Discovery Holdings Ltd v Sanlam Ltd and Others (8995/2012) [2014] ZAWCHC 109; 2015 (1) SA 365 (WCC) (3 July 2014)

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[2014] ZAWCHC 109
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Discovery Holdings Ltd v Sanlam Ltd and Others (8995/2012) [2014] ZAWCHC 109; 2015 (1) SA 365 (WCC); 2014 BIP 210 (WCC) (3 July 2014)

In the High Court
of South Africa
(Western Cape
Division, Cape Town)
Case
No.: 8995/2012
DATE:
03 JULY 2014
In the matter
between:
DISCOVERY
HOLDINGS
LTD
.......................................................
APPLICANT
(First Respondent
in the counter-application)
And
SANLAM
LTD
.................................................................
FIRST
RESPONDENT
(First Applicant
in the counter-application)
SANLAM LIFE
INSURANCE
..............................................
Second
Responded
(Second Applicant
in the counter-application)
THE REGISTRAR OF
TRADE MARKS
........................
THIRD
RESPONDENT
(Second
Respondent in the counter-application)
JUDGMENT
DELIVERED ON 3
JULY 2014
GOLIATH, J:
INTRODUCTION
[1] What’s in
a name? Commenting on the tough task of finding a name for a fund, a
portfolio manager pointed out in an article
in the Wall Street
Journal:
“[a]ll the
Greek gods were taken ... [s]o were many animals, mountain ranges,
rivers, roads - even solar systems ... It was
harder than naming my
children”.
(Ianthe Jeanne
Dugan, “Why Hedge Funds Hunt for Animals, Search the Stars –
As Firms Proliferate, Finding The Right
Name is Tough”, Wall
St. J., July 25 2005 at A1).
[2] In a globally
competitive business world a trade mark can be the single most
valuable asset for a company. A carefully selected
and nurtured fund
name continues throughout the fund’s life and, as with any
successful enterprise a fund may evolve into
a reputable and
recognisable brand. As in many other industries, financial service
providers use branding as a strategically important
way to
distinguish their products. A trade mark with a good image and
reputation enhances the goodwill of a company and provides
it with a
competent edge. “Trademark law aims to aid consumers in
identifying the source of goods by allowing producers the
exclusive
right to particular identifying words ... which they may attach to
their products as a designator of source”. (Thomas
& Betts
Corporation v Panduit Corporation,
[1995] USCA7 1185
;
65 F.3d 654
, 657 (7th Cir.1995).
This is a trade mark infringement case over the use of the terms
“ESCALATOR FUNDS” and “ESCALATING
FUND”.
FACTUAL
BACKGROUND
[3] The applicant is
the holding company of the Discovery Group of Companies which
operates in health and insurance (Discovery Health),
life insurance
(Discovery Life), financial services (Discovery Invest and Discovery
Card) and wellness (Discovery Vitality). The
applicant is also the
proprietor of all intellectual property, including trademarks,
licensed to the Discovery Group of Companies.
[4] The first
respondent is Sanlam Limited, which is responsible for the
centralised functions of the Sanlam Group of Companies,
such as
strategy, financial and risk management, marketing and communication,
human resources and corporate social investment.
The second
respondent is Sanlam Life Insurance and part of the Sanlam Group of
Companies and offers life insurance, and financial
services in
relation to insurance, investment and financial products. Reference
to the respondents is a reference to the first
and second
respondents.
[5] The Sanlam and
Discovery Groups of Companies are direct competitors in the financial
services market. The material facts of
this case are undisputed. The
Applicant (Discovery) is the proprietor of the registered trade mark,
number 2007/23913 ESCALATOR
FUNDS which is registered without
disclaimer in class 36 in respect of “insurance, insurance
underwriting, including health
insurance underwriting; financial
affairs, including but not restricted to, medical aid schemes,
medical retirement annuities,
health care financing; monetary
affairs; real estate affairs, services ancillary to the aforegoing”.
[6] During May 2011
the applicant conducted a search of the register of trademarks and
discovered an application for the registration
of a trade mark,
number 2011/01572 SANLAM ESCALATING FUND in class 36, in the name of
Sanlam Immaterial Property (Pty) Ltd. The
application was filed for
registration on 27 January 2011 in respect of “insurance;
financial affairs; monetary affairs;
real estate affairs”.
[7] The applicant
also discovered through internet searches that the respondents had
commenced the use of the name ESCALATING FUND/SANLAM
ESCALATING FUND.
It is alleged that from at least 22 July 2011 the respondents have
been using the trade marks ESCALATING FUND
and SANLAM ESCALATING FUND
in relation to financial products called Constant Proportion
Portfolio Insurance (“CPPI”).
The applicant immediately
requested the respondents to voluntarily withdraw the trade mark
application and to cease their use of
the impugned offending marks.
The respondents rejected the applicant’s demands and confirmed
that they would neither cease
their use of the impugned marks nor
voluntarily withdraw their trade mark application.
[8] In terms of
section 34(1)(a) and/or 34(1)(b) of the Trade Marks Act, 194 of 1993
(“the Act’), the applicant now
seeks to restrain the
respondents’ use of the term “escalating fund” or
any mark confusingly or deceptively similar
to the applicant’s
registered trade mark. Ancillary to this relief, the applicant also
seeks an enquiry into damages for
the alleged trade mark
infringement. The applicant further advanced a claim seeking to
interdict and restrain the respondents from
passing-off their
services and offerings as those of the applicant through their use of
the name ESCALATING FUND, or any other
name confusingly similar to
the name ESCALATOR FUNDS.
[9] The respondents
oppose the application and in turn have brought a counter-application
in terms of the provisions of s 24(1)
read with s 9,10(2)(a) and
10(2)(b) of the Act, seeking the removal of the applicant’s
trade mark from the trade marks register
as an entry wrongly made,
alternatively an entry wrongly remaining therein. In the alternative
the respondents seek an order that
the applicant’s trade mark
be endorsed with disclaimers to the effect that the applicant is not
granted the exclusive rights
to the descriptive words “escalate”
and “funds” separately from each other and from the mark
ESCALATOR
FUNDS as a whole.
[10] The respondents
raised the following defences in response to the applicant’s
claims based on trade mark infringement
and passing off:
10.1. The
respondents’ use of the allegedly offending phrase “escalating
fund” is not trade mark use, but the
descriptive use of a
particular service offering or product of the second respondent;
10.2. On a proper
comparison of the two trademarks used by the parties, the applicant
failed to establish any likelihood of confusion
or deception in the
relevant class of the purchasing public for the services in question
as required by s 34(1) (a) and/or (b)
of the Act;
10.3. The
applicant’s mark is incapable of distinguishing its goods from
those of other traders, or consists exclusively of
a sign or an
indication that may serve in trade to describe the goods as
contemplated in s 10(2)(b) of the Act, and accordingly
forms the
basis of the respondents’ counter-application for the
cancellation of the mark; alternatively a disclaimer should
be
entered against the applicant’s registration of ESCALATOR FUNDS
to the effect that it will not grant the applicant exclusive
rights
in the words “escalate” or “fund”;
10.4 As regards to
the applicant’s case based on passing off, the respondents deny
that the applicant has demonstrated the
requisite reputation in the
mark ESCALATOR FUNDS brand (separately from its DISCOVERY trade mark)
or that it has established a
likelihood of deception or confusion
arising between the respondents’ product and that of the
applicant.
THE COMMON
PRODUCT: CPPI
[11] Constant
Proportion Portfolio Insurance is a form of investment risk
management. It is common cause that the parties on either
side are
currently using their disputed trade marks in relation to CPPI
products. It is a portfolio insurance trading strategy
that
dynamically manages capital between a risky and risk free asset with
the goal of providing a maximum guarantee at maturity.
It allows an
investor to maintain an exposure to the upside potential of a risky
asset while providing a capital guarantee against
downside risk. The
strategy actively allocates between two asset classes, a riskless
asset (normally money market fund) and a risky
asset which could be
equity, hedge funds or commodity indices. In rising markets the
strategy allocates more towards the risky
asset, while in falling
markets the strategy allocates more towards the riskless asset. The
investor determines a floor which is
defined as the lowest acceptable
portfolio value. As the total value moves down and closer to the
floor, the allocation to the
riskless asset increases. The risk of
violating the floor protection is the gap risk, namely the risk that
the portfolio value
will not meet the guarantee at maturity. To be
able to guarantee the prescribed floor a crash put may be bought to
hedge against
rapid downward market movements.
[12] Rebalancing is
done on a daily basis. This means that a portfolio manager
periodically changes the portfolio components and/or
the component’s
proportion with the portfolio. Rebalancing of the portfolio occurs in
reaction to movements in the risky
asset with exposure being
increased after a rise and decreased after a drop. If there is a
sudden drop in the market such that
the investor is not able to
rebalance his portfolio adequately, the floor can be breached. The
strategy usually outperforms the
prescribed floor unless there is a
sudden drop in market prices such that the investor is not able to
rebalance his portfolio adequately.
The goal of the strategy is to
leverage the returns of a risky asset through dynamic trading, while
guaranteeing a fixed amount
of capital at maturity.
[13] CPPI based
products offer security to the client through a predetermined
guaranteed minimum payoff at maturity, while also
giving the
possibility of higher returns through limited exposure to a risky
asset. Ideally these products have more assets invested
in the risky
asset when it increases in value, and less when it decreases. Most of
the CPPI products provide some sort of guarantee
if they produce less
than the required minimum targeted return (the gap risk).
