alleged unlawful conduct (the
proprietary information
of Discovery Vitality, its back-office and its goodwill), and the
competitor claiming to be harmed (Discovery
Life).
71.
Liberty contends that for this reason, the applicants’ case is
flawed. The applicants, on the other hand, argue that for
purposes of
their case based on unlawful competition they should be regarded as
one economic unit. Discovery is the holding company
and it stands
ultimately to suffer a loss in the value of its shares and dividends
accruing from its shareholding in Discovery
Life as a result of
Liberty unlawfully taking business away from it. They also aver that
the resources of the Discovery group are
utilised in the development
and maintenance of the Vitality programme, and that Discovery Life’s
experiences are fed back
into the continued development of that
programme. They contend that because of these cross- interests, and
the Vitality programme’s
integration into the wider Discovery
group, the three applicants should be treated as a recognisable
commercial unit of applicants
for purposes of their delictual claim.
72.
Liberty highlights
well-established case law that does not support the applicants’
standpoint. It is, of course, trite that
a company is a legal entity
distinct from its shareholders, and has rights and liabilities
distinct from them.
[31]
In the context of groups of companies, the group itself does not have
a legal persona, and there is no pooling of assets.
[32]
Liberty does not formally challenge the
locus
standi
of Discovery and
Discovery Vitality to make a claim based on unlawful competition.
However, it points out that to find for the applicants
in this case
would require the court to overlook this obvious shortcoming in the
very basis for the applicants’ claim.
73.
As the previously cited principles show, within the wrongfulness
context, the
boni mores
of a society is not a static concept,
and courts must recognise and apply its evolving content. Bearing
this in mind, it seems to
me to be appropriate that I consider the
question of whether the applicants should be recognised as one
commercial unit as part
of the general inquiry into the question of
wrongfulness in this case.
74.
Is it wrongful for Liberty to use the non-proprietary and publicly
available Vitality status of Vitality members as a risk proxy
for
calculating Liberty’s own Wellness Score for marketing and
selling its Wellness Bonus add-on to its Liberty Plan, which
competes
with Discovery Life’s policy? What do the
boni mores
of
current day South Africa suggest, having regard to the competing
constitutional interests of the parties?
75.
The applicants point out that Liberty has used the Vitality status as
a foundational and key element in the calculation of Liberty’s
Wellness Score table. They say that this shows the extent to which
Liberty has leapfrogged over the substantial resources and effort
put
in by Discovery Vitality to calculate its Vitality status tiers.
Without Liberty’s reliance on Vitality Discovery’s
efforts, the applicants say, Liberty would not be in a position to
make its Wellness Bonus offering. It is this, they say, that
marks
Lilberty’s conduct as
contra bonos mores
and wrongful.
76.
What the applicants find particularly egregious it would seem from
the affidavits filed in support of their case, is that the
Discovery
group was a trailblazer, worldwide, in linking wellness with
insurance, rather than illness with insurance. This led
to the
development of the Vitality programme and the cross pollination
between that programme and insurance offerings from other
companies
in the group, like Discovery Life. The applicants are particularly
aggrieved that in their view Liberty has used the
Discovery group’s
trailblazing efforts as a shortcut to making its own offering, viz.
the Wellness Bonus element of its Liberty
Plan in competition with
Discovery Life’ insurance offering. It is on this basis that
they say that Liberty has acted
contra bonos mores
in trading
off their back-office and goodwill.
77.
As aggrieved as the applicants may feel justified in being, the
question of wrongfulness depends on more. As the Constitutional
Court
noted in
Phumelela
:
“
The Bill of Rights does not
expressly promote competition principles, but
the right to freedom of
trade, enshrined in section 22 of the Constitution is,
in my view, consistent with
a competitive regime in matters of trade and the
recognition of the
protection of competition as being in the public welfare
.
…
The constitutional
property clause is not absolute and should not be
employed in a manner that
ignores other rights and values. Section 25(1)
of the Constitution cannot
possibly mean that it is the right of every property
owner to be immunised from
all competition
. If the
Court were to develop the common law test of wrongfulness to protect
Phumelela’s property rights to the detriment
of the values on
the other end of the scale, it would be discarding the nuanced test
that has been developed in the common law.”
