Bliss Brands (Pty) Ltd v Advertising Regulatory Board NPC & others: Advertising regulatory code under constitutional scrutiny

Late in May, a High Court in South Africa delivered judgment in Bliss Brands (Pty) Ltd v Advertising Regulatory Board NPC & Others, on the issue of the extent of the powers of the Advertising Regulatory Board (‘ARB’) in matters relating to trade mark and copyright laws. The ARB is the organisation established by its members (who are advertisers) to regulate the advertising industry in South Africa.

Background
Both the applicant, Bliss Brands (Pty) Limited (Bliss) and the second and third respondents, Colgate-Palmolive (Pty) Limited and Colgate-Palmolive Company (collectively, “Colgate”) are competitors inter alia in the supply of detergents, fabric softeners and hygiene soap bars. The ARB is the first respondent and while the second and third respondents are members of the ARB, the applicant is not.

The ARB is a non-profit company established and funded by the advertising industry for the purpose of regulating and enforcing standards for that industry. These standards are contained in a code of conduct (‘the Code’), which sets out inter alia a process for the ARB’s adjudication of complaints regarding advertisements that contravene the Code.

By virtue of the ARB’s Memorandum of Incorporation (‘the MOI’), the Code is binding on ARB’s members. For non-members, the Code make provisions to the effect that where non-members refuse to comply with a decision of the ARB, the members of the ARB must decline to accept advertising from that non-member upon receiving an “ad-alert” from the ARB to that effect. [An ad-alert is essentially a notice to ARB members not to accept or provide advertising services to the subject of such notice unless it complies with the ARB’s ruling].

...you are not one of us!*

At various times, the ARB had, in its capacity as the regulatory authority for the advertising industry, issued disciplinary rulings against Bliss based on complaints filed by Colgate. In the present case, Colgate had filed a complaint before the ARB alleging that the Bliss packaging of its SECUREX soap bar was similar to that of Colgate’s competing PROTEX soap bar and that such similarities were likely to cause confusion amongst consumers of these products.

At the end of the proceedings at the ARB, it (the ARB) decided in effect that Bliss packaging was too similar to that of Colgate and that Bliss may no longer sell its soap using its current packaging. Essentially, at the risk of incurring an “ad-alert”, Bliss must comply with the ARB’s ruling and withdraw its packaging of its SECUREX soap bar.

Aggrieved with the prospect of having to withdraw its product from the market on the basis of the ARB ruling and especially given that it was not a member of the ARB, Bliss instituted an action before the High Court claiming that the ARB process as enabled by its MOI and the Code, in particular, the effect of the ad-alert on non-members of the ARB was unconstitutional. [One would think that if a person submitted to the proceedings of a quasi-judicial body which is not illegal or unlawful, then the decision from such proceedings would bind such person. But then again, the subject matter of the present case was not the specific ARB proceedings or decision itself. Rather, the issue at stake was the constitutionality or otherwise of ARB processes generally as they affect non-members.]

The decision

The Court held that the ARB performs a public function and exercises coercive public powers through procedures such as the “ad-alert”. See paragraph 6. In the court’s opinion, the exercise of this public power was unconstitutional for several reasons. First, such exercise of public power against non-members has no source in law contrary to the principle of legality. See paragraph 84. While public power can be exercised by virtue of an agreement, the exercise of such power against those who are not party to such agreement and who do not consent thereto is unconstitutional in that it is not sourced in law.

More significantly (for us copyright and trade mark enthusiasts), the court took a closer look at Clauses 8 and 9 of the Code, which deal with ‘exploitation of advertising goodwill’ and ‘imitation’ in advertising. The court agreed with Bliss’ submission that these issues involve the same enquiries as courts would address in dealing with passing-off and contraventions of copyright law and trade mark law. By virtue of section 34 of the South African Constitution, the court is the appropriate platform to deal with such issues. [Section 34 of the Constitution provides that “everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum”.] In the court’s view, while Clauses 8 and 9 of the Code “are directed at the same mischief as the trade mark infringement, passing-off or copyright infringement causes of action”, they do not demand “legal frameworks necessary to sustain these causes of action” and do not afford “a respondent the common-law and statutory defences which are available in such proceedings”. See paragraphs 89-93.

The court also held that the ARB is not an independent tribunal given that it is constituted by its members who are in many cases competitors with non-members. Basically, there is significant likelihood that competitors may abuse the processes of the ARB to engage in competition that is unfair and which is against the public interest.

The court therefore struck out the provision of the MOI (from which the Code emanates), which had the effect of granting the ARB jurisdiction over non-members. With that, the ARB’s jurisdiction and the MOI in its entirety applied only to members of the ARB. See paragraph 137.

Comment
The key factor in this case is the absence of consent of non-members to the ARB’s jurisdiction. Indeed, the court accepted that the South African Constitution does not provide for judicial monopoly over resolution of disputes. The problem was that copyright law and trade mark law made provisions for exceptions and defences, but these were not available under the ARB process particularly to non-members (i.e. the public).

Alternative Dispute Resolution mechanisms offer a speedy and cost effective approach to resolving IP disputes. But as this decision highlights, ADR mechanisms do not replace the courts and the need to balance the enforcement of IPRs with the public interest dimensions of exceptions and statutory defences.

That said, one may rightly surmise that ARB’s processes and decisions may better influence the activities of non-members and the public if they are restructured in a manner that is receptive of judicial review. In this case, ARB’s decision could have been highly persuasive if it is ab initio open to judicial review. The courts have held in many cases that to the extent that the decision of a quasi-judicial body is subject to judicial review, their activities do not oust the jurisdiction of the courts.

In Milestone Beverage CC and Others v The Scotch Whisky Association and Other briefly discussed on the IPKat’s Africa IP Highlights 2020 and in greater detail on the Africa Roundup 2020 (free to read) on the Journal of IP Law and Practice (JIPLP), South Africa’s Supreme Court of Appeal upheld the arguments of the Scotch Whisky Association and interdicted the applicants from selling products, namely ROYAL DOUGLAS and KING ARTHUR, purporting to be whisky or whisky flavoured. The court found that the applicants were not members of the respondents’ association but more importantly, that their products did not comply with the qualifying standards and criteria of/for whisky. 

 

*Cat image by Thomas Peter/Reuters