[14] CPPI is not a
new concept in the investment industry and has been employed as an
investment strategy or risk model since the
1980’s. The CPPI
was introduced by Perold on fixed income assets, in a published paper
entitled “Constant Proportion
Portfolio Insurance,”
Harvard Business School (August 1986); by Black and Jones, in an
article “Simplifying Portfolio
Insurance,” published in
the Journal of Portfolio Management (Fall 1987); by Black and Rouhani
(1989) in a paper entitled
“Constant proportion portfolio
insurance and the synthetic put option”: a comparison, in
Institutional Investor focus
on Investment Management; and by Black
and Perold for equity instruments published in the Journal of
Economic Dynamics and Control,
16, nos. 3-4 (July-October 1992)
entitled “Theory of constant proportion portfolio insurance”.
It is common cause that
Discovery and Sanlam are the only two
entities to offer a CPPI solution in South Africa.
APPLICANT’S
SUBMISSIONS
[15] The applicant
submits that its trade mark No. 2007/23913 ESCALATOR FUNDS in class
36 is validly registered and in full force
and effect. The applicant
thus owns statutory rights in the trade mark ESCALATOR FUNDS.
According to the applicant it was the first
entity in South Africa to
use the name ESCALATOR FUNDS. The ESCALATOR FUNDS range of investment
plans was launched in South Africa
on 14 September 2005 in
conjunction with BNP Paribas of London, United Kingdom. From the
outset the investment plans proved to
be very successful. In November
2007 the applicant launched an additional 36 ESCALATOR FUNDS
investment plans partnering with Deutsche
Bank. In February 2011 ten
further investment plans were launched. The total monetary value
under management in the applicant’s
ESCALATOR FUNDS investment
plans is therefore substantial. Over the past six years the applicant
has made extensive use of the
mark in respect of its CPPI investment
plans and as a result thereof acquired a substantial reputation and
goodwill therein.
[16] The fund is
described as follows on Discovery’s website:
“The ESCALATOR
FUNDS are designed to offer unlimited upside potential, while at the
same time providing downside protection
in falling markets. The
protection provided on the ESCALATOR FUNDS is in the form of a
dynamic guarantee which provides a guarantee
of at least 80% of the
highest value the ESCALATOR FUNDS has ever reached.”
[17] The applicant
contends that the respondents’ mark ESCALATING FUND and the
respondents’ variations thereof so nearly
resemble the
applicant’s registered trade mark ESCALATOR FUNDS as to be
likely to deceive or cause confusion. The marks are
visually,
phonetically and conceptually virtually identical. Both marks consist
of a combination of two words in total fourteen
letters long. Both
have as their core, variations of the word “escalate” and
end in the word “fund”.
The services in respect of
which the respondents are using their offending ESCALATING FUND mark
and variations thereof are the
same as the services in relation to
which the applicant’s trade mark ESCALATOR FUNDS in class 36
has been registered, namely
“insurance, financial affairs,
monetary affairs and/or real estate affairs.” It is therefore
alleged that respondents’
activities infringe the rights
acquired by the applicant through registration of its trade mark in
terms of the provisions of
s 34(1)(a)
of the
Trade
Marks Act.
[18
] With regard to
passing off, the applicant’s mark ESCALATOR FUNDS is
distinctive of the applicant’s services and signifies
the
applicant’s reputation and goodwill. The respondents’
mark is confusingly similar to the applicant’s mark
thereby
misrepresenting their services to be those of or associated in the
course of trade with the applicant.
[19] Furthermore,
the fields of activity between the applicant and the respondents
clearly overlap. They are direct trade competitors
and are using the
trade marks in question in relation to virtually identical CPPI
investment plans. By way of illustration with
reference to the
respective Discovery and Sanlam mandatory disclosures the applicant
contends that what is in fact involved are
identical investment plans
by the respective parties in relation to, in some cases, identical
third party funds e.g. Discovery
Escalator–Coronation Top 20
Fund v Sanlam Escalating: Coronation Top 20 Fund; Discovery
Escalator–Nedgroup Rainmaker
Fund v Sanlam Escalating: Nedgroup
Rainmaker Fund; Discovery Escalator–Investec Property Equity
Fund v Sanlam Escalating:
Investec Property Equity Fund. The
respondents have adopted the applicant’s model providing a
guarantee that the value of
units will always be at least 80% of the
highest value in that fund ever achieved.
[20] The applicant’s
ESCALATOR FUNDS proved to be very successful, and the total money
value under management in the applicant’s
ESCALATOR FUNDS
investment plans is approximately 5.3 billion rand. It is submitted
that the respondents’ offending activities
will inevitably
damage the applicant’s goodwill and reputation, both diluting
and prejudicing it. Through its offending activities
the respondents
are effectively attempting to reap where they have not sown.
FIRST AND SECOND
RESPONDENTS SUBMISSIONS
[21] The second
respondent offers various financial services investment solutions
under its name and house brand as well as numerous
other trade marks.
Some investment solutions are offered under the SANLAM CUMULUS trade
mark. CUMULUS acts as the secondary brand
to the house mark SANLAM,
and acts as the product group identifier.
[22] The respondents
contend that their CPPI product is offered in the respondents’
SANLAM CUMULUS investment solution. As
part of the SANLAM CUMULUS
investment investors are offered a choice between a standard
investment (which is not based on a CPPI
investment strategy) or an
escalating fund (which is). The product name remains SANLAM CUMULUS
Investment, and the term “Escalating
Fund” only serves to
indicate the investment choice. Investors can switch between SANLAM
ESCALATING FUND and Sanlam Unit
Trust Funds.
[23] For a number of
the SANLAM CUMULUS investment funds, there is a corresponding
escalating fund option that has a built-in guarantee
available. This
guarantee ensures that the unit price of the escalating fund is
always at least 80% of the highest unit price it
has ever reached
since the inception date of that escalating fund, whatever happens to
the value of the underlying investments.
The escalating fund version
of each of Sanlam’s applicable investment funds invests in a
combination of the corresponding
investment fund and cash. The
allocation between the corresponding investment fund and cash
(riskless asset) is not fixed, but
varies and the allocation to one
will always escalate and to the other will proportionally decrease,
according to market conditions.
This means that the investment return
on an escalating fund version of an investment fund can differ
substantially from that of
the corresponding investment fund, and in
volatile markets, it can be less volatile than the risky
corresponding investment fund
and also the minimum guarantee unit
price, of at least 80% of the highest value it has ever reached, will
always escalate or remain
stationary, but never decrease. Investors
can benefit from the potential growth in a leading investment fund,
but still have protection
of their savings.
[24] The SANLAM
trade mark and name is always used together with or in close
proximity to this product name, as shown on the brochure
for this
product. The term escalating fund is always used descriptively and,
where used as a noun, is used with the SANLAM and/or
CUMULUS trade
mark or in such close proximity to them or in a context that clearly
indicates that the product option is offered
by SANLAM. The term
“ESCALATING FUND” is not used by SANLAM on its own as a
trade mark as this term is not used to
identify the originator of the
relevant products. Rather, the trade mark SANLAM performs this
function.
[25] The word
“escalating” when used to refer to the fund category is
descriptive of the guarantee that the minimum
guarantee unit price
will always rise or remain the same, but never fall. The word
“escalator” is most frequently used
as a noun to describe
electronic stairs that are constantly moving. It is related to the
verb escalate which is defined in the
South African Concise Oxford
Dictionary published by Oxford University Press Southern Africa in
2002 as 1. Increase rapidly, 2.
Become or cause to become more
intense or serious. “Escalator” has as far back as 2002
also been used to describe
things that have some element that is
constantly moving. Furthermore, the terms “funds”,
“escalate” and
“escalating” are all common
terms used in the financial industry.
[26] The phrases
“ESCALATOR FUNDS” or “ESCALATING FUND” are
not distinctive enough on their own to distinguish
investment
products from their competitors. Sanlam used it as a fund option. For
this reason Sanlam applied to register the entire
phrase “SANLAM
ESCALATING FUND” as a trade mark. The word “SANLAM”
in SANLAM ESCALATING FUND is used by
Sanlam as a trade mark, and
serves to distinguish it from the applicant’s ESCALATOR FUNDS.
The dominant feature of the respondents’
mark is the word
“SANLAM”. The remaining phrase “escalating fund”
is merely descriptive of the characteristics
and the risk model of
the product.
[27] A search was
conducted by the respondents’ attorneys in class 36 of the
trade marks register for all marks containing
“escalat”-
The marks NORWICH LIFE NU-LIFE ESCALATOR, ESCALATION BOND and
ESCALATOR PLUS were all registered before
the applicant applied to
register its ESCALATOR FUNDS mark, even though the first two
registrations have since lapsed due to non-renewal.
The Standard Bank
of South Africa Limited’s valid mark ESCALATOR PLUS is endorsed
with an admission that registration does
not bar third parties from
the bona fide descriptive use in the ordinary course of trade of the
word “escalate”. These
registrations show that
derivatives of the word “escalate” and even the word
“escalator” was already common
in the financial services
sector, and that “escalator” for financial services or
products is not a word or concept
that Discovery first coined or can
claim exclusive rights to. The term escalator has been used in other
countries in respect of
CPPI products. Close Brothers Asset
Management Limited used the term in naming the “Close European
Escalator Fund”,
“Close UK Escalator 95”, “Close
UK Escalator 100” and “Close World Escalator Fund”.