[33]
(emphasis added)
78.
As I have indicated, it is common cause that a Vitality member’s
Vitality status is their personal information and can
be made
publicly available: it does not fall within the basket of information
confidential to Discovery Vitality. Therefore, in
order to find that
Liberty’s conduct is wrongful, I would have to find that it is
contrary to the
boni mores
of our society for Liberty to use
publicly available information, voluntarily provided by a paid-up
Vitality member who seeks insurance
from Liberty, as a risk proxy and
basis for calculating a Liberty customer’s Wellness Score under
the Wellness Bonus scheme.
I would have to do so in circumstances
where Liberty’s conduct has no directly negative impact on
Discovery Vitality, with
which Liberty does not even compete. In
actual fact, it cannot be gainsaid that in its use of the Vitality
status in its offering,
Liberty encourages its customers to remain or
become members of Vitality. Liberty’s Wellness Bonus scheme is
therefore compatible
with, and in this sense, advances, Discovery
Vitality’s commercial interests. It is only if the “group
wrong”
approach is adopted that this problem for the applicants
may be solved. In that case, the court might be justified in taking
into
account the possible loss of sales for Liberty’s
competitor, Discovery Life.
79.
In oral argument before me counsel for the applicants accepted that
in order to find in their clients’ favour I would
need to
extend the current common law understanding of
boni mores
.
This concession no doubt takes cognisance of the fact that the
applicants’ case rests on a “group wrong” having
been committed against them, rather than a wrong constituted by the
conduct of one competitor against another, i.e. the conduct
of
Liberty against Discovery Life. It also takes account of the fact
that there is no suggestion that Liberty has misappropriated
Discovery Vitality’s confidential and proprietary information
in its alleged unlawful conduct. The applicants’ claim,
instead, is that by using the Vitality status of members to calculate
the Wellness Bonus cash-back, Liberty has in effect used
Discovery
Vitality’s business systems and operations, which are obviously
fed by its confidential information.
80.
What warrant is there for extending the concept of
boni mores
in
this case? It is difficult to pin down exactly why the applicants
contend that it is justified. This is not an exercise that
I should
undertake in a vacuum, according to my own thoughts on what is fair
and what is
contra bonos mores
. I must consider the relevant
factors, usefully highlighted by the Constitutional Court in
Laugh
It Off
, cited above, in the context of the facts of this case.
81.
I must accept that Discovery Vitality has a significant interest in
the goodwill that has accrued to it from the substantial
resources it
has spent in developing the Vitality programme and formulating the
system used to determine the Vitality status of
members. These
interests are protected under section 25 of the Constitution.
However, as I have already indicated, there are limitations
as to how
heavily Discovery Vitality’s constitutional interests should
weigh in this case, given that it is not Liberty’s
direct
competitor.
82.
In any event, it is common cause that Discovery Vitality reaps
substantial financial reward from the Vitality programme, and
that
these are sufficient to cover the costs associated with managing that
programme. Those rewards are ongoing, as they are derived
from
monthly membership fees. As I have already said, the Wellness Bonus
scheme does not obstruct this flow of income to Discovery
Vitality,
but instead supports it. In this respect, it does not seem to me that
there is anything unfair,
vis-a-vis
Liberty and Discovery
Vitality, in Liberty’s use of members’ Vitality status.
Nor is there any obvious loss or harm
for Discovery Vitality.
83.
It is also significant, as the Constitutional Court pointed out in
the dictum cited earlier, and as I have already highlighted,
that
Liberty does not compete with Discovery Vitality. Whether the parties
are competitors is one of the factors to consider for
purposes of
determining whether conduct is wrongful. It is only on the “group
wrong” approach that this factor could
arguably weigh in the
applicants’ favour.
84.
