Grey goods: A matter of life and death

The main consideration in the above scenario is the nature of the ‘grey’ goods being dealt in. The incorrect labelling of goods of the kind mentioned above, or the omission of critical information on such labelling applied to such goods, could result in the end user’s death.

The following legal considerations need to be analysed:

Trademark-related considerations

Section 34(1)(a) of the Trade Marks Act 193 of 1994 provides that the rights acquired by a trademark registration shall be infringed by: “The unauthorised use in the course of trade in relation to goods or services in respect of which the trademark is registered, of an identical mark or of a mark so nearly resembling it as to be likely to deceive or cause confusion.”

One can successfully defend against an allegation of trademark infringement based on Section 34(1)(a) of the Trade Marks Act when a registered trademark is applied to a genuine article that has been manufactured by the actual manufacturer and has been imported into the country with the consent of the manufacturer. The question of genuineness is not limited to an enquiry as to the genuineness of the goods themselves, but rather the material issue of how the trademark is applied.

Such falsified labels may constitute a real danger to the safety of the end user as the consumer is exposed to severe safety risks.

Grosskopf, JA in the Supreme Court of Appeal in the Sony case, citing a previous judgment he had made, held that no infringement of a trademark is committed by a trader that sells genuine goods properly marked with the trademark by, or with the consent of, the trademark owner. If another party alters the goods, however, they are to the extent to which they have been altered, no longer the goods to which the trademark was affixed by the proprietor. Does removing a label from the manufacturer’s genuine product and replacing same with falsified labels which bear the manufacturer’s trademark but include fictitious serial numbers, and which do not specify the electrical, oil and refrigerant information which is critical to safe and efficient installation and operation of the goods, render the genuine article altered?

Such falsified labels may constitute a real danger to the safety of the end user as the consumer is exposed to severe safety risks. One can conclude that the article is no longer genuine and has been materially altered.

Consumer protection

Sections 24(2)(a) and (b) of the Consumer Protection Act provides that “a person must not knowingly apply to any goods a trade description that is likely to mislead the consumer as to any matter implied or expressed in that trade description; or alter, deface, cover, remove or obscure a trade description or trademark applied to any goods in manner calculated to mislead consumers.”

The omission of the electrical, oil and refrigerant information is clearly in contravention of the act as it is likely to mislead consumers into accepting or believing that the particular product does not have any specific operational characteristics.

Unlawful interference

In order to succeed in an action based on unlawful competition, the actual manufacturer must establish all the requisites of Aquilian liability.

On the set of facts presented above, the party distributing the offending products is in the wrong as it is in contravention of the Consumer Protection Act. It also infringes upon the actual manufacturer’s trademarks as the offending products have been materially altered.

The wrongful conduct will result in direct damage to the manufacturer’s reputation in the market, as it will not be in a position to ensure quality control of its products, or recall defective batches of product in the event that a recall becomes necessary.

Consumers will also feel ill-informed if not directly guided by material product information that should be affixed to a product label. There is the likelihood that a consumer may be injured or killed as a result of such a material omission. The removal of crucial product information essentially makes the products’ warranty void, resulting in a negative impact on consumer confidence in the actual manufacturer, and its reputation in the market.

Karen Kitchen is an associate at DM Kisch Inc. She can be contacted at:
karenk@dmkisch.com

This article was previously published in the September 2013 issue of Without Prejudice