Year in Review – Key Trademark Cases from 2020
While 2019 was historic in terms of the changes it brought to Canadian trademark law, 2020 was unprecedented, bringing the world together in a common quest to combat the COVID-19 pandemic. Yet, despite considerable turmoil and disruption, Canadian trademark practitioners remained resilient and active. Many of the amendments to the Canadian Trademarks Act, implemented in 2019, received considerable attention and review by the Examination Section of the Trademarks Office as well as the Opposition Board. In addition, the Federal Court and Federal Court of Appeal provided valuable guidance in several noteworthy decisions. The following represents a summary of our “Top 10” trademark decisions from 2020.
Interlocutory Injunctions and Grey Market Goods
The Federal Court decision in TFI Foods Ltd. et al. v. Every Green International Inc., 2020 FC 808 (August 4, 2020) is helpful to brand owners faced with the sale of grey goods or parallel imports into the Canadian marketplace. Since grey goods are genuine products rather than counterfeits, preventing their sale in Canada is generally quite difficult.
TFI Foods Ltd. is the exclusive distributor in Canada of food products manufactured by I-MEI Foods Co. Ltd. bearing various I-MEI trademarks. TFI and I-MEI sought an injunction to prevent Every Green International Inc. from selling I-MEI branded products in Canada bearing a label falsely identifying Every Green as the exclusive distributor in Canada of such products. The Court concluded that the goods in question were likely “grey market goods” or “parallel imports” rather than counterfeits, namely, genuine goods manufactured by I-MEI that entered the Canadian marketplace without authorization of I-MEI or TFI.
The Court found that TFI and I-MEI met the three-part test for granting an interlocutory injunction, namely: (1) there is a serious issue to be tried; (2) the plaintiffs would suffer irreparable harm if the injunction is not granted; and (3) that the balance of convenience favours the granting of the injunction.
While numerous causes of action were alleged, the Court found a serious issue to be tried solely on the basis of the passing-off claim under Subsection 7(b) of the Trademarks Act, namely, that the plaintiff, I-MEI, had goodwill in its registered trademarks and that Every Green’s false labelling was deceptive, resulting in actual or potential damage. The Court noted that the sale of grey market goods does not, in itself, constitute passing off; however, Every Green’s false statement on the labels identifying it as the exclusive Canadian distributor of the products was a misrepresentation relating to the I-MEI trademarks, resulting in deception both to retailers and to the purchasing public. As such, Every Green’s actions fell within the scope of the claim to passing off. While the misrepresentation element of a claim of passing off often pertains to the use of a confusing trademark, the Court noted that false claims, such as this one, may also constitute a misrepresentation for purposes of a claim in passing off.
On the issue of irreparable harm (namely, harm that cannot be quantified in a monetary damage award), the Court found that the continued presence in the marketplace of the I-MEI branded products bearing false labels improperly identifying Every Green as the exclusive distributor of the products in Canada, as well as inaccuracies in the ingredient list and nutrition facts, may damage the reputation and goodwill of the I-MEI products and business, and thereby cause irreparable harm. Moreover, the fact that Every Green did not respond to this motion suggested to the Court that damages were not only difficult to quantify, but also would be difficult to collect.
Finally, the Court found that the balance of convenience favoured the grant of the injunction. There was no evidence that Every Green would suffer any harm if the injunction was granted and, in any event, any such harm arose from its own conduct in making the false statements on the labels.
For the above reasons, the Court ordered Every Green to cease offering for sale, selling and/or labelling the products; to recall all products in the marketplace bearing the false label; and to preserve all unsold and recalled products pending trial.
Brand Parody and Depreciation of Goodwill
On June 11, 2020, the Federal Court rendered its decision in Toys “R” Us (Canada) Ltd. v. Herbs “R” Us Wellness Society, 2020 FC 682. The decision provides brand owners with some ammunition to prevent the use of a similar mark that trades off the goodwill or reputation of a well-known brand, even where the goods, services and businesses are very different and a claim in trademark infringement or passing off would be difficult to support.
Toys “R” Us is a well-known toy retailer and owns numerous registered trademarks for “TOYS R US” and “R US”, including the following:
Herbs “R” Us operated a cannabis dispensary in association with the trademark and trade name HERBS R US, depicted in the following stylized manner:
Toys R Us brought an application in the Federal Court against Herbs R Us, alleging:
- trademark infringement;
- passing off (namely, directing public attention to its goods, services and business in such a way as to cause or be likely to cause confusion); and
- depreciation of the value of the goodwill attached to the registered trademark TOYS R US & Design, contrary to Section 22 of the Trademarks Act.