The applicants do not accuse Liberty directly of any dishonest
conduct. Indeed, they cannot do so in light of the fact that
it is
common cause that Liberty has not misappropriated any of Discovery
Vitality’s confidential information. The applicants’
case
rests instead on Liberty indirectly accessing the benefit of the
back-room component of the Vitality programme by using the
Vitality
status as a key component of its Wellness Bonus offering.
85.
However, the applicants do not dispute that Liberty has used its own
know-how and resources in the development of its offering.
They
contend that Liberty’s input must have been minimal, but there
is no evidence of this. The evidence shows that Liberty
does not base
its Wellness Bonus offering only on the Vitality status of customers,
but also on customers’ status under the
Momentum Multiply
wellness programme. The Wellness Scores are not the same in respect
of both programmes, implying that Liberty
has done more than simply
copying and pasting from Discovery Vitality’s back-room.
Furthermore, there are differences between
the Liberty Plan and the
Discovery Life Plan. Once again, this is evidence that Liberty has
used its own resources in developing
its Wellness Bonus offering. In
any event, the adoption of risk proxies, which is common in the
insurance industry, does not remove
the need for companies to use
their own resources in factoring the risk proxies into their
calculations for purposes of their insurance
offerings. This is how
the insurance industry works.
86.
Liberty’s motive in using the Vitality status of its customers
is obviously to compete with other insurance companies,
like
Discovery Life. There is nothing inherently wrong with this. In fact,
the law protects its right to do so. It is also relevant
in my view
that Liberty’s real trade competitor, Discovery Life, has the
benefit of using the Vitality status of its customers
to compete with
Liberty. The applicants say that this does not place Liberty and
Discovery Life on a level playing field. This
is because, they say,
Discovery Life is part of the Discovery group and its experiences are
fed into the continued development
of the Vitality programme to the
benefit, ultimately of all three applicants. This argument, of
course, depends on this court opening
the door to the applicants’
"group wrong” approach to their unlawful competition
claim. However, it also touches
on another, albeit related, issue
which in my view is critical to the inquiry into wrongfulness in this
case.
87.
As the Constitutional Court made clear in
Laugh It Off
, the
element of wrongfulness in competition matters involves a weighing up
of two competing constitutional interests. In this case,
they are, on
the one hand, the applicants’ interests under section 25, and
on the other hand Liberty’s interest in
its right to trade
under section 22. However, the weighing-up exercise is not limited
only to the interests of the disputing parties.
This is for two
reasons. First, in a consideration of
boni mores
the interests
of the broader society, or the public at large, will always be an
inherent factor in the equation. Second, and critical
to the
boni
mores
inquiry in unlawful competition cases, is the fact that, as
the Constitutional Court has noted, the protection of competition in
matters of trade benefits the public welfare. This means that there
is in effect a three-way consideration of interests in cases
like
this one: the applicants’ interests in protecting what they say
are their property rights under section 25; Liberty’s
interest
in what it says is its legitimate right to trade under section 22;
and the public interest in ensuring that in balancing
the other two
interests the benefit of competition in trade is not lost.
88.
How this exercise is carried out will depend on the facts at hand. In
this case, there is an added element to the public interest
component
of the inquiry. This stems from the fact that Vitality members pay
for their membership of the Vitality programme. One
of the things
they get in return is their personal Vitality status. They are
entitled to use this for whatever lawful reason they
may wish.
Liberty allows them to use their status, should they wish to do so,
to obtain the benefits available under the Wellness
Benefit add-on to
the Liberty Plan. Of course, Vitality members may also wish to use
their Vitality status to obtain benefits under
Discovery Life’s
competing plan.
89.
The point is that members of the public, who have paid for their
Vitality membership and status, should be entitled to continue
to
have the choice of what they wish to use that status for. This is
obviously in their interests and in the interests of competition
in
the insurance industry more broadly. To prevent Vitality members from
being able to exercise this choice would be to restrict
their own
proprietary interests in their Vitality status.
90.
