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If It Looks Like a Whisky, Then It Must Be a Whisky

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Milestone Beverage CC and Others v The Scotch Whisky Association and Others

  • At issue was whether the maker of the Royal Douglas and King Arthur “whisky-flavoured spirit aperitif” unlawfully associated its
    products with whisky and Scotland
  • The SCA took a “commonsensical approach” to the labels and their visual impressions
  • The judgment highlights the strong protection afforded to traders in instances of flagrant unlawful competition

South Africa’s Supreme Court of Appeal (SCA) has issued its decision in Milestone Beverage CC v The Scotch Whisky Association((1037/2019) [2020] ZASCA 105, 18 September 2020).

Background

The fact that whisky and Scotch whisky, in particular, is a distinctive product with an established reputation and goodwill was beyond dispute in the subject case. What was, however, at the heart of the dispute was whether the proprietor of ROYAL DOUGLAS and KING ARTHUR ‘whisky-flavoured spirit aperitif’ was unlawfully associating its product with whisky, and with Scotland, to ride on the coat-tails of the reputation and cachet attached thereto.

This case concerns the manufacture and distribution of two alcoholic beverages by the appellants, namely ROYAL DOUGLAS and KING ARTHUR. Aside from having differing get-ups, these two products are identical in all respects, having been produced in the same production process.[1]  

The respondents, consisting of inter alia the Scotch Whisky Association (whose members produce 95% of the Scotch whisky sold worldwide), Chivas Brothers Limited (producer and supplier of a number of Scotch whisky brands sold in South Africa) and Pernod Ricard South Africa (Pty) Ltd (Chivas’ exclusive distributor in South Africa) contended that the appellants project an undoubted Scottish provenance for their products, which, so it is asserted, they misrepresent as Scotch whisky, alternatively whisky.[2]

The chain of events leading up to the respondents approaching the Court, is briefly set out as follows.

At the time of the application for the ROYAL DOUGLAS trade mark in 2015, the respondents sought an undertaking from the second appellant (the applicant for the trade mark) restricting the specification of goods against the application to ‘Alcoholic beverages, including distilled spirits but insofar as whisky and whisky-based products are concerned, only Scotch Whisky and Scotch Whisky based products produced in Scotland’.[3]

In response, the first appellant undertook that the ROYAL DOUGLAS product would not be marketed and sold as a Scotch whisky, imported whisky or a South African whisky, but rather as ‘Spirit Aperitif’ seeing that the product consisted of a vodka base with flavours, colours and sugars.[4]

Despite the undertaking, the first appellant continued to sell and market the ROYAL DOUGLAS product as a whisky on its website.

After taking this up with the appellants, a second undertaking was provided by the first appellant later in 2015, in the following terms:

‘not to use or cause or permit to use of the trademark ‘ROYAL DOUGLAS’ or any mark incorporating the combination of the words ‘ROYAL’ and ‘DOUGLAS’ in relation to any whisky or whisky based products unless they are wholly produced in Scotland’.[5]

In 2016 a further demand was addressed by the respondents who required that remaining products in the market be recalled, along with an undertaking that Scottish names or insignia on whisky products other than Scotch whisky not be used. The appellants subsequently undertook to amend the labels for both products.

Despite this, some six months later, the appellants’ products, featuring the initial labels, were still on sale and continued to be promoted as a ‘Whisky flavoured Spirit aperitif’ (with the word ‘Whisky’ being positioned in such a way, as held by the Court, to constitute the dominant description of the product). [6]

The respondents then approach the Gauteng Division of the High Court, Pretoria in 2017 for inter alia injunctive relief. Their application succeeded in the court a quo and the appellant’s subsequent appeal also dismissed by the Supreme Court of Appeal (SCA).