On the issue of trademark infringement, Toys R Us referred to a “family” of TOYS R US trademarks; however, it did not place much reliance on the broader scope of trademark protection that may have been granted to such a family of marks, relying instead on only two design mark registrations, and asserting that the design mark used by Herbs R Us infringed these two marks, contrary to Section 20 of the Trademarks Act. The Court dismissed the claim in trademark infringement, finding that the vast differences between the goods and services associated with the parties respective marks would render confusion unlikely: “…it strikes me as unlikely in the extreme that a Canadian consumer, even a casual one somewhat in a hurry with an imperfect recollection of the TOYS R US mark, would see the HERBS R US trademark and conclude that a well-known toy retailer had started branching out into storefront ‘dispensary’ services or cannabis sales…”.
Similarly, having found no likelihood of confusion, the Court dismissed the passing-off claim as well.
The claim based on depreciation of goodwill under Section 22 of the Act, however, did succeed. Even where there is no likelihood of confusion, there may still be a depreciation of goodwill attaching to a registered trademark. The Court found that Toys R Us had established all four elements required to support a claim based on depreciation of goodwill under Section 22, namely, that: (i) Herbs R Us had used a sufficiently similar mark to the TOYS R US registration; (ii) the TOYS R US registration was sufficiently well known to have significant goodwill or reputation attached to it; (iii) there would be a mental association or linkage between the TOYS R US registration and the Herbs R Us trademark; and (iv) the goodwill in the TOYS R US mark would likely be damaged or depreciated by virtue of use of the HERBS R US mark. The creation of an association between TOYS R US and a cannabis dispensary would tarnish the reputation and goodwill of the TOYS R US brand, and there was no reason for Herbs R Us to use the TOYS R US brand other than to trade off the goodwill and reputation with which it is associated.
Having found that Herbs R Us violated Section 22 of the Trademarks Act, the Court granted an injunction prohibiting it from using the HERBS R US trademark or trade name, including through the use of social media and domain names. The Court also ordered delivery up or destruction of all goods, packaging, labels and advertising bearing the HERBS R US trademark, as well as compensatory damages in the amount of $15,000, and $15,000 for costs.
Official Mark Not a Defense to Trademark Infringement
In October 2020, the Supreme Court of Canada refused leave to appeal from the decision of the Federal Court of Appeal in Ontario (Energy) v. Quality Program Services Inc., 2020 FCA 53, bringing to an end the question of whether an official mark, obtained under Section 9 of the Trademarks Act, can function as a defence to a trademark infringement action.
Subsection 9(1)(n)(iii) of the Trademarks Act prohibits the adoption, without consent, of any mark that is identical or similar to a mark adopted and used by a public authority as an official mark, and for which public notice has been given by the Registrar of Trademarks. The section was enacted with the intention of providing broad protection to entities that serve the public, such as government agencies, against the unauthorized use of their marks. There is no examination procedure for official marks as is the case with ordinary trademarks – they may be identical to, or confusing with, a previously used or previously registered trademark – nor is there an opposition process. The official mark is not restricted to any specific goods and/or services, can be purely descriptive, and does not need to be renewed. As long as the entity making the request for the official mark establishes that it is a “public authority” and has adopted and used the mark in question, the Registrar has no discretion to refuse it.
Quality Program Services Inc. (“QPS”) is the owner of a registered trademark for EMPOWER ME that issued in 2014 for use in association with energy awareness, conservation and efficiency services. In 2015, QPS became aware of Ontario Energy’s use of the trademark emPOWERme on its website relating to the provision of education on electricity and energy conservation. Ontario Energy denied that it was violating any trademark rights, and QPS then commenced an action for trademark infringement, passing off and depreciation of goodwill. Ontario Energy subsequently sought and obtained an official mark under Section 9 of the Trademarks Act for emPOWERme, for which public notice was given on January 10, 2018. It argued that the official mark status of its emPOWERme mark served as a defence to QPS’s claims.
The Courts did not agree. Upholding the decision of the Federal Court, the Federal Court of Appeal held that while an official mark obtained under Section 9 of the Trademarks Act prohibits certain activities of others once public notice has been given, it does not confer upon the public authority the right to use an official mark in a manner which contravenes other provisions of the Act, nor does it eliminate the right of a registered trademark owner to the exclusive use of its mark throughout Canada. Having concluded that the Ontario Energy’s official mark was confusing with QPS’s registered trademark EMPOWER ME, the Court found that it had infringed QPS’s registered trademark.
