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[2017] ZASCA 10
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Westminster Tobacco (Pty) Ltd v Philip Morris Products S.A. and Others (925/2015) [2017] ZASCA 10; [2017] 2 All SA 389 (SCA); 2017 BIP 74 (SCA) (16 March 2017)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 925/2015
In
the matter between:
WESTMINSTER
TOBACCO CO
(CAPE
TOWN AND LONDON) (PTY)
LTD
APPELLANT
and
PHILIP
MORRIS PRODUCTS S.A.
FIRST RESPONDENT
THE
REGISTRAR OF TRADE MARKS
SECOND RESPONDENT
PHILIP
MORRIS BRANDS
SARL
THIRD RESPONDENT
Neutral
citation:
Westminster Tobacco
Co v Philip Morris Products SA
(925/2015)
[2017] ZASCA 10
(16 March 2017)
Coram:
LEACH, WALLIS, PETSE and ZONDI JJA and MBATHA AJA
Heard
:
23
February 2017
Delivered
:
16 March 2017
Summary:
Expungement of trade mark for non-use
in terms of
s 27(1
(b)
of
the
Trade Marks Act 194 of 1993
– test for bona fide use of a
trade mark – factual enquiry.
ORDER
On
appeal from:
Gauteng Division, Pretoria
of the High Court (Louw J, sitting as court of first instance):
1
The appeal is upheld with costs, such costs
to be paid by the first respondent and to include those consequent
upon the employment
of two counsel.
2
The order of the High Court is set aside
and replaced by the following:
‘
The
application is dismissed with costs, such costs to be paid by the
first respondent and to include those consequent upon the
employment
of two counsel.’
JUDGMENT
Wallis
JA (Leach, Petse and Zondi JJA and Mbatha AJA concurring)
Introduction
[1]
The
only issue in this appeal is whether the appellant, Westminster
Tobacco Company (Cape Town and London) (Pty) Ltd (Westminster),
proved that, during the period of five years prior to and expiring on
22 July 2008, it made bona fide use of the trade mark
PARLIAMENT
on cigarettes. If it did not do so, the two registered trade marks it
held for that mark, being trade mark registration
number 1952/00688
PARLIAMENT and trade mark registration 1997/17613 PARLIAMENT (label),
were liable to expungement in terms of
s 27(1)(
b
)
of the Trade Marks Act 194 of 1993 (the Act). The challenge to the
continued registration of the marks came from the first respondent,
Philip Morris Products SA (Philip Morris). It successfully claimed in
the High Court
[1]
(Louw J) that Westminster had not made bona fide use of the marks and
obtained an order for their removal from the trade marks
register.
The appeal is with the leave of the High Court.
[2]
Westminster is a wholly owned subsidiary of
British American Tobacco South Africa (Pty) Ltd (BATSA), which in
turn is a wholly owned
subsidiary of British American Tobacco
Holdings South Africa (Pty) Ltd. All three are companies in the
British American Tobacco
group of companies (the BAT group), one of
the largest suppliers of cigarette and tobacco related products in
the world. The group’s
trading activities in South Africa are
conducted through BATSA and, in dealing with the alleged use of the
marks, I will refer
to BATSA on the footing that the use it made of
the marks was authorised use. Philip Morris is a company in the
Philip Morris
International group of companies (the PMI group) that,
like the BAT group, is a major international manufacturer and
supplier of
cigarettes and tobacco related products.
[3]
The conflict between these two
multinational groups arises because the PMI group uses the trade mark
PARLIAMENT internationally
in respect of one of its premier brands of
cigarettes, but is unable to do so in South Africa. In 2006, a
company in the PMI group,
Philip Morris Brands SÀRL, applied
for a trade mark registration under application number 2006/02685 for
the mark PARLIAMENT.
It could not obtain registration because
Westminster was registered as the proprietor of the two marks in
issue. Both registrations
were in class 34 in respect of cigarettes
and other tobacco related products. On the basis of its application
for registration,
Philip Morris Brands SÀRL sought and
obtained leave to intervene in the appeal as a third respondent,
although its intervention
did not affect the conduct of the appeal.
The Registrar, who was cited as the second respondent, played no part
in the proceedings
below or in this court.
[4]
On 22
October 2008 Philip Morris brought its application in terms of s
27(1)(b) of the Act for the rectification of the register
by the
removal of Westminister’s two marks on the grounds of non-use.
Under the section the marks were liable to be removed
from the
register if, for a continuous period of five years prior to and
expiring on 22 July 2008, there was no bona fide
use thereof in
relation to the goods or services in respect of which they were
registered.
[2]
The onus of proof of bona fide use rested upon Westminster in terms
of s 27(3) of the Act.
The
law
[5]
The
concept of bona fide use of a mark has received the attention of our
courts on various occasions. There is no need to rehearse
the
jurisprudence in this regard. It suffices to cite the following
passage from the judgment in
A
M Moolla Group v The Gap
:
[3]
‘
The
concept of
bona
fide
use
has been the subject of a number of judgments, also of this Court,
and the area need not be traversed again. For present
purposes, it
suffices to say that “
bona
fide
user”:
“
means
a user by the proprietor of his registered trade mark in connection
with the particular goods in respect of which it is registered
with
the object or intention primarily of protecting, facilitating, and
furthering his trading in such goods, and not for some
other,
ulterior object”
[4]
This
test is similar to that proposed in an opinion by the Advocate
General in the European Court of Justice in the
Ansul
case:
“
When
assessing whether use of the trade mark is genuine, regard must be
had to all the facts and circumstances relevant to
establishing
whether the commercial exploitation of the mark is real,
particularly whether such use is viewed as warranted
in the
economic sector concerned to maintain or create a share in the market
for the goods or services protected by the mark, the
nature of those
goods or services, the characteristics of the market and the scale
and frequency of use of the mark.”’