[28] Confusion is
not likely to arise in the market place because Discovery’s
ESCALATOR FUNDS trade mark is not confusingly
similar to respondents’
SANLAM ESCALATING FUND trade mark when the marks are appreciated in
their entirety. The overall impression
created by the two trademarks
shows the only common denominator is the element “escalat”
from the descriptive word
“escalate”. With regard to
passing-off, it is argued that the product ESCALATOR FUNDS has
acquired no separate and
distinct reputation of its own.
[29] The phrase
“ESCALATOR FUNDS” is entirely descriptive, hence the
counterclaim for the cancellation of the registration
for ESCALATOR
FUNDS. If the Court does find that the phrase does qualify for
registration, then the applicant should not be granted
an effective
and too far reaching monopoly in either the words “escalate”
or other derivatives thereof such as “escalating”
or of
the word “funds”, as this would unfairly prejudice other
traders who need to describe and refer to their products
by names
that describe product features. The respondents therefore apply for
the recordal of an endorsement against the applicant’s

ESCALATOR FUNDS registration of a disclaimer to the effect that the
applicant is not granted the exclusive rights to both words

separately from each other and apart from the mark as a whole.
[30] The applicant
replicated that the respondents in fact use the name ESCALATING FUND
without the addition of the house mark.
The applicant denies that the
mark ESCALATOR FUNDS as a composite mark has been shown to be common
in the trade. The name is an
innovative and inventive name despite
the fact that it consists of a combination of two ordinary English
words. No dictionary definition
exists for the name ESCALATOR FUNDS.
Furthermore, the name ESCALATOR FUNDS is distinctive of the
applicant’s services, and
through extensive use the name has
become widely known as the name designating the applicant’s
CPPI products. However, in
the event of the Court finding that the
name ESCALATOR FUNDS is not distinctive, the applicant submits that
it has through the
applicant’s use thereof up until 6 August
2012 acquired the requisite distinctiveness to qualify for
protection. The applicant
therefore contends that the respondents
misappropriated the inventive name, and their use is likely to cause
confusion and deception.
TRADE MARK
INFRINGEMENT
[31] Trade mark
infringement is defined as the unauthorised use of an identical or
confusingly similar trade mark in the course
of trade in relation to
goods or services which are either identical
(Section 34(1)(a))
, or
so similar
(Section 34(1)(b))
to those in respect of which the trade
mark is registered that such use is likely to cause deception or
confusion. The applicant
initially relied on
s 34(1)(a)
and in the
alternative s 34(1)(b) of the Act. The respondents have conceded that
they use the impugned mark in relation to identical
CPPI products.
Based on the respondents’ concession that the use of the mark
is in respect of identical products, the applicant
now relies on
Section 34(1)(a) which provides:
‘34 (1) The
rights acquired by registration of a trade mark shall be infringed
by-
(a) The unauthorized
use in the course of trade in relation to goods or services in
respect of which the trade mark is registered,
of an identical mark
or of a mark so nearly resembling it as to be likely to deceive or
cause confusion.’
[32] The applicant
must therefore establish that a substantial number of persons will
probably be deceived into believing or confused
as to whether there
is a material connection in the course of trade between the
applicant’s trademark and the respondents’
product. (Bata
Ltd v Face Fashions CC and Another 2001(1) SA 844 (SCA) at 850 para
8). The enquiry is therefore whether there is
likely to be consumer
confusion, given the similarities between the terms ESCALATOR FUNDS
and ESCALATING FUND. Both marks are used
in respect of CPPI products,
and are practically identical offerings described in the same terms.
[33] The applicant
relies on its registration for the mark ESCALATOR FUNDS. However, it
is not disputed that the applicant has also
registered the composite
mark DISCOVERY ESCALATOR FUNDS under registration no. 2007/23914 in
class 36. The respondents do not deny
using the mark ESCALATING FUND
and had in fact applied for the registration of the mark SANLAM
ESCALATING FUND. The respondents
have therefore added their house
mark to the alleged offending mark. The two marks that need to be
scrutinised are therefore ESCALATOR
FUNDS and SANLAM ESCALATING FUND.
[34] An issue of
central importance to trade mark infringement generally, and to the
descriptive defences, is the relevance of “use
as a trade
mark”. Trade mark use (use as an indication of origin) is often
contrasted with descriptive use. The more descriptive
the registered
mark, the more likely a defence of this nature may be raised. It is
often said that a sign must be used as a trade
mark in the sense that
the trade mark serves as a badge of origin, before infringement may
be established. (Verimark (Pty) Ltd
v BMW AG
2007 (6) SA 263
(SCA) at
267 at para 5). Section 2 of the Act requires that the mark be used
in relation to goods or services for the purpose of
distinguishing
the goods or services from the same kind of goods or services
connected in the course of trade with any other person.
In Estate of
P.D. Beckwith, Inc. v Commissioner of Patents,
[1920] USSC 82
;
252 US 538
(1920) at
543 the Supreme Court of the United States described the function of
a trade mark as being “to point distinctively,
either by its
own meaning or by association, to the origin or ownership of the
wares to which it is applied”. Hence the use
of a mark purely
for the purposes of describing the goods is not regarded as use as a
trade mark. (Unilever PLC’s Trade mark
[1984] RPC 155
(Ch D)).
[35] A crucial issue
in this case is therefore to determine the strength of the mark
“ESCALATOR FUNDS” and its validity
as a trade mark. In
other words, an assessment must be made of the mark’s acquired
or commercial strength, or its actual
ability to signify source in
the market place. The context in which the mark appears is an
important factor in examining whether
a mark has been used as a trade
mark. (The Shell Company of Australia Limited v Esso Standard Oil
(Australia) Limited
[1963] HCA 66
;
(1963) 109 CLR 407
at 422, 424-5).
It is disputed by the respondents that the applicant’s
ESCALATOR FUNDS is used “as a trade mark”
since its use
would not be taken by the consumer as showing a connection with the
origin of the goods. The respondents contend
that ESCALATING FUND is
used to describe the nature of the product. The respondents
therefore submit that neither the term ESCALATOR
FUNDS nor ESCALATING
FUND is used as a trade mark since it merely describes the nature of
the product.
[36] It is trite
that descriptive marks are generally weak conceptually and are
entitled to a narrow scope of protection. A mark
is descriptive if it
consists merely of words descriptive of the qualities, ingredients or
characteristics of the goods or services
related to the mark. (In re
Gyulay
[1987] USCA11 824
; ,
820 F. 2d 1216
;
3 USPQ 2d 1009
(Fed. Cir. 1987); In re
Oppedahl & Larson LLP,
373 F. 3d 1171
, 1173;
71 USPQ 2d 1370
,
1371 (Fed. Cir. 2004) citing Estate of P.D. Beckwith, Inc., v
Commissioner of Patents, (supra) at 538, 543). To be regarded as

descriptive the term need not describe all the features of a product.
It is therefore enough if the term describes one significant
function
or attribute. (In re Sun Oil Co.,
426 F.2d 401
;
165 USPQ 78
(CCPA
1970); In re Oppedahl & Larson LLP (supra); In re Chamber of
Commerce,
675 F.3d 1297
,
1300; 102 USPQ 2d 1217
, 1219 (Fed. Cir.
2012)).
[37] Descriptive
marks are generally adjectives that describe the product or its
functions. In 20th Century Wear, Inc. v Sanmark-Stardust
Inc and
Domino Industries, Inc.,
747 F. 2d 81
, 88
[1984] USCA10 341
; ;
224 USPQ 98
(2d. Cir.1984)
the Court referred with approval to the views of a leading
commentator, Rudolf Callman, who is of the view that
a term can be
descriptive in two ways – “[i]t can literally describe
the product, or it can describe the purpose or
utility of the
product”. Under the first branch “if qualities,
ingredients, effects, or other features of the product
are indicated
naturally and in ordinary language, so that the consumer understands
its significance without any exercise of imagination,
the words are
descriptive”. Under the second branch, Callman distinguishes
three subcategories of marks that describe the
product’s
purpose or utility. First, marks describing the problem or condition
that the trademarked product is designed to
remedy. Second, marks
that describe the use to which the product or service is put. Last,
marks that describe the effect which
the product or service is
supposed to produce after it is used. (See: Rudolf Callmann, The Law
of Unfair Competition, Trademarks
and Monopolies 4th (ed) 1983 §18.5
as quoted in 20th Century Wear, Inc. v Sanmark-Stardust Inc and
Domino Industries Inc.
(supra)).
[38] In ITV
Technologies Inc v WIC Television Ltd.,
2003 FC 1056
(Can LII) at
paragraph 67, the Court stated that the descriptive character must go
to “the material composition” of
the goods or services or
refer to “an obvious intrinsic quality” of the goods or
services which are the subject of
the trade mark, such as a feature,
trait or characteristic belonging to the product itself. The question
to be asked is - what
as a matter of first impression, does the mark
tell the potential purchaser of the product? What does the mark lead
such persons
to believe about the quality and character of the
product? The mark must not be considered in isolation but must be
perceived in
connection with the wares to which it is associated.
