On-line Lottery Services (Pty) Ltd v National Lotteries Board and Others

On-line Lottery Services (Pty) Ltd ('On-Line') operated a business under the trading name 'LottoFun' providing online agency services for purchasing tickets in the National Lottery. The National Lotteries Board ('the Board') held registered trade marks for the word 'LOTTO' in class 36 (financial transactions) and class 41 (lottery services), registered in April 1991. Uthingo Management (Pty) Ltd ('Uthingo') was the exclusive licensed operator of the National Lottery from 2000 to 2007, operating a lottery game using the LOTTO trade mark. On-Line's business model involved members depositing funds into a trust account, placing orders for lottery tickets online, with On-Line acting as agent to purchase tickets from authorized retailers on behalf of members for a 15% service fee. The Board and Uthingo brought two applications: one for trade mark infringement, passing off, and contraventions of the Lotteries Act; and On-Line counter-applied for expungement of the LOTTO trade marks. The North Gauteng High Court (Motata J) granted all relief sought by the Board and Uthingo and dismissed On-Line's counter-application. On-Line appealed.

• Whether the word 'LOTTO' was capable of distinguishing goods or services as required for trade mark registration under section 9 of the Trade Marks Act 194 of 1993
• Whether the LOTTO trade marks were wrongly entered and wrongly remain on the register as contemplated in section 24(1) of the Trade Marks Act
• Whether there was non-use of the LOTTO trade mark in class 36 warranting removal under section 27(1)(b) of the Trade Marks Act
• Whether On-Line's use of the business name 'LottoFun' constituted passing off
• Whether On-Line's business operations contravened sections 56 and 57 of the Lotteries Act 57 of 1997
• Whether On-Line's business model constituted unlawful competition

1. The appeal succeeded with costs including those consequent upon the employment of two counsel, save that no costs were allowed in respect of preparation and perusal of 40% of the record on appeal. 2. The orders of the court a quo, other than orders in the striking out applications, were set aside and replaced as follows: 2.1 In Case No 15574/04 (the infringement application) the application was dismissed with costs including costs of two counsel. 2.2 In Case No 21917/04 (the expungement application): 2.2.1 The Registrar of Trade Marks was directed to rectify the Register of Trade Marks by expunging registration no 91/020702/01 LOTTO in class 36 and registration no 91/02702 LOTTO in class 41, both entered in the name of National Lotteries Board, on the grounds that such entries wrongly remain on the Register within the meaning of section 24(1) of the Trade Marks Act 194/1993. 2.2.2 The first and second respondents were ordered to pay the costs of the application including costs of two counsel.

1. A word that is generic and descriptive of goods or services cannot function as a trade mark because it lacks the inherent capacity to distinguish the trade source as required by section 9 of the Trade Marks Act, regardless of the extent of use by a particular trader. 2. Where a term is in general circulation with an ascertainable generic meaning at the time of registration, it cannot simultaneously denote a particular trade source and is therefore not registrable as a trade mark. 3. A trader cannot enhance the inherent absence of power to distinguish of a generic term by creating a particular product or service to which the generic description is applied. 4. Trade marks that were wrongly entered on the register and wrongly remain there are subject to expungement under section 24(1) of the Trade Marks Act. 5. Non-use of a registered trade mark in relation to the specified goods or services for a continuous period of at least five years establishes grounds for removal under section 27(1)(b), with the onus on the registered proprietor to show proper reasons for non-use. 6. In passing off claims involving descriptive terms, the scope of protection is narrower than for arbitrary marks, and relatively minor differences will suffice to distinguish the defendant's goods or business. 7. Where contractual terms and website content clearly and repeatedly disclaim any connection with another business and establish the true nature of the relationship (such as agency), sophisticated consumers who must necessarily review such terms cannot establish the confusion required for passing off. 8. A business that acts as agent to purchase lottery tickets on behalf of customers does not 'sell' tickets and does not contravene provisions of the Lotteries Act prohibiting unauthorized sale of lottery tickets.

The Court made observations about the inappropriate use of expert evidence to determine dictionary meanings, noting that dictionaries speak for themselves unless called into question for good reason and courts are generally presumed capable of finding and understanding such information without expert assistance. The Court also commented on the preparation of affidavits in motion proceedings, criticizing the affidavits of the respondents' witnesses as appearing to be drafted with deliberate intention to avoid addressing cardinal issues that would undermine their case, particularly their failure to address the clear contractual terms and disclaimers they must have encountered. The Court noted that it would be appropriate to penalize On-Line for including unnecessarily struck-out portions in the appeal record by agreement of the parties, tailoring the costs order accordingly by disallowing costs for preparation and perusal of 40% of the record. The judgment also references decisions of the European Union Office for Harmonization in the Internal Market, though noting these were not directly relevant to the understanding of the South African public in 1991, but supported the principle that 'lotto' carries no distinctive force.

This case is significant in South African intellectual property law as it establishes important principles regarding the registrability of generic and descriptive terms as trade marks. It confirms that common words naturally capable of use in relation to goods or services of any trader cannot be monopolized through trade mark registration, even with extensive use by one party. The judgment reinforces that use does not automatically equal distinctiveness, particularly for generic terms. It provides guidance on the scope of protection for descriptive marks and establishes that relatively minor differences will suffice to distinguish a defendant's business when both parties use descriptive terminology. The case also clarifies the requirements for establishing passing off where descriptive terms are used, emphasizing that sophisticated consumers who have access to clear contractual terms and disclaimers cannot claim confusion. It demonstrates the courts' reluctance to grant monopolies over common words at the expense of legitimate competition. The decision has important implications for the registration and enforcement of trade marks in specialized industries, particularly where international or historical generic terms are adopted for commercial use in South Africa.