Getting into the (IP) Zone – Herbal Zone v Infitech

17 May 2017

The recent case of Herbal Zone v Infitech Technologies [1] is a cautionary tale for product manufacturers or importers who are careless about their intellectual property (“IP”). In many respects, it is a tale as old as time in IP circles; one which sees itself played out over and over as a result of a lack of focus on the protection of intellectual property and a failure to anticipate and prepare for the daily reality of business relationships turning sour.

The case concerned a male sexual performance enhancer marketed under the name PHYTO ANDRO FOR HIM in South Africa since 2006. Herbal Zone (Pty) Limited was the sole importer of the product into South Africa. It said that the product was manufactured by Herbal Zone International Sdn Bhd, a Malaysian entity. Between 2009 and 2014, Infitech (Pty) Limited was the sole distributor of the Phyto Andro for Him product in South Africa, in terms of a distribution agreement with Herbal Zone. The facts of the case as set out in the Supreme Court of Appeal judgement do not tell us why the relationship soured but, in 2014, in advance of the termination of the distribution agreement, the shareholders of Infitech formed Herbs Oils (Pty) Limited and began marketing and selling a competing product, also under the name PHYTO ANDRO FOR HIM and in similar packaging to the original product. Despite the fact that neither party had registered the trade mark, they both used the symbol for a registered trade mark (®) on their packaging next to the name of the product.

Taking matters into its own hands, Herbal Zone published an advertisement in a popular newspaper and also wrote to pharmacies who stocked the products, warning that Herbs Oils’ Phyto Andro product was “counterfeit” and “illegal” and threatening legal action against suppliers of the product. It also took action in terms of the Counterfeit Goods Act which resulted in certain of the Herbs Oils Phyto Andro products being seized but ultimately released (again, the judgement does not say why but presumably because the Counterfeit Goods Act is difficult to invoke unless there is a registered trade mark involved). Herbs Oils retaliated by suing Herbal Zone for defamation and Herbal Zone then found itself in a position where it had to counter-sue. It counter- applied for an interdict on the basis that Herbs Oil was passing-off its product as that of Herbal Zone’s.

The passing-off case is what took centre stage but it failed, essentially because Herbal Zone was unable to show that the reputation in the PHYTO ANDRO FOR HIM trade mark (although the court accepted that there was one) belonged to it. It is essential for such a case to succeed that the person seeking an interdict establish a reputation (in the form of goodwill) in the product name. There simply wasn’t any evidence pointing to who owned that reputation. Herbs Oils claimed that it had acquired the reputation from Infitech but the SCA quickly put paid to that argument as it had merely been a distributor of the product and had acknowledged in its distributor agreement that it did not own these rights. While the packaging of the product had initially said “manufactured for Infitech”, it was later changed to read “exclusively distributed by Infitech”.This would not have indicated to the public that Infitech was the proprietor of the trade mark.

On the other hand, however, Herbal Zone also could not show that it owned the requisite reputation. Rather, it appeared that all of its commercial communications created a significant amount of confusion between it and Herbal Zone International and that their respective roles in the manufacture and distribution of the product were as clear as mud. In many cases, no distinction was drawn between the two corporate entities and, in others, it appeared to be the case that Herbal Zone was merely a distributor for Herbal Zone International. Much like Infitech, therefore, it could not have acquired any rights in the name of the product. The claim for passing-off accordingly failed and, certainly at the date of writing this article, Herbs Oils continues to advertise its competing PHYTO ANDRO product, no doubt much to the despair of Herbal Zone.

So what should product manufacturers do to avoid these situations?

1. Register, register, register! So many IP headaches can be avoided by applying to register your distinctive product name as a trade mark. The applicant should be the entity that will actually use the trade mark. If it is not, a proper (written) licence agreement should be in place between the owner of the trade mark and the entity or person who uses it, even if it is a related entity. Get legal advice or, even better, have the licence agreement drafted by a trade mark attorney. The law requires certain essential terms to be contained in such a contract.

2. Craft product packaging and the wording reflected on it carefully and pay close attention to any packaging regulations (dependent on the nature of the product) and the description of who the trade mark owner/manufacturer/distributor are. Do these descriptions match the true factual position? Note that the ® symbol can only be used in respect of a registered trade mark. While a trade mark application is still pending, the symbol ™ can be used next to the mark.

3. Where multiple, related entities are involved in the production, manufacture and marketing of a product, ensure that the roles of each are clearly defined and that these roles come through in any form of business communication (e-mail signatures, website content, letterheads, etc.).

4. Enter into written agreements with any distributors of the product which make it clear that they can and will enjoy no rights in and to the product’s name or any other intellectual property relating to the product. That agreement should spell out clearly the circumstances in which the agreement may be terminated and also that, on termination, the distributor will immediately cease using the trade mark, or anything similar. Maintain control over the way in which the distributor uses the trade mark and advertises the product.

5. If your rights are infringed, seek legal advice before taking any steps. While in some cases a public awareness campaign may be appropriate, these can easily cross the line into defamation and could result in your ending up being the one getting sued, rather than the other way around, meaning you will be on the back foot in the litigation.

These steps are simple and relatively inexpensive when viewed against the cost of potential litigation or the cost of being unable to stop a competitor from using your brand. Quite frankly, they are steps that product owners simply can’t afford not to take.

[1] (204/2016) [2017] ZASCA 8 (10 March 2017)

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)