Trademarks

SOUTH AFRICA

Whose GAP is it anyway?

The decision of the Supreme Court of Appeal in AM Moolla Group Limited and Others vs. The Gap, Inc delivered on 9 September 2005 concludes in part a long dispute between the parties.

The case was brought at the instance of The Gap, Inc ("Gap") for the cancellation of various trade marks held by Salt of the Earth Creations (Pty) Limited ("Salt of the Earth"), a company within the loose group of companies under the umbrella of A M Moolla Group Limited ("Moolla").

History

During 1971 Gap had adopted the trade mark THE GAP for retail apparel outlets in the USA. In 1973, a South African individual Hirsch "coined" the trade marked GAP for clothing and applied to register the trade mark. This trade mark was assigned to Salt of the Earth and a further GAP mark in stylised form was registered in 1980.

In 1983, Moolla took over control of salt of the Earth and proceeded to register THE GAP device in 1988 which was a blatant copy of Gap's logo. Salt of the Earth also registered the trade mark GAP KIDS in 1988 (which GAP had adopted and registered in 1985) and a class 42 mark for GAP STORES. Gap had during this time expanded tremendously throughout the USA, and worldwide. Gap had sought to manufacture goods in South Africa for export but was precluded from doing so by Salt of the Earth.

The Principle of Territoriality

The law prior to the current Trade Marks Act (which was enacted in 1993 and bought into force in 1995) permitted the adoption and registration of a foreign trade mark in South Africa, given the territorial nature of a trade mark, unless such adoption was attended by something more. Based on this principle the Court found that the legality and propriety of Hirsch's adoption of the first two GAP trade marks beyond dispute. Furthermore, the Court stated that whilst the business morality of Salt of the Earth's slavish imitation of the GAP trade marks may be questionable, in the absence of something more, it was legal. The only remaining enquiry thereof was whether the GAP trade marks were well-known in South Africa and entitled to protection as such.

Well-known

The applicable law is based on article 6 bis of the Paris Convention for the Protection of Industrial Property (1883) which provides for the protection of well-known marks that belong to qualified businesses. South Africa is also a signatory to the TRIPS agreement, in terms of which South Africa is required to enforce certain provisions of the Paris Convention, including article 6 bis. In consequence of these obligations Sections 35 and 36 of the Trade Marks Act was enacted.

The first requirement to succeed under Section 35 was to establish that Gap is a qualified person having a real and effective industrial or commercial establishment in a convention country. This point was not disputed.

Secondly, Gap needed to Show it was the proprietor of the trade mark which it was seeking to protect, and again, this was not in dispute.

Turning to the issue as to whether Gap had shown its trade marks to be well-known in South Africa, the Court found that at the time Salt of the Earth adopted the trade marks, Gap's marks were not yet well-known. Furthermore, under the operation of Section 36, the earliest date which Gap was entitled to protection was 31 August 1991 , whilst Salt of the Earth's rights pre-dated this by several years. Therefore, even though Salt of the Earth was not, on the evidence, making bona fide and continuous use of its marks during the period under consideration, Gap was denied relief due to it not being able to show its marks as well-known. (The underlying rationale is that a local mark, validly appropriated, cannot loose its value or protection because someone else's reputation overtakes its business.)

Non-use

Gap also challenged Salt of the Earth's registrations on the basis of non-use. The relevant non-use period to be established is five years from grant, and this being up to three months prior to the non-use attack being launched. The relevant period therefore was the five year period commencing 13 August 1994 t o 13 May 1999. The onus rested with Salt of the Earth to establish the required use. In contrast to the requirements under sections 35 and 36, the use which Salt needed to show need not be continuous but simply bona fide.

The factors considered by the Court included whether the proprietor or a permitted user used the marks; was the use controlled and was it bona fide. On Moolla's own evidence two of the marks had not been used being the first GAP device mark and the GAP STORES mark. Salt of the Earth has also been a dormant company and had not used the marks. The evidence did suggest that the remainder of Salt of the Earth's marks were used from time to time, but which mark and by whom was unclear.

In considering whether such use was with license, the Court found that the problem lay with the loose structure of companies and partnerships in the Moolla group. No concrete evidence of inter-company licenses was tendered. Furthermore, despite registered user recordals against two of the companies with the group, no evidence of use by either party was produced.

The court also considered the need to establish quality control in license situations. The Court referred with approval to the House of Lords decision in the SCANDECOR judgement, and confirmed that quality control by or on behalf of a proprietor is not necessary. The court also re-affirmed that the function of a trade mark is to establish the source of products or services and not to identify the quality thereof.

In the Court of first instance, the presiding judge had found that a bare license would cause a loss of distinctiveness in the trade mark. The appeal Court qualified this to say a loss of distinctiveness is a factual enquiry with a remedy for expungement if established. The Court held that there was no evidence to suggest that Salt of the Earth's trade marks had been rendered non-distinctive due to the bare licensing of such marks.

In addressing the question whether Salt of the Earth had made bona fide use of its marks to save the marks from non-use attack, the Court re-affirmed the principle that the use should primarily be to protect, facilitate and further its trade in such goods, and not for ulterior purposes. Given the lack of substantive evidence to support the use, the Court found the marks had not been used.

Trafficking

Gap had raised strong objections to Moolla's offer to sell the Salt of the Earth trade marks to it for an astronomical amount, arguing that Salt of the Earth trade marks to it for an astronomical amount, arguing that Salt of the Earth did not have an intention to use its marks but to traffic in same. The court dismissed this argument stating that exploiting marks to increase their value was not tantamount to improper or mala fide commercial exploitation.

Conclusion

Based on the Court's decision, all the marks held by the Salt of the Earth have been expunged. This has paved the way for Gap to use and register its marks and in particular to source products from South Africa. Gap was unsuccessful in its attempt to interdict Salt of the Earth or Moolla's further use of the marks. As the Court pointed out, the matter may not yet be finally resolved. Can Gap now rely on Section 35 to protects its trade marks as well-known marks as at 2005, or will Moolla try and reclaim the GAP trade mark?