[6]
I add
one further quotation from the decision in
Ansul
:
[5]
‘“
Genuine
use” must therefore be understood to denote use that is not
merely token, serving solely to preserve the rights conferred
by the
mark. Such use must be consistent with the essential function of a
trade mark, which is to guarantee the identity of the
origin of goods
or services to the consumer or end user by enabling him, without any
possibility of confusion, to distinguish the
product or service from
others which have another origin.
…
Use
of the mark must therefore relate to goods or services already
marketed or about to be marketed and for which preparations by
the
undertaking to secure customers are underway, particularly in the
form of advertising campaigns.’
[7]
In
summary, bona fide use is use of the trade mark in relation to goods
of the type in respect of which the mark is registered.
The use must
be use as a trade mark, for the commercial purposes that trade mark
registration exists to protect. It must be use
in the course of trade
and for the purpose of establishing, creating or promoting trade in
the goods to which the mark is attached.
The use does not have to be
extensive, but it must be genuine.
[6]
Genuineness is to be contrasted with use that is merely token, but
the line is a fine one, because the use may be minimal.
[7]
It may in part be prompted by the fear of removal from the register
and be directed at protecting the proprietor’s trade
generally
or preventing the mark from falling into the hands of a competitor.
Provided, however, the use is bona fide and genuine
and principally
directed at promoting trade in goods bearing the mark, these further
purposes however important, are irrelevant.
[8]
What is impermissible is:
‘
...
user for an ulterior purpose, unassociated with a genuine intention
of pursuing the object for which the Act allows the registration
of a
trade mark and protects its use …’.
[9]
Whether
use of the mark was bona fide is a question to be determined on the
facts of the particular case.
The
launch of PARLIAMENT cigarettes
[8]
Turning then to the facts, before 2007
BATSA did not use the PARLIAMENT mark on any cigarettes or tobacco
related products. In September
2007 it caused one million cigarettes
(‘sticks’ in the parlance of the trade) to be
manufactured for the purpose of
being sold under the PARLIAMENT
mark. In the latter stages of October 2007 a launch was planned
of PARLIAMENT cigarettes
in the Cape Peninsula to take place in
December 2007. It was, however, aborted. According to Ms Heglund, the
principal witness
for BATSA, this was because the launch of a new
product in that area would have interfered with a far more important
project, namely
a policy of direct selling to stores (the DSS
policy), which involved a substantial change to BATSA’s method
of supplying
retail outlets. Previously it had done this through a
relatively small group of wholesalers, but the change contemplated
BATSA
undertaking direct deliveries to retail outlets.
[9]
The
first launch of cigarettes under the PARLIAMENT mark occurred in
Upington from 17 January 2008. The cigarettes were initially
placed
in twenty retail outlets identified by Mr Nel, a sales representative
in Upington, as being shops that predominantly served
the low price
end of the market. This sales effort in the Upington area did not
last long – a few weeks at most. In May 2008
a price card was
issued showing the prices at which PARLIAMENT cigarettes could be
sold and on 2 June 2008 sales were expanded
to retail outlets in the
Bloemfontein and Welkom areas. In August 2008, after the expiry of
the relevant period, sales of PARLIAMENT
cigarettes were also
extended to Gauteng. The mark was used on cigarettes for a few years
until 2012
[10]
and sales extended to some other areas including the Eastern Cape,
the whole of Gauteng and the Southern Cape. Overall the brand
did not
become a particularly successful product. We were furnished with a
schedule showing sales of about 1.5 million cigarettes
in 2008;
slightly less than 10 million in 2009 and nearly 15 million in 2010,
which is tiny in relation to a market measured in
the billions of
cigarettes every year. A production record produced by BATSA
suggested that production was anticipated to tail
off in 2011 and
subsequent years and according to Mr Joubert’s evidence sales
of PARLIAMENT cigarettes ended in 2012.
BATSA’s
initial case
[10]
BATSA’s
case underwent a marked transformation in the course of the
litigation, precipitated by the discovery of a document
in the days
immediately preceding the commencement of the trial. I will deal with
the change in due course, but at this stage will
consider the case as
originally advanced by BATSA. The answering affidavit was deposed to
by Ms Heglund, who was at the time a
marketing manager (Southern
African markets) of BATSA with responsibility for its portfolio of
cigarette brands in the mid and
low price ranges at the relevant
times.
[11]
She said that, at the time of her affidavit in 2009, mid-price
cigarettes were priced at between R14 and R18 for a pack of 20
cigarettes. The low price range was between R10 and R14 for a
similar-sized pack. BATSA faced particular issues in the low price
segment of the market because of the presence of counterfeit
cigarettes and illicit cigarettes, that is, those that had been
introduced
into the market unlawfully without the payment of excise
duties. BATSA already held the three dominant brands in the mid-price
range, in the form of ROYALS, EMBASSY and PRINCETON. But it had no
brand in the low price sector of the market, where there were
some 20
brands of which, according to her, ASPEN and LD were the leading
brands. In fact another brand, VOYAGER, featured prominently
in the
evidence.
[11]
Ms Heglund explained the introduction of
the PARLIAMENT brand in the following terms:
‘
The
PARLIAMENT cigarette brand has been positioned by BATSA as an
important new brand in the Low price sector. A key factor in the
Value portfolio is pricing. It is imperative to set the pricing
strategy correctly to compete properly in the legitimate Mid and
Low
price sectors. The price must be low enough to be attractive to the
consumer while, at the same time, providing a meaningful
margin to
the retailer. BATSA has a separate Anti Illicit Trade (AIT) operation
which deals with the illicit cigarette market.
