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Advertising Regulatory Board: a major development

On 12 April 2022, The South African Supreme Court of Appeal (“SCA”) ruled that the Advertising Regulatory Board (“ARB”) is entitled to consider and make decisions on the advertising of non-members, and guide its members accordingly.

Background

On many occassions, we’ve discussed the fact that South African advertising regulations have, to a certain extent, allowed IP rights owners (particularly owners of trade marks and copyright) to enforce their rights through advertising regulatory bodies – initially through the now-disbanded Advertising Standards Authority (ASA) and, more recently through the ASA’s successor, the Advertising Regulatory Board (“ARB”), thereby avoiding expensive court proceedings.

We’ve also reported on the fact that there was a recent High Court judgment where the judge ruled that the “public powers which are assumed by the ARB in relation to the regulation of the advertising of non-members” are “unconstitutional” and “not sourced in law”.

After sending shockwaves through the legal fraternity, the ARB appealed that momentous judgment to the SCA. The SCA’s judgment in the case of Advertising Regulatory Board NPC and Others v Bliss Brands (Pty) Ltd came out on 12 April 2022, and clarifies the ARB’s place and powers in South African law.

The parties and the ARB Code

The first appellant, the ARB, is a non-profit company that carries on business as an independent, self-regulatory advertising industry body. All advertising in the electronic broadcast media is subject to the Electronic Communications Act, 2005 (ECA), and every electronic broadcaster must adhere to the Code of Advertising Practice (the Code) as determined and administered by the ARB. The Code is based on international best practice for advertising self-regulation and seeks to ensure that advertising is “informative, factual, honest and decent”. The ARB was supported in its appeal by Colgate-Palmolive (Colgate).

The appeal was opposed by the respondent, Bliss Brands, which is a competitor to Colgate in the toiletries business. This matter had its genesis in a dispute between Colgate and Bliss Brands, which was referred to the ARB.

The facts

Colgate complained to the ARB about an advert by Bliss Brands for its SECUREX soap, claiming that Bliss Brands had exploited the advertising goodwill and the “packaging architecture” of Colgate’s PROTEX soap. Bliss Brands, which is not a member of ARB, did not object to ARB’s jurisdiction and participated in hearings up to ARB’s Final Appeal Committee (“FAC”). When the FAC dismissed the appeal, ruling that Bliss Brands must cease distributing the offending SECUREX packaging, Bliss Brands took the matter on review to the High Court.

The High Court’s finding

Judge Fisher ruled in favour of Bliss Brands. The judge questioned the constitutionality of the ARB’s powers, and held that the ARB’s Memorandum of Incorporation (“MOI”) is unconstitutional and invalid because it allows the ARB to adjudicate complaints concerning the advertisements of non-members. The judge said that the ARB has no jurisdiction over non-members in any circumstances and that it may not issue rulings in relation to non-members or their advertising.

The judge said some strong things, including:

  • The ARB is “a law unto itself”.
  • There has been a “usurpation of the court’s functions by the ARB”.
  • Decisions “on legal causes of action akin to passing off, copyright and trade mark infringement are made, in large part, by non-lawyers.”
  • The ad-alert system – a system whereby the ARB notifies its members that an advert has been found to be non-compliant with the Code and that it must therefore be refused by its members – “has all the features of an indirect boycott”.

 

In the words of the SCA, Judge Fisher made a series of orders which effectively dismantled the system of self-regulation of advertising in South Africa in its entirety”.

The judgment of the SCA

On appeal, Judge Schippers overruled the High Court’s finding that the ARB has no jurisdiction over non-members. While the SCA found from the outset that Bliss Brands’ submission to the ARB’s jurisdiction “should have put paid to any challenge to jurisdiction, or to the constitutionality of the Code or MOI”, the court found it necessary to engage with the merits of the appeal in the interests of legal certainty regarding the ARB’s powers in future cases.

The focus of the judgment is very much on the constitutional rights of freedom of expression and association. What follows is a brief summary of the main findings.

