Cochrane Steel Products (Pty) Ltd v M-Systems Group (Pty) Ltd and Another

• Jurisdiction: South Africa
• Judge: Ponnan JA, Mbha JA, Zondi JA, Mathopo JA and Fourie AJA
• Judgment Date: 27 May 2016
• Citation: 2016 (6) SA 1 (SCA)
• Docket Number: 227/2015 [2016] ZASCA 74
• Hearing Date: 19 May 2016
• Counsel: O Solomon SC (with M Freed) for the appellant. G Marriott for the respondent.
• Court: Supreme Court of Appeal

Ponnan JA (Mbha JA, Zondi JA, Mathopo JA and Fourie AJA A concurring):

[1] The parties, who operate inter alia in the security-fencing industry, are rival traders. During October 2013 the appellant, Cochrane Steel Products (Pty) Ltd (Cochrane), sought to interdict and restrain the respondent, M-Systems Group (Pty) Ltd (M-Systems), from using B 'the mark CLEARVU (or any mark confusingly similar thereto, including the marks CLEAR VU and CLEAR-VU) in relation to Google AdWords advertising'. Roloti Beleggings (Pty) Ltd was subsequently joined as the second respondent to the proceedings. [1]

[2] On 29 October 2014 the Gauteng Local Division, Johannesburg (per C Nicholls J), dismissed the application with costs, but granted leave to the appellant to appeal to this court.

[3] During 2008, so asserts the appellant, it invented security fencing 'comprising high density, high tensile mesh' and conceived and adopted the brand name CLEARVU for the product. Although there are pending D applications for registration that were filed by the appellant in 2010, CLEARVU is yet to be registered as a trademark in terms of the Trade Marks Act 194 of 1993. The appellant accordingly relies on what is described as a common-law trademark (Capital Estate and General Agencies (Pty) Ltd and Others v Holiday Inns Inc and Others 1977 (2) SA 916 (A) at 925H). [2] Accordingly, the relief sought was based not on any E statutory infringement, but in the common law. For, as Nicholas AJA observed in Schultz v Butt 1986 (3) SA 667 (A) at 683J – 684A —

'(t)he fact that in a particular case there is no protection by way of patent, copyright or registered design, does not license a trader to carry on his business in unfair competition with his rivals'. F

[4] The activities which have given rise to these proceedings concern the display on the internet of M-Systems' advertisements in response to the entry into the Google search engine by internet users of search terms consisting of or comprising the word 'CLEARVU' or minor variants of it. G

Ponnan JA (Mbha JA, Zondi JA, Mathopo JA and Fourie AJA concurring)

A Google operates an internet search engine and provides a number of other services on the internet. Google's primary source of revenue is advertising. The principal way in which it provides advertising is by means of a service called Google AdWords, in terms of which Google offers advertisers the facility to match a keyword to a user's search query B so as to trigger an advertisement in various different ways, and which allows advertisers to display their advertisements in the Google content network, through either a cost-per-click or cost-per-view scheme. The operation of the Google AdWords service is described in detail by Arnold J in Interflora Inc and Another v Marks and Spencer Plc and Another [2009] EWHC 1095 (Ch) (Chancery Division Interflora judgment). C According to Kitchin LJ (on appeal from Arnold J) in Interflora Inc and Another v Marks & Spencer Plc [2014] EWCA Civ 1403 (Court of Appeal Interflora judgment) paras 14 – 17):

'14.

. . . In broad outline, this service works in the following way. A user of the Google search engine who has carried out a search is D presented with a search engine results page or SERP which usually contains three elements. The first is the search box which contains the search term, a word or phrase typed in by the user. The second contains links to websites which appear to the Google search engine to correspond to the search term. These are known as the ''natural'' or ''organic'' results of the search and are usually E displayed in order of relevance. The third comprises links, referred to as ''sponsored links'', to websites which are displayed because the operators of those websites have paid for them to appear. They are, in effect, advertisements and are usually displayed in one or more parts of the SERP, namely in a shaded box in the upper part of the page (above the natural search results), in a panel on the F right hand side of the page (to the right of the natural search results), or in a panel at the bottom of the page (under the natural search results). Over the years the labelling of these sponsored links has varied, but they have generally been headed with the words ''Sponsored Links'' or ''Ads'' or variations of them.

