We've written about unlawful competition quite a bit of late. That's because there have been quite a few South African judgments dealing with the topic. There is, of course, a strong link between unlawful competition and intellectual property, and one reason for this is that in South Africa, passing-off is considered a form of unlawful competition. But, as a recent Supreme Court of Appeal judgment shows, unlawful competition extends well beyond passing-off. Unlawful competition can, for example, also result from misrepresenting the nature or make-up of the products being offered for sale, as well as trading in contravention of a statute.
The case is Milestone Beverage CC and Others v The Scotch Whisky Association and Others. The Scotch Whisky Association ("SWA") has been around in one form or another since 1912, and its purpose is to protect and promote the interests of the Scotch whisky trade. We think it's fair to say that most (but not all) businesses involved in the liquor trade know that you don't mess with the SWA.
The facts are quite convoluted and we'll summarise them as best we can. What Milestone did was sell products that look like whisky but are in fact vodka-based. At one stage, these products were actually sold as whisky, at another stage they were sold as "whisky-flavoured" drinks. In marketing, these products Milestone used get-ups involving tartan patterns. They also used brand names that were apparently intended to further enhance the idea of Scottish heritage – first there was Royal Douglas, then there was King Arthur. Milestone even filed a trade mark application to register the trade mark ROYAL DOUGLAS.
SWA filed legal proceedings, claiming that Milestone was unlawfully competing by falsely projecting a Scottish provenance for its products, misrepresenting them as Scotch whisky, alternatively whisky. The court found that Milestone was guilty of unlawful competition. Judge Ponnan handed down the court's judgment and we'll discuss some of the more interesting aspects of his findings.
An explanation of unlawful competition
The judge quoted this line from a previous decision: "Whilst competition in trade is healthy and to be encouraged, it must be carried on by means that are fair rather than foul, or – more correctly – by means which are lawful rather than unlawful." (William Grant & Sons Ltd and Another v Cape Wine & Distillers Ltd and Others). He went on to say that "unlawfulness is determined according to the objective norm of public policy."
A summary of the main issue in this case
The issue here was to determine "whether the goods are being marketed in a way that is likely to lead a significant section of the public to think that those goods have some attribute or attributes which they do not possess, thereby giving rise to confusion, or the likelihood of confusion, in the minds of the public."
A finding of unlawful competition through the misrepresentation of the nature or make-up of the product
The judge said that, despite being marketed as a whisky, "it is common cause that the product sold by the appellants (Milestone) is not a whisky and that it has no connection to Scotland, or any part of the United Kingdom."
Yet, the judge pointed out, the product is "replete with Scottish indicia, including the tartan-patterned background and the use of the name Douglas in the brand name, a Scottish clan name that is strongly associated with Scotland and a heavily-crested label, thereby indicating a liquor steeped in tradition... Why, one may ask, this name and these heraldic symbols?"
A finding that Milestone was also in breach of the Liquor Products Act (LPA), and therefore further unlawfully competing
Section 12 of the Liquor Products Act, 1989 ("LPA"), Prohibition of false or misleading descriptions for liquor products, says that "no person shall use any name ... in itself or in coherence with any other verbal, written, printed, illustrated or visual material... in a manner that conveys or creates ... a false or misleading impression as to the nature... of the liquor product." The judge interpreted this section to mean that a product may "only be sold if the description matches the content."
Milestone's product was marketed as whisky-flavoured. This, said the judge, is not even possible, because taste is subjective: "Carried to its logical conclusion, the appellants could put anything into a bottle, call it whisky-flavoured and there would be, on their construction, no contravention of the LPA. The proposition only needs to be stated to be rejected."
The judge went on to hold that Milestone's product also contravened the LPA for being represented as whisky or whisky-flavoured with an alcohol content of some 43%, when in fact its alcohol content was only 34.9%
The judge ended by issuing broad prohibitions. For example, no use of the get-ups we've discussed, no use of misleading terms like "whisky", "Scotch" or "Scotland", no use of insignia evocative of Scotland, no representing of goods being whisky or whisky-flavoured.
This is a fairly difficult judgment to follow, but it is interesting and important.
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