Deliberately Confusing the Market to Gain Advantage

Deliberately Confusing the Market to Gain Advantage

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Passing off is creating the impression that your products or services are somehow connected to the products or services of another business. It also applies if you are using images, reputation, identity or goodwill of celebrities or other brands (Rihanna or Basetsana Kumalo cases).

By using the same name, brand, slogan or trademark, you are misleading the consumer that another well-known product, service or brand is connected with your business.

For example, if you use the same colour and style of packaging as a competitor, with a similar logo, you could be guilty of passing off, even if your brand name is substantially different, as was the case in Swartkops Sea Salt (Pty) Ltd v Cerebos Ltd (CA 2012).

What are the legal requirements for passing off?

  1. Reputation or goodwill: The infringed business has a reputation or goodwill connected to its products or brand such as name, mark or similar.
  1. Misrepresentation: The infringer makes representations, express or implied, which are false or unauthorised.
  1. Impacting the market: This misrepresentation causes, or is likely to cause, confusion among the public about the source of the product or services.

Related: Compliance for entrepreneurs

What degree of impact should the passing off have on the consumer?

The challenge is determining whether actual deception has occurred or is the mere possibility of confusion sufficient.

  1. In the case of Kellogg Co vs Bokomo Co-operative Ltd (SA, 1997) the judge found that there was no passing off if there is no proof of deception, regardless of how confusingly similar the marks may be.
  1. In Capital Estate and General Agencies (Pty) Limited vs Holiday Inns Inc (SA, 1977) the judge found that ‘likelihood of confusion’ was enough to be guilty of passing off.
  1. In Mega Power Centre CC trading as Talisman Plant & Tool Hire v Talisman Franchise Operations (Pty) Ltd and Others (Namibia, 2016) the court mentioned the use of the feature or name must be calculated to deceive, however the aggrieved party must in fact have the necessary reputation.

What is ‘leaning on’?

In Cochrane Steel Products Pty Ltd v M-Systems Group (Pty) Ltd (SA, 2014) the court considered use of similar branding in digital advertising (‘ClearVU’). The judge held that ‘leaning on’, which is a form of unlawful competition whereby one person benefits from a positive association with another’s brand or business without deceiving or confusing anyone, is not recognised in South African law and cannot be relied on.

Related: Don’t just innovate, imitate

Passing off in the digital space and cybercrimes

Website domains with similar sounding names are utilised to deceive users in believing they are the same businesses, or used in cybersquatting with intention to sell at high prices, or use of keyword searching and meta-tags to generate online sales. In more serious cases, cybercrimes such as sale of counterfeit goods online or identity theft are clear infringements and are unlawful.

A test on how far you can push the envelope

The question is how similar is too similar, and when have you crossed the line into passing off and infringing a competitor’s goodwill? In determining whether there is any infringement possibility, consider the following questions relating to the brand you are mimicking:

  1. What is the strength of the mark and reputation?
  2. How common is the branding in terms of words, colours, logos, packaging?
  3. What is the degree of similarity in the product or service offered?
  4. Will this result in actual confusion, or is confusion likely with the market?
  5. Who is the average type of customer the product or service is marketed to?

If you have intentionally branded or marketed your products or services in such a way that consumers are likely to be confused with the products or services of a competitor who has an established reputation, you are likely to be guilty of passing off.

It is possible to operate with similar branding as long as there is sufficient differentiation in your product or service to have its own brand identity in the market without deceiving or confusing your consumers.

Monisha Prem
Monisha is a corporate advisor, admitted attorney at M. Prem Inc, and author with over 14 years deal-making experience. Monisha litigated for several years before joining an investment banking firm specialising in mergers and acquisitions. Monisha has owned and operated several businesses, is passionate about business development, commercial and corporate law.