While BATSA is well
positioned in the Value portfolio (Mid price products) with its
brands ROYALS, EMBASSY, and PRINCETON, it would
not be good practice
to re-categorise one of the existing brands into the Low sector. Best
practice is to introduce a new brand
and PARLIAMENT was chosen for
this purpose.’
[12]
Ms Heglund described the initial launch of
PARLIAMENT cigarettes in Upington and said that this was aimed at
gaining insights into
and enhanced understanding of PARLIAMENT in the
low price segment, in order to develop ‘long-term sales and
marketing strategy’
for the brand. She explained that, after
the initial launch, sales of the brand were extended to the
Bloemfontein and Welkom areas
and, in August 2008, to Gauteng. After
referring to the fact that sales figures nationally were in the
region of one million cigarettes,
she concluded as follows:
‘
Considering
that the PARLIAMENT brand was only launched in January 2008, and has
since then progressively been introduced to the
national market
through targeted low price outlets, the objectives behind the
Respondent’s launch strategy have been realised.
The insights
gained from this introductory period have contributed immensely to
the Respondent developing a commercially viable
long-term strategy
for the PARLIAMENT brand.’
[13]
A somewhat different picture was painted in
a witness statement for the legal counsel to companies in the BATSA
group, Mr Joubert.
This statement was delivered during preparation
for the trial, in terms of an order that witness statements be
exchanged between
the parties. He explained in some detail that there
was a problem in South Africa with counterfeit and illicit cigarettes
and that
this problem had worsened between 2005 and 2008. According
to his statement:
‘
The
exploitation of the PARLIAMENT product was aimed at curbing this
trend.’
[14]
Philip Morris’ response to this was
to deliver a witness statement by an employee, Ms Fleming, apparently
on the basis that
she was an expert in the correct or normal approach
to the launch of a new brand of cigarettes in the market. In a
detailed analysis
of the discovered documents she expressed
forthright criticism of Ms Heglund’s explanation in her
answering affidavit concluding
that:
‘…
this
was not a genuine launch to further the legitimate commercial
interests of the Respondent and to gain any insight into the
low
price sector’.
I
have my doubts as to the admissibility of much of Ms Fleming’s
evidence, which appeared in many respects to be an attempt
to provide
the court in advance with an outline of counsel’s argument and
to answer the very question that it was for the
court to decide, but
no point was made of this in argument and ultimately there was
virtually no reference to her evidence for
the purposes of this
appeal.
[15]
Much of the cross-examination in the high
court, as well as the evidence lead by Philip Morris, was directed at
showing that these
explanations for the launch of PARLIAMENT
cigarettes were spurious and that the true reason was to protect the
trade marks and
nothing more. Likewise the heads of argument in this
court included an extensive analysis of the evidence with a view to
demonstrating
that these explanations could not be truthful. The
conclusion was that:
‘
Examination
of the actual “
test
”
market for PARLIAMENT cigarettes reveals that the Appellant’s
stated objective was a fiction and was in fact not carried
out. The
Appellant’s very account of the launch is not
bona
fide
as
demonstrated hereunder.’
A
further analysis of the evidence with extracts from documents and
oral testimony, attached as a schedule to the heads of argument,
pursued the same theme and concluded that:
‘…
as
is evident from the above summary of the evidence presented in the
matter, the only inference that can be drawn is that BATSA’s
use of the PARLIAMENT trade mark was
solely
for the purposes of avoiding the trade mark being cancelled on the
basis of non-use.’
[16]
Had the case rested on the original
explanations by Ms Heglund and Mr Joubert, BATSA may well not have
discharged the onus that
rested upon it of showing bona fide use of
the marks. Those explanations were inconsistent with BATSA’s
own documents and
the concessions these two witnesses made under
cross-examination in regard to them. In the absence of a plausible
explanation for
the launch of the PARLIAMENT brand BATSA may well
have had difficulty in discharging the burden of proving bona fide
use of the
marks. The suspicion, supported by a number of references
in the documents, that the use of the PARLIAMENT mark was directed at
the preservation of the marks on the register and nothing else may
not have been dispelled.
BATSA’s
case at trial
[17]
But BATSA’s case did not rest on the
original explanations. When properly analysed it was based on an
entirely different explanation
of the launch of PARLIAMENT
cigarettes. It took that new direction after Ms Heglund, who was
no longer an employee of BATSA,
fortuitously discovered a document
that she had been asking the company to produce. Searches at the
company had failed to unearth
it, but she found it on a memory stick
inside an old handbag of hers, when her child was playing with the
handbag. It contained
a presentation made by the local BATSA
marketing team in relation to concerns they had about the growth of
the low price segment
of the market. The presentation was made in
December 2006 to the Africa Middle East group (the AME group) within
BATSA”s
international operations. The AME group consisted of
the regional director responsible for Africa and the Middle East and
a team
that accompanied him. It met with a local group lead by the
head of strategy in South Africa, Ms Steyn.
[18]
The presentation addressed the problems
being experienced in the cigarette market in South Africa. Studies
revealed a trend of reduced
sales generally, but increasing sales in
the low price market and sales of illicit cigarettes. These trends
posed a threat to BATSA’s
business, as smokers who were
experiencing difficult economic times were moving from the popular
and mid-price segments of the
market towards the low price sector.