15.

A sponsored link appears when a user enters one or more particular G words in to the search engine through the search box. These words, known as ''keywords'', are secured by the advertiser in return for a fee. This is called ''purchasing'' or ''bidding on'' the keyword. The sponsored link contains three elements. The first is an underlined heading which functions as a hyper-link to the advertiser's website. This may or may not contain the keyword. H The second is a short commercial message or advertisement which, once again, may or may not contain the keyword. The third is the Uniform Resource Locator or URL of the advertiser's website.

16.

The fee paid by the advertiser is calculated on the basis of the number of times users click on the hyper-link to the advertiser's website (a process known as ''click through'') subject to a maximum I daily limit which the advertiser has specified. A number of different advertisers may bid for the same keywords, and, if they do, the order in which their adverts are displayed will depend upon various factors including the maximum daily sum, often referred to as the ''maximum price per click'', that each is prepared to pay.

17.

The search term entered by a user of the Google search engine and J the keyword selected by the advertiser do not have to be identical for

Ponnan JA (Mbha JA, Zondi JA, Mathopo JA and Fourie AJA concurring)

the sponsored link to appear on the SERP. One reason for this is that A advertisers have the ability to choose different match types in relation to each keyword, and these match types govern the circumstances in which the sponsored links associated with those keywords will appear. For example, ''exact match'' requires the search term to be identical to the keyword; ''phrase match'' requires the search B term to contain the same words as the keyword in the same order, but it may include additional words before or after the keyword; and ''broad match'' simply requires the search term to correspond to variations of the keyword, such as plurals. By 2008 Google had also introduced a development of broad matching known as ''advanced broad matching'' which causes the sponsored link to appear if the Google search engine deems the keyword relevant to the search C term. So, by way of illustration, a search for the term ''flowers'' might be deemed to match the keyword ''florists.'

[5] The appellant's contention is that 'this is a form of unlawful competition; alternatively on the facts a passing off occurs'. It may be D convenient to first consider the alternative cause of action based upon passing off. Passing off is a species of wrongful competition in trade or business. According to Rabie JA (Capital Estate (above) at 929C – E):

'The wrong known as passing off consists in a representation by one person that his business (or merchandise, as the case may be) is that of another, or that it is associated with that of another, and, in order to E determine whether a representation amounts to a passing-off, one enquires whether there is a reasonable likelihood that members of the public may be confused into believing that the business of the one is, or is connected with, that of another.'

As Corbett CJ put it in Williams t/a Jenifer Williams & Associates and F Another v Life Line Southern Transvaal 1996 (3) SA 408 (A) ([1996] ZASCA 46) at 418D – F:

'In its classic form it usually consists in A representing, either expressly or impliedly (but almost invariably by the latter means), that the goods or services marketed by him emanate in the course of business from B or G that there is an association between such goods or services and the business conducted by B. Such conduct is treated by the law as being wrongful because it results, or is calculated to result, in the improper filching of another's trade and/or in an improper infringement of his goodwill and/or in causing injury to that other's trade reputation. Such a representation may be made impliedly by A adopting a trade name or a H get-up or mark for his goods which so resembles B's name or get-up or mark as to lead the public to be confused or to be deceived into thinking that A's goods or services emanate from B or that there is the association between them referred to above. Thus, in order to succeed in a passing-off action based upon an implied representation it is generally incumbent upon the plaintiff to establish, inter alia: firstly, that the name, I get-up or mark used by him has become distinctive of his goods or services, in the sense that the public associate the name, get-up or mark with the goods or services marketed by him (this is often referred to as the acquisition of reputation); and, secondly, that the name, get-up or mark used by the defendant is such or is so used as to cause the public to be confused or deceived in the manner described above.' J

Ponnan JA (Mbha JA, Zondi JA, Mathopo JA and Fourie AJA concurring)

A [6] Not having any registered right in the name CLEARVU, it was for the appellant to show that the name has acquired such a reputation in relation to its business that it may be said to have become distinctive thereof (Capital Estate (above) at 925H). Whilst I am willing to accept in the appellant's favour that it succeeded in establishing a reputation in the B name CLEARVU, I entertain some doubt as to whether it established the second leg of its cause of action, namely that the respondents' conduct caused, or was calculated to cause, the public to be confused or...