Infringement, Expungement, and No Damages – But Disgorgement of “Unlawful” Profits for Passing Off?

January 5, 2021
By Joshua Spicer and Anastassia Trifonova

The saga in the Group III International Ltd. v. Travelway Group International Ltd. proceeding continues, as the Federal Court of Appeal renders its decision to add yet another layer of analysis to the issues of trademark infringement, passing off, expungement and remedies (2020 FCA 210). The decision is noteworthy for two reasons. First, it affirms the protection afforded by a trademark registration against claims of trademark infringement and passing off based on use of the registered trademark. Second, it presents a circumstance where application of this very principle would have otherwise absolved the respondent of any liability, but by operation of res judicata, the Court awarded the appellant an accounting of the respondent’s profits for passing off. 

This is the second appeal in a case that Wenger S.A. commenced in 2013 when it brought an application against Travelway Group International Ltd. for trademark infringement and passing off  by reason of Travelway’s use of  a Swiss cross-design in association with luggage. The Federal Court dismissed the application (2016 FC 347), however, the FCA overturned the trial level decision and granted Wenger, inter alia, a declaration of infringement and a permanent injunction against Travelway (2017 FCA 215). The FCA also referred two remedial issues to the Federal Court for further adjudication: (i) whether it is appropriate for the Federal Court to order the striking out of Travelway’s own registered trademarks from the Register, and (ii) whether damages are recoverable under subsection 53.2(1) of the Trademarks Act (“Act”). Our article discussing the FCA’s 2017 decision, and underlying facts, can be found here.

In 2019, the Federal Court ordered expungement of Travelway’s registered trademarks, but dismissed Wenger’s claim for damages (2019 FC 1104). Relying on section 19 of the Act, the Federal Court held that Wenger was precluded from obtaining damages for pre-expungement use of the infringing Travelway trademarks. Since its trademarks were registered, Travelway was entitled to the benefit and rights conferred under section 19 until FCA found them to be invalid in 2017. We have previously discussed the Federal Court’s decision here.

Wenger appealed the Federal Court’s decision dismissing its claim for monetary compensation, arguing that the Federal Court erred and should have found the infringing Travelway trademarks to have been always invalid and never registrable.

In its reasons, the FCA upheld the trial court’s decision with respect to trademark infringement and monetary compensation, stating that once the trademark owner obtains the certificate of registration, the protection afforded to the registered trademark under section 19 of the Act “is essential for the proper functioning of the trademark system and trademark law overall.” The Travelway trademarks were not invalid ab initio, as there were no finings of fraud, willful misrepresentation or bad faith in the application for its registrations. As such, Travelway’s use of its registered trademarks did not give rise to liability in damages or profits for the period arising prior to expungement.

However, the FCA held that in the present case, Wenger was entitled to monetary compensation with respect to passing off. In its analysis, FCA distinguished between the causes of action of trademark infringement and passing off. The Court then went on to review the case law in relation to section 7(b), with particular reliance on precedent from the Ontario Court of Appeal, stating that a trademark registration is a “complete defence to an action in passing off”. In its reasons, the Court notes that portions of the FCA decision in 2017, which made a finding of passing off, as well as trademark infringement, should not be followed as an authority in future cases. As such, in a claim for passing off, no finding of liability should be made if the defendant was using valid registered trademarks. However, since there was no appeal on the finding of passing off from the FCA decision in 2017, to respect the principle of finality the issue cannot be relitigated and monetary compensation should still be awarded to Wenger with respect to passing off.  The Court ordered that Wenger was entitled to profits to be quantified by way of reference.

This is certainly an unusual circumstance. On one hand the Court concluded that as the owner of a registered trademark Travelway in effect acted lawfully and had an absolute defence to the claims against it. Yet, on the other hand, by proper operation of the principles of res judicata and, indeed, flowing from the FCA’s earlier decision that now “should not be followed”, Wegner has been granted a disgorgement of Travelway’s profits. As equitable relief it will be most interesting to see how the discretionary nature of the remedy plays out in quantification of the profits Travelway is required to pay to Wegner. Recently, in Nova Chemicals Corporation v. Dow Chemicals Company (2020 FCA 141), the Federal Court of Appeal emphasized that when quantifying the amount, only unlawful profits attributable to infringement are disgorged. In light of the FCA’s decision here, it seems a valid question to ask whether, if given its registered trademark rights, any of Travelway’s profits were unlawful or attributable to infringement.

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