Case No 11454
| Jurisdiction | South Africa |
| Judge | Waglay J |
| Judgment Date | 20 October 2005 |
| Docket Number | 11454 |
| Hearing Date | 24 August 2005 |
| Citation | 2005 JDR 1263 (CSpCrt) |
Wagley J:
The Appellant was incorporated in terms of the Companies Act No. 25 of 1892 on 9 May 1924, under the name A Company of Africa Limited. The designation "(Proprietary)" was inserted in the Appellant's name on 4 March 1955 pursuant to section 6(3) of the Companies Act No. 46 of 1926 as amended by Act No. 46 of 1952.
Some 35 years later, on 2 July 1959, the Appellant changed its name to B Southern Africa (Proprietary) Limited, pursuant to the passing of a special resolution.
Since the incorporation of the Appellant to date, C plc (registered in England and Wales under registration number X) has been and continues to be the controlling shareholder of the Appellant. The Appellant was a wholly owned subsidiary of C plc until October 2001. Since October 2001 C plc has held 75% of the Appellant's shares.
On 24 October 1979 and pursuant to a special resolution passed by the Appellant on 22 October 1979, the Appellant amended paragraph 1 of its memorandum of association by adding the following to it:
"The corporate name B Southern Africa (Proprietary) Limited is adopted and used by permission of (C) Limited. On withdrawal of that permission B Southern Africa (Proprietary) Limited will cease to use such name and will immediately change its corporate name and trading name so that neither includes the mark ("B") or any trade mark, trade name, name or other mark of ownership belonging to (C) Company Limited, or any other trade mark, trade name, name or other mark of ownership likely to be confused therewith."
The Appellant operates as a manufacturer, supplier and marketer of certain products in South Africa. Its operations consist of five separate business segments, namely (i) retail; (ii) commercial/industrial; (iii) specific contracts (iv) other supplies; and (v) international supply and trading (IST).
The Appellant purchases products from abroad and manufactures these products in South Africa in E. The latter is a cost centre division of the Appellant operated as a joint venture between the Appellant and F, a company operating within the same economic sphere as the appellant.
2005 JDR 1263 p2
Wagley J
The Appellant sells and distributes, both nationally and elsewhere in Africa, its products that have been manufactured by it, or purchases from one of the other commodity companies in South Africa in terms of swap arrangements in place between the companies, or purchases under spot contracts from various international suppliers (which occasionally would include G International Limited, a subsidiary of C plc). On occasion, the Appellant also purchases at arm's length prices products from C plc's trading arm in H.
The Appellant also supplies the other commodity companies in South Africa with products in terms of the specific arrangements referred to above.
The Appellant is one of a number companies that dominate the specific market in South Africa. Each of these companies conducts its operations under a brand name, which they either own or are licensed to use. The Appellant (like some of the others) uses brands owned by its overseas holding company.
C plc, Appellant's holding company is the worldwide owner of the trade mark (the licensed marks) and the trade dress, colour scheme, designs and symbols (the licensed marketing indicia) used by the Appellant.
The Appellant commenced using the licensed marks in or about 1959. Since 1959 and until an agreement was concluded in 1997 between the Appellant and C plc the Appellant used the licensed marks by agreement with C plc free of any payment. The use of the licensed marks was only reduced to writing in 1965. Two further written agreements were concluded thereafter, the last on 24 October 1979 (the 1979 agreement).
In terms of the 1979 agreement:
The Appellant's license to use the licensed marks was a non-exclusive one and subject to the provision that C plc could at any time give notice to the Appellant to enter into negotiations towards the conclusion of an agreement for the payment of a royalty for the use of the licensed marks;
If such negotiations did not lead to the conclusion of an agreement on the royalty, the 1979 agreement would terminate;
Both the Appellant and C plc were given the right to terminate the 1979 agreement subject to notice. In such event, the Appellant was required to cancel its recordal as a registered user and to refrain from using the said licensed marks or any other mark or marks which might be confused therewith in relation to any goods or services which the Appellant provided.