BATSA had never particularly traded in the low price sector of the
cigarette market. Its principal
brand, Peter Stuyvesant, was
positioned as a popular brand between the mid-price and the premium
sectors of the market and represented
forty five percent of all
cigarettes sold in South Africa. BATSA’s fear was that, if it
introduced a quality low price cigarette
into the market, its effect
would primarily be to draw smokers away from Peter Stuyvesant towards
the less profitable low price
brand, rather than gaining market share
from the plethora of low price brands that had come into the market.
An analysis it had
done on the likely impact of re-categorising Pall
Mall, one of its existing brands, as a low-price brand suggested that
whatever
competitive advantage it gained as against low-price
competitors would be offset by a significant level of cannibalisation
of the
Peter Stuyvesant brand. These problems were highlighted in the
presentation
[19]
The final page of this document is headed
‘outcome of the discussion’. Ms Heglund testified that Ms
Steyn, who was present
and was head of strategy at BATSA, typed it at
the end of the meeting. Counsel for Philip Morris accepted that this
was so and
that the document was genuine and reflected the outcome of
the discussions at that meeting. Ms Steyn’s note read as
follows:
‘
LOW
Do
not enter given profit erosion
Tactical
execution
ILLICIT
Continue
with AIT strategy and government engagement is KEY
Do
not manage through pricing strategies.’
[20]
The heading ‘LOW’ related to
the low price sector of the market and the heading ‘ILLICIT’
to the counterfeit
and duty avoiding sector. The clear statements
under the latter head put paid to Mr Joubert’s suggestion that
one of the
purposes of the launch of the PARLIAMENT brand was to deal
with the problem of illicit sales. He accepted this in a
supplementary
witness statement delivered on the Friday before the
commencement of the trial and again in his oral evidence.
[21]
The first entry under the heading ‘LOW’
reflected a clear decision not to enter the low-price sector of the
market,
because of the risk of profit erosion arising from the
cannibalisation of the Peter Stuyvesant brand. This was compatible
with
the outcome of the marketing and strategy team’s analysis
of the situation as reflected in the presentation. That left the
possibility of ‘tactical execution’. The meaning, purpose
and implementation of this decision assumed central importance
in the
conduct of the trial and the arguments that were addressed to us.
[22]
Although,
as was repeatedly emphasised in both written and oral argument, the
case presented by BATSA at the trial was transformed
by the discovery
and production of this document, it could not have come as a complete
surprise to Philip Morris. Its vastly experienced
legal team did not
think it necessary to seek an adjournment to reflect on its
implications. No doubt that was because the bundle
already contained
documents, to which I will turn in a moment, which used the
expression ‘tactical execution’ or a
similar expression.
Ms Fleming’s witness statement expressly recognised that there
was an intention to use it for that purpose,
although she dated it to
August 2009 and a re-launch of the PARLIAMENT brand.
[12]
She also analysed the documents referring to the use of the brand for
tactical purposes. But for so long as BATSA continued to
run its case
in accordance with Ms Heglund’s answering affidavit these
documents did no more than rebut that case. It was
only once the
summary of the decisions at the meeting with the AME group in
December 2016 emerged that they assumed far greater
significance.
[23]
While the discovery and production of this
document by Ms Heglund caused her a measure of discomfiture under
cross-examination,
the fact that she sought it out and produced it,
even at a late stage when she must have been preparing to give her
evidence, reflected
favourably on her honesty and credibility. Had
she been dishonest it would have been the simplest thing in the world
to suppress
it and carry on as before. After all, that was what her
erstwhile employer was expecting. Instead she asked for it and,
having
discovered it by accident, produced it and it was made
available to Philip Morris. It occasioned a measure of discomfiture
because
BATSA’s legal team sought to run the case on the basis
that the tactical execution referred to in the document and explained
by her in evidence was consistent with her original affidavit. This
was exploited in cross-examination because the inconsistency
was
apparent. It may have been preferable for BATSA to accept that what
she had said originally was incorrect, and live with the
consequences. But that is possibly the wisdom of hindsight emanating
from one who no longer has responsibility for the conduct
of trials
on behalf of clients.
[24]
Ms Heglund not only explained what was
meant and understood by the strategy and marketing team by ‘tactical
execution’,
but testified that this was the nature and purpose
of the launch of PARLIAMENT. She said it meant that instead of a
national launch
of a single product in the low price section of the
market they would consider, evaluate and investigate tactical
options. No single
brand in the low price sector had a very large
market share and therefore it was possible to take a brand tactically
into areas
where there was specific low price activity or ‘hot
spots’ in the market, and attempt to reduce the opposition in
those
specific areas. The idea was to disrupt ‘opposition
traction’ in the environment and to distract the consumer by
making
a further choice available.
Philip
Morris’ case
[25]
Philip Morris’ case, as articulated
in its heads of argument, was that the only inference that could be
drawn from the evidence
was that BATSA’s use of the PARLIAMENT
mark was solely for the purpose of avoiding its removal from the
register. In advancing
this argument, stress was laid on the fact
that Mr Joubert was aware of the risk that the registration of the
mark might otherwise
be lost, and had suggested using the PARLIAMENT
mark. Furthermore, documents discovered by Westminister emphasised
the need to
launch the product in time to prevent the mark from being
deregistered. A launch presentation dated 14 December 2007 said that
BATSA needed to demonstrate use of the mark before April 2008. The
same presentation recorded that PMI was the international trade
mark
owner. Protection of the trade mark was manifestly one of the
objectives of the launch. Philip Morris argued that BATSA had
failed
to demonstrate any other legitimate trade objective and, to this end,
placed evidence before the High Court to show that
the steps taken to
place PARLIAMENT cigarettes in the market were not those ordinarily
attendant upon the launch of a new cigarette.
