Currently, a business is entitled to trade under a trading name without registering it. For example, ABC (Pty) Ltd. can trade under the name “Light Lime Media”. This is sometimes depicted as “ABC (Pty) Ltd. trading as Light Lime Media”.
However, ABC (Pty) Ltd. will not have statutory protection for the name “Light Lime Media”. If another business starts trading under the same name, ABC (Pty) Ltd. will need to prove that it has built up a sufficient reputation in “Light Lime Media” in order to proceed against them under the common law.
That is why many entities register their trading names as trade marks in terms of the Trade Marks Act, 1993. A registered trade mark will make it easier for an entity to proceed against another business for unauthorised use of the trade mark.
Changes under the CPA
The Consumer Protection Act, 2008 (“CPA”) has introduced changes to the way in which business names may be used.
The CPA came generally into force on 31 March 2011. However, the operation of some of the CPA’s provisions has been delayed. These provisions include those relating to business names. The CPA states that the business names provisions will only come into force on a date determined by the Minister of Trade and Industry. Such a date has not yet been set. The date may also not be earlier than one year after 31 March 2011.
The CPA contains specific provisions regarding the use and registration of business names. When the provisions take effect, it can be expected that they will lead to some confusion.
The CPA’s requirements
The CPA states that someone may not trade under any name, unless that name is:
• the person’s full name as recorded in his or her identity document (if the trader is an individual);
• registered by that person in terms of a public regulation (for example, it is the registered name of a company or close corporation); or
• registered as a business name under the CPA.
These requirements do not only apply to trading under a business name. They extend to carrying on business, advertising, promoting, offer to supply or supplying any goods or services or entering into agreements under a business name.
To use an example to clarify this: ABC (Pty) Ltd. will not be allowed to trade as “Light Lime Media” unless that name has been registered as a business name. It will also not be able to use “Light Lime Media” in advertising, in concluding agreements or in any of the other activities mentioned above.
However, the CPA provides relief for businesses that will have been in trade before the CPA’s business names provisions come into force. The National Consumer Commission will not be entitled to enforce the business name requirements against a business that has been actively trading under a business name for at least one year before the relevant provisions come into force. Relief is also provided for a business that registered its business name under any public regulation before 31 March 2011. (This may be the case if the entity registered its business name as a trade mark before that date.)
Implications for franchising
It is standard practice for a franchisee to trade under the franchise system’s trading name. For instance, if a franchise is called “Big Bites”, the trading name “Big Bites” will be owned by the franchisor. Each franchisee would have its own registered company or close corporation name, but would also be allowed to operate its business using the “Big Bites” trading name. This is normally regulated by the franchise agreement.
Therefore, once the CPA’s business names provisions come into force, a franchisee will not be able to trade unless it has registered its trading name in accordance with the CPA. In our example, this would mean that the franchisor and all franchisees would have to register “Big Bites”.
But will different parties be able to register the same business name? At first glance it appears that this will not be possible. The CPA states that a business name must not be the same as or confusingly similar to a trade mark application or registration. Usually, a franchisor registers a trade mark for the franchise’s trading name. However, if the trade mark owner has given a licence to someone else to use the trade mark, the CPA allows the other person to register the business name as well. If the franchisor has a trade mark for “Big Bites”, franchisees will also be allowed to register “Big Bites” as a business name, since the franchise agreement normally provides a licence for the use of the trading name.
The result is that the same business name could be registered by various parties. This could lead to confusion amongst consumers if they want to determine who owns a particular business name. Further, not all franchisors would want to allow their franchisees to register the same business name.
It could happen that the franchise agreement is terminated, while the business name still remains registered by the franchisee. It will therefore be very important to regulate the use of the trading name in the franchise agreement. A franchisor will need to ensure that it can stop a franchisee from using the franchise name once the franchise agreement has come to an end.
The CPA’s business names provisions are not yet in force. A business name registry and registration process has also not been established. As such, persons cannot yet register any business in terms of the CPA.
However, all businesses should consider registering their business names as trade marks in order to be able to rely on the Trade Marks Act’s provisions and to be able to proceed against other businesses for trade mark infringement. This process is apart from the CPA and is crucial for a business to protect its branding.
By: Danie Strachan - Partner at Adams & Adams