In and during 1996 C plc decided that users of its licensed marks and the licensed marketing indicia should be required to pay a royalty. To this end it commissioned an independent company to determine the value of its licensed marks and licensed marketing indicia. This study identified the role played by the brand in the various business segments in which Appellant was involved. Based on this information calculation was made in respect of the profit actually generated by each segment which could be attributable to the licensed marks.
2005 JDR 1263 p3
Wagley J
Relying on the study referred to above C plc concluded that different brand royalty payments were required to be paid by the different business segments in relation to products sold, given that the brand impacted differently on the profitability of each business segment.
Pursuant to the aforementioned report of the investigations C plc concluded a written trademark license agreement with the Appellant in 1997 (the 1997 agreement). The relevant terms of this agreement are summarized as follows:
The agreement would commence on 1 January 1997 and would endure for a period of two years. Thereafter it would be automatically renewed for succeeding twelve-month periods, unless terminated earlier by either of the parties giving the other 6 months notice, or by reason of some breach as provided for in the agreement;
The Appellant was granted a personal non-exclusive and non-assignable authorization to use the licensed marks and the licensed marketing indicia;
C plc remained the sole rightful owner of the licensed marks and licensed marketing indicia, and all rights and goodwill attaching or arising out of the use by the Appellant thereof accrued to the benefit of C plc; and
Upon termination of the agreement, the Appellant would no longer be entitled to use the licensed marks and the licensed marketing indicia in respect of any goods or service which it supplied or rendered.
A further consequence of the termination of the 1997 agreement would be that the Appellant would no longer be entitled (in the absence of the conclusion of a further agreement with C plc) to use the name "B Southern Africa", as set out in paragraph 4 above.
In terms of the 1997 agreement the territory in which the Appellant was entitled to utilize the licensed marks was limited to the Republic of South Africa and in consideration for the use of the licensed marks and the licensed marketing indicia, the Appellant was required to pay to C plc an annual royalty fee as set out in the investigation report referred to above.
In terms of schedule B to the 1997 agreement the royalty fee was expressed as a rate per measurement of product sold by the (i) retail; (ii) commercial /industrial; and (iii) other supplies business segments. The rates for each of the mentioned business segments were calculated on the basis of the impact of the brand on that business segment. No royalty was payable in respect of products sold by a certain business segment as the market in which it operated was (and is) driven by price and availability and not brand. Royalty was also not payable in respect of the IST business segment as this segment's activities and profitability were not linked to the use of the brand.
When concluding the 1997 agreement, the Appellant and C plc bona fide considered that the royalty fee specified in the 1997 agreement was fair and
2005 JDR 1263 p4
Wagley J
reasonable remuneration for the right of use accorded to the Appellant under the agreement.
On 3 November 2000, the Appellant and C plc agreed to amend schedule B to the 1997 agreement and in so doing, amended the rates for each business segment for 1998 and 1999.
According to the Appellant, it concluded the 1997 agreement and paid the brand royalty for the following reasons:
Most of the Appellant's competitors in the South African market operated under and made use of well-established, international brand names and marks.
The name of B, the licensed marks and licensed marketing indicia were well established in the South African market and continued use thereof would:
Enable the Appellant to continue to differentiate the products it manufactured and marketed from the products marketed by its competitors under the other brand names;
Enable the Appellant to avoid the very significant costs of re-branding itself and its products;
Enable the Appellant to take advantage of the reputation which it had established over the years with the use of the licensed mark and licensed marketing indicia in South Africa;
Enable the Appellant to build on the reputation which it had established over the years with the use of the licensed mark and licensed marketing indicia in South Africa, enhancing its customer loyalty and consequently increasing its sales; and
Accordingly, attract customers thereby maintaining and enhancing the Appellant's profit, and maintaining and...
To continue reading
Request your trial