This evidence was
largely uncontested, save in regard to its relevance. Lastly, Philip
Morris launched a sustained attack on the
credibility of the
principal witnesses for BATSA, namely, Mr Joubert and Ms Heglund, and
their evidence concerning the purpose
of the launch of the PARLIAMENT
brand.
[26]
Philip Morris attacked Ms Heglund’s
evidence on the basis that the manner in which the launch was
conducted from January to
July 2008 and thereafter, would not have
served the purposes she outlined. The argument proceeded as follows.
The initial launch
in Upington, in 20 outlets selected by Mr Nel, was
unscientific and an inadequate sample for information purposes. It
was not undertaken
with any degree of vigour or enthusiasm, nor had
it an adequate budget. Moreover, Upington was an isolated place to
launch a brand
with this tactical purpose. If indeed that were truly
the purpose, the launch should have been undertaken in a major urban
area,
particularly if useful information was to be derived from it.
There was no market research of the smoking preferences of the target
group and no follow up when reports were received that the target
group did not like the taste of PARLIAMENT cigarettes. Once the
launch took place there was no proper follow-up with retailers or
consumers. The information that was obtained was so limited and
superficial in nature that it was effectively valueless. Fairly
rapidly the launch fizzled out in that area. The launch was then
pursued in the Bloemfontein and Welkom areas, in the same desultory
fashion, which suggested a concern to dispose of the initial
stock of
one million cigarettes before they became stale, rather than a desire
to establish the PARLIAMENT brand.
[27]
I accept that, in contrast to the
introduction of other brands by BATSA, the launch of PARLIAMENT was
characterised by hesitation,
a lack of planning and follow-up and a
failure to follow the usual course for such a launch. But the use of
a mark does not cease
to be bona fide because it is characterised by
inefficiency, incompetence or failure. The only question is whether
it was genuinely
used for trade mark purposes. If a large and
successful commercial organisation, such as BATSA, mishandles a
product launch or
conducts it in a fashion that to industry experts
seems sloppy, amateurish and unlikely to succeed, that may be an
important factor
in considering whether it was a bona fide attempt to
launch a product using the mark in issue. Such conduct may well aim
at disguising
an intention to put the mark on a product in the market
solely to protect it against a rival and not to trade using that
mark.
It cannot, however, be decisive where the evidence indicates
that there was in fact a genuine intention to launch the product
using
the mark for commercial purposes. So it becomes necessary to
weigh Philip Morris’ criticisms against the evidence pointing
to a genuine intention to use the PARLIAMENT mark in the manner
outlined by Ms Heglund in her evidence.
Credibility
[28]
In the High Court Philip Morris submitted
that Ms Heglund was an unsatisfactory witness. Louw J did not accept
this criticism. He
agreed that what was said in her affidavit about a
nationwide launch of a new brand in the low price sector of the
market was inconsistent
with her oral evidence about targeted entry
into low price hot spots of limited duration with the object of
disrupting the business
of legal competitors, while protecting the
Peter Stuyvesant brand. But in the very next paragraph of his
judgment he went on to
say that he accepted her evidence that the
latter was indeed the intention of BATSA in launching the PARLIAMENT
brand of cigarettes.
[29]
Philip Morris accepted that an appeal court
does not lightly overturn credibility findings by a trial court, but
nonetheless in
its heads of argument launched a forthright and direct
attack on Ms Heglund’s credibility. It said that she was
an
‘unsatisfactory witness’, and that there were various
aspects of her evidence ‘which are not credible’,
in
particular where her oral evidence did not coincide with the contents
of her affidavit. She was criticised for her failure to
make
concessions in cross-examination and some of her evidence was
described as manifestly false. Her evidence that the initial
launch
was a test was debunked. In conclusion it was submitted that:
‘
Faced
with the damaging discovered documents which were clearly at odds
with the original answering affidavit of Ms Heglund, the
Appellant
was forced to “
invent
”
a more plausible explanation for the use. But even the version
ultimately advanced in oral testimony as to the intent behind
those
“
test
”
launches cannot survive scrutiny, and is false in material respects.’
More
forthrightly it was said that ‘the intent to disrupt is
fictitious’.
[30]
The attack on Ms Heglund’s
credibility was couched in terms that could only be understood to
suggest that she was a dishonest
witness and that her version, of
using PARLIAMENT as a brand directed at the low price sector of the
market on a tactical basis
to disrupt the activities of low price
competitors, was untruthful. However, in oral argument, leading
counsel for Philip Morris
disavowed any attack on Ms Heglund’s
honesty. The concession was correctly made, but it made it difficult
to maintain the
argument that PARLIAMENT was introduced for the sole
purpose of protecting the marks. Her evidence during the trial could
not be
dismissed as an error of recollection or attributed to mistake
occasioned by the passage of time. Either the PARLIAMENT brand was
launched for the reasons she described, however imperfectly
implemented, or those reasons were nothing but a facade to disguise
the true purpose, which was protecting the trade marks. If the latter
was the case then she, as the person responsible for the
launch of
the brand and its marketing, must have been a party to the deceit and
her evidence was untruthful.
[31]
There is no reason to depart from Louw J’s
acceptance of Ms Heglund’s oral evidence concerning the reasons
for the launch
of the PARLIAMENT brand. In para 23 I drew attention
to the fact that the circumstances of the discovery and disclosure of
the
memory stick and the presentation to the AME group reflected well
on her honesty. The legitimate criticisms directed at her evidence
arose from the attempt to suggest that her oral evidence was
compatible with her answering affidavit. That was an unfortunate,
if
all too human, approach.
