On-line Lottery Services (Pty) Ltd v National Lotteries Board and Another (536/2008) [2009] ZASCA 86; [2009] 4 All SA 470 (SCA) ; 2010 (5) SA 349 (SCA) (7 September 2009)

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[2009] ZASCA 86
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On-line Lottery Services (Pty) Ltd v National Lotteries Board and Another (536/2008) [2009] ZASCA 86; [2009] 4 All SA 470 (SCA); 2010 (5) SA 349 (SCA); 2009 BIP 172 (SCA) (7 September 2009)

THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
J
UDGMENT
Case No: 536/2008
ON-LINE LOTTERY SERVICES (PTY) LTD
Appellant
and
NATIONAL LOTTERIES BOARD 1
st
Respondent
UTHINGO MANAGEMENT (PTY) LTD
2
nd
Respondent
And
ON-LINE LOTTERY SERVICES (PTY) LTD Appellant
and
NATIONAL
LOTTERIES BOARD 1
st
Respondent
UTHINGO
MANAGEMENT (PTY) LTD 2
nd
Respondent
REGISTRAR
OF TRADE MARKS 3
rd
Respondent
Neutral
citation
:
On-line
Lottery Services v National Lotteries Board
(536/08)
[2009] ZASCA 86
(7 September 2009)
Coram: HARMS DP, BRAND,
HEHER, PONNAN
JJA and TSHIQI AJA
Heard: 17
August 2009
Delivered: 7 September 2009
Updated:
Summary: Intellectual property – trade mark –
registrability of mark – whether mark capable of distinguishing.
Unlawful
competition – passing off – reasonable likelihood of confusion –
factors excluding.
____________________________________________________________________________________
ORDER
In
an appeal from the North Gauteng High Court, Pretoria (Motata J
sitting as court of first instance).
The
following order is made:
1. The appeal succeeds
with costs including those consequent upon the employment of two
counsel save that no costs shall be allowed
in respect of the
preparation and perusal of 40% of the record on appeal.
2. The
orders of the court
a quo
,
other than the orders in the striking out applications, are set aside
and replaced by the following:
2.1 In Case No 15574/04
the application is dismissed with costs including the costs of two
counsel.
2.2 In Case No 21917/04
the following order is made:
2.2.1 The Registrar of
Trade Marks is directed to rectify the Register of Trade Marks by the
expungement therefrom of registration
no 91/020702/01 LOTTO in class
36 and registration no 91/02702 LOTTO in class 41, both entered in
the name of National Lotteries
Board, on the grounds that such
entries wrongly remain on the Register within the meaning of section
24(1) of the Trade Marks Act
194/1993.
2.2.2 The
first and second respondents are to pay the costs of the application
including the costs of two counsel.
JUDGMENT
_____________________________________________________________________
HEHER JA (HARMS DP, BRAND, PONNAN JJA and TSHIQI AJA
concurring):
[1] This appeal depends in the main on the answers to
three questions: Should the registered trade mark ‘Lotto’ be
removed from
the trade mark register because it was wrongly entered
and wrongly remains on the register as envisaged by
s 24(1)
of the
Trade Marks Act 194 of 1993
? Did the appellant in conducting its
business pass that business off as that of the National Lotteries
Board or as connected in the
course of trade with the Board? Did the
business carried on by the appellant involve the selling of tickets
for the National Lottery
which resulted in contraventions of
ss 56
and
57
of the
Lotteries Act 57 of 1997
?
[2] The Board is the first respondent in the appeal. It
was established in terms of
s 2
of the
Lotteries Act. It
is the
registered proprietor under the provisions of the
Trade Marks Act
(‘the
Act’) of the trade mark ‘Lotto’ which is registered
without disclaimer in class 36 in respect of ‘services for and in
connection
with financial transactions’ and in class 41 in respect
of ‘services for and in connection with lotteries’, the
respective
registration numbers being 1991/02702/1 and 1991/02702 and
the date of registration in each case being 17 April 1991.
1
The second respondent in the appeal, Uthingo Management (Pty) Ltd
(‘Uthingo’) became the proprietor of the class 36 trade mark
by
assignment from the previous owner with effect from 9 September 1999
and on 11 February 2000 assigned its interest to the Board,
becoming
at the same time, by a written agreement, a permitted user of the
trade mark. Thereafter lottery services were reclassified
from class
36 to class 41. The Board applied for and was granted an amendment to
the specification of services to bring about the
present
registrations.
[3] On 26 August 1999 Uthingo became the sole authorised
licensee of the right to operate the National Lottery by reason of an
agreement
which it concluded with the Government of the Republic,
effective until 31 March 2007. Because the Minister of Trade and
Industry
is, by the terms of
s 13
of the
Lotteries Act, empowered
to
issue only ‘one licence at one time’, the rights afforded to
Uthingo were exclusive to it.
[4] From 20 February 2000 Uthingo operated a game (‘the
Lotto game’) as part of the National Lottery in terms of its
licence,
using the registered trade mark.
[5] The appellant (‘On-Line’) was registered under
the name Equistock Holdings 169 (Pty) Ltd on 14 February 2000. On 19
September
of that year it changed its name by special resolution to
LottoFun (Pty) Ltd.
2
Its main object was stated as ‘On line lotto services’ but this
was later changed to ‘electronic commerce and related services’.
One of those services was initially intended to be the on line sale
of tickets in the National Lottery but the company was unable
to
obtain authorisation from the Board. In September 2001 the Board
complained to the registrar of companies against the use of the
name
LottoFun (Pty) Ltd. The registrar upheld the objection and required
the company to change it. Eventually, and ostensibly to
avoid a
protracted and expensive dispute, the appellant
made the change to its present name in March 2002. It
has however retained its trading name.