(Mitel Corporation v Registrar of Trademarks (1984), 79 C.P.R. (2d)
202, at
208). The decision that the mark is clearly descriptive is
one of immediate impression. (Wool Bureau of Canada Ltd v
Registrar
of Trademarks (1978), 40 C.P.R. (2d) 25, at 27). The Court
must therefore place itself in the shoes of the average consumer and

decide what first impression the mark would create. (In re Bed &
Breakfast Registry
[1986] USCAFED 542
; ,
791 F. 2d 157
, 160
[1986] USCAFED 542
; ;
229 USPQ 818
, 819 (Fed. Cir.
1986)).
[39] When a
descriptive mark becomes recognised by consumers as indicating a
single source of goods or services it is considered
to have obtained
a secondary meaning, and is entitled to protection. In other words,
secondary meaning exists when, in addition
to their literal or
dictionary meaning, marks signify to the public that a product comes
from a unique source.
[40] The words
“ESCALATING”, “ESCALATOR” and “FUND”
are common English words. The matter common
to the fund names of the
parties is the variation of the word “escalate” and the
fact that they end in the word “fund”.
The word
“escalator” was coined in the early 1920’s when
escalators were new. It was used by Charles Seeberger
to describe his
redesign of a passenger carrying conveyor belt described as a moving
stairway or inclined elevator. The new creation
was dubbed an
“escalator” by combining the Latin word for step “scala”
with the word “elevator”.
Otis Elevator Company
trademarked the word “escalator” but lost its exclusive
use of it when it was ruled that the
word has become generic. The
Court noted that “the term “escalator” is
recognized by the general public as the
name for a moving stairway
and not the source thereof”. (Haughton Elevator Co v Seeberger,
85 USPQ 80
, 81 (Comm. Pat. 1950).
[41] The verb
“escalate” is derived from the word escalator. It
originated in 1922 and the primary meaning was “to
climb or
reach by means of an escalator” or “to travel on an
escalator” and the secondary meaning “to increase
or
develop by successive stages”. The word “escalate”
is what linguists call a back-formation – that is
a new word
created by removing an affix from an already existing word or by
removing what is mistakenly thought to be an affix.
(The Oxford
English Dictionary 2nd (ed)(1989); OED Online Oxford University Press
(2007)). The word “escalator” was
therefore coined from
scratch to refer to the invention, and the verb “escalate”
was back formed from this noun.
[42] Having been
created with a very narrow meaning (to move by means of an
escalator), the word “escalate” went on
in the late 20th
century to develop a much broader range of meanings which today are
so common that the original sense of the word
is all but forgotten.
With reference to the Concise Oxford English Dictionary (2002) and
Cambridge Business English Dictionary
(2011) the word “escalate”
(verb) means “to increase or enlarge rapidly; to become greater
or higher or to rise
or make something rise”. The word
“escalating” as an adjective means “increasing in
price, amount, rate,
etc.” The Cambridge Business English
Dictionary (2011) shows that a customer may “escalate” a
complaint to a
higher level if a customer remains dissatisfied with
the response. An “escalator clause” is “a clause in
a contract
that allows for a rise or increase in wages or prices in
certain conditions”.
[43] “Escalate”
has also evolved into a financial term that is used to refer to the
rapid increase of something, especially
prices or the economy. The
respondents referred the Court to the English-Afrikaans Life
Insurance Dictionary (1987) printed by
the Terminology Association of
South Africa which refers to various terms such as “escalate
progressively, escalating costs,
escalating pension, escalation and
escalator clause”. The term “escalator” primarily
used to describe a moving
staircase, has therefore evolved into the
term “escalate” indicating increase. The word “fund”
as a noun
is described in the Cambridge Business English Dictionary
(2011) as “money invested in a range of shares, bonds etc.,
often
along with other investors money”. The word “fund”
is a highly descriptive term which is devoid of any source
indicating
significance.
[44] The applicant’s
ESCALATOR FUNDS is identified as an investment option with a dynamic
guarantee. The original term ESCALATOR
(moving staircase) is not
usually employed in the investment industry. However, combined with
the word “FUND”, it immediately
transforms into a
financial term. In the financial sector the ordinary consumer
immediately associates the word ESCALATOR with
the term “ESCALATE”
meaning increase. Any suffix added to the word “escalate”
will not make any difference
as to the normal and spontaneous
understanding of it by the average consumer. The word “fund”
denotes to the ordinary
consumer an investment. The combined term
ESCALATOR FUNDS therefore evokes immediately, without conjecture or
speculation, an investment
fund offering increase or profitable
gains. The term informs the consumer of a significant aspect of the
applicant’s product,
namely an investment fund with the
capacity to escalate or increase, or suggesting qualities of
increase. The name suggests safety
or protection from loss
. The term also has
laudatory elements since it arouses the idea of high returns on an
investment fund. The descriptive significance
is readily perceivable
without any extra effort or reflection by ordinary consumers seeking
an investment product offering profitable
returns. The fact that the
phrase ESCALATOR FUNDS lacks a dictionary definition does not detract
from its descriptive nature. (Johnson
and Johnson Australia (Pty) Ltd
v Sterling Pharmaceuticals (Pty) Limited
[1991] FCA 310
;
(1991) 30
FCR 326
per Lockhart, J at para 63-64).
[45] Constant
Proportion Portfolio Insurance is described as a dynamic portfolio
risk management strategy, meaning it is characterised
by constant
change, activity or progress. The CPPI related ESCALATOR FUNDS is
characterised by an active management policy in which
the composition
of the portfolio is dynamic. The foundation of the CPPI strategy is
the movement in the allocation of the two asset
classes. In my view
the respondents correctly argued that the phrase ESCALATOR FUNDS
merely describes the function of the applicant’s
product. In
the CPPI context, I tend to agree with the respondents that the
phrase ESCALATOR FUNDS conveys to members of the
public the notion of
funds with some element that is dynamic and has the capacity and
tendency to go up.
[46] The intricacies
and technical nature of the CPPI product are by no means apparent to
the average consumer through the use of
the name “ESCALATOR
FUNDS”. However, the question remains one of first impression
when one encounters the term. As
applied in financial services, in
general, the word “escalate” and derivatives thereof are
of weak distinctive character
in that they are widely used in the
life insurance, investment and financial sector. (Sterling Acceptance
Corporation v Tommark,
Inc., d/b/a Sterling Associates, 227F. Supp.
2d 454 (D.Md. 2002). The term ESCALATOR FUNDS is nothing more than a
simple combination
of two ordinary English words, describing a fund
with the potential to grow and/or increase. I therefore conclude that
the terms
ESCALATOR FUNDS and ESCALATING FUND are descriptive of the
CPPI products, more particularly the risk nature of the product.
[47] In view of my
finding that the term is purely descriptive it is therefore necessary
to consider whether ESCALATOR FUNDS have
acquired a secondary meaning
in the sense that they are associated in the minds of the public with
the applicant’s product
and no-one else’s. (Windsurfing
Chiemsee Produktions-und Vertriebs GmbH v Boots-und Segelzubehor
Walter Huber & Franz
Attenberger C-108/97
[1999] E.C.R. 1-2779
;
[2002] Ch. 523
, ECJ). Whether a mark is inherently distinctive and
whether it has acquired a secondary meaning are questions of fact.
(Boston
Beer Co. Ltd Partnership v Slesar Bros Brewing Co., Inc.,
[1993] USCA1 551
;
9
F.3d 175
, 180;
28 USPQ 2d 1778
(1st Circ. 1993)). The issue of
proving acquired distinctiveness is not easy. The more descriptive
the term, the greater the
burden to establish secondary meaning. The
applicant contends that the name is an inventive name, but, if held
to be descriptive,
has acquired distinctiveness through use. Coined
or inventive names are meaningless trademarks which enjoy the highest
level of
protection and are registrable without proof of secondary
meaning. These marks consist of words which have some dictionary
meaning
but which are used in connection with services unrelated to
the dictionary meaning such as APPLE for computers and OMEGA for
watches.
In my view the composite mark ESCALATOR FUNDS is not a
coined or invented phrase since both terms are common in the
financial industry.
[48] The applicant
contends that the name is distinctive of its services and is widely
known to designate the applicant’s
CPPI product. The mere fact
that a word is descriptive or has a descriptive flavour does not
necessarily prevent it from being
distinctive of a trader’s
goods or services. However, if a word is prima facie descriptive the
difficulty of establishing
that it is distinctive of the plaintiff’s
goods is considerably increased. (Johnson and Johnson Australia (Pty)
Ltd v Sterling
Pharmaceuticals (Pty) Limited [1991] FCA 310;
(1991)
30 FCR 326
per Lockhart, J at 335). A mark’s strength is
its “distinctiveness”, or, more precisely, its tendency
to
identify the goods sold or services provided under the mark “as
emanating from a particular although possibly anonymous source.”

(W.W.W. Pharmaceutical Co. Inc. v Gillette Co.,
[1993] USCA2 112
;
984 F. 2d 567
, 572;
25 USPQ 2d 1593
(2d Cir. 1993); Estee Lauder, Inc. v The Gap, Inc.
108 F. 3d 1503
,
1508; 42 USPQ 2d 1228
(2d Gr. 1997)).
The strength of
a given mark is “measured by its distinctiveness or the degree
to which it indicates source or origin of
the product ... examined in
its commercial context”. (Briston-Meyers Squibb Co. v McNeil -
P.P.C., Inc.,
973 F. 2d 1033
, 1044;
24 USPQ 2d 1161
(2d Cir. 1992).