Given the Supreme Court of Canada’s refusal to grant leave to appeal, the decision of the Federal Court of Appeal stands, namely, that the adoption of an official mark does not render it immune from infringing a previously obtained registered trademark.
Nice Classification Is Not Determinative in Assessing Confusion
When the changes to the Trademarks Act came into force in June 2019, so did the Nice Classification system of goods and services in Canada. Confusion, and the circumstances under which it may arise, has for many years been described in Subsection 6(2) of the Act as follows: “The use of a trademark causes confusion with another trademark if the use of both trademarks in the same area would be likely to lead to the inference that the goods or services associated with those trademarks are manufactured, sold, leased, hired or performed by the same person, whether or not the goods or services are of the same general class” (emphasis added). The term “general class” has never been meant to connote the Nice Classification system, and to further clarify this point, Subsection 6(2) was amended to read: “The use of a trademark causes confusion with another trademark … whether or not the goods or services are of the same general class or appear in the same class of the Nice Classification” (emphasis added).
If any doubt remained as to whether Nice Classification is determinative in the confusion analysis, the Federal Court’s decision in Obsidian Group Inc. v. Attorney General of Canada, 2020 FC 586 laid it to rest.
This was an appeal, under Section 56 of the Trademarks Act, of the Registrar’s decision to refuse an application by Obsidian Group Inc. for the trademark FREDDO for, among other goods and services, coffee, tea, and non-alcoholic coffee-based beverages, based on confusion with registrations for FREDDA, covering carbonated and non-carbonated non-alcoholic beverages, and FREDDO, covering ice cream and chocolates.
By way of new evidence on appeal, the applicant submitted three affidavits, including the affidavit of a law clerk at the Applicant’s lawyer’s firm. Among other things, this affidavit included excerpts from the explanatory notes of the Nice Classification from the World Intellectual Property Organization’s website, demonstrating that both Classes 30 and 32 contain “non-alcoholic beverages”. Justice Fuhrer held this evidence “irrelevant to the confusion analysis”, in view of Subsection 6(2) as it reads as of June 17, 2019, and went on to say at paragraph 36:
The TMA expressly excludes Nice Classification from the confusion analysis in TMA s 6(2), especially when interpreted in light of Canada’s international obligations. Both the CPTPP and Singapore Treaty require member states to specify in their domestic legislation that Nice Classifications are not g
rounds to consider goods or services similar or dissimilar: see Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, 8 March 2018, art 18.25 (entered into force 30 December 2018) [CPTPP]; Singapore Treaty on the Law of Trademarks, 27 March 2006, art 9 (entered into force 15 March 2009) [Singapore Treaty].
As such, and as always, confusion must be assessed based on the goods and services as listed in the respective application(s) and registration(s), as opposed to the classes in which those goods and services have been grouped.
Calculation of Compensatory Damages in Trademark Infringement
The decision of Justice McVeigh in Biofert Manufacturing Inc. v. Agrisol Manufacturing Inc., 2020 FC 379 followed the trial of an action for trademark infringement, passing off and copyright infringement.
A fertilizer company, BioFert, went bankrupt. One of its former officers led a group that tried to acquire the assets of the bankrupt company but failed. That group then incorporated two new fertilizer companies and used “BioFert” in the name of one of them. The plaintiff purchased the assets of the bankrupt BioFert company, which included a registration for the trademark BIOFERT and other IP assets.
The defendants were found to have breached Sections 7(b), 7(d), 20 and 22 of the Trademarks Act, and to have infringed the plaintiff’s copyright — they adopted a confusing name and displayed it in a logo that was almost identical to the plaintiff’s logo.
The decision is of note regarding the calculation of compensatory damages for trademark infringement. The plaintiff sought damages reflecting the gap between the expected profits based on “old BioFert’s” sales (over a 6-year period prior to the bankruptcy) and “new BioFert’s” actual profits for the year after the plaintiff took control of the old BioFert assets. The Court found this method inappropriate. Old BioFert was a different entity so the approach was like comparing apples to oranges. New BioFert could not have been expected to achieve the full amount of sales that old BioFert was making. Also, a lack of financial statements (or an expert witness to distill the financial evidence) called into question old BioFert’s profit figures.
An alternative approach was to rely on the defendants’ actual sales in assessing damages for trademark infringement because the two businesses are similar in nature. The Court also considered this method inappropriate because, for example, customers could buy products from multiple suppliers.