[6] Uthingo devised the Lotto game pursuant to
s
14(2)(g)
of the
Lotteries Act. The
game is played by persons from all
walks of life through the full spectrum of the South African
population. During the period of
its contract Uthingo sold game
tickets countrywide through a network of authorised retailers. The
game could also be played by subscription.
In March 2004 Uthingo
concluded an agreement with Newbucks Operations (Pty) Ltd in terms of
which that company was entitled to sell
tickets for the Lotto game
via its website operation under the name and style of ‘Play Lotto
with your e-bucks’.
[7] The Lotto game draw takes place on Wednesdays and
Saturdays. In each draw seven balls are drawn randomly from a machine
containing
49 such balls numbered accordingly. The first six numbers
drawn are the main numbers and the seventh is the bonus number. A
player
marks his selected numbers manually on a game board which
forms part of a Lotto game entry coupon purchased from an authorised
retailer
who in turn processes it and issues a ticket.
[8] On-Line promoted its business as one through which
tickets for the National Lottery could be ordered. It was apparently
successful
in this venture. The Board, however, was of the opinion
that the true nature of On-Line’s activities was the unauthorised
sale
of tickets for the National Lottery and that in doing so On-Line
was infringing the Lotto trade mark by advertising its business
as
Lottofun. Moreover it believed that the business and services were
being conducted in a manner such as to create deception and
confusion
in the mind of the public between those services and the services
offered by the Board and Uthingo.
[9] The Board therefore commenced proceedings in June
2004 against On-Line. When its application was served on Uthingo that
company
joined as an applicant. The relief which they sought in the
notice of motion was for:
(a) An interdict based on trade mark infringement under
s 34(1)(a)
of the Act of the trade marks ‘Lotto’ by the use of
the mark Lottofun and ancillary relief.
(b) An interdict based on passing-off by the use of the
mark Lottofun.
(c) An interdict based on unlawful conduct by the
contravention of
section 57(2)(c)
,
57
(2)(f)(i),
57
(2)(f)(ii) and
57
(2)(g) of the
Lotteries Act.
(d
) An interdict based on unlawful competition based on
the contravention of the mentioned provisions.
(e) Interdicting On-Line from conducting its business
and rendering its services on the terms and conditions detailed in
its standard
terms and conditions on the ground that they were contra
bonos mores.
[10] On-Line opposed all aspects of the orders sought.
It filed an extensive answering affidavit and lodged a
counter-application
in which it claimed consolidation of the
applications, a stay of the application brought against it pending
the outcome of the counter-application
and for substantive relief,
namely the expungement of the trade mark Lotto on the grounds that
they wrongly remain on the register
in the light of on the basis that
the word lotto has not been used as a trade mark within the meaning
of
section 27(1)(b)
of the Act.
The Registrar, the third respondent in the expungement
application, did not participate in the case.
[11] At the hearing the Board and Uthingo pursued an
application to strike out portions of the answering affidavit of
On-Line in
the infringement application and extensive sections of its
founding and replying affidavits in the expungement proceedings. The
court
a quo
granted
the application
in
toto
with costs of two
counsel. The learned judge also granted all the orders sought in the
notice of motion in the infringement application
(in spite of the
large amount of overlap), dismissed the expungement application and
ordered On-Line to pay the costs of two counsel
in respect of each
application. He subsequently refused an application by On-Line for
leave to appeal, but leave was granted by this
Court on petition.
The expungement application
[12] As mentioned, On-Line sought to have the trade
mark register rectified because, so it contended, the word ‘LOTTO’
had been
wrongly entered in the register and wrongly remains there,
as contemplated in
s 24(1)
of the Act. It also relied on non-use of
the trademark as a ground of removal under
s 27(1)(b).
[13] It is trite that a trade mark is a badge which
distinguishes the origin of the goods or services to which it is
applied from
the origin of other (usually competitive) goods and
services. In order to be registrable it must possess this capability
(s 9(1)).
If, at the date of application it is inherently capable of
so distinguishing or is capable of distinguishing by reason of prior
use,
it is considered to possess that capability
(s 9(2)).
A mark
which is not capable of distinguishing within the meaning of
s 9
may
not be registered as a trade mark
(s 10(2)(a))
, provided that a mark
may not be refused registration for that reason, or, if registered,
may not be liable to be removed from the
register on that ground, if
at the date of an application for registration or at the date of an
application for removal, as the case
may be, the mark has in fact
become capable of distinguishing within the meaning of
s 9
as a
result of the use made of that mark (the proviso to
s 10).
[14] Of course, as pointed out in
Cadbury
(Pty) Ltd v Beacon Sweets and Chocolates (Pty) Ltd
[2000] ZASCA 2
;
2000
(2) SA 771
(SCA) at 779C-D, evidence that a mark has become
distinctive by use must be approached with circumspection as the sole
producer or
distributor of a product cannot by means of advertising
and selling the product under its generic name render that name
capable of
distinguishing in terms of
s 9.
That caution applies
equally to the provision of a service said to be protected by a trade
mark.
[15] In
First National Bank of
Southern Africa Ltd v Barclays Bank plc and another
2003
(4) SA 337
(SCA) this Court was required to decide whether the mark
PREMIER was registrable in relation to cheques, banking and credit
card
services and certain related marketing and merchandising
services. In upholding the decision of the Registrar of Trade Marks
that
the word PREMIER was not registrable for such goods and
services, it approved the dictum of Jacob J in
British
Sugar plc v James Robertson & Sons Ltd
[1996]
RPC 281
at 302 that there is ‘an unspoken and illogical assumption
that use equals distinctiveness’. This assumption is based on the
fact that common words are naturally capable of use in relation to
the goods or services of any trader no matter how extensively
such
common words have been used by any individual trader of goods or
services of that class.