[32]
The decisive evidence in support of Ms
Heglund’s credibility lay in Ms Steyn’s summary of the
decisions taken at the
AME meeting in December 2006 and in the very
documents that Ms Fleming analysed and criticised in her witness
statement. The summary
reflected a decision that the approach to be
adopted in the low price segment of the market was not to introduce a
brand to compete
across the sector in the conventional way, but to
engage in ‘tactical execution’. The documents show that
this decision
was not ignored. The production of PARLIAMENT
cigarettes commenced from July 2007 with differing product
specifications and pack
designs for filter and lights being
commissioned. In September 2007 the brand was entered with SARS for
excise purposes.
[33]
The purpose of this was dealt with in a
presentation on the launch of PARLIAMENT dated 14 December 2007. It
set out three objectives
other than the launch itself, namely, to
protect the trade mark, to test the commercial viability of a low
price offer and finally,
to gain insight into the low price segment.
Presumably the author of the presentation thought that all three
objectives mattered.
None was prioritised ahead of the others. There
is no suggestion that the latter two were subtly slipped in to
provide plausible
protection at a later stage against an application
for expungement of the marks. Any such suggestion would have required
the collaboration
of a number of individuals, both high and low in
the hierarchy. It would have required approval to launch a
loss-making product
for no greater purpose than to stop an attack on
two marks that had never been used and that had no brand reputation
in South Africa.
Mr Joubert legitimately, and with cogent reasons,
poured cold water on that idea. There is not the slightest indication
in the
documents of this being the case.
[34]
A further presentation in January 2008,
after the launch in Upington, set out as background the two goals of
protecting the trade
mark and gaining insight into low price segment
dynamics. It said that the sales rate in the 20 outlets chosen by Mr
Nel was too
slow and that there was an opportunity to extend the test
market and further illustrate use of the trade mark. This was to be
done
by a ‘tactical price promotion’, echoing the
decision taken at the AME meeting. It identified a tactical price
promotion
in the Free State at ‘low price hot spots’
supplied from the Bloemfontein distribution centre. One of the goals
was
to provide a healthy retail margin to ensure retailer buy-in and
off-take. It closed with the recommendation for the national
deployment
of the brand ‘but tactical usage in low hot spots
(clear strategic intent)’. The Upington test market was to be
closed
at the end of July.
[35]
On 25 January 2008 at a Sales Operational
Planning meeting the PARLIAMENT brand was discussed. Its launch was
said to have been
successful, which accorded with the reports
received by Mr Nel, and the decision taken at the meeting was that:
‘
Viability
of increasing the brand’s distribution to be evaluated and a
decision to be taken based on findings.’
A
further report on the progress with the PARLIAMENT brand is dated
8 February 2008. The roll-out of PARLIAMENT was described
as
being ‘critically behind schedule’. It was said to be
twenty-three weeks past the planned project end date and only
at
Stage 5 released. The aim, according to the report was that there
should be growth. If that was not the real intention the entire
discussion at this meeting was a farce.
[36]
At a demand review meeting on 30 May 2008
there was a discussion concerning the Voyager brand. The minutes
reflects that the:
‘
Decision
has been taken to tactically place Parliament in stores to compete
directly with Voyager brand.’
Ms
Heglund was present at that meeting. A presentation in June 2008 was
in similar terms. The last document before the cut-off date
is an
email that Ms Heglund sent to various people on 2 June 2008. In it
she described this as having been a ‘Tactical Pricing
Initiative for Parliament’. Why would she use that expression
if that were not in fact the case? And, if it was a tactical
pricing
initiative, it could only have been in relation to the low price area
of the market. Once again reference was made to extending
the test
market.
[37]
If this was all an elaborate charade to
disguise the fact that the sole purpose of launching PARLIAMENT
cigarettes was to protect
the trade marks, it must be asked who was
orchestrating the charade. It is impossible to see how this could
have been done without
Ms Heglund’s knowledge and
participation. A charade would have been a particularly subtle one –
a cunning plan, involving
an outward openness in the frank
acknowledgement of the need to protect the trade marks, while
presenting a plausible scenario
in which these could be used in the
ordinary way to identify a brand that BATSA was inserting into the
market. If it were a charade
one would have expected that there would
be no mention of the need to protect the trade marks. Why mention
something that could
be held against BATSA? There was no attack on
the authenticity of these documents and no suggestion that they did
not accurately
represent the views of those responsible for their
preparation and presentation or who were at the relevant meetings.
Yet the truth,
if this was indeed a charade, had to be that there was
no real intention to launch a PARLIAMENT brand, or to market it, and
no
intention to use it to address the problems BATSA perceived in the
low-price sector of the market.
[38]
Central to all of this would have been Ms
Heglund. She would have had to have known what should be included in
presentations and
what excluded. She would have had to make reports,
ostensibly genuine, about the launch and progress of the product,
whilst being
aware that a successful launch was the last thing that
was wanted. Even more to the point, she would have had to be willing
to
give untruthful evidence and defend the reality of what she knew
to be a charade if an application for expungement was made. It
is
hardly surprising that Philip Morris made no endeavour to delineate
such an actual charade or to indicate how it could have
been pursued
and maintained over the five years that the brand was on sale.
[39]
Once it was accepted, as Louw J did, that
Ms Heglund’s evidence at the trial accurately reflected the
motivation for launching
the PARLIAMENT brand, the fact that there
was a conscious desire to protect the marks throughout cannot detract
from the fact that
they were being used on a product that was to be
placed in the market for a very specific purpose, targeted at a very
specific
sector of the market and in a way that would not be
detrimental to their existing brands, especially Peter Stuyvesant.
Was
this use as a trade mark?