SCA decision

Unlawful competition

The respondents’ case relied on two causes of action: firstly, misrepresentation by the appellants as to the particular attributes, character, composition and origin of the ROYAL DOUGLAS and KING ARTHUR products (misrepresentation as to own performance) and secondly, trade in such products in contravention of the Liquor Products Act 60 of 1989 (LPA).[7]

Infringement under the common law

In South Africa unlawful competition is recognised as an actionable wrong, distinct from that of passing off. A person who falsely and culpably represents to the public that his products are products of a particular character, composition or origin known by the public under a descriptive name which has gained a public reputation, without passing them off as the product of the plaintiff, who produces what may be termed the genuine products, and who thereby causes patrimonial loss to the plaintiff, commits the delict of unlawful competition, and is liable in damages to the plaintiff.[8] It follows also that the injured party is entitled to an interdict / injunction restraining such conduct where such patrimonial loss has occurred or is likely to be caused.[9]

On this basis, the SCA confirmed the finding of the court a quo that there is a likelihood of confusion created by both the initial and revised ROYAL DOUGLAS and KING ARTHUR get-ups. Applying a ‘commonsensical approach’ to the labels and the visual impressions created by them[10], it was held that the appellants failed to create revised get-ups which were not still suggestive of whisky or Scotland.[11]

This conclusion was based on the interplay of a number of factors, including the wording and graphic elements features on the labelling, the alcohol strength of at least 43% and the expressions ‘premium quality’ and ‘double distilled’, all of which are closely associated with whisky, and which are likely to combine to create the impression that each is a whisky. Acting on this first impression, it was held that the average customer is unlikely to scrutinise the product closely.

Notably, despite consisting of a vodka base, the labels featured no Vodka-associated indicia or geographical regions traditionally associated with vodka, such as Russia. The Court found that ‘(t)here is, in short, nothing to suggest the true nature of the product being sold and everything to suggest that it is what it is not’. Accordingly, it was found that the appellants’ products and their relevant get-ups, will lead a significant section of the public to believe that the products have attributes that they do not truly possess.[12] Thereby, unjustifiably gaining maximum advantage from the reputation of whisky and, in particular, Scotch Whisky.

Statutory infringement

Trading in contravention of a statutory provision is a well-established form of unlawful competition in terms of the South African common law.[13] In this regard, Section 12 of the LPA headed ‘Prohibition of false or misleading descriptions for liquor products’, underscores the basic policy consideration of lawful competition by encouraging honesty and fairness in trading competition.[14]  According to section 12(1) of the LPA:

no person shall use any name, word, expression, reference, particulars or indication in any manner, either by itself or in coherence with any other verbal, written, printed, illustrated or visual material, in connection with the sale of a liquor product in a manner that conveys or creates or is likely to convey or create a false or misleading impression as to the nature, substance, quality, composition or other properties, or the class, cultivar, origin, age, identity, or manner or place of production, of the liquor product.

Section 12 must be read with section 11(2)(d) of the LPA[15] which prohibits the use, in connection with the sale of a liquor product, of a class designation or any word or expression that so resembles a class designation that it would be likely to deceive, unless the product complies with the relevant designation. It follows, in essence, that a product may, from the point of view of the LPA, only be sold if the description matches the content.[16]

On this basis it was found that the appellants’ product offends:

  • sections 11 and 12 of the LPA for being represented as a whisky or Scotch whisky or a whisky with a Scottish connection, being whisky-flavoured and having an alcohol content of 43% or 43.5% when, in fact, it has an alcohol strength of 34.98% and
  • Regulation 29(4), by being marketed and sold as a whisky-flavoured spirit aperitif.[17]

(Mis)representations

Connection to Scotland or the United Kingdom

It was common cause that the product sold by the appellants has no connection to Scotland, or any part of the United Kingdom. Yet the initial ROYAL DOUGLAS get-up is replete with Scottish indicia, including the tartan-patterned background and the use of the name ‘Douglas’ in the brand name, a Scottish clan name that is strongly associated with Scotland and a heavily crested label, thereby indicating a liquor steeped in tradition (in this case, and considering that the liquor is represented to be whisky, the Court conceded it to represent the Scotch whisky tradition).[18] The SCA also found that the revised get-up equally speaks of a desire to benefit from an association with Scotland, as the labels still bear the crest and the name ROYAL DOUGLAS in lettering of a traditional type setting.[19]

he appellants’ explanation was that the name is derived from the first name of Mr Haupt’s grandfather ‘Douglas William Haupt’, and that ‘Royal’ is a laudatory term. This was rejected by the court a quo, with approval of the Court on appeal. The Court held that the choice of name, is and always has been designed to evoke a Scottish connection and these representations were undoubtedly intended to create a clear and vivid impression on people seeing them, of an association with Scotland.[20]

