Trademarks in 2020: Notable Canadian trademark cases and developments

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There were several notable trademark cases in Canada in 2020, including those addressing comparative advertising, depreciation of goodwill, brand parody, trademark ‘use’ in the absence of a brick-and-mortar location, and potential claims by exclusive distributors against importers of grey market goods. Additionally, major developments involve the Trademark Office’s issue of new limits on extensions of time for responding to an Office Action, as well as the availability of expedited examination for trademark applications where the goods or services are for the prevention or treatment of COVID-19.

As we look back through the previous year, we revisit these notable cases and developments and consider their implications for the year ahead.

Case Law Developments in 2020

1) The Federal Court issues an important decision regarding potential liability for comparative advertising in Petline Insurance Company v Trupanion Brokers Ontario Inc

In one of the first notable decisions of 2020, the Federal Court considered the legal limits to comparative advertising under the Competition Act and Trademarks Act in Petline Insurance Company v Trupanion Brokers Ontario Inc , 2019 FC 1450. Petline, a Canadian pet insurance business, alleged that its competitor Trupanion’s advertisements amounted to false and misleading statements tending to discredit its business and services, contrary to section 7(a) of the Trademarks Act, false and misleading representations for the purpose of promoting Trupanion’s insurance product, contrary to section 52 of the Competition Act, and depreciated the goodwill of Petline’s registered trademark PETSECURE, contrary to section 22 of the Trademarks Act.

While Trupanion’s statements were “perhaps somewhat of an overstatement”, the Court’s view was that they were neither false nor misleading, and Petline could not succeed under section 7(a) of the Trademarks Act nor section 52 of the Competition Act. Petline’s claim for depreciation of goodwill also failed because it did not prove that Trupanion’s statements had any detrimental economic impact. Rather, both parties’ business grew during the years in question. Our article discussing this case in more detail is available here.

2) The use of a competitor’s unregistered trademarks may amount to depreciation of goodwill in Energizer Brands LLC v The Gillette Company

In the ongoing battle between two of Canada’s leading battery brands (Energizer Brands LLC v The Gillette Company, 2020 FCA 49), the Federal Court of Appeal upheld the Federal Court’s holding that a claim for depreciation of goodwill (i.e. Canada’s anti-dilution prohibition) under section 22 of the Act is not limited to registered trademarks and minor misspellings thereof.

In 2014, Duracell started using stickers on packaging of its DURACELL brand batteries with claims that they performed better than “the next leading competitive brand” and “the bunny brand.” Energizer commenced an action against Duracell arguing that the claims on Duracell’s stickers depreciate the goodwill attached to Energizer’s trademarks. Energizer did not own any trademark registrations for THE BUNNY BRAND or THE NEXT LEADING COMPETITIVE BRAND but did own two design registrations for its pink bunny mascot. Duracell brought a motion to strike the claim for depreciation of goodwill on the basis that neither “the bunny brand” nor “the next leading competitive brand” are registered trademarks.

The Federal Court held that, as a matter of law, Energizer is not precluded from arguing that the phrases “the bunny brand” and “the next leading competitive brand” evoke in consumers a mental association with Energizer’s registered trademarks, as required under section 22 of the Act. The Federal Court then applied this legal principle to the facts before it and refused to strike portions of the claim relating to use of “the bunny brand”, finding that the consumer could make a mental association between ‘the bunny brand’ and the registered ENERGIZER Bunny design marks. However, the Federal Court struck the portions of Energizer’s claim relating to “the next leading competitive brand” because a consumer would not understand that “the next leading competitive brand” referred to Energizer and its registered trademarks.

Energizer appealed and the Federal Court of Appeal allowed, for procedural reasons, Energizer’s appeal of the part of the judgment that dismissed Energizer’s claim concerning “the next leading competitive brand”. The Federal Court was held to have exceeded the scope of the issues in Duracell’s motion, and by answering the question of whether the phrases were in fact sufficiently similar to Energizer’s registered trademarks to evoke a mental association that is likely to depreciate the value of their goodwill, deprived Energizer of its opportunity to make its case on this issue. As a result, this remains a question to be answered at trial by the Federal Court.

Energizer’s action tests the limits of claims for depreciation of goodwill under section 22 of the Act. While the Federal Court of Appeal’s recent dismissal of Duracell’s motion for summary judgment avoided squarely addressing the scope of such claims, it may ultimately result in greater clarity if the scope of Energizer’s claim is determined after trial with the benefit of a full evidentiary record. Our article discussing this case in more detail is available here.

3) The Federal Court was not amused with cannabis company’s brand parody in Toys “R” Us (Canada) Ltd v Herbs “R” Us Wellness Society

In a further decision considering section 22 of the Trademarks Act, the Federal Court provides a cautionary tale in the dangers of adopting a mark or name “inspired” by a famous or well-known brand, even when confusion is unlikely.