The Court noted that, in infringement cases where damages are not proved by the evidence, two approaches are available: (a) assigning an arbitrary value (as is common in default judgments); or, (b) a mathematical per-incident calculation (as is common in counterfeiting cases).
Justice McVeigh applied a “hybrid approach” in which the incomplete or flawed damages data was used as a baseline to estimate a global compensatory figure for the period of infringement while keeping in mind a per-incident type of calculation. The Judgment and Reasons include a chart showing Justice McVeigh’s month-by-month damages assessment. The judge reasoned that the total reflected an appropriate amount of compensation as it approximately corresponded to “ballpark estimates” of the plaintiff’s lost profits (and of the defendant’s profits) attributable to the period of infringement.
The Trademark Case that Keeps Going and Going and Going
In a decision that adds to the twists and turns of the jurisprudence interpreting Section 22 of the Trademarks Act, the Federal Court of Appeal maintained the 2018 Federal Court decision holding that the display of a comparative advertising claim referring to “the bunny brand” could possibly depreciate the value of the goodwill attaching to a registered trademark consisting of an image of a toy rabbit.
The decision of the Federal Court of Appeal in Energizer Brands, LLC v. The Gillette Company, 2020 FCA 49 dealt with the issue of whether a claim to depreciation of goodwill under Section 22 of the Trademarks Act should be limited to registered trademarks and mere misspellings of them, or whether it can include phrases that create a “mental association” or linkage with the registered mark.
The parties (“Duracell” and “Energizer”) manufacture and sell batteries in association with their respective DURACELL and ENERGIZER brands, being the leading battery brands in Canada, making up over 80% of the Canadian market for batteries. Duracell’s packaging displayed a comparative claim that its batteries were “up to 15%” or “up to 20%” longer lasting than “the next leading competitive brand” and “the bunny brand”. Energizer sued alleging that such statements have the effect of depreciating the value of the goodwill attaching to its trademarks, contrary to Subsection 22(1) of the Trademarks Act, and that they were false and misleading, contrary to Subsections 7(a) and 7(d) of the Trademarks Act, and Subsection 52(1) of the Competition Act. Energizer also sought an accounting of profits in relation to the Competition Act claim.
In 2018, Duracell brought a motion for summary judgment to dismiss Energizer’s claims. In an October 29, 2018 decision (2018 FC 1003) the Federal Court held that Energizer’s claim under Section 22 of the Trademarks Act relating to use of “the bunny brand” claim might possibly succeed, even though Energizer’s registrations did not cover this phrase but design marks that included the representation of a rabbit. The Court rejected Duracell’s argument that the prohibition in Section 22 applies only to registered trademarks and minor misspellings thereof. However, the Court found that Duracell’s use of the phrase “the next leading competitive brand” could not possibly offend Section 22 as the phrase would not lead to a mental association with Energizer’s registered marks — such association would require imputing to the “somewhat-hurried consumer” market share information and the evidence did not support doing so.
Both sides appealed. The FCA found that the Federal Court did not err in rejecting Duracell’s position and finding that Subsection 22(1) should not be limited to registered trademarks and mere misspellings of them (so Energizer is not precluded from arguing at trial that the impugned phrases violate s. 22). However, the FCA found that the lower court erred by going on to apply this legal principle to the facts before it — the Court should not have decided the “factually suffused question” of whether the impugned phrases were sufficiently similar to the Energizer registered trademarks “to evoke in a relevant universe of consumers a mental association of the two marks that is likely to depreciate the value of the goodwill” attached to them. That question was not properly raised before the Federal Court on the motion.
Finally, the FCA found that the Federal Court did not err in dismissing Energizer’s claim to an accounting of profits under Subsection 52(1) of the Competition Act. Whether equitable remedies are available under that section is a pure question of law that may appropriately be decided on a motion for summary judgment. The words of Subsection 36(1) of the Competition Act are clear and limiting: the remedy provided is compensation for loss, damage, and costs — an accounting of profits is none of these things. Neither the context nor the purpose of the provision alters the clear meaning of the text. Therefore, the claim for an accounting of profits under Subsection 52(1) was properly dismissed.
