Is there any connection between unlawful competition founded on trademark infringement in South Africa and the press publishers’ rights debate?

Discovery Limited, a holding company of Discovery Life Limited (Discovery Life) and Discovery Vitality (Pty) Limited (Discovery Vitality), is the proprietor of two trademarks, “Discovery” and “Vitality” - registered in relation to insurance services, among others. Discovery Life offers life insurance services while Discovery Vitality offers a vitality wellness and rewards programme. Under the vitality wellness programme, members of a medical scheme offered by Discovery Life may pay a monthly membership fee to Discovery Vitality and are required to lead a healthy lifestyle to gain vitality points with status rising as more points are earned. The vitality status will enable a Discovery Life policyholder to receive discounts on her premium and also a refund of a percentage of premiums paid.

In 2019, Liberty Group Limited (Liberty) – a direct competitor of Discovery Life - introduced an insurance offering called the “Wellness Bonus”. The Wellness Bonus refunds Liberty’s customers a portion of premiums paid on their life insurance policies if they are members of an existing wellness programme recognised by Liberty. Liberty’s Wellness Bonus recognises two external wellness programmes: Discovery Vitality, and Momentum Multiply. The amount refunded is dependent on a wellness score determined by the policyholder’s status on her external wellness programme.

Discovery Limited, Discovery Life and Discovery Vitality (the “applicants”) instituted this action at the High Court of South Africa (Guateng Division) against Liberty alleging that Liberty’s linking of its insurance offering to Discovery Vitality’s wellness programme, amounted to trademark infringement and unlawful competition.

In its judgment, the Court dismissed the applicants’ claims and held that Liberty’s action did not amount to trademark infringement and that there was no unlawful competition on Liberty’s part. [para. 99].

Issues raised for determination

The Court ruled on the following key issues:

Does Liberty’s use of vitality wellness status amount to “trade mark use” under section 34(1)(a) of the Trademark Act?

Section 34(1)(a) of the South African Trademark Act provides that trademark infringement occurs where a defendant makes an “unauthorized use in the course of trade in relation to goods or services in respect of which the trademark is registered, of an identical mark or of a mark so nearly resembling it as to be likely to deceive or cause confusion”. The court held that the test here is to determine whether the unauthorized use “affects or is likely to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods”. Paragraph 22.

In determining whether the unauthorized use has this effect, the court maintained that the context of the use must be taken into consideration. Paragraphs 25-26. The court therefore held that the context in which Liberty used the trademarks did not amount to “trade mark use” as it was not reasonable that a customer may interpret Liberty’s use of the Vitality trademark as misleading her to believe that Liberty was claiming ownership or attribution of “Discovery’s badge of origin”. Paragraphs 30 and 39.

Does Liberty’s use of vitality wellness status take advantage of the distinctive character of Discovery’s trademark as envisaged by section 34(1)(c) of the Trademark Act?
Under Section 34(1)(c) of the Trademark Act, trademark infringement may occur where the mark is a well-known mark in South Africa and the unauthorized use takes unfair advantage of, or is detrimental to the distinctive character and reputation of the well-known trademark.

The court noted that infringement under section 34(1)(c) requires the applicant to establish that the use took an unfair advantage of the well-known mark or that the use occasioned substantial harm to the uniqueness and reputation of the well-known mark. See paragraph 47. The Court held that Liberty’s use does not take an unfair advantage of, and was not detrimental to Discovery’s trademark as the applicants failed to set out specific facts to establish unfair advantage or substantial harm. Paragraphs 48 and 49.

Does Liberty’s use of vitality wellness status amount to bona fide description of Discovery’s trademark under section 34(2)(b) of the Trademark Act?

The court answered this question in the affirmative, holding that Liberty made a non-trademark use of Discovery’s trademark in a context that describes Discovery’s wellness programme as envisaged by section 34(2)(b) of the Act and does not mislead the customer as to the ownership/origin of the vitality wellness trademark. Paragraph 58. [Under section 34(2)(b), trademark is not infringed “by the use of any bona fide description or indication of the kind, quality, quantity, intended purpose, value, geographical origin or other characteristics of the third party trade mark user’s goods or services”].