The SCA found that:

  • The ARB’s powers are sourced in law.
  • The High Court order prevents the ARB from exercising its statutory duties in terms of section 55 of the ECA by prohibiting the ARB from determining any complaint in respect of non-member advertising, even where that advertisement is broadcast by a broadcasting service licensee.
  • The settlement agreement in Advertising Standards Authority v Herbex (Pty) Ltd, which was made an made an order of court by the SCA and accordingly has the same effect as any other judgment, is binding in this matter.
  • The ARB operates consensually and is not permitted to determine questions as to whether the packaging or get-up of a particular product constitutes passing off or breach of copyright. The ARB may only determine whether its Code has been breached and does not exercise a judicial function when doing so.

 

The rights to freedom of expression and association

In the words of Judge Schippers:

“As regards the powers of the ARB… [it] is entitled to consider, on behalf of its members, complaints in respect of advertisements published by non-members of the ARB, so that its members may make an election whether or not they wish to publish that advertisement. This is an incident of their constitutional rights to freedom of expression and association. The High Court’s order prevents the members of the ARB from using their chosen method of deciding which advertisements they wish to publish and which advertisers they wish to associate with. This constitutes an unjustifiable limitation of the rights of members to freedom of expression and association.”

Judge Schippers went on to make the point that the right of freedom of expression means that ARB members can refuse to publish advertising in accordance with the ad-alert referred to earlier. The judge made the point that such a decision does not completely cut off commercial activity as a company can still publish on any platform unconnected with the ARB, for example “on its own website, on social media including Facebook and Instagram, or through any adverting or media house which is not a member of the ARB”.

The right to associate includes the right to dissociate

The SCA found that by organising around the shared goal of promoting ethical standards in advertising as reflected in the Code, the members of the ARB agreed to collectively delegate decision-making to the ARB’s expert adjudicative bodies that determine complaints on their behalf and in doing so, have given effect to two important components of the right to freedom of association: the right of self-regulation; and the right to choose not to associate.

In the words of Judge Schippers:

“Bliss Brands and other non-members have exercised their right to dissociate by choosing not to join the ARB… the right to dissociate does not give Bliss brands the unfettered right to dictate to the ARB and its members how they should exercise their rights of association.”

Some peripheral and procedural issues

The SCA also noted some glaring procedural issues in the High Court which were pertinent to the appeal. The first was that the constitutionality of the ARB’s powers was raised by Judge Fisher in circumstances where it was impermissible to do so, as this was not the case properly pleaded before the court and deciding this point would cause prejudice to the ARB and to Colgate. The SCA further noted that the High Court’s findings regarding the coercive effect of the ad-alert” and that an ad-alert “has all the features of an indirect boycott” were similarly impermissible as they were not traversed in the founding affidavits.

As a quick aside, it is also likely that such arguments concerning a collective boycott by competitors would fall within the scope of section 4(1)(a) of the Competition Act, 1998, and therefore be within the exclusive jurisdiction of the competition authorities. Perhaps if Bliss Brands had pleaded a collective boycott in the Competition Tribunal, it may have achieved a more favourable outcome?

Conclusion

In a major development, the appeal was upheld. The ARB will again be able to deal with issues regarding adverts placed by companies that are not among its members. The current position regarding the ARB’s powers can best be summarised in the words of the SCA, referring to its binding judgment in Herbex:

“As was held in Herbex, absent a submission to jurisdiction, the ARB may only make rulings on the advertisements of non-members for the benefit of its own members, which are not binding or legally enforceable against non-members. The impact of ARB rulings on non-members is therefore indirect, in cases where they engage the services of an ARB member to approve, create, disseminate or publish their advertising. Members of the ARB are bound to comply with the Code and ARB decisions, and are obliged to decline to approve, create or carry advertisements that breach the Code. Non-members who do not wish to meet the ethical standards contained in the Code are free to approve, create and publish their advertising using the services of non-members of the ARB.”

Reviewed by Gaelyn Scott, Head of ENSafrica’s IP department.

Jeremy de Beer

IP | Trainee Associate

jdebeer@ENSafrica.com