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It may be legal... but is it right?

Feb/ Mar 2009
‘Imitation is the sincerest form of flattery’ — Charles Caleb Colton, Lacon (1825).
Charles Colton was clearly not a brand manager trying to protect his brand rights, but his quotation illustrates that copying and intellectual property rights are certainly not recent issues. Yet, despite a myriad of laws protecting brand rights, there are many loopholes that prevent brand owners from taking legal action. But, does the fact that it is legal necessarily make it right? Asks TRUDI DU TOIT

Retailers who are aware of the strict rules regarding the use of any trademarks, wording and emblems associated with the 2010 FIFA World Cup, could have been confused by the marketing by two different footwear brands of casual footwear bearing a 2010 reference.

This is just one example of the many pitfalls and difficulties surrounding brand licensing, trademarks, design patents, intellectual property, etc. that has become such a headache for brand owners. Retailers are not immune from the problems surrounding these brand right issues — especially if the item in question is found to be counterfeit. This could have very serious implications for retailers stocking them, since the Counterfeit Goods Act of 1997 makes provision for a fine of up to R5 000 per item if you are caught selling counterfeit goods.

The big problem is that licensing, trademarks and intellectual property rights are often such grey areas that not even the legal experts agree.

Take the 2010 footwear as an example.

Global Brands had been appointed by FIFA as their exclusive licensing and marketing agent and they granted Skye Footwear the exclusive rights to manufacture and supply 2010 FIFA World Cup South Africa footwear. From April last year, Skye had the exclusive right to manufacture a wide range of 2010 shoes — basketball shoes, jogging shoes, sneakers, cross trainers, canvas shoes, flip flops, sandals, casual and dress shoes… and more.

Imagine their surprise when they found out that they had to compete for shelf space with the “twenty10 — why wait” sneakers supplied by Armadillo Footwear.

“The twenty10 range of shoes from Armadillo has been in the market for some time, and inevitably, there will be an ‘association’ of their label with the 2010 FIFA World Cup marks, causing some confusion in the market,” says Tony Dearling, a director at Skye Footwear and Clothing. “Any competitive product in a tough economy will be detrimental to sales.”

Surely this could not be legal, Skye Footwear and Global Brands thought.

Turns out the Armadillo shoes are legal, so declared by none other than FIFA’s advisor on trademark infringement issues, Dr Owen Dean, Spoor & Fisher’s intellectual property expert. What’s more, Armadillo had contacted Dr Dean before bringing the shoes on the market, and he said there would be no problem as long as the shoes have no football association.

By this time you are probably thinking, but what about that controversial amendments to the Merchandise Marks Act, the Proposed Prohibition on the Use of Certain Words and Emblems for Fifa World Cup, published in the Government Gazette in December 2007? The clauses that prohibited the use of FIFA logos and emblems and just about every variant of the name and letters 2010 or Twenty Ten on products and in advertising by anyone not an official partner of the event (incidentally not in the form of twenty10).

These amendments, clauses 15 and 15A, to the act was to protect FIFA’s official partners against “ambush marketing”, the tactic used by clever marketers to give the public the impression that they are associated with an event, even if they did not pay the same hefty licensing or sponsorship fees as the official partners, like Skye Footwear.

But, according to Dean, there is no reasonable prospect that FIFA could successfully object to the use of the mark on the Armadillo footwear — as long as they don’t use it in relation to football footwear or claim direct association with the World Cup.

In a letter to FIFA, Dr Dean explained the legal issues at stake, for example:

» Trademark infringement: The numeral 2010 as used in 2010 FIFA World Cup is subject to a disclaimer — in other words, the use of 2010 on its own is legal, as long as it is separate from a FIFA logo, or not used in relation to the World Cup or football (it will be interesting to see what happens when companies start marketing their 2010 football ranges — ed.). The Registrar of Trade Marks required the disclaimer because 2010 is descriptive, non-distinctive and necessary for use in ordinary trade. Furthermore, the twenty10 logo does not resemble the official FIFA 2010 World Cup logo, and therefore the FIFA trademark is not infringed.
» Passing off: FIFA (or any brand holder) would have to show that the disputed logo is a misrepresentation that the goods are connected to FIFA or the 2010 World Cup (or any protected event or brand). But, since the disclaimer (above) allows free use of 2010 in any form or spelling, Dr Dean says FIFA cannot claim that it denotes any connection to the World Cup event.
» Unlawful competition (the Trade Practices Act or the Merchandise Marks Act): This would apply if FIFA could show that Armadillo (or anybody else) had the deliberate intention to suggest a contractual or other connection with the World Cup (e.g. as official licensee), or to derive promotional benefit from it. Again, because 2010 (or twenty10) is non-distinctive, the logo does not resemble the FIFA logo, and no connection to football or the event is claimed, Dr Dean contends that the use of 2010 alone is not unlawful competition.

But, had Armadillo used twenty10 on a football boot, or included a ball or any other football-related item in their logo, FIFA’s intellectual property rights would have been violated, advises Dean. A T-shirt featuring the numerals 2010 with a soccer ball, would therefore be illegal.

In addition, Brian Berger says Armadillo had applied for registration of the twenty10 trademark as far back as 2003, long before SA became host of the 2010 FIFAWorld Cup.

Which still does not help Skye Footwear. “Armadillo Footwear gave Dr Dean an undertaking, and I quote ‘I will not use my mark in relation to any soccer footwear, nor will I associate my product with the World Cup in 2010’ — whether they have deliberately ignored this undertaking is a matter of conjecture,” says Dearling. “Why use the name Twenty10 at all?”

Nor does the intellectual property quagmire end there.