Moreover, as far as the broader public interest is concerned, it
would have the effect of limiting competition in the insurance
industry. It would only permit Vitality members to use their Vitality
status for purposes of taking out comparable insurance from
Discovery
Life. Discovery LIfe’s competitors, like Liberty, would be
prohibited from doing what Discovery Life does, i.e.
using a
customer’s Vitality status to calculate the cash-back benefit
under its Liberty Plan. This would be regardless of
the fact that
Liberty does not actually compete with the entity that holds the
proprietary interest in the Vitality programme,
viz. Discovery
Vitality. On the applicants’ case, Liberty requires a licence
from Discovery Vitality to use the Vitality
status, even though it is
not a competitor, and even though, on the facts of this case, it
appears that Discovery Life does not
have to pay a licence fee to
Discovery Vitality. The inevitable consequence of accepting the
applicants’ “group wrong”
approach would be that
the non-legal entity of the Discovery group would be given wide
powers to control even indirect competition.
91.
It is difficult to fathom how the chilling effect that an acceptance
of this approach would have on competition in the insurance
industry
could possibly be in the public interest. Instead, it would encourage
a monopoly by the Discovery group in offerings in
the insurance
sector, to the detriment of Vitality members and the public. It is so
that the Discovery group has been a major innovator
in various
business sectors, including in the insurance sector. But this does
not give them licence to stifle competition that
is plainly in the
public interest. Innovation itself is not a basis for placing
unreasonable constraints on what competitors may
do with one’s
innovations. If this was the case, our society would not have
progressed much beyond the invention of the wheel.
92.
Liberty has used an aspect of Discovery’s innovations, viz. the
Vitality status of its members, to develop and market
a cash-back
bonus for members of its Life Plan. There is nothing obviously
unlawful in what it has done. The insurance industry
uses risk
proxies as a matter of course. Further, Discovery does not claim to
have invented the idea of a cash-back bonus in the
insurance
industry. Discovery has registered its trade marks, but I have found
that Liberty has not infringed those. Liberty has
not misappropriated
Discovery Vitality’s confidential information, nor has it acted
dishonestly or with an underhand motive.
It has been open in its
advertising about how it uses a customer’s Vitality status, and
it has not falsely claimed any proprietorship
of the Discovery
programme.
93.
Moreover, it is not disputed that Liberty has its own status and
reputation built up over decades in the insurance industry.
It has
marketed its Wellness Bonus product prominently under its own banner,
trading on its own reputation. It has not relied solely
on Discovery
Vitality’s Vitality status system, but has also extended the
Wellness Bonus scheme to Momentum Multiply members.
Without complaint
from that company, it has used the Momentum Multiply status system to
calculate the benefits accruing to Momentum
Multiply members who have
chosen to add the Wellness Bonus to their Liberty Plans. In my view,
these factors are markers of how
innovation can be used lawfully by
competitors to further competition in the public interest. They are
not markers of conduct that
is contrary to the
boni mores
of
our society.
94.
The applicants laid much store
on the minority judgment in the Supreme Court of Appeal in
Phumelela
,
to the effect that a basis for unlawful competition had been
laid.
[34]
In my view, this decision takes the matter no further for the
applicants. Neither the minority or the majority judgments of the
SCA
in
Phumelela
undertook
the exercise of weighing the two competing constitutional interests
involved in the same way as the Constitutional Court
did in its
approach to the matter. In any event, I am not persuaded that, on the
facts, the manner in which Liberty has used the
Vitality status of
its customers is the same as the use that bookmakers’ made of
the totalizator data in
Phumelela
.
95.
The applicants emphasised and relied on a dictum in the majority
judgment of the SCA at paragraph 43 of the
Phumelela
judgment.
There, the majority judgment said that Phumelela: “
would
have been assured of victory if it had been launched during the time
that the use of totalizator data by bookmakers was prohibited
by the
Gauteng legislature
.” The applicants submitted that this
meant that the majority agreed with the minority judgment that the
bookmakers’
conduct in using the totalisator data would have
been
contra bonos mores
but for the fact that the legislature
had not outlawed it.
96.
I differ with this interpretation. In my view, the majority of the
SCA in
Phumelela
meant no more than that if Phumelela’s
action had been instituted when the bookmakers’ conduct was
prohibited by the
Gauteng legislation, the conduct would have
constituted an act of trading in contravention of an express
statutory prohibition.