[16] In
The Canadian Shredded
Wheat Co Ltd v Kellog Co of Canada Ltd
[1938]
55 RPC 125
(PC) at 145 Lord Russell pointed out that
‘
A word or words to be really
distinctive of a person’s goods must generally speaking be
incapable of application to the goods of
anyone else.’
[17] On-Line’s counsel submitted that, in the light of
the aforegoing principles, the Lotto trade mark does not pass the
test for
either inherent or acquired distinctiveness in relation to
lottery services because:
(a) the mark does not tell the public who the services
come from but rather what the services are:
Jeryl
Lynn Trade Mark
[1999] FSR 491
(Ch D) at 497
para 11; and
(b) in any event, the mark cannot perform the function
of distinguishing, without first educating the public that it is a
trade mark:
British Sugar
at 306.
[18] It is On-Line’s case that ‘lotto’ is an
ordinary English noun that identifies a particular genus of games of
chance and
that the general public would, in 1991, have understood
that any goods or services to which it was or would be attached were
of the
nature or connected with games of that ilk. The Board and
Uthingo respond that, as it was put by the chief executive of Uthingo
in
his founding affidavit in the infringement proceedings,
‘
Prior to the inception of the
National Lottery in accordance with the
Lotteries Act, the
word
“lotto’ was an obscure word in South Africa and was, for all
intents and purposes, not used in this country. . . When one
has
regard to the dictionary definition of the word ‘lotto’ it is
clear that the primary meaning of the word is a game, similar
to
bingo (which is vastly different from a lottery such as that run by
the second respondent [Uthingo] and in connection with which
[it]
uses the trade mark Lotto’.
[19] The Board and Uthingo submit further that the game
which Uthingo offered under the trade mark was, if not
sui
generis
, then at least so distinct from
existing definitions of the word ‘lotto’ as to provide a
character to that word which the public
would and did readily attach
to the National Lottery and, thereby, to the Board and its authorised
operator.
[20]
The first thing to notice about the response and submission is that
they depend not on the distinctiveness of the mark at the
date of
registration, but upon the nuance said to be cast upon the word
‘lotto’ by the peculiar use to which the Board has put
it. No
such use was proved at or prior to the date of registration. Indeed
it is clear that such a public understanding could not
have arisen
for eight or nine years after registration, if at all. Counsel for
the Board and Uthingo submitted, however that even
prior to Uthingo
creating a distinctive character by use, such appreciation of the
substance of the word as the public may have possessed
did not result
in any common meaning or certainty sufficient to exclude the right of
registration in 1991.
[21] The
parties sought to persuade the court
a
quo
of the meaning of lotto
by introducing expert opinion derived from the experts’ trawling
through dictionary definitions. That was
inappropriate and
unnecessary as dictionaries speak for themselves unless called in
question for good reason and the courts are,
generally, presumed to
be capable of finding and understanding such information without
expert assistance.
[22] In
this case, it seems to me, recourse to dictionaries printed before or
more or less contemporaneously with the registration
of the trade
mark in question, support the appellant’s submissions rather than
those of the Board and Uthingo. (I say ‘more or
less’ since it is
notorious that the production of dictionaries lags the use of words
included in them.)
[23] There
is no doubt that ‘lotto’ is not a word recently invented, but, on
the contrary, one which was imported into the English
language in the
late eighteenth century, probably from Italian, where it connoted a
particular form of lottery, although it was perhaps
already known in
England as ‘a game played with cards divided into numbered and
blank squares and numbered discs to be drawn on
the principle of a
lottery’:
Oxford English
Dictionary
(1976)
sub
nom
‘lotto, loto’.
The
English Dictionary
ed H C
Wyld (1952)
sub nom
‘lotto’
identifies the origin of the word as Italian with Germanic roots and
defines it as a ‘Game of chance played with cards
bearing five
numbers in a line, and numbered balls drawn from a bag, the object
being to cover all the numbers in a line or as many
as possible. The
right to cover a number on a card is determined by the same number
being drawn from the bag.’
[24]
The
New Shorter Oxford English Dictionary
,
(1993) defines ‘lotto’ as ‘1. A game of chance resembling
bingo, in which numbers drawn as in a lottery are to be matched
with
numbers on a card, the winner being the first to have a card with a
row of numbers all of which have been drawn. 2. A lottery
(in
Italy)’, while
The New
Oxford Dictionary of English
,
(1998) tells us that ‘lotto’ is a children’s game similar to
bingo, in which numbered or illustrated counters or cards are
drawn
by the players, but adds: ‘chiefly N. Amer, a lottery’.
The
New Penguin English Dictionary
,
(2000)
sub nom
‘lotto’
has ‘1. a children’s game similar to bingo 2. N. Amer, Aus. =
lottery’.
[25] The
venerable American work,
Webster’s
Third New International Dictionary
(1985) defines ‘lotto’ as ‘a game played by drawing numbered
disks from a bag or the like and covering corresponding numbers
on
cards, the winner being the first player to fill a row’.
[26] According
to
Collins’ New Compact
English Dictionary
, ‘lotto’
is a ‘game of chance in which numbers are drawn and called out
while the players cover the corresponding numbers on
cards, the
winner being the first to cover all the numbers or a particular row.’
[27]
The
South African Pocket Oxford Dictionary of Current English
(1974) identifies ‘lotto’ as a ‘game of chance like bingo, but
with numbers drawn by players instead of called [Italian]’.
[28] But,
as the presiding judge pointed out to counsel during argument, at
least as legitimate and valid a source for plumbing the
mind of the
South African public in 1991 was the use of the word among
Afrikaans-speakers. He drew attention to the 1981 edition
of the
Verklarende Handwoordeboek
van die Afrikaanse Taal
(HAT) (1981) 664, which contains the following entry: ‘lotto (It.)