A Decision over the Swiss Cross Design that’s a bit like Swiss Cheese
The Federal Court of Appeal’s decision in Group III International Ltd. v. Travelway Group International Ltd., 2020 FCA 210 is the latest in a series of decisions arising from an application by Group III and Wenger S.A. (together “Wenger”) alleging that Travelway’s use of a Swiss Cross Design in association with luggage constituted trademark infringement and passing off. The Federal Court originally dismissed the application (2016 FC 347) but the FCA overturned (2017 FCA 215), finding that Travelway’s marks were confusing with Wenger’s, and sent the case back to the Federal Court to decide the issues of expungement and damages — our article discussing the FCA’s 2017 decision can be found here.
In 2019, the Federal Court expunged Travelway’s trademark registrations but dismissed Wenger’s monetary claims (2019 FC 1104). Travelway did not appeal that decision. This latest appeal to the FCA focused solely on the dismissal of Wenger’s claim for monetary compensation for Travelway’s use of the confusing marks prior to the expungements.
This FCA decision is noteworthy for two reasons: (1) It affirms the proposition that a trademark registration is a defence to a claim for trademark infringement and passing off – a defendant’s use of its own registered trademark is not actionable during the period when the registration is on the trademarks register (so long as the registration is not ruled invalid ab initio because it was never validly registered). (2) In this particular case, the foregoing proposition does not apply because the Federal Court already (wrongly) found passing off, and that decision was not appealed. As a result, that issue is res judicata and cannot be relitigated. Therefore, Wenger is entitled to an accounting of profits as compensation for that passing off. Our article further discussing the decision (and questioning whether any of Travelway’s profits can be found “unlawful” or “attributable to infringement”) can be found here.
Standard of Appellate Review – The Excitement is “Palpable”
In a trilogy of decisions, the Federal Court applied and then clarified the standard of review to be applied in appeals from decisions of the Trademarks Opposition Board and in appeals of registrability refusals.
At the end of 2019, the Supreme Court of Canada issued its decision in Canada (Minister of Citizenship & Immigration) v. Vavilov, 2019 SCC 65, establishing the standard of review approach to be taken in appeals of administrative decisions. Less than three months later, on March 12, 2020, Justice Kane was the first to apply Vavilov in a trademark opposition appeal in Pentastar Transport Ltd. v. FCA US LLC, 2020 FC 367.
Justice Kane noted that Vavilov established that reasonableness is the presumptive standard of review for administrative decisions, but that the presumption is rebutted when the enabling statute provides for a statutory right of appeal, in which case the appellate standard of review applies. In the context of trademark opposition appeals, section 56 of the Trademarks Act provides a statutory right of appeal to the Federal Court. Justice Kane held that to give effect to Parliament’s expressed intention in the Act, and in view of Vavilov, the Registrar’s decisions should be reviewed on the appellate standard of review.
The appellate standard requires that for questions of fact and questions of mixed fact and law where the legal principle or question of law is not extricable, the applicable standard is palpable and overriding error. Palpable and overriding error is a highly deferential standard of review, where “palpable” means an obvious error, and “overriding” means it affects the outcome of the case. Questions of law – including statutory interpretation and the scope of a decision-maker’s authority – are subject to the non-deferential standard of correctness.
Less than a month later, Justice Fuhrer found in Arterra Wines Canada, Inc. v. Diageo North America, Inc., 2020 FC 508 to similar effect as Justice Kane, referencing Justice Kane’s Pentastar decision. In the case before her, Justice Fuhrer also needed to address how to approach the applicable standard where new evidence is filed as part of a trademark opposition appeal. She observed that post-Vavilov the Federal Court’s approach to new evidence required an adjustment. She found that where the new evidence is material, “the correctness standard … permits this Court to conduct a de novo analysis in respect of the relevant issue[s], according no deference to the conclusion[s] of the underlying decision-maker.”
To complete the trilogy, a month later, Justice Fuhrer followed with a decision in Obsidian Group Inc v. Canada (Attorney General), 2020 FC 586, again to similar effect, but this time in the context of an appeal of a registrability refusal. She noted that subsection 56(5) of the Act permits the trademark applicant to file new evidence in a refusal appeal. She found that such evidence will trigger a de novo review if it is “sufficiently substantial and significant”.
Use, Without a Brick and Mortar Establishment
Prior to the Federal Court’s decision in Hilton Worldwide Holdings LLP v. Miller Thomson LLP, 2018 FC 895, and the Federal Court of Appeal’s decision in Miller Thomson LLP v. Hilton Worldwide Holding LLP, 2020 FCA 134, the prevailing trend had been that trademarks covering “hotel services” could not be maintained in response to non-use cancellation proceedings without use in association with brick and mortar hotels in Cana
da. The two decisions broke fro