It was for this reason that Phumelela would
have been assured of victory. The bookmakers would have been in
engaging conduct that
was a recognised illegality. Thus, the dictum
cannot be interpreted as giving implicit support for the minority’s
finding
on
contra bonos mores
as suggested by the applicants.
97.
In conclusion, then, I can find no cogent reason to accept the
applicants’ invitation to extend the common law concept
of
boni
mores
on the facts of this case. Liberty competes with Discovery
Life in the insurance trade. It has not acted
contra bonos mores
as a trade competitor by using the Vitality status developed by
Discovery Vitality as a risk proxy in Liberty’s Wellness Bonus
component of its Liberty Plan. To find otherwise would be to do
precisely what the Constitutional Court warned against in
Phumelela
,
viz. to confine the
boni mores
consideration to the impact on
section 25 alone. To accept the applicants’ “group wrong”
approach would encourage
monopolistic control by a group of companies
in the insurance industry, which is something the Constitutional
Court also cautioned
against in
Laugh It off
. On a proper
balance of the proprietary interests claimed by the applicants
against the broader constitutional imperative of competition
and the
public welfare, I find that Liberty’s conduct is consistent
with the prevailing boni mores of South African society,
and is not
wrongful.
98.
In the absence of a finding that Liberty’s conduct is wrongful,
the applicants have failed to satisfy the requisites of
the Acquilian
action. For these reasons, the applicants’ cause of action
based on unlawful competition must fail.
CONCLUSION
AND ORDER
99.
I make the following order:
The applicants’ application is
dismissed with costs, including the costs of two counsel, one of whom
is Senior Counsel.
_____________________
R
M KEIGHTLEY
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION
Date
Heard : 11 March 2020
Date
of Judgment : 15 April 2020
Counsel
for the applicants : P Ginsburg SC; K Iles; N Nyembe
Instructed
by : Edward Nathan Sonnenburgs
Counsel
for respondent : C Puckrin SC; G Marriott
Instructed
by : Adams & Adams
[1]
Act 194 of 1993
[2]
2007 (6) SA 263
(SCA), at para 5
[3]
Anheuser-Busch Inc. v Budejovický Budvar, národní
podnik Case C-245/02 of 16 November 2004, European Court
of Justice,
cited in Verimark at para 5
[4]
Anheuser-Busch Inc, and R v Johnstone
[2003] UKHL 28
, both cited in
Verimark at para 5;
[5]
Verimark, para 6
[6]
Verimark, para 5
[7]
2007 (6) SA 637 (SCA)
[8]
At para 8, citing Prestonettes Inc v Coty
263 US 359
at 368 (1924)
[9]
At para 9
[10]
Commercial Autoglass, para 9
[11]
Commercial Autoglass, para 10
[12]
Verimark, para 9
[13]
At para 8
[14]
At para 10
[15]
At para 13
[16]
[2005] ZACC 7
;
2006 (1) SA 144
(CC) at para 40
[17]
At para 14, citing Pebble Beach Company v Lombard Brands [2002]
ScotCS 265
[18]
At para 49
[19]
At para 56
[20]
At para 48
[21]
At para 11
[22]
Dun and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau
(Cape) (Pty) Ltd 1968 (1) SA 209 (C)
[23]
Schultz v Butt 1986 (3) SA 667 (A)
[24]
[2006] ZACC 6
;
2007 (6) SA 350
(CC)
[25]
At para 31
[26]
At para 32
[27]
At para 34
[28]
At para 33
[29]
At para 35
[30]
See Schultz v Butt, above, citing Dun and Bradstreet at 216F-H
[31]
See, for example, Capital Property Holdings Ltd v Chavonnes
Badenhorst St Clair Cooper NO (85/201) [ZASCA] 177 (1 December
2017), at para 27
[32]
R v Milne and Erleigh (7)
1951 (1) SA 791
(A) at 828
[33]
At para 36
[34]
Gründlingh v Phumelela Gaming & Leisure Ltd
2005 (6) SA 502
(SCA)