Liberty of competition

By Sarah Lunt on 15 June 2020

In the era of technology, the ways in which businesses compete is rapidly changing. Traders can use technology to boost their brands off the success and reputation of their rivals. Traders use of rival’s names or trade marks for commercial purposes, such as in Google AdWords, has advantaged not only those traders, but also healthy competition. And in these grey areas of trade mark infringement and unlawful competition, courts have made clear that the public’s interest in fair competition is king.

In April this year, the South Gauteng High Court delivered their judgment in Discovery Ltd and Others v Liberty Group Ltd. Liberty Life allowed insurance holders to make use of external wellness programmes, such as Discovery Vitality and Momentum Multiply, in order to get cashback benefits on their Liberty Life insurance premiums. The Discovery Group took issue with Liberty Life, and claimed trade mark infringement, on the grounds of section 34(1)(a) and (c) of the Trade Marks Act 194 of 1993, as well as the delictual claim of unlawful competition. 

The court decided against the Discovery Group on all three claims. In terms of section 34(1)(c), the Discovery Group had alleged that Liberty’s use of the Discovery Vitality trade mark had caused them economic harm as sales of Liberty Life insurance would be at the expense of Discovery Life sales, and such harm was self-evident. And while it was common cause that Discovery Life is a competitor with Liberty Life, the court cautioned that section 34(1)(c) should not be used too widely as it may stifle competition and that the Discovery Group had failed in bringing evidence of substantial economic damages that had been incurred due to Liberty Life. The court emphasised that “competition usually inures to the advantage of consumers”. 

The court reiterated this sentiment under unlawful competition. The court could not find Liberty Life’s actions wrongful as they did not negatively affect the repute or income of Discovery Vitality. On the contrary, the court found that Liberty Life encouraged its insurance holders to use Discovery Vitality in order to get discounts on insurance, and therefore no obvious loss to Discovery Vitality was evident. 

The court weighed Discovery Vitality’s right of property of the Discovery Group, with Liberty Life’s right to trade and the public’s interest in fair competition. The court acknowledged that the Discovery Group had been a great innovator in the insurance industry, however that did not give them a “license to stifle competition that is plainly in the public’s interest.” 

The Discovery case is the latest judgement to illustrate courts’ willingness to favour the public’s right to fair competition over the rights of businesses. The courts have tended not to side with an applicant who takes issue with rival traders making use of their trade name for their own commercial purposes unless they can prove unlawful or wrongful conduct by the rival. 

This is evident in case law going back to the ‘80s, in Schultz v Butt, the court highlighted the importance of a free market and competition in our society as a criterion for unlawful competition. 

In Laugh It Off Promotions CC v SAB Intl (Finance) BV t/a Sabmark Intl, the Constitutional Court set the bar for “unfair detriment” under section 34(1)(c), as being “substantial harm to the repute of the marks”. The court set precedent that an application of trade mark infringement in terms of section 34(1)(c) needed to factor in the public’s interest, as well the trade mark proprietors. It warned that courts would not easily allow monopolistic control in an industry, and therefore evidence of harm could not be flimsy or negligible. 

The Discovery Group alleged that Liberty’s use of a hyperlink accompanied by the instruction “Click here if you are a Discovery Vitality member ” which directed consumers to the Vitality website, created the impression that Liberty was somehow linked to Discovery. The court found no merit in this allegation, saying that in the days of IT systems, there is nothing magical or unusual about a hyperlink. 21st Century consumers have the savvy, and the courts are eager to recognise it.

The sentiments carried in these judgements become ever-increasingly important in 21st century trading. An essential element to the new way businesses trade is AdWords used by search engines to increase the visibility of a company’s advert. Search engines, such as Google, offer businesses the facility to match keywords to a person’s search query, in order to trigger the business’s advertisement. Google AdWords (now rebranded to Google Ads) is estimated to reach 90% of internet users. 

Several cases have been heard around the world, in which applicants complain that their competitor’s use of the applicant’s trade name in AdWords, amounts to trade mark infringement, passing off or unlawful competition.

In 2016, the Supreme Court of Appeal heard South Africa’s own AdWords case, Cochrane Steel Products (Pty) Ltd v M-Systems Group (Pty) Ltd and Another. The court found that the public was not likely to be confused into thinking there was an association between competitors because a rival trader made use of another’s trade name in AdWords, as the average consumer is aware of sponsored adverts. Moreover, the court emphasised that the use of a rival’s trade name in AdWords leads to alternative businesses being displayed when a consumer searches for a business and such a display of alternative businesses fosters competition in that industry.

The European courts have followed an identical rhetoric, in the absence of consumer confusion, the practice of AdWords is inherently pro-competitive. 

The courts have put restraints on the common law and statutory remedies in order to prevent impermissible monopolies. As businesses continue to use technology to aid their advertising reach, it has become clear that the courts will not rush to aid trade mark proprietors who complain of a rival trade making use of their name. Applicants will need to bring substantive evidence of harm or confusion to justify any allegations of trade mark infringement, unlawful competition or passing off, as the courts have made clear that the public’s interest in fair competition is difficult to outweigh.

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