[40]
The
case was fought out between the parties on the basis that BATSA’s
real intention in launching the PARLIAMENT brand was
to protect the
marks and that there was no genuine commercial purpose in doing so.
No doubt that was to avoid the principle enunciated
in
Electrolux
[13]
and accepted in several decisions of our courts, that bona fide use
of a trade mark does not cease to be such because the user
has an
additional motive of protecting the mark or protecting its other
business. The attempt to obtain expungement on this basis
was doomed
to fail in the light of the high court’s acceptance of the
evidence of Ms Heglund as to the commercial purpose
of the launch of
PARLIAMENT. After that it is not clear what room remained for a
finding that this use did not constitute bona
fide use of the marks.
There had been no attack directed at the proposition that strategic
use on the basis of her evidence would
not qualify as bona fide use.
Mr Joubert was cross-examined on legal issues around the preservation
of the marks, but it was not
suggested to him that this kind of use
would not qualify as bona fide use. There was no indication in the
record of this line of
attack.
[41]
The expungement action was not fought on
the basis of pleadings. The exchange of witness statements did not
identify as an issue
what became the major focus of the argument on
appeal, namely, that use of the nature to which Ms Heglund testified
would not constitute
use as a trade mark for the purposes for which
trade marks are afforded statutory protection. Even the heads of
argument only mentioned
this in a somewhat throwaway fashion in the
penultimate paragraph. The submission was that
‘
[E]ven
if the Appellant’s evidence is to be accepted insofar as a
disruptive strike to interfere with the legitimate business
of its
competitors is concerned, such disruptive strikes cannot be described
as being “
statutorily
authentic
”
even if it is accepted these were aimed at protecting the PETER
STUYVESANT business. There was no desire or objective to
build up any
commercial long term sales strategy in PARLIAMENT cigarettes and the
objectives were anathema to the functions of
a trade mark as defined
in the Act.’
[14]
[42]
It
came as something of a surprise therefore that, in developing his
argument in this court, Philip Morris’ main line of approach
was to urge upon us that the use of the PARLIAMENT mark by BATSA, in
the manner described by Ms Heglund, was not trade mark usage.
The
concern in this regard is that, while the onus rested on BATSA to
prove that its use of the mark was bona fide use, as that
expression
is to be understood in trade mark law, that does not mean that such
proceedings do not have to be conducted in a fair
way so that neither
party is surprised by the stance of the other.
[15]
However, as I conclude that the point is without merit, it is
unnecessary to decide whether it was open to Philip Morris to advance
it.
[43]
The starting point is that the mark
PARLIAMENT was affixed to the cigarettes for a purpose. This was not
a ‘no name’
brand of cigarettes, but one marketed to
retailers and thence to consumers under that particular name. Outlets
that made repeat
orders in the five years that it was on the market
would have asked for it by name. So would smokers who bought it.
There must
have been a reasonable number of these as over 20 million
cigarettes were sold. The mark satisfied the most fundamental
requirement
of a trade mark, namely, that of identifying the source
from which the goods were derived and distinguishing it from its
competitors.
Had a person asking for Voyager been given PARLIAMENT,
or vice versa, they would have objected that they had been given the
wrong
cigarettes.
[44]
The next point is that the use was in the
very market for which the registration existed, namely, cigarettes.
It was directed at
a very specific segment of that market, namely,
the low price sector. The intention was not to build a massive new
brand that might
compete with BATSA’s other brands, especially
those in the mid price or popular price range. As Ms Heglund
expressed it they
would not want ‘to drive [a] huge amount of
equity on brand in that segment’. Most particularly, it was not
to be built
up to a position where it might draw custom away from the
jewel in the crown that was Peter Stuyvesant. Its primary use would
be
strategically in low price hot spots where there were signs of
competitors building a sufficient presence to start eroding BATSA’s
overall position. But it would be necessary to ‘keep the brand
ticking over’ so as to maintain a degree of market recognition
and not to treat every hot spot as if it were a launch from scratch.
That is reflected in the level of sales over the five years
that it
was on the market.
[45]
In a market such as that for cigarettes, as
with other similar markets, there is a commercial purpose in the
manufacturer providing
different offerings aimed at different sectors
of the market and pricing them differently. For example, if one has
the leading
brand in the premium sector it gives a measure of control
over price in all sectors. A diversified range of products can be
targeted
at different sectors, thereby enhancing sales and profits.
On the other hand there are potential pitfalls. If a leading position
is built up in one sector, one does not wish to imperil the
profitability of that sector by providing a lower priced competitor.
The sensitivity of BATSA to the standing of Peter Stuyvesant is
understandable. But the fact that this precluded a full-blooded
launch of a competing product in the low price segment does not mean
that the launch that did occur was not genuine, albeit for
a limited
purpose. That launch had to take place with a product under a
specific mark and PARLIAMENT was chosen for that purpose.
[46]
No questions were put to either Ms Heglund
or Mr Joubert as to the reasons why the PARLIAMENT brand was
withdrawn. Had such questions
been put, we would have known whether
it was decided that the strategy of attacking hot spots and trying to
disrupt the market
for competitors was not working. The entire
exercise was a novel one in which the conventional playbook for the
launch of a brand
could not be applied. Whether it was even feasible
to develop a brand, to play the envisaged role, was unknown. However,
BATSA
thought it necessary to make the attempt and they used
PARLIAMENT to do so. Assuming it was a failure that cannot detract
from
the genuineness of the attempt.