Tipe dobbelspel waarby die spelers elk ‘n kaart met nommers
kry en
die een wen wie se nommers die eerste ooreenstem met nommers wat
lukraak getrek word’.
[29] The
Verklarende Afrikaanse
Woordeboek
(ed Labuschagne
& Eksteen, 1992) defines ‘lotto’ as ‘1. soort getallelotery
2. Soort kinderspel op ‘n bord met skyfies
wat vakkie tot vakkie
geskuif word’.
[30] Lastly
in this excursus mention must be made of the great
Woordeboek
van die Afrikaanse Taal
(WAT), Negende Deel L (1994) which gives ‘lotto’ (It) Soort
dobbelspel waarby die deelnemers getalle lukraak trek en die wenner
die een is wat eerste ‘n ry getalle op sy speelkaart afgemerk
het’.
3
[31] It is unnecessary to
delve further. Certain conclusions can fairly be drawn from the
preceding citations. The first is that the
word ‘lotto’ was alive
in South African language usage at the time of the registration in
1991 and had been for many years. It
is impossible to determine how
widely the word was known or used but it is reasonable to believe
that it was present in the vocabulary
of literate persons in at least
English and Afrikaans language groups. One may also take judicial
notice of the fact that gambling
and the language of gambling had
transcended national borders long before it mushroomed on the
internet in the late 1990’s. Second,
the concept of lotto as a
genus of games of chance which embraces a variety of species seems
clear. The common element of the genus
seems to be the matching of
chosen or allotted numbers against numbers randomly generated. Save
in relation to the children’s version
of the game, each species is
adapted to gambling and the demands of private or public
participation. Hence each operator will bring
to the basic format
refinements which assist him in increasing demand, just as has
Uthingo has done in
formulating the rules for the Lotto game.
[32] But just as the term
‘motor car’ generally embraces many different manifestations both
in design, and name, none of which
entitles anyone to the sole
trading use of the generic name, so was it with ‘lotto’ at the
relevant time. By adopting the word
simpliciter
(without adaptation or
qualification) as a trade mark for lottery services, the registering
party simply appropriated to itself a
word already in general
circulation which possessed an ascertainable generic and descriptive
meaning over which it could have no
monopoly and which should have
been open to use by all competitive undertakings in the gaming
industry. The word ‘lotto’ could,
as counsel for On-Line have
submitted, contribute nothing to identifying the source of the
service which it promoted. Moreover, as
stressed earlier, the Board
and its operator could not enhance the inherent absence of power to
distinguish by creating a game to
which they chose to apply the
generic description ‘lotto’.
[33] We
were referred in argument by counsel for On-Line to rulings of the
Office for Harmonization in the Internal Market (Trade
Marks
Department), which is the arm of the European Union which deals with
trade mark disputes. Those emphasised by counsel were:
Ruling on
Opposition No B934 101 (21/12/2007) ‘
Magic
Lotto
’, Ruling on
Opposition No B 907 156 (18/12/2006) ‘
moto-loto
’,
and the Decision of the First Board of Appeal in case R 1019/2000-1
(9/1/2002) ‘
Euro-Lotto
Privat System
’. None of
these authorities was by reason of differences in time and location
relevant to the understanding of the South African
public in 1991 and
I understood counsel to rely on them purely in principial support of
his argument that the word ‘lotto’ carries
no distinctive force.
Suffice to say that the conclusion reached in all those decisions was
consistent with the view I have taken.
[34] The
respondents face a further problem which strikes at the heart of the
validity of their trade mark. The terms of the class
36 registration
are ‘services for and in connection with lotteries’. ‘Lottery’
as defined in
s 1
of the
Lotteries Act ‘includes
any game, scheme,
arrangement, system, plan, promotional competition or device for
distributing prizes by lot or chance and any game,
scheme,
arrangement, system, plan, competition or device, which the Minister
may by Notice in the Gazette declare to be a lottery’.
Uthingo was
authorized by the Board to operate the National Lottery which, as
defined in
s 1
, means ‘the lottery contemplated in
Part 1
of this
Act and includes all lotteries conducted under the licence for the
National Lottery, taken as a whole’. The licence granted
by the
Board empowered Uthingo to operate not only the main lottery (which
takes the form of the game described above and which the
respondents
contend is distinguished by the ‘Lotto’ trade mark as their
service) but also ‘Constituent Lotteries’ each of
which was to
have its own rules, and any ‘Lottery Ancillary Activity’. It is
thus plain that the registration, even on the Board’s
categorisation of the Lotto game as a permissible adaptation to which
the term could properly be applied, went far beyond the limits
of
that game to forms of gambling which need bear no relationship to the
‘lotto’ concept.
4
The effect of the registration was thus to draw into the exclusive
domain of the Board and its operator all forms of lotteries. They
have however not attempted to show either the use of the trade mark
for those broader aims or the distinguishing force of the mark
in
relation to them. It is also probable that at the date of
registration neither the proprietor nor the public understood ‘lotto’
as possessing the breadth which the registration purports to bring
about.
[35] That
leaves the matter of the registration of the trade mark LOTTO in
class 36, ‘services for or in connection with financial
transactions’. Such transactions are not defined in the Act or in
the schedule of classification of goods or services published
by the
Minister of Trade and Industry pursuant to
s 69(2)
of the Act. The
Financial Services Board Act 97 of 1990 does define ‘financial
service’ but in terms which render its application
peculiarly
applicable to the financial institutions defined in that Act. It is
thus necessary to give content to the term as used
in the
Trade Marks
Act according
to the ordinary signification of the expression, i e
services in relation to the conduct of business which involves money
or finance.
