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Trade marks, the doctrine of notice and the position of the licensee on assignment

by Jeremy Speres on 21 May 2012

Will the doctrine of notice come to the aid of a licensee, or the holder of some other personal right in a registered trade mark, where that mark is assigned to a third party who refuses to take on the previous proprietor's personal obligations to the holder of the earlier personal right?

Will the doctrine of notice come to the aid of a licensee, or the holder of some other personal right in a registered trade mark, where that mark is assigned to a third party who refuses to take on the previous proprietor's personal obligations to the holder of the earlier personal right? 

Applicability of the doctrine

In respect of property that is the object of real rights, the doctrine of notice (“the doctrine”) protects the holder of a personal right in respect of the property in question where the third party transferee has notice of the existence of the personal right prior to taking transfer.   

Real rights have traditionally been held to have corporeal property as their objects, but there are numerous examples where real rights have been held to exist over incorporeals. 

Can it be said that the doctrine applies to registered trade marks?  They certainly meet the usual characterisation of real rights as being enforceable against the world at large, subject to the principle of territoriality. 

It's interesting to note that the legislature felt the need to codify the doctrine in section 22(7) of the Copyright Act.   This suggests some uncertainty as to the doctrine’s application in respect of another intellectual property right.

However, Judge Harms has stated the following which appears to support the application of the doctrine: 

…trade marks are property, albeit intangible or incorporeal…. Our law has always recognised incorporeals as a class of things in spite of theoretical objections thereto (Laugh It Off Promotions CC v South African Breweries International (Finance) BVt/a Sabmark International2005 (2) SA 46 (SCA) at para 10).

Indeed section 41(4) of the Trade Marks Act  (“the Act”) provides that a registered deed of hypothecation has the effect of a pledge – a limited real right.

Dr Burrell submits that the right which a patentee acquires on grant of a patent is a “statutory incorporeal real right”.   This view has found favour in the courts  and there appears to be no reason why the same cannot be said of registered trade mark rights (see Burrell’s South African Patent and Design Law (3ed 1999) at para 3.2.).

So it seems that a good case can be made for the application of the doctrine to registered trade marks in that they are the objects of real rights.  

The doctrine as a tool

The doctrine can be a useful tool in a number of scenarios.  Typically the doctrine would not be helpful in the case of double sales given that trade marks are incorporeal and proprietorship is transferred by agreement - the first assignment agreement would usually transfer ownership.

However, would the doctrine apply where ownership is only to transfer at a later date?  There is considerable support for the view that a purchaser who buys in good faith will nevertheless be subject to the doctrine if he acquires knowledge of the prior claim before he obtains transfer.   This is supported by the decision in Harley v Upward Spiral 1196 CC and others 2006 (4) SA 597 (D).

It is not uncommon to encounter licence agreements granting the licensee an option to take assignment of the mark or a right of pre-emption (right of first refusal) in the mark.  Our courts have accepted that the holder of such rights is entitled to have a sale to a third party with knowledge cancelled. 

Assignee with no notice?

The application of the doctrine is all well and good, but what about the poor licensee where the third party assignee has no notice of the licence upon assignment?  Should the assignee refuse to respect the licence, it appears that the licensee will be left with a mere personal claim for breach of contract against the original licensor, without any right to continue using the mark.

This inequity seems to be what prompted the UK to enact sections 28(3) and 25(3)(a) of their Trade Marks Act of 1994 which provide that a registered licence will bind successors in title. 

In South Africa, even if the trade mark licence is registered in terms of section 38 of the Act, doesn’t it remain a personal right that only binds an assignee with notice?  Or can it be said that registration creates a limited real right over the mark, as with a registered servitude?  Or does registration amount to constructive notice?

In Louis Llewellyn Strydom and Pienaar Road Properties (Pty) Limited v Andcor (Proprietary) Limited the Commissioner of Patents held, in the context of a patent, that “…the defendant was to become entitled…to perfect its personal rights…by having itself registered as exclusive licensee…thereby acquiring a real right….” 

This lends support to the argument that registration of a licence confers a limited real right.  However, this seems contrary to the traditional construction of a licence as a mere agreement not to sue conferring no proprietary rights  and is unlikely to find support in the courts (Webster and Page et al The South African Law of Trade Marks (2010) Service Issue 14 at para 11.1).

The constructive notice interpretation is doubtful following the decision in Frye’s (Pty) Ltd v Ries wherein it was held that although registration against the title deeds of a property amounts to notice to the world of the claim in question, the world is not deemed to have such notice.  Furthermore, in Contract Forwarding (Pty) Ltd v Chesterfin (Pty) Ltd and others  the SCA held, in the context of successive bonds, that constructive notice is not enough to bring the doctrine into play.
Despite the aforegoing, registration of a licence may well come to the licensee’s aid in that any reasonable assignee would inspect the Register of Trade Marks prior to purchase, which could be used to draw inferences that the assignee had actual knowledge.

Section 39(1) of the Act provides: “Subject to any rights appearing from the register, a registered trade mark is assignable and transmissible….”  It is not clear whether these words will come to the aid of a registered licensee.  It could be that these words refer simply to registered deeds of hypothecation or attachments of the mark (See Webster and Page (supra) at para 11.18, fn 1),  although this may run contrary to the presumption of interpretation requiring statutes to be interpreted to avoid tautology – section 39(3) already provides that assignments are subject to deeds of hypothecation.

Huur gaat voor koop?

One suggestion  is that a licensee enjoys a real right, not conferred by registration or by application of the doctrine, but instead on a sui generis basis akin to the huur gaat voor koop rule (My thanks go to Dr Tim Burrell for this suggestion to me in an email exchange).

This rule confers upon the lessee, despite alienation, the right to continued occupation, provided she pays the rent.  Under Roman law, the lessee had no such right and, on the basis of equity, Roman-Dutch law introduced the rule. 

It does seem like a trade mark licensee is in a position similar to that of the lessee under Roman law and it would seem equitable to introduce a similar rule into our law in relation to intellectual property licences in the absence of an equivalent statutory provision.

This is supported by Judge Harms’ recent rulings holding intellectual property rights akin to immovables.   This is also supported by the judgment in Wistyn Enterprises (Pty) Ltd v Levi Strauss & Co and another  where the following was stated:

I can see no distinction in principle between the derivative right of the registered user of a trade mark, and that of the lessee or sublessee.  In African Gold Recovery Co v Crown Reef Gold Mining Co…GREGOROWSKI CJ [in the context of a patent case]…stated at 88 that: "I will admit that the relations of licensor and licensee are similar to those of lessor and lessee..."  

The huur gaat voor koop rule is, however, subject to the caveats that it will only apply where the lessee was in occupation or where a long lease was registered.  The purpose of these caveats seems to be publicity. 

Perhaps in relation to trade marks, the licensee will only be permitted to rely on a similar rule where the mark has been in use by the licensee, or the licence has been registered?  This seems to satisfy the requirement of publicity.

Finally, in order to protect itself, a licensee could have a provision inserted into the licence agreement obliging the proprietor not to assign the mark during the term of the licence, or only upon certain conditions.  Given that a pledge can be used to secure any type of obligation,  this could be the subject of a deed of hypothecation over the mark, which, once registered, would prevent the assignment of the mark without the licensee’s consent.  Commercial realities may, however, compel many licensors to refuse such an arrangement as overly burdensome.  

An edited version of this article appeared in the May 2012 edition of Without Prejudice magazine.  The original footnotes containing various authorities have been removed for ease of reading.  The original article with footnotes is available on request.

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