Does Liberty’s use of vitality wellness status and the context of such use amount to unlawful competition?

The Court held that an applicant in an action against the delict (or tort) of unlawful competition must prove wrongfulness. Paragraph 62. The Court identified the factors that must be taken into account in determining wrongfulness as follows: (1) the honesty and fairness of the conduct involved; (2) the morals of the trade sector involved; (3) the protection that positive law already affords; (4) the importance of competition in the economic system; (5) the question whether the parties are competitors; (6) conventions with other countries; and (7) the motive of the actor. See paragraph 63.

The court held that the Liberty’s use of the vitality wellness status did not amount to unlawful competition for these reasons:

(i) The relevant parties are not trade competitors. There was a “disconnect” between the proprietary information alleged to have been used and the competitor alleged to have been harmed. The court found that the proprietary information and goodwill alleged to have been used belonged to Discovery Vitality, who was not a direct trade competitor of Liberty. Paragraph 70.

The Court refused to accept the applicants’ argument that they should be treated as one economic unit for the purposes of the claim of unlawful competition such that wrongful use of any applicant’s trademark may be used to establish harmful effect on all applicants (i.e. a group wrong approach). Paragraphs 71, 78.

(ii) Liberty’s conduct was consistent with the morals of the insurance sector as there was evidence that it applied its own know-how and resources in developing its offerings. Paragraph 85

(iii) Liberty’s motive in using the vitality status was to compete with other insurance company and that such motive was not wrong given that Liberty’s “real” competitor, Discovery Life, had the benefit of using vitality status in its offerings as well. Paragraph 86.

(iv) There was a three-way consideration of interests: the applicants’ interests in protecting their property rights under section 25 of the Constitution; Liberty’s interest in its legitimate right to trade under section 22 of the Constitution; and the public interest in ensuring that in balancing the other two interests, the benefit of competition in trade is not lost. Paragraph 87.

The court held that it would be against public interest and competition in the insurance industry to allow Discovery to exclude other insurance companies from offering policyholders the option of using their vitality status for purposes of receiving cash-back benefits from their insurance providers. Paragraph 90.

Comments

The Court correctly identified the elements that must be proved in actions for trademark infringement and unlawful competition, respectively.

However, for this Kat, what is (more) striking is the correlation between the facts alleged with respect to the claim for unlawful competition in this case and press publishers’ rights debate in the EU. While there are fundamental differences between the nature of protection afforded by copyright and trademark laws respectively, the similarities in the foundation laid for unlawful competition based on the use of copyright and trademark is quite interesting. For this Kat, this is even more striking when one wonders what the AfCFTA will make of such justification in formulating the IP Protocol.

The justification proffered for both press publishers’ rights over news aggregators’ use of news content and unlawful competition involving the use of another’s copyright or trademark is similar: someone expends considerable resources in creating a work/product/service and another operates a business model that entails appropriating and repurposing that work to earn revenue thereby gaining an unfair advantage. See here for the EU press publishers’ rights debate.

Similarly, the crux of the applicants’ unlawful competition claim is that Liberty did not bother to use its resources to develop its own reward system, but instead, appropriated and repurposed the applicants’ system. Paragraphs 53 and 66.

In Moneyweb v Media24 (South Africa), the plaintiff’s argument (rejected by the court) was that the defendant’s publication of the allegedly infringing articles constitutes unlawful competition because the defendant sought to derive an advantage over one of its key competitors (the plaintiff) by making use of the resources expended by the plaintiff to produce the articles concerned.

What does the rejection, in South Africa, of these justifications for unlawful competition based on use of copyright or trademarks mean (for press publishers’ rights proponents)? Does this present case offer any insight into how South Africa may view press publishers’ rights?

What do readers think? 

Kat TM image: Courtsey of GuestKat, Rianna Harvey.