No doubt the Board, inasmuch as it administers the
National Lottery Distribution Trust Fund and prize monies is heavily
involved
in financial transactions but there is no suggestion that
the registered mark is or has been applied to any aspect of its
business
other than the organization, marketing and operation of the
Lotto game. It seems clear that in this regard On-Line established in
the expungement application that s 27(1)(b) of the Act applied to the
registered trade mark: up to the date three months before On-Line
applied to court in August 2004, a continuous period of at least five
years had elapsed from the date of issue of the certificate
of
registration in class 36 during which the registration stood and
during which there was no bona fide use of the LOTTO trade mark
in
relation to financial services by the Board and any previous
proprietor of the trade mark and Uthingo as a permitted user within
the scope of s 38 of the Act and the Board was unable to satisfy the
onus laid on it by s 27(3). For this reason the registration
under
class 36 should have been struck down by the court
a
quo
.
[36] For all these
reasons I am satisfied that the marks were wrongly placed on the
register and remain wrongly there. On-Line should
have succeeded in
the court below in the expungement application and in relation to
paragraph 1 of the infringement application.
This puts an end to the
trade mark infringement proceedings.
Unlawful competition
and contraventions of the
Lotteries Act
[37
] Passing
off protects a trader against deception, arising from a
misrepresentation by a rival concerning the trade source or business
connection of the rival’s goods or services:
Reckitt
& Colman SA (Pty) Ltd v S C Johnson & Son SA (Pty) Ltd
1993
(2) SA 307
(A) at 315B. It does not protect a mark or get-up in
itself:
Caterham Car Sales &
Coachworks Ltd v Birkin Cars (Pty) Ltd and Another
[1998] ZASCA 44
;
1998
(3) SA 938
(SCA) at para
[29]
. Many unsuccessful attempts have been
made to restrain alleged passing off arising from the use of
descriptive names.
5
In summary, the reason for this lack of success is set out in
Sea
Harvest Corporation (Pty) Ltd v Irvin & Johnson Ltd
1985
(2) SA 355
(C) (the ‘
prime
cuts’
case)
at 360B-D
,
viz
that the Courts will not
easily find that such words have become distinctive of the business
or products of the person using them,
and will not give what amounts
to a monopoly in such words to one trader at the expense of others.
[38] If
a term is descriptive, in the sense that it is the name of the goods
themselves, it cannot simultaneously denote any particular
trade
source. Therefore a party cannot be prevented from unambiguously
using a descriptive term in its original descriptive sense,
unless it
has wholly lost that descriptive sense and become distinctive of the
claimant in every context: Wadlow,
The
Law of Passing Off
(Sweet &
Maxwell) 3 ed, 616.
[39] Even
if the claimant succeeds in proving that a
prima
facie
descriptive term has
acquired some degree of secondary meaning, the scope of protection
for the mark is narrower than for a wholly
arbitrary term. Relatively
minor differences will suffice to distinguish the defendant’s goods
or business when both use a mark
which is descriptive of the goods or
services they provide. This applies even though the defendant is
using the
closely
similar term in a trade mark sense: Wadlow,
op
cit
, at 617, para 4.
[40] Applying the
principles summarised in paras 38 and 39 it is clear that On-Line’s
use of the business name ‘Lottofun’ does
not in itself carry the
complaint of passing off any distance at all.
[41] Moreover,
all the elements of the cause of action for passing off must exist at
the time that the allegedly infringing acts take
place:
Hollywood
Curl (Pty) Ltd v Twins Products (Pty) Ltd
(1)
1989 (1) SA 236
(A) at 249J. In the present case, there is no
evidence to show that, by the time that On-Line commenced business,
the word lotto
had become distinctive of any of the respondents in
connection with services for financial transactions and/or services
for and in
connection with Lotteries.
[42] In
the context of these proceedings a determination of the nature of the
business carried on by On-Line was of critical importance.
In so far
as the applicants were seeking final relief in motion proceedings
they were of course bound to accept On-Line’s description
of its
activities unless some acceptable reason could be found for rejecting
that version without a reference to evidence. Despite
their primary
deponent, Uthingo’s chief executive officer, Mr Isaac Monamodi,
boldly stating that ‘a consideration of all the
facts establishes
that it sells tickets to members of the public. Many of its terms and
conditions are simply a stratagem in an attempt
to avoid infringing
various sections of the Lotteries Act’, a careful examination of
the affidavits does not bear him out. Nor
were counsel for Uthingo
and the Board any more persuasive. Their strongest submission related
to the operation of a terminal at
the premises of an authorised agent
for the sale of lottery tickets, Wingate Computers, at which copies
of the tickets were apparently
printed and which, so it was alleged,
On-Line had, by agreement with Wingate Computers, ‘appropriated for
its own use’. They
were forced to concede however that whatever
prima facie impropriety such evidence disclosed could not be brought
within any relief
sought in the notice of motion.
[43] The
court
a quo
should,
in the event, have tried the matter on the basis of On-Line’s
description. The substance of this is set out in the succeeding
paragraphs.
[44] On-Line obtained
registration and ownership of four internet domain names in March and
April 2000. Each contains the word ‘lottofun’.
During February
2002 it applied to the registrar of patents and trade marks to
register its trade name ‘Lottofun’ as a trade
mark in class 38 in
respect of the services of ‘telecommunications including
information technology, internet and electronic commerce,
and lottery
services conducted through the aforementioned media’.
[45] The business of
On-Line provides the following services to its subscribers:
1. Generic lottery
services such as random number generation, probability permutations
and simple number permutation “wheels”;
2. Specific information
about the South African Lottery, such as latest draw results and
frequency statistics on drawn numbers;
3. An agency service that
allows its registered members to place orders for lottery tickets in
the National Lottery either using the
medium of the internet or via a
cellphone using SMS.