The Armadillo twenty10 sneaker has a lugged outsole, clamshell toe and logo placement that is uncannily similar to the PF Flyers Grounder, the classic best seller design of the US brand founded in 1937. A resemblance shared by footwear from numerous other brands, including Millé, Dickies, Levi’s, Cats etc.

New Balance was granted the SA registration for the PF Flyers trademark in February 2002 (see image) — with the disclaimer that the name Flyers would be allowed in its ordinary trade use. The initial retail reception was limited, but from about 2004 onwards interest in the brand started growing and at the 2005 SASGAM show, the brand generated plenty of interest.

According to brand manager, Mark Copson, PF Flyers really took off in 2005, and for the last two years it was New Balance’s top marketing success. The Grounder is the best-selling style in the range.

In the beginning of 2008, they noticed that there were copies of the PF Flyers Grounder from several other brands in their customers’ stores.

Surely, a clear case for the police to do a counterfeit raid and seize the copies, one would have thought.

Well, no. The trademark is registered, but not the design, nor is it patented. Therefore, say the intellectual property lawyers, they will not be able to win such a case in SA.

Many brands are, after all, aware that the absence of a patent or design registration resulted in the many copies of the original Converse or Superga styles that have come on the market over the years.

“We always check patents and registrations before we do anything,” says Berger. He introduced the twenty10 shoes with the lugged sole and clamshoe toe design in 2004, he says, when he believes the PF Flyers Grounder was not actively marketed in the local market.

All of the suppliers of copied styles approached by Sports Trader claim that they were not aware that the original PF Flyer Grounder was in the market when they introduced their styles.

Dearling says that Skye has been distributing their models with the disputed clamshell toe and lugged sole design since 2005, and also asks: “Was PF flyers in the country then?”

The irony is that local retailers liked the style of the PF Flyer Grounder enough to introduce styles supplied by other brands as early as 2004 — but did not stock the original model, and thereby gave the copiers free reign.

Some retailers removed the copies when they became aware that they were not the original designs, but re-introduced them later in kids’ styles because PF Flyers did not at that stage have kids’ styles, says Copson. “But in November we also introduced the PF Flyers in kids’ styles, which sold out within a week. Several retailers are currently stocking our Grounder as well as the copies.

“One good thing, though, is that the copies are not selling as well as our brand, mainly due to the fact that consumers strive to own the REAL PF product,” says Copson.

Besides, by retailing for R599, instead of the R199 of the copies, the real product also offers the retailer a better margin.

But, copying not only occurs between brands. In the SA market, many of the department stores purchase original branded product to test the market’s response in their retail space, and when the response to a particular style is positive and reflects in the sell-through, it gets copied “like for like” without any changes to the upper or outsole designs under an in-house label, says Werner Pieters, marketing manager of Footwear Trading.

“They also sell the product at cheaper prices. The product is very often inferior quality to the original, but looks similar and reflects the same trend. The quantity of purchases from the original brand gets reduced in order to promote the in-house labels.”

An example of this would be the Levi’s® Anderson style which had been copied under an in-house label, says Pieters. “The copy features all of the original product’s detail.”

Department stores make more margin by producing product under their in-house labels, as they eliminate the original brand. They do, however, use the original brand’s design to promote their own product.

“The problem is that the quality is never in line with the original branded product’s quality and consumers do not want like for like copies, but prefer the original product and branding.

This situation resulted in retail sales slowing down for product across all brands in the stores, the market became over-flooded with like for like product and consumers lost their appetite for particular styles.

“The bottom line is that the lifespan of any look or trend is shortened. Once department stores mark down their copied product and slowly sell out the stock, original brands pick up again.

“Companies need to translate product into their own handwriting with identifiable features.”

To rub salt into the wounds, a strong retailer knows that a brand manager who depends on the goodwill of the store to stock product, is not likely to take legal action. In the US, Nike and adidas, however, have enough clout to take on even the biggest retailers. Last year adidas made history by being awarded US $305-m in a lawsuit against PaylessShoes who was found guilty of importing and selling shoes with the three-stripe adidas design. Nike has also filed a lawsuit against Wal-Mart, claiming the retail giant infringed their design patents of the Nike Shox style.

“High profile international brands are usually an easy target, as product is directional and success is tested internationally a season before it hits SA,” says Pieters. “Our brands that are mostly targeted are Diesel, Skechers and Levi’s®.

“Diesel has just launched a very successful style with unique detail that has already been spotted at factories under other brand names. Footwear Trading, in conjunction with Diesel Italy, has all the procedures in place to monitor and control these copies in the market.

“The Skechers outsole is also a popular copy and is often seen on competitor styles. The outsole is part of the Skechers signature and is immediately recognised by Skechers brand loyalists. Millé currently has styles in the market that are copied from Skechers, and they have also copied Fila’s very successful Classico style trainer.”

In the cases mentioned above, no legal action could be taken due to all kinds of complicated reasons. But, a retail buyer usually does not have a legal advisor on hand when he or she buys stock… and therefore never knows when the original brand holder does have all the legal t’s crossed and i’s dotted. And at a fine of R5 000 per item, it could be a costly mistake.

Besides, even if it is legal, it may not be the right thing to do.

A successful prosecution

In January this year Manchester United Limited, was granted a default judgement against the Neccessities store, based at the Cape Town Railway Station for allegedly selling fake Manchester United branded soccer gear. A criminal investigation is also pending. According to papers filed in the Cape High Court, a Commercial Crimes Unit inspector, who deals with counterfeit goods, seized goods from the store in September and took them to a counterfeit goods depot in Epping Industria. Manchester United claimed that the goods were “confusingly similar” to its trademark products and likely to deceive members of the public. Necessities did not have the authority to produce the goods and that its conduct amounted to trademark infringement.

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