A Win for Brand Owners Battling Look-alike Cannabis Products
By Tamara Céline Winegust and Siobhan Doody
An encouraging development for rights holders fighting unauthorized use of their brands with cannabis products. In what appears to be one of the first decisions involving cannabis products that “knock off” popular snack food brands, Justice Gleeson in Mars Canada Inc. v. John Doe #1 (King Tuts Cannabis), 2022 FC 1193 (Mars Canada) issued an injunction and ordered damages be paid by defendants who sold THC-infused candies branded SKITTLES and in packaging that copied the trade dress used by Mars Canada for its genuine SKITTLES branded candy. The total damages and costs awarded amounted to CAD$144,600 — CAD$15,000 in nominal damages, CAD$30,000 in punitive damages, and CAD$3,200 in costs, per defendant. In granting the order on a motion for default judgment, the Court found that the defendants’ adoption of the SKITTLES mark and look-alike packaging for THC-infused candy was not only likely to cause consumer confusion and depreciate the value of the goodwill attached to the genuine candy, but also raised a unique public health risk, particularly for children.
Following the legalization of recreational cannabis in Canada in 2018, brand owners have seen an uptick in the unauthorized use of their branding to promote and sell cannabis-related products and services. For those in the food and beverage industry, such use has increasingly taken the form of cannabis-infused look-alike products and packaging. The issue has become so acute that earlier this year Health Canada issued a public advisory relating to “Accidental ingestion of illegal ‘copycat’ edible cannabis products causing serious harm to children”. It warns the public not to consume such products and requests that such products be reported to local law enforcement.
The Court’s recognition in Mars Canada of the relationship between public safety on the one hand and confusion and the depreciation of a brand’s goodwill on the other, and its willingness to issue an injunction and damages to stop and penalize unauthorized use of trademarks with cannabis products is an encouraging sign. It suggests that rights holders fighting against unauthorized use of their brands with cannabis-related products, and particularly consumables, could be well served by commencing litigation against manufacturers, importers, distributors, and sellers of these products in Canada.
Likewise, the decision sends a strong message to those in the cannabis industry that, notwithstanding the legalization of edible cannabis and THC products, the marketing and advertisement of those goods, which is dictated by federal statute and regulations, remains subject to Court scrutiny and any conflicting rights of brand owners—just like any other consumer good.
The Mars Canada Decision
Last year, the plaintiff, Mars Canada, commenced litigation against five online retailers of Cannabis and THC products alleged to be selling candy infused with THC in association with the trademark SKITTLES and in packaging that reproduced aspects of the trade dress employed by Mars Canada with its SKITTLES-branded candy products (shown below) (“THC SKITTLES Product”):
|Mars Canada Product
No statements of defence were filed, and Mars Canada brought a motion for default judgment. In addition to an injunction, the plaintiff sought CAD$20,000 in nominal damages and CAD$100,000 in punitive damages from each of the five defendants.
Justice Gleeson agreed that the evidence proffered by Mars Canada was sufficient to grant default judgement against three of the five defendants. He further found that Mars Canada established its claims against these three defendants under the Trademarks Act for infringement (ss. 19 and 20), passing off (ss. 7(b) and 7(c)), and depreciation of goodwill (s. 22).
As a preliminary matter, Justice Gleeson found the defendants each marketed and offered the THC SKITTLES Product for sale based on evidence of screenshots from the defendants’ web pages, and purchase of the product by an investigator from one of the defendants’ online shops. On the likelihood of confusion, the Court found Mars Canada established its SKITTLES marks were distinctive and widely recognized, and the THC SKITTLES Product employed marks and a trade dress that was “almost identical” to the genuine Mars Canada candies.
In considering each claim, the Court pointed to evidence showing the effect of the defendants’ conduct on the public. In the context of the infringement analysis, the Court noted at least one instance of “actual consumer confusion” had “resulted in harm within a particularly vulnerable segment of the population, children”. On the passing off claims, evidence of media coverage referencing the SKITTLES products while depicting the THC SKITTLES Product established potential damage to the plaintiff’s reputation and goodwill. Last, on depreciation of goodwill, Justice Gleeson commented that the “unlawful nature of the Infringing Product and the adverse publicity it has attracted has likely had a negative effect on the goodwill, likely depreciating its value”.
Of note, this public health concern (and the attendant negative publicity caused by it) appears to have been a driving factor in the Court’s ruling on both nominal and punitive damages. In granting a nominal damages award of CAD$15,000 per defendant, Justice Gleeson considered both the jurisprudence on trademark damages generally, plus “the evidence demonstrating that the Plaintiff’s trademarks have been negatively impacted by the adverse publicity surrounding the Infringing Product”. Similarly, in awarding punitive damages of CAD$30,000 per defendant, the Court put significant weight on the issue of harm to members of the public, as well as the defendants’ efforts to remain anonymous as meriting denunciation and deterrence:
I agree with the Plaintiff and find the Defendants’ efforts to remain anonymous support the conclusion that they had knowledge of the unlawful nature of their activity. I also find that advertising and offering for sale of a potentially dangerous product using appropriated trademarks that are evidently and obviously attractive to children represents a marked departure from ordinary standards of decent behaviour that deserves to be denounced and deterred.
I have placed significant weight on the issue of harm not only to the Plaintiff but also to members of the public who might accidentally consume the Defendants’ Infringing Product believing it to be a genuine SKITTLES product. The fact that SKITTLES are a confectionary product that are attractive to children reinforces the need to denounce the Defendants’ conduct.