Distinctiveness means that the mark serves to identify the product in
respect of which registration is applied
for as originating from a
particular undertaking, and thus to distinguish that product from
those of other undertakings. (Case
C-311/11P Smart Technologies ULC v
OHIM
[2012] ETMR 49).
To show that a mark has acquired
distinctiveness, the applicant must demonstrate that “the
relevant public understands the
primary significance of the mark as
identifying the source of a product or service rather than the
product or service itself”.
(In re Steelbuilding.com,
415 F. 3d
1293
,
1297; 75 USPQ 2d 1420
(Fed Cir. 2005) (citing Qualitex Co. v
Jacobson Products Co., Inc.,
[1995] USSC 27
;
514 U.S. 159
, 163 (1995); Clipper Cruise
Line, Inc. v Star Clippers, Inc., 952F 2d 1046, 1047 (8th Cir.
1992)). The strength of the mark turns
on its origin indicating
quality in the eyes of the purchasing public. (Lang v Retirement
Living Publishing Co., Inc., 949F. 2d
576, 581;
21 USPQ 2d 1041
(2d.
Circ. 1991); Johnson and Johnson Australia Pty Ltd v Sterling
Pharmaceuticals Pty Limited
[1991] FCA 310
;
(1991) 30 FCR 326
at 336;
Anheuser-Busch Inc. v Budejovicky Budvar NP
[2004] ECR I-10989
, para
59).
[49] The applicant
concedes that its promotional material and mandatory disclosures
feature the applicant’s primary trade
mark DISCOVERY, but
argued that this is normal practise. It is my view that there is no
evidence to indicate that the mark ESCALATOR
FUNDS is used
independently of the house mark and enjoys its own consumer awareness
in the marketplace. The failure to use the
mark ESCALATOR FUNDS in
isolation from its house mark effectively means that the consumer was
not given the opportunity to disassociate
the product mark from the
house mark. It can therefore not be argued that the product mark had
achieved significant consumer recognition
apart from the house mark.
There is no direct or circumstantial evidence to demonstrate consumer
recognition developed through
active use of the mark ESCALATOR FUNDS
in the marketplace over time. (See Dualit Ltd’s Trade Mark
Application
[1999] RPC 890
(Ch D)). I therefore conclude that the
applicant has failed to show consumer awareness of the mark ESCALATOR
FUNDS apart from
the fame associated with the Discovery mark. The
mark clearly lacks commercial strength or market recognition.
[50] The annual
turnover generated with the applicant’s CPPI products is also
not sufficient to establish acquired distinctiveness
without credible
evidence linking the figure to the public’s association of the
term ESCALATOR FUNDS with a single source.
In my view the mark
ESCALATOR FUNDS lack the required distinctiveness, since it would not
be understood by the public as an indication
of the origin of the
goods. The applicant’s proposition that the words ESCALATOR
FUNDS are distinctive of its goods in the
sense of a badge of origin
cannot be sustained. There is no evidence that the mark not only
identifies the goods, but also the
source of the goods. I am
satisfied that the words ESCALATOR FUNDS relate to the description of
an intrinsic quality of the product,
rather than the trade identity
of the product itself. Consequently, I find that the mark is
descriptive and had not acquired secondary
meaning in the sense that
it is capable of distinguishing the applicant’s services from
those of other undertakings.
[51] I now turn to
the applicant’s contention that the mark ESCALATING FUND and
the respondents’ variations thereof
so nearly resemble the
applicant’s ESCALATOR FUNDS as to be likely to cause confusion.
Both use such marks in respect of
CPPI products, compete in the same
market, and invest their CPPI investments in third party funds, such
as Allan Gray and Investec.
The applicant contends, with reference
to Standard Bank of SA Ltd v United Bank Ltd
1991 (4) SA 780
(T) at
796I-797A, that insofar as the respondents also use the phrase SANLAM
ESCALATING FUND, the acronym SANLAM can be discounted
as referring to
the name of the entity offering the product or as being the essential
feature of the mark. The applicant further
contends that the addition
of SANLAM will not alert the consumer that the respondents’
product is not the applicant’s
product, or is not associated
with the applicant’s CPPI products. The applicant submits that
the likelihood of confusion
between the products is pertinent in
situations where a potential investor instructs a broker regarding
the ESCALATOR FUNDS financial
service product. Many brokers are often
third party employees or operate independently, who may believe that
the respondents’
ESCALATING FUND investment is in some way
connected with applicant’s ESCALATOR FUNDS e.g. through
support, management or
guarantee. The onus is on the applicant to
establish confusion. The question is not whether the people will
confuse the marks,
but rather whether the marks will confuse people
into believing that the goods they identify emanate from the same
source. (In
re Majestic Distilling Co.,
315 F. 3d 1311
,
1316; 65 USPQ
2d 1201
, 1205 (Fed. Cir. 2003).
[52] The test
applicable in determining the likelihood of deception or confusion
was dealt with by Corbett JA, as he then was, in
Plascon-Evans Paints
Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 640I-641D:
“The
determination of these questions involves essentially a comparison
between the mark used by the defendant and the registered
mark and,
having regard to the similarities and differences in the two marks,
an assessment of the impact which the defendant’s
mark would
make upon the average type of customer who would be likely to
purchase the kind of goods to which the marks are applied.
This
notional customer must be conceived of as a person of average
intelligence, having proper eyesight and buying with ordinary

caution. The comparison must be made with reference to the sense,
sound and appearance of the marks. The marks must be viewed as
they
would be encountered in the market place and against the background
of relevant surrounding circumstances. The marks must
not only be
considered side by side, but also separately. It must be borne in
mind that the ordinary purchaser may encounter goods,
bearing the
defendant’s mark, with an imperfect recollection of the
registered mark and due allowance must be made for this.
If each of
the marks contains a main or dominant feature or idea the likely
impact made by this on the mind of the customer must
be taken into
account. As it has been put, marks are remembered rather by general
impressions or by some significant or striking
feature than by a
photographic recollection of the whole. And finally consideration
must be given to the manner in which the marks
are likely to be
employed as, for example, the use of name marks in conjunction with a
generic description of the goods”.
[53] A similar
approach was adopted by the European Court of Justice in (Sabel BV v
Puma AG, Rudolf Dassler Sport
[1998] RPC 199
at 224 as follows:
“global
appreciation of the visual, aural or conceptual similarity of the
marks in question, must be based on the overall
impression given by
the marks, bearing in mind, in particular, their distinctive and
dominant components”.
[54] The basic
principle in determining confusion between marks is that the marks
must be compared in their entireties and must
be considered in
connection with the particular goods or services for which they are
used. The test is expressed in Polo Ralph
Lauren Corp. v United
States Polo Assn.
2000 CANLII 16099
(FCA), (2000), 9 C.P.R. (4th) 51
at para 3 (F.C.A.) as:
“whether, as a
matter of first impression in the mind of an average consumer having
a vague or imperfect recollection of another
mark, the use of both
trade marks in the same area and in the same manner is likely to lead
to the inference that wares associated
with those marks are produced
or marketed by the same company”.
[55] As pointed out
at para [87] in Spec Savers International Healthcare Ltd and Others v
Asda Stores Ltd
[2012] EWCA CIV 24
, the Court “... must take
into account all the circumstances of that use that are likely to
operate in that average consumer’s
mind in considering the sign
and the impression it is likely to make on him. The sign is not to be
considered stripped of its context”.
[56] The Court must
determine the degree of visual, aural and conceptual similarities and
where appropriate evaluate the importance
to be attached to those
different elements, taking account of the category of goods and
services in question and the circumstances
in which they are
marketed. (Lloyd Shuhfabrik Meyer and Co. GmbH v Klijsen Handel BV:
C-342/97
[1999] ECR 1-3819
, [1999] All ER (EC) 587
[1999] EUECJ C-342/97
; ;
[2000] FSR 77
(ECJ)).
[57] There is no
doubt that the marks ESCALATOR FUNDS and ESCALATING FUND are visually
and aurally very similar. The respondents
deny that they are using
the mark ESCALATING FUND as a trademark, but rather in a descriptive
manner or as part of SANLAM ESCALATING
FUND. The similarities in the
marks ESCALATOR FUNDS and SANLAM ESCALATING FUND need to be assessed
with reference to the recollection
of the average consumer who
normally retains a general, rather than specific, impression of
trademarks, bearing in mind their distinctive
and dominant
components. (Lloyd Shuhfabrik Meyer and Co. GmbH v Klijsen Handel BV
(supra); In re Cynosure, Inc.,
90 USPQ 2d 1644
, 1645 (TTAB 2009)).
The applicant submitted that the rival products are in some instances
linked to identical third party investment
funds as depicted in the
mandatory disclosures in relation to the investment plans.
Consequently, on some of the promotional material
under the Discovery
mark, the ESCALATOR FUNDS investment is promoted in conjunction with
the name of third party investment houses
in the following manner;
“Discovery Escalator - Coronation Top 20 Funds”;
“Discovery Escalator - Nedgroup Rainmaker
Fund”;
“Discovery Escalator - Investec Property Equity Fund”.