No evidence was adduced by the appellants as to how they fixed on the name of the KING ARTHUR product but the Court held that it is evocative of UK as it connotes an association with medieval Britain.[21]

The Court further held that it is a contravention of section 12 of the LPA to represent a product as a Scotch whisky, when it is not of Scottish origin or a whisky at all.[22]

Whisky

It was also common cause that the product sold by the appellants is not whisky, yet he product was marketed on the appellants’ website as a whisky, and sold as ‘Royal Douglas whisky’ at the retail outlet at which it was purchased and receipts were issued by that outlet for ‘Royal Douglas whisky’.[23]

The appellants website also provided access to the ROYAL DOUGLAS and KING ARTHUR products through a portal named ‘Whisky’. The two products were displayed under a prominent ‘Whisky’ heading, with the phrase ‘Flavoured Spirit aperitif’ in small letters below. The Court found that the appearance of all the products on that page is evocative of whisky with a Scottish connection and that the appellants were ‘evidently still straining to associate their products as closely as possible with whisky and with Scotland and to continue to ride unashamedly on the coat-tails of that reputation and cachet’.[24]

The Court further found that other influencing factors, i.e. the alcohol strength of at least 43%, the expressions ‘premium quality’ and ‘double distilled’ and the use of an artificial caramel colouring, all of which are closely associated with whisky, are likely to combine to create the impression that each is a whisky.[25]

With regards to the statutory cause of action, it was found to be a contravention of sections 11 and 12 of the LPA to represent a product which is not a whisky, as whisky.

Whisky-flavoured

The appellants contended that the ROYAL DOUGLAS and KING ARTHUR products are both vodka products to which whisky flavouring is added, and that they are neither whiskies nor whisky-based.[26] The

Court did not take lightly to this submission, stating that ‘the appellants did not see fit to take the court into their confidence, preferring instead to content themselves with the bald assertion that ‘spirit whisky is not added to the products, only a flavouring’.[27]

The whisky-flavouring, so it was stated, was obtained initially from a supplier in Spain and more recently, a local supplier. As no confirmatory affidavit was adduced from either supplier, it was held that there is simply no evidence as to the composition of the whisky-flavouring.[28]

According to the appellants the words ‘whisky flavour’ merely inform the customer that the spirit-based liquor or spirit aperitif tastes like a whisky. The appellants further argued that it is impossible for any person ‘precisely to identify when a product will be deemed to be whisky flavoured’.[29] They contended that taste is subjective and there is, in truth, no such thing as an ascertainable whisky flavour.[30]

The Court rejected this submission and found it to be impossible and misleading, as the logical conclusion of this argument would be that ‘the appellants could put anything into a bottle, call it whisky-flavoured’.[31]

Whether a product can ever be artificially ‘whisky-flavoured’ was found to be doubtful by the Court. This was based on the accepted expert evidence of Ms Shona Glancy, a scientist employed by the Scotch Whisky Research Institute in Scotland (SWRI). Apart from confirming that the product was not whisky, she performed a sensory assessment of the spirit by nosing a sample; being the normal method of assessing the flavour of whisky in the Scotch whisky industry. According to her, the ROYAL DOUGLAS profile was one dimensional. Her assessment revealed aromas of orange, pineapple and artificial apple which are atypical of a whisky produced in accordance with the South African whisky definition.[32] In answer to the allegation that the offending product is vodka-based to which whisky-flavouring has been added, Ms Glancy commented that an artificial additive could not replicate the complex flavour and aroma of whisky.[33] She indicated that whisky produced in accordance with the South African definition derives its flavour from its raw materials, fermentation, distillation and maturation in wooden barrels and rejected the suggestion that whisky cannot be said to have a distinct flavour or that it is impossible to identify when a product will be deemed to be whisky-flavoured. She stated there are definite and distinguishing flavours which are attributable to whisky and there are objective means of describing a whisky-flavour.[34] The expert evidence of Ms Glancy was supported by that of Mr Gary Wadmore, the store manager of the Whisky Brother retail store, a specialist store selling only whisky and whisky-related items.[35]

Even if the appellants product did objectively present a whisky-flavour, the Court found that it would be impermissible to add to a whisky-flavour to a spirit-based aperitif or liquor in terms of Regulation 29(4) of the Liquor Products Regulations, which provides that ‘(t)he flavour, taste and character of a spirit-based liquor shall be clearly distinguishable from that of wine or a class of wine or of a spirit or a class of spirit’. Considering that whisky is a spirit, this would mean that a whisky-flavoured product would not be sufficiently distinguishable to satisfy this requirement.