[46] The
modus operandi of On-Line’s business is the following. On-Line
operates a trust account and a separate business account.
To become a
subscriber money must be placed in trust
6
with the company. This is effected electronically by a secure credit
card transaction. When a subscriber/member places an order to
purchase tickets in the lottery, the computerized system checks the
balance held for the member in trust. A service fee of 15% is
added
to the purchase and the account is debited with the amount of the
order and the service fee. The amount of the order is transferred
from the trust account to the business account and On-Line then
places the order and pays the Uthingo retailer who sells the ticket
accordingly. Once the tickets are purchased they are stored in a
fireproof safe, indeed, and kept for auditing purposes. All winning
numbers are processed by On-Line for subscribers, winnings of a
smaller sort being credited to the trust account. If a member has
a
big win a tax clearance certificate is obtained on behalf of the
client and the ticket is given to the subscriber who can then
claim
the amount from Uthingo.
[47] Lottofun customers
are people who visit the Lottofun website. To use its services
customers must have an identity document, a
banking account, access
to credit card use, must be an internet banking user and be computer
literate – generally a discerning
purchaser who is skilled in
connection with online internet transactions. Such customers select
numbers on-line using a computer
and do not have to stand in queues
to purchase tickets or collect winnings.
[48] The
application papers contain print-outs from the website
www.lottofun.co.za
.
On the homepage the interested reader is told, inter alia, that
‘
LottoFun
is a convenient independent online lottery service that allows adult
members to play the South African National Lottery on
the Internet.
LottoFun
is an independent operator and has no direct affiliation with the
South African National Lottery, the National Lotteries
Board and/or
Uthingo Management (Pty) Ltd.
We
execute your orders and will purchase and hold your lottery tickets
on your behalf as your agent.’
and
‘
LottoFun
is owned by On-Line Lottery Services (Pty) Ltd, a limited liability
company incorporated in the Republic of South Africa.
LottoFun’s
mission is to enable you to order lottery tickets in the South
African National Lottery with maximum convenience and
minimum
expense.’
and
‘
On-Line
Lottery Services is an independent company and is not associated with
the South African National Lottery in any way whatsoever.
Use of this
web site implies agreement with the
Terms
and Conditions
’.
[49] The
Lottofun registration page provides for the completion and submission
of a registration form subject to seven clearly-stated
specific terms
of agreement the fourth of which is ‘I have read and agreed to the
LottoFun
Terms of Service
.’
The disclaimer quoted at the end of paragraph [48] is repeated.
[50] The LottoFun Terms
and Conditions consist of twenty-two clauses. Clause 1.4 provides:
‘
Lottofun.Com
[ie the trading name of On-Line as is made clear in clause 1.1] is
not a retailer of any lottery ticket and does not,
nor indeed does it
purport to, sell lottery tickets.’
‘
Clause 5. Agency:’
provides as follows:
‘
5.1. If
you become a Lottofun.Com Gold member, subject to 5.2, each time
Lottofun.Com accepts your order for lottery tickets, you
will be
deemed to have appointed Lottofun.Com, and Lottofun.Com will be
deemed to have accepted, appointment as your agent for the
purposes
set out in this clause 5 and on the basis set out in these T.O.S.
5.2. Notwithstanding
anything else contained herein, Lottofun.Com will be validly
appointed by you as your agent only if, at the time
you place an
order for lottery tickets and for the duration of the purchase and
processing thereof:
5.2.1. Your
order is not contrary to any law, regulation or the like to which you
and/or Lottofun.Com is/are subject;
5.2.2. Your
order does not result in the contravention of any agreement,
undertaking, Court order, law and/or regulation to which
you and/or
Lottofun.Com is/are subject;
5.2.3. Your
membership is current, you are not in breach of these T.O.S., you are
not in breach of the rules of any applicable lottery;
5.2.4. The
representations and warranties you make in terms of 2.5 are true and
correct.
5.3 Lottofun.Com,
acting as you agent, will
5.3.1. receive
the moneys you advance together with any winnings you may gain and
hold them on your behalf and/or if Lottofun.Com
deems expedient may
procure that such funds are held secure by a third party;
5.3.2. execute
the accepted orders to purchase lottery tickets received from you
using your funds;
5.3.3. purchase
the lottery tickets you have ordered and hold them in fire-proof safe
custody;
5.3.4. check
your ordered numbers against the winning numbers in the relevant
lottery draw and promptly apply to the lottery for any
winnings that
might be due to your ticket/s;
5.3.5. account
to you from time to time (notionally into your member account withy
Lottofun.Com) with your winnings as and when they
are received from
the lottery;
5.3.6. procure
that your funds are paid as directed by you from time to time;
5.3.7. levy
a service/administration fee for acting as your agent and providing
the services you use and deduct same from your funds
from time to
time.
5.4. If
Lottofun.Com accepts an order to purchase lottery tickets on your
behalf on the mistaken assumption that it has been validly
appointed
as your agent, Lottofun.Com shall nevertheless be entitled, but not
obliged, to fulfill the order and, if it does, Lottofun.Com
may use
your funds to pay the costs and expenses associated with same.’
There are other clauses
which also make the agency relationship clear eg 9.1, 9.8, and 14.1
and 19. At the end of the Terms and Conditions
the disclaimer is
again repeated. The Member Log-on page contains the same disclaimer
as do the Contact Details page, the Main Help
menu, the Privacy and
Security page and the About Lottofun page. It is also clear that any
reasonably intelligent appreciation of
the process of ordering and
paying for lottery tickets requires attention to the Terms and
Conditions.