[47]
Louw J reached a different conclusion. He
said:
‘
The
basis of the decision in
Rembrandt
was that to constitute bona fide use, the proprietor of the mark had
to use the mark upon goods with the object or intention of
protecting, facilitating or furthering trade in those goods. That was
not the respondent’s object or intention. If a mark
is used on
goods not with the object of promoting trade in those goods as an end
in itself, but with an ulterior purpose such as
disrupting the
business of a competitor, or protecting its trade in other goods,
such use does not, in my view, constitute
bona
fide
use of the
trade mark and can therefore not be said to be statutorily
authentic.”
[48]
I am respectfully unable to agree. This
overlooks the point that all the legitimate commercial purposes
referred to by the judge
would have underpinned a decision to launch
a competing product in the low price sector in the fashion Ms Fleming
regarded as normal.
The use of a mark on such a product would
undoubtedly have been bona fide use. The fact that, for sound
commercial reasons, the
product was launched on a more circumspect
basis with less ambitious goals cannot mean that the use of a mark on
it was not bona
fide. That is to introduce a quantitative and
qualitative element to the enquiry into bona fide use of a mark and
that would be
inconsistent with the cases cited in paras 5 to 7
above.
Conclusion
[49]
In my view therefore the use BATSA made of
the PARLIAMENT marks was bona fide use in terms of the Act. In the
result the appeal
must succeed. In regard to costs we were asked to
make the intervening party liable jointly and severally with Philip
Morris for
the costs, but I do not think that justified. Its
intervention was purely to protect its position in regard to its
attempt to register
the PARLIAMENT mark and added nothing to the
costs.
[50]
Accordingly it is ordered that:
1
The appeal is upheld with costs, such costs
to be paid by the first respondent and to include those consequent
upon the employment
of two counsel.
2
The order of the High Court is set aside
and replaced by the following:
‘
The
application is dismissed with costs, such costs to be paid by the
first respondent and to include those consequent upon the
employment
of two counsel.’
M J D WALLIS
JUSTICE
OF APPEAL
Appearances
Appellant:
L Bowman SC (with him I Joubert)
Instructed
by: Spoor and Fisher
Attorneys, Pretoria; and
Phatshoane Henney
Attorneys, Bloemfontein.
First and Third Respondents: C E
Puckrin SC (with him R Michau SC and L Kilmartin)
Instructed
by:
Kisch IP, Pretoria and Webbers, Bloemfontein.
[1]
The
application was initially before the Registrar of Patents but was
referred to the High Court in terms of s 59(2) of the
Act.
[2]
The section
reads in material part:
‘ …
a registered trade
mark may, on application to the court, … by any interested
person, be removed from the register in respect
of any of the goods
or services in respect of which it is registered, on the ground
either—
(a)…
(b)
that up to the date three months before the date of the application,
a continuous period of five years or longer has elapsed from the
date of issue of the certificate of registration during which
the
trade mark was registered and during which there was no bona fide
use thereof in relation to those goods or services by any
proprietor
thereof or any person permitted to use the trade mark as
contemplated in section 38 during the period concerned;’
[3]
A M
Moolla Group Ltd and Others v The Gap Inc and Others
2005
(6) SA 568
(SCA) para 42. There is a full collection of the
authorities in
Arjo
Wiggins Ltd v Idem (Pty) Ltd and Another
2002
(1) SA 591
(SCA) para 6 and see
The
Gap Inc v Salt of the Earth Creations (Pty) Ltd and Others
2012
(5) SA 259
(SCA) paras 3 - 7.
[4]
The
quotation is from the judgment of Trollip J in
Gulf
Oil Corporation v Rembrandt Fabrikante en Handelaars (Edms) Bpk
1963 (2) SA 10
(T) 27G-H.
[5]
Ansul BV v Ajax
Brandbeveiliging BV
2003
(RPC) C-40/01 paras 36 and 37
[6]
The Gap
supra
paras 5-7
.
[7]
La Mer Technology Inc v
Laboratoires Goemar SA
[2004]
FSR 38
;
Laboratoires Goëmar
SA v La Mer Technology Inc
[2005]
EWCA Civ 978
;
[2005] All ER (D) 493
(Jul) In that case the Court of
Appeal in England held that five or six sales to a distributor
amounting to about £800,
with no proof of sales to the public,
involved genuine use of the mark.
[8]
Electrolux
Ltd v Electrix Ltd
(1954)
71 (2) RPC 23
at 35
-36;
Oude Meester Groep Bpk & Another v SA Breweries Ltd; SA
Breweries Ltd & Another v Distillers Corporation (SA) Ltd
&
Another
1973
(4) SA 145
(W) 151B-D.
[9]
Gulf Oil
Corporation v Rembrandt Fabrikante en Handelaars (Edms) Bpk
1963
(3) SA 341
(A) 351E-G.
[10]
BATSA
produced sales data for the period from 2008 to 2010. A Nielsen
Brand Analysis shows sales continuing until 2012.
[11]
BATSA treated the cigarette market as stratified into four segments,
namely, premium, popular, mid-price and low price. It had
different
brands in the first three but historically had no brand that fell in
the low price segment. The nearest was PRINCETON
but it was priced
at a level that meant it could not compete with low price offerings.
[12]
Her statement read: ‘In August 2009, PARLIAMENT was
re-launched within the BATSA portfolio as a tactical market brand to
be used to disrupt low price competitor brands with its brand
strategy based solely on pricing.
[13]
Footnote 8
above.
[14]
T
he
same submission was made in heads in the high court.
[15]
Even in a court of equitable jurisdiction the disputants must
(metaphorically) observe the Marquess of Queensbury’s rules.
Buthelezi
& Others v Eclipse Foundries (Pty) Ltd
(1997) 18
ILJ 633 (A) at 642H.