Toys “R” Us is the owner of the well-known mark below:

Image: 'Toys R Us' logo

Toys “R” Us brought an application in the Federal Court against Herbs “R” Us Wellness Society, a Canadian company operating a cannabis boutique and “dispensary” in Vancouver, BC for trademark infringement, passing off and depreciation of goodwill in respect of its use of the mark below:

Image: 'Herbs R Us' logo

The Court dismissed the claim for trademark infringement and passing off, finding it “unlikely in the extreme” that a Canadian consumer would see the HERBS R US trademark and conclude that a well-known toy retailer had started branching out into cannabis-related goods and services. However, the Court found that there was a “strong resemblance” between the marks and that they were “sufficiently similar” and that a mental association was “all but inevitable and must be inferred to have been intended." As a result, the Court found that use of the HERBS R US design mark was likely to depreciate the goodwill attached to the registered TOYS R US & Design, contrary to section 22 of the Trademarks Act, and permanently enjoined Herbs "R" Us from adopting, using or promoting the trademark or trade name HERBS R US as or as part of any trademark, trade name, logo, domain name or social media account name, the destruction of all goods, packages, labels and advertising material displaying the HERBS R US trademark, trade name or logo, and damages and costs to Toys “R” Us totalling $30,000 CAD.

The Court’s decision demonstrates that it’s never a good idea to trade on the goodwill and reputation of an established brand with a playful mark or name. Our full article discussing this case can be found here.

4) The Federal Court of Appeal provides further clarity regarding the “use” of a trademark in Canada in the absence of a brick-and-mortar location in Miller Thomson LLP v Hilton Worldwide Holding Inc

In a widely anticipated decision, the Federal Court of Appeal held that a trademark owner could demonstrate “use” of a trademark in Canada in association with “hotel services” without a physical hotel, providing important guidance to brand and trademark owners offering services to consumers in Canada without a brick-and-mortar location.

In 2014, Miller Thomson commenced non-use proceedings under section 45 of the Trademarks Act, requiring Hilton Worldwide Holding Inc. (Hilton) to show use of its WALDORF ASTORIA trademark in Canada during the preceding three-year period. There are WALDORF ASTORIA branded hotels and resorts in more than fifteen countries, but there are no WALDORF ASTORIA hotels in Canada.

In response to the section 45 notice, Hilton filed evidence showing proof that more than 41,000 Canadian customers stayed at WALDORF ASTORIA-branded hotels outside Canada. Relying on previous decisions of the Trademarks Opposition Board narrowly interpreting the scope of hotel services, the Board held that the absence of a brick-and-mortar hotel in Canada was fatal and ordered the WALDORF ASTORIA registration expunged.

Hilton appealed and filed fresh evidence, including evidence of past iterations of the Goods and Services Manual maintained by the Canadian Intellectual Property Office which established that “hotel reservation services” were not identified as an acceptable service when the trademark application for WALDORF ASTORIA was filed.

The Federal Court reversed the Board’s decision finding that, based on the ordinary commercial understanding of the term “hotel services”, the evidence established that some aspect of the registered service was offered directly to Canadians or performed in Canada and that Canadians derived a tangible, meaningful benefit from such service. The Court of Appeal affirmed the Federal Court’s decision: so long as consumers, purchasers, or members of the public in Canada receive a material benefit from the activity at issue, it is a service offered in Canada.

Importantly, the Court of Appeal distinguished today’s Internet age from older cases involving cross-border sales and bookings. “The requirements for ‘use’ under section 45 of the Act must adapt to accord with 21st century commercial practices”, though at the same time warning that “the ability of individuals in Canada to passively view content on a foreign website” would not be enough: “[t]here must, at a minimum, be a sufficient degree of interactivity between trademark owner and Canadian consumer to amount to use of a mark in Canada in conjunction with services over the [I]nternet”. Our article analyzing the decision is available here.

5) Two decisions involving grey matter goods in TFI Foods Ltd v Every Green International Inc and Costco v Simms indicate that a variety of claims and remedies may be available to exclusive distributors in Canada against importers of grey market goods

Two recent decisions show that an exclusive distributor may pursue an interlocutory injunction on the basis of passing off or, in some cases, the extraordinary remedy of contractual interference.

First, in TFI Foods Ltd v Every Green International Inc, 2020 FC 808, the Federal Court granted an exclusive distributor’s request for an interlocutory injunction against the seller of grey market goods. TFI Foods Ltd., the exclusive distributor of a Taiwanese company, I-MEI Foods Co. Ltd., sought an interlocutory injunction to prevent the sale of genuine I-MEI goods by Every Green International Inc. that displayed a label falsely stating that Every Green is the exclusive distributor of such goods in Canada.

TFI Foods’ claim was based upon passing off under subsection 7(b) of the Trademarks Act. While the sale of grey market goods does not in itself infringe a registered trademark or constitute passing off, the Court was satisfied that there was a serious issue to be tried that the false statement that Every Green was the exclusive distributor in Canada of I-MEI’s goods amounted to a misrepresentation pertaining to a registered trademark, and thus, fell within the scope of a passing off claim under subsection 7(b).