[51] It is clear from the
foregoing that not only is a relationship of agency for the purpose
of purchasing lottery tickets on the
customer’s behalf established
by the contractual provisions but also that no potential customer who
applies reasonable care (and
even superficial attention) to the
acquisition of tickets by means of the Lottofun sites will be left in
doubt as to the nature and
purpose of that relationship.
[52] It is in that
context that the affidavits of Amanda Rissik and Alwyn van Heerden
must be judged. The respondents relied on these
deponents to support
their case that On- Line was conducting its business in such a manner
as to deceive and create confusion in
the mind of the public. Both
witnesses were disgruntled customers of Lottofun. They were in some
sort of business partnership. They
frequently purchased lottery
tickets, Ms Rissik says ‘from’ Lottofun, Mr Van Heerden says
‘through’ Lottofun. The former
deposed, without laying any
factual basis for the statement, that ‘I have always thought that
the applicant was officially selling
lottery tickets as part of the
National Lottery in the same way as the ordinary outlets’. The
latter deposed as follows:
‘
5. At
all times up to Monday, 4 October 2004 I believed that there was a
connection between the entity trading as “LottoFun”,
which entity
I have now been informed is the applicant, and the National Lottery.
This belief was based on the use made by the applicant
of the word
“lotto” in its trading name.
6. I
became a member of the applicant more than a year ago. I have since
then purchased in excess of R5 000 worth of National Lottery
tickets
through the applicant. For many years prior to my becoming a member
of the applicant I, on a regular basis, purchased tickets
for the
National Lottery from ordinary lottery ticket outlets.
7. The
reason I became a member of the applicant was because the applicant
offered me an opportunity to purchase tickets for the National
Lottery without having to stand in queues. This was attractive to me
as I often found it difficult, due to my business commitments,
to
attend at a retail outlet to purchase the National Lottery tickets
myself.
8. Despite
having purchased many tickets for the National Lottery through the
applicant, I have never been furnished with any of the
tickets for
the National Lottery that I have purchased. After purchasing lottery
tickets from the applicant I would receive confirmation
via e-mail
from the applicant of the combinations of numbers I had chosen and
that these numbers had been recorded. Whenever I won
a prize the
applicant would inform me of this, indicate my winning combination(s)
of numbers and the amount I had won and confirm
that the
corresponding amount had been credited to my account with the
applicant. On those occasions that I have won a prize the
amounts
with which I have been credited have varied but have never been more
than approximately R400.
9. In
addition to the notifications that I have received from the applicant
as set out in the previous paragraph, on those occasions
when I have
won a prize the applicant has informed me of this and of the amount
that I have won by way of short message service (“sms”)
on my
cellular telephone.
.
. .
14. On
Monday, 4 October 2004, as both Ms Rissik and I believed that the
second respondent was connected with the applicant, Ms Rissik
contacted the second applicant via its helpline. Ms Rissik was
advised by the people she spoke to that there was no link between
the
applicant and the first and second respondents. Ms Rissik informed me
of this.
15. I
was extremely surprised to learn that there was no link between the
applicant and the first or second respondents. I had, at
all times,
thought that, due to the fact that the applicant was trading under
the name and style of “LottoFun”, the applicant
was officially
settling tickets as part of the National Lottery.’
[53] It
is not difficult to take a robust view of the value of this evidence.
Mr Van Heerden ‘became a member’ of Lottofun; he
regularly
purchased tickets using its website; he participated, apparently
without objection in the modus operandi of its business
viz
the retention of the
tickets, the crediting of winnings to an account in his name, and the
notification of success through the SMS
process. He states simply
that the basis for his belief in ‘a connection’ between Lottofun
and the National Lottery was the use
of the word ‘lotto’ in the
trading name ‘Lottofun’. He fails entirely to explain how he
reconciles his belief and conclusions
with the contents of the
website (which he and any other competitor must necessarily peruse in
order to know how and on what terms
to participate in the Lottofun
service), nor does he deal with the unequivocal aspects of the
Lottofun contract and the manner of
running its business which are
entirely different from those of ordinary lottery ticket outlets,
such as the opening of a trust account
in his name. Most important
perhaps is his silence on cardinal issues: whether he read or
understood the terms of the contract, particularly
those in which the
agency relationship and the commission liability were established,
the express disclaimer of any sale of tickets
by Lottofun, and the
repeated disclaimers of a relationship between Lottofun and the
National Lottery. The overwhelming sense which
one obtains is of an
affidavit drafted with the deliberate intention of avoiding those
questions to which the deponent could offer
no convincing response.
[54] On an overall
assessment of the evidence presented to the court below the learned
judge should, given that he was dealing with
an attempt to obtain
final relief in motion proceedings, have proceeded on the basis that
(a) the persons
potentially served by the Lottofun business must necessarily possess
a degree of sophistication and intelligence;
(b) the allegations that
On-Line’s contract was a sham were entirely without foundation;
(c) the business carried
on by On-Line (Lottofun) was the purchase of tickets on behalf of its
members ie as agent and not as principal
and the payment over and
above the retail price of a ticket represented commission and not a
part of that price;
(d) the business did not
involve the sale of tickets to its members or to members of the
public;
(e) there was no reason
for any member of the public to believe that the business was
connected with the national Lottery, the Board
or Uthingo; the
business-name ‘Lottofun’ was sufficiently different from the
named used by Uthingo in connection with the ‘Lotto
game’ to put
any reasonable man on serious enquiry as to whether there was such a
connection; any person sufficiently interested
in acquiring tickets
on line by means of Lottofun would, even if initially confused, be
disabused of that confusion before committing
himself to the
acquisition of tickets;
(f) any person who became
a member of and purchased a lottery ticket through Lottofun and
nevertheless continued to believe that he
or she was buying the
ticket from Lottofun or that Lottofun represented an authorized
outlet for the sale of tickets in the National
Lottery would
necessarily be the victim of his own carelessness or indifference.