The names appear next to each other in the heading
in the same
unadorned manner in similar script. According to applicant this shows
that the ESCALATOR FUNDS investment product is
associated with a
third party trade mark and marketed as such. However, from the
brochure it is clear that it is the DISCOVERY
ESCALATOR FUNDS product
which is associated with a third party trade mark, and not the mark
ESCALATOR FUNDS in isolation. The respondents
admit that the same
third party funds are linked to their products, and that their
products are marketed in a similar manner.
[58] A perusal of
the brochures of both parties show co-operation between the Discovery
and Sanlam houses in conjunction with third
party houses (Coronation,
Nedgroup, and Investec) in managing the fund. Considering the manner
in which it is linked to the third
party funds, there is no doubt
that the third party houses can obviously differentiate between the
products which they promote
and support and the chances of any
confusion in this regard are virtually non-existent. The ordinary
consumer who is deemed to
be reasonably observant will also be able
to discern that ESCALATING FUND and ESCALATOR FUNDS are nothing more
than specific products
promoted by Discovery and Sanlam, sometimes in
conjunction with third party funds. There can be no confusion in the
mind of the
average consumer investing with ordinary caution as to
the nature and source of the products.
[59] In any event,
it is common cause that the products of both parties are not sold
directly to the public but through intermediaries
who are skilled
financial advisors and insurance brokers, qualified with an intimate
knowledge of all aspects of personal finance.
The products are
therefore restricted to a discriminating market where the average
well-informed purchaser will invest with ordinary
caution. However,
the fact that purchasers are sophisticated or knowledgeable in a
particular field does not necessarily mean that
they are immune from
source confusion. (In re Shell Oil Co.,
992 F. 2d 1204
,
1208; 26 USPQ
2d 1687
, 1690 (Fed. Circ.1993); Lexington Management Corporation v
Lexington Capital Partners, 10F. Supp. 2d 271;
47 USPQ 2d 1558
(SDNY
1998); In re Decombe
9 USPQ 2d 1812
(TTAB 1988); In re Pellerin
Milnor Corp,
221 USPQ 558
(TTAB 1983)). Circumstances suggesting care
in purchasing may tend to minimize likelihood of confusion. (In re
N.A.D., Inc.
[1985] USCAFED 144
; ,
754 F. 2d 996
; 999-1000
[1985] USCAFED 144
; ;
224 USPQ 969
, 971 (Fed.
Cir.1985)). In my view there is little prospect of these
professionals who become familiar with the products they promote,

being confused by the two trademarks. Considering the nature of the
products it is also highly unlikely that ordinary members of
the
public would invest in the competing products without assistance. The
applicant has therefore failed to demonstrate a reasonable
likelihood
that a substantial number of purchasers of the products would be
confused.
[60] The respondents
have added their house mark to the alleged offending mark. It is
widely accepted that the likelihood of confusion
is not avoided by
simply adding a house mark. (In re Apparel Ventures, Inc.,
229 USPQ
225
(TTAB 1986); In re Christian Dior, S.A.,
225 USPQ 533
(TTAB
1985); Envirotech Corp. v National Service Industries, Inc.
197 USPQ
292
(TTAB 1977)). The use of the house mark is but one factor
considered in making a likelihood of confusion analysis. However, a
house
mark may avoid likely confusion where the marks in their
entireties convey significantly different commercial impressions or
where
the matter common to the marks is so weak that any source
indicating value it has is overwhelmed by the addition of an
arbitrary,
distinctive element. (Citigroup Inc. v Capital City Bank
Group, Inc.,
637 F. 3d 1344
,
1356; 98 USPQ 2d 1253
, 1261 (Fed. Cir.
2011)).
[61] An assessment
of a composite mark must be based on the overall perception of the
mark by the relevant public. When assessing
the likelihood of
confusion between composite word marks, one must determine whether a
portion of the word mark is dominant in
terms of creating the
commercial impression. (In re Nat’l Data Corp.,
753 F. 2d 1056
,
1058;
224 USPQ 749
, 750-51 (Fed. Cir.1985)). Although there is no
precise test to select a “dominant” element of a
composite word mark,
consumers would be more likely to perceive a
fanciful or arbitrary, rather than a descriptive or generic term, as
the source indicating
feature of the mark. (In re Dixie Restaurants,
Inc.,
105 F. 3d 1405
,
1407; 41 USPQ 2d 1531
, 1533 -34 (Fed. Cir.
1997); In re Binion,
93 USPQ 2d 1531
, 1534 (TTAB 2009)). In my view
the mark SANLAM, added to the descriptive portion ESCALATING FUND, is
the dominant feature of the
respondents’ mark, and will be
viewed as such by the average consumer.
[62] In Kate Spade
LLC v Saturdays Surf LLC,
950 F. Supp. 2d 639
(SDNY 2013) the Court
held that the “most persuasive” difference between the
two marks was the inclusion of the Kate
Spade House mark in the Kate
Spade Saturday composite mark. The Court held that “the use of
this famous house mark significantly
reduces the potential for
confusion”. In Knight Textile Corp. v Jones Investment Co.
Inc.
75 USPQ 2d 1313
, 1316-1317 (TTAB 2005), the Court, with respect
to the question of similarity between the marks, “Essentials”
and “Norton
McNaughton Essentials”, found that, in regard
to the latter, there was no likelihood of confusion because the mark
“Essentials”
is highly suggestive and the addition of the
house mark Norton McNaughton was sufficient to enable consumers to
distinguish the
marks.
[63] When the marks
SANLAM ESCALATING FUND and ESCALATOR FUNDS are compared, the common
element of the marks is weak in the sense
that it is descriptive of
the goods or services. If the common element of two marks is “weak”
in that it is generic,
descriptive or highly suggestive of the named
goods or services, it is unlikely that consumers will be confused
unless the overall
combinations have other commonalities. (In re Bed
& Breakfast Registry (supra)
[1986] USCAFED 542
; ,
791 F. 2d 157
, 159). I am therefore
satisfied that there is no likelihood of confusion since the matter
common to the marks is descriptive and
the remaining distinctive
acronym SANLAM is sufficient to distinguish its services from that of
the applicant. (Top Tobacco LP
v North Atlantic Operating Co.,
101
USPQ 2d 1163
, 1173 (TTAB 2011); Red Carpet Corporation of America v
Johnstown American Enterprises Inc.,
7 USPQ 2d 1404
; 1406 (TTAB
1988); Rocket Trademarks Pty Ltd v Phard S.p.A.,
98 USPQ 2d 1066
(TTAB 2011); Converge Pty Ltd v Woolworths Ltd 2003 BIP 292 (C) at
298).
[64] The manner in
which the ESCALATOR FUNDS trade mark is used shows that it is
exclusively used in conjunction with or in close
proximity to the
applicant’s well-known trade mark and house brand Discovery. It
therefore appears that the products of the
parties are always coupled
with the name of the originating product provider when they are
referred to in the market place. This
was conceded by the applicant.
In my view the word ESCALATOR FUNDS was not intended to function as a
secondary mark since it has
no distinctive character of its own. From
the material it is clear that ESCALATOR FUNDS is an investment
portfolio option to provide
investors not only with unlimited growth
protection, but also with protection against downward market moves.
It is an investment
portfolio option based on the CPPI investment
philosophy, of which some are linked to third party funds. It is used
by the applicant
as a product identifier to distinguish it from their
other products designed to protect investors against major risks
associated
with investment choice. In the case of “7”,
the OHIM third Board of Appeal stated that “... where a claimed
mark
appears together with the name of the supplier for specific
products, there is a prima facie presumption that that mark functions

as a mere identifier sign”. “... a mere identifier sign
will not function as a trade mark, but rather as a means of

distinguishing the appellant’s various products from one
another.” (Caterham Car Sales and Coachworks Limited’s

Application/Numeral 7 R63/1999-3 paras 23 and 22, quoted in Kerly’s
Law of Trade Marks and Trade Names 14th (ed) 2005, para
8-120, p192).
[65] Applicant has
not adduced any evidence of actual confusion having arisen. (John
Craig Ltd v Dupa Clothing Industries (Pty)
Ltd
1977 (3) SA 144(T)
at
151H-152A).The products co-existed in the market since July 2011
which presented a reasonable opportunity for confusion to have

occurred. Although actual confusion is not a requirement, the absence
of confusion does suggest that the two marks are not easily
confused.
(Citigroup Inc. v Capital City Bank Group, Inc.,
637 F. 3d 1344
,
1354; 98 USPQ 2d 1253
, 1259 (Fed. Cir. 2011); Christian Dior, S.A.
Ltd v Dion Neckwear Ltd
[2002] 3 FC 405
,
2002 FCA 29
(Can LII) (2002)
para 164.
[66] In any event
the marks are not exactly identical. In Case C-291/00 LTJ Diffusion
SA v Sadas Vertbaudet SA
[2003] ECR 1-2799
;
[2003] ETMR 83
;
[2003]
F.S.R. 34
at p.608 the Court of Justice ruled that:
“A sign is
identical with the trade mark where it reproduces, without any
modification or addition, all the elements constituting
the trade
mark or where, viewed as a whole, it contains differences so
insignificant that they may go unnoticed by the average
consumer”.
Applying the
guidance of the Court of Justice in Diffusion (supra), I conclude
that the term SANLAM ESCALATING FUND, by virtue of
the addition of
the primary mark SANLAM, projects a different commercial impression
despite the existence of matter common to both
marks. It is my view
that the marks cannot in any way be regarded as similar from a
visual, aural or conceptual point of view.