Alcohol percentage

The appellants misrepresented the alcohol strength of their product to be 43%. However, the SWRI found it to be 34.98%. In an attempt to contradict the findings of the SWRI, the appellants produced a certificate by an entity identified as ‘Vinlab’. The certificate was not accompanied by an affidavit and held to constitute documentary hearsay. In these circumstances, the Court confirmed the court a quo’s finding that the Vinlab certificate has no evidential value and concluded that the ROYAL DOUGLAS and KING ARTHUR products have an alcohol strength of 34.98%.[36] On this basis, the appellants product was found to contravene sections 11 and 12 of the LPA.

Entitlement to the interdictory (injunctive) relief

It was argued on behalf of the appellants that the respondents are not entitled to interdictory relief  granted by the court a quo.[37] In that regard reliance was placed on Patz v Greene 1907 TS 427, which held (at 433):

Where a statute prohibits the doing of a particular act affecting the public, no person has a right of action against another merely because he has done the prohibited act. It is incumbent on the party complaining to allege and prove that the doing of the act prohibited has caused him some special damage – some particular injury beyond that which he may be supposed to sustain in common with the rest of the Queen’s subjects by an infringement of the law. But where the act prohibited is obviously prohibited for the protection of a particular party, then it is not necessary to allege special damage.

In this respect, the Court held that the respondents are in fact entitled to the interdictory relief sought.[38] The Court referred to the dicta of Trollip J Johannesburg City Council v Knoetze and Sons[39] to say the purpose of an interdict is to restrain future or continuing breaches of a statute, whereas the statutory remedy of prosecuting and punishing an offender relates to past breaches. Different considerations must therefore inevitably apply. For, while the statutory remedies might be adequate to deal with past breaches, the civil remedy of an interdict might be the only effective means of coping with future or continuing breaches.[40]

Comment

In a market where very intense, aggressive and nearly merciless competitiveness, not only exists, but is encouraged, the Court in the present case took up the cause from the outset of the judgement to state that

though trade warfare may be waged ruthlessly to the bitter end there are certain rules of combat which must be observed. The trader has not a free-lance. Fight he may, but as a soldier, not as a guerrilla’.[41]

The outcome of the judgement is heartening as it reassures traders of the clear and vigorous protection afforded to traders in instances of such flagrant unlawful competition, as presented in the facts of the case.

The Court took an untangled approach in considering the first cause of action, i.e. unlawful competition based on common law, by stating that a court need go no further than to take a ‘commonsensical approach’ to the labels and the visual impressions created by them.[42]

The Court’s finding that the name ROYAL DOUGLAS has no credible link to the third appellants grandfather, Mr Douglas William Haupt, but rather designed to evoke a Scottish connection, asserts the Court’s ‘commonsensical approach’ in that contrived dissections of labels have no impact on the global appreciation which needs to be applied when considering the visual impressions of labels.

A final notable point for practitioners is the manner in which the Court dealt with evidence in the motion proceedings. The ‘Vinlab’ certificate produced by the appellants was held to have no evidential value because it was not accompanied by a supporting affidavit, thereby constituting inadmissible hearsay evidence. Also, no confirmatory affidavit from either supplier of the ‘whisky flavouring’ was cited as evidence on behalf of the appellants, which lead the Court to conclude that ‘there is [thus] simply no evidence as to the composition of the whisky-flavouring’. Whilst on the other hand, the expert evidence of Ms Shona Glancy, a scientist at SWRI, was well-presented and relied upon by the Court, providing a prudent example of the potential and value of well-presented expert evidence in motion proceedings.

This article first appeared on WTR Daily, part of World Trademark Review, in (Nov 2020). 

Author: Regardt van der Merwe, Attorney, Trademark Department, reviewed by Hugo Prinsloo, Trademark and Copyright Attorney.