[55] If
such were the findings of fact on which the learned judge should have
relied to decide the case before him it is plain that
the
justification did not exist for any relief directed against the sale
or disposing of the Lotto game tickets or any document pertaining
to
the National Lottery by On-Line. In addition the learned judge should
have concluded the deception or confusion which is an essential
element of the delict of passing off had not been shown. The relief
that depended on such proof was therefore unwarranted. The absence
of
any well-founded criticism of the manner and terms under which the
Lottofun business was operated also puts paid to the order
based upon
allegations that the modus operandi was
contra
bonos mores
.
[56] What remains to be
considered is whether a contravention of
s 57(2)(g)
of the
Lotteries
Act was
proved. Did the Lottofun business directly or indirectly
provide for ‘betting, wagering or gambling or any other game of
risk on
the outcome of any lottery’ (ie the Lotto game, in this
case)? I think it is clear from the factual findings that the
essential
nature of the business was the facilitation of the purchase
of tickets, and thereby doing for and on behalf of the Lottofun
members
what they were lawfully entitled to do for themselves. That
business did not even indirectly provide for betting etc on the
outcome
of the Lotto game. In this respect also the relief should
have been refused.
[57] In the result
On-Line has been successful in all substantive aspects of the appeal.
However there remains the question of the
striking out order made in
the court below which related not merely to substantial parts of
On-Line’s affidavits in both applications
but also to voluminous
supporting documents. Although the leave to appeal granted by this
Court covered that order no submissions
were addressed by counsel in
that regard and, indeed, On-Line did not seek to rely in the appeal
on any portion of the impugned matter.
Yet the record prepared for
the appeal unnecessarily included, by the agreement of the parties,
all that matter. It would be appropriate
to penalize On-Line for the
unnecessary costs and inconvenience which resulted. The costs order
in the appeal is accordingly tailored
to meet that censure.
[58] The following order
is made:
1. The appeal succeeds
with costs including those consequent upon the employment of two
counsel save that no costs shall be allowed
in respect of the
preparation and perusal of 40% of the record on appeal.
2. The
orders of the court
a quo
,
other than the orders in the striking out applications, are set aside
and replaced by the following:
2.1 In Case No 15574/04
the application is dismissed with costs including the costs of two
counsel.
2.2 In Case No 21917/04
the following order is made:
2.2.1 The Registrar of
Trade Marks is directed to rectify the Register of Trade Marks by the
expungement therefrom of registration
no 91/020702/01 LOTTO in class
36 and registration no 91/02702 LOTTO in class 41, both entered in
the name of National Lotteries
Board, on the grounds that such
entries wrongly remain on the Register within the meaning of
section
24(1)
of the
Trade Marks Act 194/1993.
2.2.2
The first and
second respondents are to pay the costs of the application including
the costs of two counsel.
________________________
J
A HEHER
JUDGE
OF APPEAL
Appearances:
For
app
ellant: P
Ginsburg SC and O Salmon SC
Instructed
by: Adams & Adams, Pretoria
Honey
Attorneys, Bloemfontein
For
1
st
and 2nd respondents: L Bowman SC and B Du Plessis
Instructed
by: 1
st
and 2
nd
Spoor & Fisher, Pretoria
Matsepe’s,
Bloemfontein
For
3
rd
respondent: -
1
A trade mark is registered as on the date of the lodging of the
application for registration, which date is deemed for the purposes
of the Act to be the date of registration (s29 (1)). So also under
the
Trade Marks Act 62 o
f 1963
(s 37(1)).
2
">
2
In relation to its business name and domain addresses it seems to
employ the style ‘Lottofun’ or ‘lottofun’.
3
With a reference to Andre P Brink’s 1972 translation of
Die
Seemeeu
, the play by Chekhov, first published in Russia in 1896.
In the translator’s introduction he refers to Act 4 of the drama
‘waar
al die mense saam om ‘n tafel sit en lotto speel’. In
the translated text Arkadina says, ‘As die lang herfsaande
aanbreek,
dan speel ons hier lotto. Kyk, dis ‘n ou stel waarmee my
ma nog gespeel het toe ons klein was. Voel jy lus om ‘n potjie
saam
te speel voor ete? Dis ‘n vervelige speletjie, maar mens raak
daaraan gewoond. [Deel drie kaarte uit.]’ The stakes are then
placed and numbers called out until Trigorin claims victory. In the
English translations (of
The Seagull
) available to me (
The
Oxford Chekhov
(1967) and the
Everyman
edition (1937))
the word ‘lotto’ is also used, which leads one to assume that it
probably appeared in the original Russian.
4
Cf
Jeryl Lynn Trade Mark
, above, at 504
in fine
.
5
eg
Truck and Car Co Ltd v Kar-N-Truck Auctions
1954 (4) SA
552
(A) (‘Truck and Car’);
Burnkloof Caterers Ltd v Horseshoe
Caterers Ltd
1976 (2) SA 930
(A) (‘Bar-B-Que Steakhouse’);
Appalsamy v Appalsamy
1977 (3) SA 1082
(D) (‘City Heat
Geysers’);
Selected Products Ltd v Enterprise Bakeries (Pty)
Ltd
1963 (1) SA 237
(C) (‘coconut cookies’);
Sea Harvest
Corporation (Pty) Ltd v Irvin & Johnson Ltd
1985 (2) SA 355
(C) (‘prime cuts’).
6
This is On-Line’s designation of the account into which a member’s
subscription is paid and winnings deposited.