Taking into account all of
the relevant factors in the global assessment of the marks ESCALATOR
FUNDS and SANLAM ESCALATING FUND,
I am satisfied that the notional
consumer and the skilled financial advisor will clearly be able to
differentiate between the products
and is not likely to be confused
or deceived. I therefore conclude that plaintiff had failed to
establish that the mark SANLAM
ESCALATING FUND will cause confusion
as to source or association. The applicant’s contentions based
on s 34 (1) (a) must
therefore fail.
PASSING OFF
[67] Passing off
occurs when one trader represents to the public that his goods or
merchandise are those of another trader. (Adcock-Ingram
Products
Limited v Beecham SA (Pty) Ltd
1977 (4) SA 434
(W) at 436
(H)). Passing off involves a comparison of the two marks and the
get-up of the products in relation to which they are
used. Plaintiff
in a passing off action has to prove two elements. First, that the
mark, service mark or trade name has become
distinctive, in that it
has acquired the public reputation associated with his goods,
services or business. Secondly, that the
conduct of the offending
party is likely to cause the public to be confused or deceived. As
authoritatively stated in Capital Estate
and General Agencies (Pty)
Ltd and Others v Holiday Inns Inc. and Others
1977 (2) SA 916
(A) at
929 C-D:-
“The wrong
known as passing off consists in a representation by one person that
his business (or merchandise, as the case
may be) is that of another,
or that it is associated with that of another, and, in order to
determine whether a representation
amounts to a passing-off, one
enquires whether there is a reasonable likelihood that members of the
public may be confused into
believing that the business of the one
is, or is connected with, that of another”.
[68] As set out by
the Supreme Court of Canada in Ciba-Geigy Canada Ltd v Apotex Inc.
1992 CANLII 33
(SCC); (1992) 44 C.P.R. (3d) 289, the three necessary
components of a passing-off action are the existence of goodwill,
deception
of the public due to a misrepresentation and actual or
potential damage to the plaintiff. In Caterham Car Sales &
Coach
Works Ltd v Birkin Cars (Pty) Ltd and Another
[1998] ZASCA 44
;
1998 (3) SA 938
(SCA) at 947 para 16 Harmse, JA pointed out that:
“The only
component of goodwill of a business that can be damaged by means of a
passing-off is its reputation and it is for
this reason that the
first requirement for a successful passing-off action is proof of a
relevant reputation. (Hoechst Pharmaceuticals
(Pty) Ltd v The Beauty
Box (Pty) Ltd (in liquidation) and Another
1987 (2) SA 600
(A) at
613F-G; Brian Boswell Circus (Pty) Ltd and Another v Boswell-Wilkie
Circus (Pty) Ltd
1985 (4) SA 466
(A) at 479D; Williams t/a Jenifer
Williams & Associates and Another v Life Line Southern Transvaal
[1996] ZASCA 46
;
1996 (3) SA 408
(A) at 419A-B, 420B).”
[69] In Premier
Trading Company (Pty) Ltd and Another v Sporttopia (Pty) Ltd
2000 (3)
SA 259
(SCA) at 266J - 267A the Court stated:
“Goodwill is
the product of a cumulation of factors, the most important of which,
in the context of passing-off, is the plaintiff’s
reputation.
Reputation is the opinion which the relevant section of the community
holds of the plaintiff or his product”.
The court further
held that the minimum requirements for passing off are the existence
of reputation and deception, or at least
confusion, caused by the
conduct of the defendant as to the origin of the product or trade
connection with the defendant, which
could influence members of the
public to purchase the goods.
[70] With regard to
the existence of a reputation, the following was stated in Reckitt
and Colman Products Ltd v Borden Inc. and
Others
[1990] UKHL 12
;
[1990] RPC 341
(HL);
[1990] 1 All ER 873
at 406 (RPC) and at 880g-h:
“First, he
must establish a goodwill or reputation attached to the goods or
services which he supplies in the mind of the
purchasing public by
association with the identifying “get-up” (whether it
consists simply of a brand name or a trade
description, or the
individual features of labelling or packaging) under which his
particular goods or services are offered to
the public, such that the
get-up is recognised by the public as distinctive specifically of the
plaintiff’s goods or services”.
[71] The reputation
of the mark is therefore inextricably linked to its distinctiveness.
In this matter there is no evidence relating
to promotional
activities, media exposure or advertising expenditure figures
relating to the mark ESCALATOR FUNDS. The applicant
contends that it
was the first company in South Africa to use the name ESCALATOR FUNDS
in relation to CPPI products. In Sea Harvest
Corporation (Pty) Ltd v
Irvin & Johnson Ltd 1985 (2) 355 (C) at 359 (G) Aaron, AJ said:
“In
particular, it has been settled that the mere fact that a trader is
the first in the field to use a particular phrase
or slogan gave him
no monopoly (save possibly in the field of copyright), and also that
a competitor would not be prevented from
using ordinary descriptive
words”.
[72] The applicant
relies on the period of use and financial turnover in seeking to
demonstrate distinctiveness. However, it was
stated in British Sugar
plc. v James Robertson & Sons Ltd
[1996] RPC 281
(Ch.) at 286:
“Mere evidence
of use of a highly descriptive or laudatory word will not suffice,
without more, to prove that it is distinctive
of one particular
trader – is taken by the public as a badge of origin. This is
all the more so when the use has been accompanied
by what is
undoubtedly a distinctive and well-recognised trade mark”.
[73] A similar
approach was followed in Bach Flower Remedies
[2000] RPC 513
(CA) at
530:
“use of a mark
does not prove that the mark is distinctive. Increased use, of
itself, does not do so either. The use and increased
use must be in a
distinctive sense to have any materiality”.
Our Courts have also
emphasized that the use of a mark does not necessarily equal
distinctiveness. (First National Bank of South
Africa Ltd v Barclay
Bank plc. and Another
2003 (4) SA 337
(SCA) at 346 C-G; Beecham Group
plc. and Another v Triomed Pty Ltd
2003 (3) SA 639
(SCA) at 648F; Die
Bergkelder Bpk v Vredendal Koöp Wynmakery and Others
[2006] ZASCA 5
;
2006 (4) SA
275
(SCA) at 284 A-C).
[74] There is a
paucity of evidence relating to the reputation of the mark ESCALATOR
FUNDS. The mark is used entirely in connection
with the obvious
Discovery trade mark. The applicant has attached no supporting
evidence of the use of ESCALATOR FUNDS on its own
and apart from the
word or outside of the context of the word “DISCOVERY”.
There is no evidence to show the level of
brand awareness of the mark
ESCALATOR FUNDS. In my view the applicant had failed to demonstrate
that the mark has become well-known.
The applicant’s mark does
not have the ability to distinguish itself from its competitors. The
general body of evidence does
not establish that a substantial number
of people regard the word ESCALATOR FUNDS as distinctive of the
applicant’s business.
I am in agreement with the respondents’
contention that if any of the applicant’s marks have become
sufficiently well
known to qualify for protection under the common
law, then this can only be the combination mark “DISCOVERY
ESCALATOR FUNDS”.
In Bose Corp v QSC Audio Products, Inc.,
293
F. 3d 1367
;
63 USPQ 2d 1303
, 1308 (Fed. Cir. 2002) the Federal
Circuit Court observed that parties who claim fame for a product that
is used in tandem with
a famous house mark “can properly be put
to tests to assure their entitlement to the benefits of fame for the
product marks”.
I am satisfied that the mark ESCALATOR FUNDS
has not become synonymous with the goods and services of the
applicant in the minds
of the purchasing public, hence it failed to
establish substantial reputation and goodwill associated with the
mark. If the applicant
failed to prove the requisite reputation there
can be no misrepresentation and hence no passing-off. (Premier
Trading Company (Pty)
Ltd and Another v Sporttopia (Pty) Ltd
(supra) at 272 H).
[75] The name
ESCALATOR FUNDS is essentially descriptive. It is widely accepted
that a descriptive name may be protected by a passing
off action. 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. (Online Lottery Services (Pty) Ltd and Others v National
Lotteries Board and Others
2010 (5) SA 349
(SCA) at 360 para [38]).
However, if a trader adopts words in common use as a business name,
some confusion may be expected without
giving rise to a liability for
passing off. In Office Cleaning Services v Westminster Window and
General Cleaners
(1946) 63 RPC 39
(HL) at 43, Lord Simonds pointed
out:
“It comes in
the end, I think, to no more than this, that where a trader adopts
words in common use for his trade name, some
risk of confusion is
inevitable. But that risk must run unless the first user is allowed
unfairly to monopolise the words. The
Court will accept comparatively
small differences as sufficient to avert confusion. A greater degree
of discrimination may fairly
be expected from the public where a
trade name consists wholly or in part of words descriptive of the
articles to be sold or the
services to be rendered”.
[76] I therefore
conclude that the terms ESCALATOR FUNDS and SANLAM ESCALATING FUND
are not identical and the differences suffice
to distinguish the
respondents’ services or business from those of the applicant.
(Online Lottery Services v National Lotteries
Board (supra) at para
39).The position is eloquently summarised by Aaron, AJ in Sea Harvest
Corporation (Pty) Ltd v Irvin &
Johnson (Pty) Ltd (supra) at 360
B-D.
