Infringement of the right to goodwill; the basic legal principles in relation to South African case law

• Author: Andries Van der Merwe
• DOI: 10.10520/EJC148573
• Pages: 1039-1055
• Date: 01 January 2013
• Published date: 01 January 2013

1039

Infringement of the right to goodwill; the

basic legal principles in relation to South

African case law

Andries van der Merwe

BSc Eng BSc LLB PhD

Extraordinary Professor, Centre for Intellectual Property Law, University of Pretoria

OPSOMMING

Skending van die Reg op Werfkrag; Die Basiese Regsbeginsels in Verband

met Suid-Afrikaanse Regspraak

Onregmatige mededinging in die Suid-Afrikaanse gemenereg is gegrond

op die algemene beginsels van die deliktereg. Aanspreeklikheid word dus

slegs bevind indien al die elemente bevredig word. Die beoordeling van

aanspreeklikheid word gewoonlik gedoen teen die agtergrond van die

ageerbare ommstandighede wat in respraak oorweeg is. Die gronde vir

aanspreeklikheid vorm egter nie ’n numerus clausus nie. Aangesien die

tempo waarteen nuwe gronde geïdentifiseer word in pas is met die

gereeldheid van geskille wat voor die howe kom, is dit maar ’n stadige

proses. Dit sou dus voordelig wees om ’n benadering gegrond op beginsels

te ontwikkel om vas te stel watter handelinge of soorte gedrag tot

aanspreeklikheid kan aanleiding gee. ’n Benadering gegrond op beginsels

moet dus fokus op die indetifikasie van regtens afkeurenswaardige gedrag

wat die reg op werfkrag skend en die bewys dat sodanige gedrag

ondermatig is.

1 Introduction

Infringement of the right to goodwill as a requirement in proving a

conduct of unlawful competition under South African common law has

been dealt with under a variety of situations in South African case law.

The courts have accordingly identified a number of circumstances that

give rise to liability. The most well-known of these is an infringement of

a symbol such as a mark or device by way of an action of “passing off”.

A finding of liability on the grounds of unlawful competition requires

as first step an act or conduct by a person that is alleged by another to

be actionable. Assessing whether a specific act will give rise to liability,

naturally if all the other delictual requirements are met, will normally

involve its assessment against the backdrop of the actionable

circumstances that have been identified in case law.

It is apparent that the situations that can give rise to liability on the

ground of unlawful competition do not form a numerus clausus but are

ever expanding as interpreted by the courts in the light of legal

principles. Forming part of the common law, the rate of expanding

interpretation as tying in with the frequency of disputes that come before

courts, is naturally slow.

1040 2013 De Jure

It would consequently be advantageous to develop a principles based

approach for use in pre-assessing acts or conduct that would give rise to

liability when all the delictual requirements are met. It is accordingly an

object of this article to examine the possibility of identifying such acts or

conduct in the light of the concepts of goodwill, the entrepreneurial

components and unlawfulness.

2 Goodwill in the Light of the Entrepreneurial

Components of an Enterprise

An existing enterprise can and will normally also have an additional

immaterial value over and above the sum of the value of its substrate

constituting components.1 This value ties in with its objective to attract

customers and to create a favourable attitude on the part of suppliers,

service providers, creditors and other persons with whom the enterprise

comes into contact in the business environment.2 This value is known as

its “goodwill”. Goodwill consequently relates to the advantage that arises

from the beneficial disposition that for some or other reason exists in

entrepreneurial context towards an enterprise.

Being of non-registrable immaterial character the existence of

goodwill can only be established from extraneous factors. It is submitted

that the entrepreneurial components of an enterprise can be used as aid

in assessing for the existence of goodwill.3 To this effect the running of

an enterprise as a human creation in the economic sphere is based on

the functioning of one or more entrepreneurial components in business

context that serve as substrates for the functioning of such an

enterprise.4 A number of entrepreneurial components are naturally

involved in the functioning of an enterprise. They can be as divergent as

the name of the enterprise, the information that is made available about

the enterprise, trade secrets, its creditworthiness and a multitude of

other components as tying in with the kind of enterprise.5

1 Van Heerden & Neethling Unlawful Competition (1995) 95. Naturally in

relation to such components that have their own financial value.

2Ibid.

3 The functioning of such components can consequently at least contribute

to the maintenance of goodwill if not to its enhancement.

4 Van Heerden & Neethling 95. Entrepreneurial components are simply the

various facets that are involved in the running of an enterprise such as the

goods sold or services rendered, the name, the people that work for the

enterprise, business secrets and a multitude of other facets.

5Ibid. Caterham Car Sales & Coatchworks Ltd v Birkin Cars (Pty) Ltd 1998 3 SA

938 (SCA) 947. While the court talks of “reputation” as the “component of

goodwill” the reputation is in essence a characteristic of a component that

results in the creation and maintenance, if not enhancement, of goodwill.

The court may however have used it in the sense of the components for

proving liability under a passing off claim being reputation and deception

or confusion.