The Court also found that TFI Foods established actual or potential damage: Every Green’s conduct resulted in confusion among retail customers, affecting TFI’s reputation and ability to select and define its own authorized distribution network, with additional harm to its reputable distributors as a result of the false association with a company with which I-MEI would not choose to associate. TFI also noted that, in the absence of an injunction, it would be impossible to assess losses given that TFI and I‑MEI do not know whether Every Green’s sales are being properly accounted. Based on this, the Court was satisfied that the balance of convenience favoured granting the requested injunction: any harm suffered by Every Green was as a result of its own conduct in making the false statements.

In a second significant decision involving grey market goods, the Quebec Court of Appeal confirmed that exclusive distributors have recourse under Quebec civil law against grey marketers that knowingly interfere with their exclusive distribution agreements. Importantly, punitive damages – an exceptional remedy under Canadian and provincial law – can be awarded in cases where the interference amounts to a “conscious and callous disregard for the exclusive distributor’s reputation.”

In 2009, Simms Sigal & Co. Ltd ("Simms"), the exclusive distributor of high-end ROCK & REPUBLIC clothing in Canada, learned that Costco arranged to buy goods manufactured by R&R, the owner of the ROCK & REPUBLIC trademark, and sell the goods in Canada at a significantly reduced price. As the exclusive Canadian distributor of ROCK & REPUBLIC clothing, Simms objected. Costco responded that the goods were authentic and purchased on the grey market. R&R subsequently terminated its exclusive distributorship agreement with Simms on the basis of breach of contract; Simms settled with R&R for damages of $2.7 Million.

Under the Quebec Civil Code, there is an exception to the civil law principle when a third-party interferes with a contractual relationship, causing a fault of “contractual interference”. To succeed, the plaintiff must show: (1) knowledge by the third party of the contractual rights; (2) encouragement or participation in violation of that party’s contractual rights; and (3) bad faith or disregard to the other’s interest.

Simms satisfied all three elements: Costco was aware of the exclusive distributorship agreement as a result of Simms’ demand letter yet continued to make orders for R&R goods notwithstanding such knowledge. As an experienced retailer, Costco should have known the negative impact its activities would have on Simms, ultimately causing damage to Simms both in lost sales and in the loss of credibility and reputation among its retailer clients.

Notwithstanding that punitive damages remain an exceptional remedy, the Court of Appeal agreed with the Superior Court that Costco’s actions justified an award of punitive damages of $500,000, given: its awareness of the damage and harm to Simms; that Costco was a specialized retailer and ought to know the impact of its actions; that Costco knew the goods sold displayed Simms’ CA identification number contrary to regulatory labelling law; and that Costco refused to reveal that the goods originated from R&R (despite explicit knowledge of this fact).

New Developments in the Canadian Intellectual Property Office

The Trademarks Office issued new limits on extensions of time for responding to office actions. Prior to January 17, 2020, one extension of time for a given office action could be secured without any substantive reasons. Further six-month extensions could be secured by demonstrating exceptional circumstances.

Effective January 17, 2020, the Trademarks Office will not grant any extensions for office actions in the absence of exceptional circumstances, which can include:

  1. A recent change in trademark agent
  2. Circumstances beyond the control of the person concerned (such as illness, accident, death, bankruptcy, or other serious and unforeseen circumstances)
  3. Transfer (there is a pending assignment that would overcome the citation)
  4. Opposition proceedings are pending against the cited mark
  5. Section 45 non-use cancellation proceedings are pending against the cited mark
  6. Official mark (the applicant is in the process of actively negotiating a consent from the holder of an official mark)
  7. Division of a Protocol application
  8. Responding to a substantive objection (such as a confusion objection, descriptiveness objection or inherent distinctiveness objection)
  9. Compiling evidence of distinctiveness

Importantly for substantive objections (objections on the basis of confusion, descriptiveness, or inherent distinctiveness), a single six-month extension of time is available once during the life of the application.

As of December 14, for the first time in more than a decade, the Canadian Trademarks Office will grant requests for expedited examination of trademark applications where the goods or services are for the prevention or treatment of COVID-19. To qualify for expedited examination, the following requirements must be met:

  1. the request must be filed in the form of an affidavit or statutory declaration;
  2. the goods or services in the application must be for the prevention, diagnosis or treatment of COVID-19; and
  3. one of the following three criteria must be met:
    • A Canadian court action must be underway with respect to the mark in issue in association with the goods or services listed in the trademark application; or
    • The applicant must be in the process of combating counterfeit products at the Canadian border with respect to the mark in association with the goods or services listed in the application; or
    • Approval for use of the goods or services listed in the application must have been submitted to or obtained from Health Canada.

If a request for expedited examination is granted and the applicant later misses any deadline or seeks an extension of time, the Trademarks Office may cease further expedited examination . The Trademarks Office has issued a Practice Notice setting out the requirements for expedited examination in greater detail. Our article discussing this change in practice is available here.

Concluding Remarks

Of course, 2020 was dominated by the global COVID-19 pandemic, and we are hopeful that our clients and colleagues remain well during these unprecedented times. In 2021, we look forward to the ongoing implementation of the changes to the Trademarks Act that took effect in 2019, including through international applications/registrations, the expansion of non-traditional trademarks, and the continued development of this new law through the courts, Opposition Board, and practice before the Trademarks Office.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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