“A long line
of decisions in passing-off and trade mark cases has established that
where descriptive words, as opposed to
invented or fancy words, are
used in a trade name or trade mark, 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.
(Cellular Clothing v Murray
1899 AC 326
(HL); Patlansky & Co Ltd
v Patlansky Brothers 1914 (TPD) 475 at 492; Selected Products (Pty)
Ltd v Enterprise Bakeries Ltd
1963 (1) SA 237
(C) at 242F-243B; Rovex
Ltd and Another v Prima Toys (Pty) Ltd
1982 (2) SA 403
(C)”.
COUNTER –
APPLICATION
[77] The respondents
(First and Second Applicants in the counter-claim) seek the removal
of the applicant’s ESCALATOR FUNDS
trade mark from the register
in terms of s 24(1) read with s 9 and s 10(2)(a) or (b) of the Act.
Section 9 (1) provides that in
order to be registrable, a trade mark
shall be capable of distinguishing the goods or services of a person
in respect of which
it is registered or proposed to be registered
from the goods or services of another person either generally or,
where the trade
mark is registered or proposed to be registered
subject to limitations, in relation to use within those limitations.
In terms of
s 9 (2) a mark shall be considered to be capable of
distinguishing if, at the date of application for registration, it is
inherently
capable of so distinguishing or is capable of
distinguishing by reason of prior use thereof. Section 10(2)(a)
provides that a mark
is liable to be removed from the register if it
is not capable of distinguishing within the meaning of s 9. In terms
of s 10
(2)(b) a mark is
liable to be removed from the register if it consists exclusively of
a sign or an indication which may serve, in
trade, to designate the
kind, quality, quantity, intended purpose, value, geographical origin
or other characteristics of the goods
or services, or the mode or
time of production of the services or of the rendering of services.
[78] The respondents
contend that the phrase ESCALATOR FUNDS is entirely descriptive and
is in common use. The mark is incapable
of distinguishing the
applicant’s financial services from those of any other similar
services and is therefore incapable
of serving as a badge of origin
or an indicator of the source of financial and other class 36
services. The respondents rely on
s 10(2)(b) in asserting that the
ESCALATOR FUND trade mark should be removed because it is a term that
designates the characteristics
of the services in question. The
phrase ESCALATOR FUNDS consists exclusively of an indication of the
characteristics of the financial
services and product sold under the
mark. The respondents therefore contend that the mark offends against
the provisions of s 10(2)(a)
and s 10(2)(b) of the Act, read with the
provisions of s 9(1).
[79] The respondents
further contend that the registration of ESCALATOR FUNDS by the
applicant is therefore an entry wrongly made,
alternatively an entry
wrongly remaining on the Register in terms of
s 24
(1) of the
Trade
Marks Act. In
the alternative, the respondents submit that should the
registration remain, it should be endorsed with disclaimers to the
effect
that the applicant is not granted exclusive rights to the
descriptive word “escalate” and “funds”
separately
from each other and from the mark ESCALATOR FUNDS as a
whole.
[80] The applicant
(First respondent in the counterclaim) disputes the contentions that
ESCALATOR FUNDS is descriptive and contends
that the term is
meaningless and does not describe the services for which the mark has
been registered. The applicant contends
that some form of mental
activity is necessary to discern a reference to the quality or
characteristics of the goods. According
to the applicant ESCALATOR
FUNDS does not designate the kind, quality, quantity, intended
purpose, value, geographical origin or
other characteristics of the
services. The applicant therefore contends that there is no evidence
that ESCALATOR FUNDS is characteristic
of the applicant’s CPPI
products. The applicant therefore denies that ESCALATOR FUNDS
consists exclusively of an indication
of the characteristics of the
financial services sold under the mark and accordingly contends that
the mark does not offend the
provisions of either s 10(2)(a) or (b)
of the Act.
[81] Section 51 of
the Act provides that an applicant’s trade mark registration is
prima facie valid. The principles in relation
to an expungement
application was set out in On Line Lottery Services v National
Lotteries Board (supra) at para 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)”.
[82] In The Canadian
Shredded Wheat Co. Ltd v Kellogg Co. of Canada Ltd
(1938) 55 RPC 125
(PC) at 145 Lord Russell said:
“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”.
[83] I have found
that the applicant’s mark ESCALATOR FUNDS is devoid of any
distinctive character and is descriptive of the
services in question.
The mark is incapable of fulfilling the essential indication of
origin function of a trade mark. I have also
found that the mark had
not acquired distinctiveness in relation to the services of the
applicant. The fact that applicant may
be the first user of a merely
descriptive term does not justify registration if the only
significance conveyed by the term is merely
descriptive. (In re
National Shooting Sports Foundation Inc.,
219 USPQ 1018
(TTAB 1983).
I therefore conclude that the mark offends against the provisions of
s 10(2)(a) of the Act.
[84] Section
10(2)(b) on the other hand is not concerned with distinctiveness, but
serves a public interest and seeks to preserve
the rights of other
traders. It is designed to control a monopoly over the use of
descriptive signs and to prevent such signs from
being reserved for
one undertaking alone because they have been registered as
trademarks. (Century City Apartments CC and Another
v Century City
Property Owners’ Association
2010 (3) SA 1
(SCA) at para [31]).
Competitors with the same marketing tendencies should not be
prevented from using descriptive terms for similar
marks on related
goods. The applicant described itself as a financial service provider
that operates in the life insurance and
investment market.
Considering the type of services it renders, there could be no doubt
that ESCALATOR FUNDS describes one of the
services offered. ESCALATOR
FUNDS serves to designate one of the essential characteristics of the
investment option offered by
the applicant. The term “escalator”
is used as an adjective to describe the nature of the fund.
“Adjectives which
can truthfully be applied to a whole range of
goods and services cannot identify the goods of one particular firm”.
(Platinum
Home Mortgage Corporation v Platinum Financial Group, Inc.,
No. 97 C 5293, 1997 WL 567909 at *2 citing 2 J. Thomas McCarthy,
McCarthy
on Trademarks and Unfair Competition (4th ed 1997) §11.18;
affirmed in Platinum Home Mortgage Corporation v Platinum Financial

Group, Inc.,
[1998] USCA7 785
;
149 F. 3d 722
, 728;
47 USPQ 2d 1587
(7th Cir.1998).
[85] The term
“escalate” (and variations thereof) and “fund”
are normal dictionary words in common usage
in the financial and
investment industry. The notion of escalation and the related verb
“escalate” is a concept common
to the financial services
industry insofar as the very purpose and function of the industry is
to increase or create wealth through
growth and thereby the
escalation of assets. This is achieved through financial services
products such as those offered by the
parties. The applicant can
therefore not claim a monopoly of these terms to the exclusion of
other traders who are entitled to
offer products with the same
obvious features. (First National Bank of Southern Africa Ltd v
Barclays Bank plc and Another
2003 (4) SA 337
(SCA)). Protecting
merely descriptive marks would “confer a monopoly not only of
the mark but of the product by rendering
a competitor unable
effectively to name what it was endeavoring to sell”.
(Abecrombie & Fitch, Co., v Hunting
World, Inc.,
537 F. 2d
4
,9
[1976] USCA2 141
; ;
189 USPQ 759
(2d Cir.1976) at 10). In my view the mark offends
against the provisions of s 10(2)(b) of the Act. It follows that the
applicant’s
mark “ESCALATOR FUNDS” should therefore
never have been registered. If the mark could not be registered in
terms of
the Act, it follows that it remains on the register
incorrectly or wrongly as envisaged in s 24(1) read with s
10(1) and
10(2) of the Act.
CONCLUSION
[86] The essential
function of a trade mark is to exclusively identify the commercial
source or origin of products or services,
such that a trade mark
indicates source or serves as a badge of origin. I conclude that the
applicant’s mark ESCALATOR FUNDS
is not used as a trade mark
indicating a relevant connection in the course of trade, or to
distinguish the applicant’s goods
from those of others.
Furthermore, I conclude that the applicant’s mark is merely
descriptive and that the applicant failed
to establish secondary
meaning. The applicant had failed to prove that ESCALATOR FUNDS had
acquired a reputation. I am satisfied
that there is no likelihood of
confusion or deception in the eyes of the average consumer when the
marks ESCALATOR FUNDS and SANLAM
ESCALATING FUND are compared. The
addition of the respondents’ primary mark is sufficient to
distinguish the mark from that
of the applicant. The mark ESCALATOR
FUNDS is weak conceptually and commercially. The applicant had
therefore failed to establish
trade mark infringement or passing-off.
The mark “ESCALATOR FUNDS” is descriptive, common in
trade and is wrongly remaining
on the Register, and falls to be
expunged.
[87] In the result
the following orders are made:
1. The application
is dismissed with costs.
2. The First and
Second Respondents’ counter-application succeeds with costs.
3. The Registrar of
Trade Marks is directed to rectify the Register of Trade Marks by the
expungement therefrom of registration
No. 2007/23913 ESCALATOR FUNDS
in class 36, on the grounds that such entry wrongly remains on the
Register within the meaning of
s 24(1)
of the
Trade Marks Act
194/1993.
4
. The Applicant is
ordered to pay First and Second Respondent’s costs of the
application.
5. These costs
include the cost consequent upon the employment of two counsel in
both the instance of the application and the counter-application.
P. L. GOLIATH
JUDGE OF THE HIGH
COURT