Trademark Infringement and the Tort of Passing Off

What is Trademark Infringement?

Trademarks help consumers identify the source of products and services by associating a word, design, shape, wrapping, or other identifying feature with a business. Over time, clients of a business become familiar with the quality and characteristics of the products or services they purchase and develop expectations about them.

If those expectations are favorable, clients can develop strong brand preferences which results in repeat customers, a broader reputation in the market, and sustained business growth. In legal terms, this favorable market reputation is known as the goodwill of your brand – and it can be quite valuable.

So, what happens when you catch someone else using a trademark that you created and have been using in association with your business? Your clients may purchase the infringer’s products or services instead of your own because they think they are buying from the same brand, leading to a direct loss of sales.

Clients may also receive an inferior product or service from the infringer, leading them to lose confidence in your brand and dissuading them from trusting genuine products or services due to a perceived decline in quality from consuming imitation products.

Since trademark infringement and passing off can severely damage both a business’s immediate and downstream profitability, it is important for businesses of all sizes to seriously consider protecting and enforcing their trademark rights.

Infringement of Registered Trademarks

Trademarks in Canada can be either registered or unregistered, with registered trademarks being afforded a broader scope of protection. A registered trademark owner is granted statutory rights by section 19 of the Trademarks Act, under which the registered owner of a trademark has the exclusive right to use the trademark throughout Canada in respect of the goods or services for which it is registered. Your exclusive right to the use of a trademark as a trademark is circumscribed by your registration which sets out the goods and/or services to which that right applies. If your registration is for the use of “Slick” in association with hair styling products, your exclusive right is likely not infringed by someone using “Slick” as a trademark on tires.

A trademark registration acts as proof of trademark ownership and provides several guaranteed protections under the Trademarks Act for an initial duration of 10 years but can be renewed indefinitely so long as the trademark is still in use.

Section 20 of the Trademarks Act expands the exclusive territory of registered trademark owners beyond identical replications of the protected mark. Under section 20, a registered trademark owner is also protected against other persons who sell, distribute, or advertise any goods or services in association with a confusing trademark. Returning to our “Slick” example, the use of “Slik” in association with hair styling products may therefore constitute trademark infringement despite the latter mark not being identical to the former.

Whether a trademark is considered confusing with another trademark or not depends on several factors listed under subsection 6(5) of the Trademarks Act and the precedent set by the Supreme Court of Canada in Masterpiece v Alavida Lifestyles. Under subsection 6(5), the test for confusion considers the inherent distinctiveness of the trademarks, the extent to which the trademarks have become known, the length of time the trademarks have been in use, the nature of the goods or services or business, the nature of the trade, and the degree of resemblance between the trademarks, including in appearance or sound or in the ideas suggested by them.

The Supreme Court in Masterpiece defined the relevant perspective in the confusion analysis to be the first impression of a casual consumer that is somewhat in a hurry and who encounters the possibly infringing trademark with no more than an imperfect recollection of the senior trademark.

The deciding factor is whether that consumer would think the junior, possibly infringing trademark indicates that the product or service came from the same source as products that bear the genuine, senior trademark. Furthermore, the test automatically assumes that the potentially confusing trademarks are used in the same area, it does not matter if the two brands are not, in fact, used in the same location.

Section 20 also provides protection against infringers who manufacture, cause to be manufactured, possess, import, export, or attempt to export any good in association with a confusing trademark for the purpose of sale or distribution.

Selling, offering for sale, or distributing any label or packaging that bears a registered trademark also constitutes infringement if the person knows or ought to know that the label or packaging will be associated with goods or services that are not those of the registered owner and if they will be used in association with a confusing mark.

Furthermore, manufacturing, possessing, importing, exporting, or attempting to export any label or packaging that meets the aforementioned criteria also constitutes infringement of a registered trademark.

Section 22 of the Trademarks Act provides a special kind of protection against the depreciation of goodwill that has been built up under a registered trademark. Since goodwill is a quantification of the value of your brand, the rights afforded under this section provide an invaluable legal tool for policing the conduct of adverse parties who are not directly infringing a registered mark but are using a registered trademark in a way that is likely to damage your reputation and affect your bottom line. For example, a recent court case between battery manufacturers DURACELL and ENERGIZER proceeded on this basis. Although there was no confusion as to the source of the batteries sold by Duracell which also displayed the Energizer trademark, there was a cause of action because Duracell’s use of the Energizer mark was to compare its products to Energizer’s, and this use had the potential to depreciate the brand’s goodwill. Thus, the fact that a trademark is not being used as an identifier of the source of a particular good is not determinative of liability under the Trademarks Act, other uses of another’s trademark may also be actionable.

Another example, which, unlike the Energizer case, did not involve a mark being displayed on another’s goods, is that of the Toys R Us dispute. The company brought an application against Herbs R Us, a cannabis retailer, for, among other things, depreciation of goodwill under section 22. While the court did not consider that consumers would be confused about the source of cannabis sold by Herbs R Us (i.e., would not believe it originated from the toy retailer), it did find that the cannabis retailer’s use of such a mark so similar to that of Toys R Us (the mark in issue was a design mark which imitated many elements of the stylized text in the Toys R Us logo) would depreciate the goodwill in the Toys R Us mark. The court awarded $15,000 in damages.

Infringement of Unregistered Trademarks – The Tort of Passing Off

Unregistered trademarks are also entitled to protection if certain conditions are met. This protection is a product of Canadian common law (that is, legal disputes that have been decided by courts of law) which has recognized the tort of passing off.

The scope of protection for unregistered trademarks, however, is significantly lesser than that of registered marks and the remedies available to trademark owners under the Trademarks Act are not available to owners of unregistered marks. Because of the smaller scope of protection and the inability to rely on a registration document to prove one’s legal relationship to a particular trademark, relying on common law protection for unregistered marks can be risky. Common law protections for trademarks are nonetheless valuable and may also be relied on by a registered trademark owner in the event that a trademark registration is deemed invalid for any reason.

The Supreme Court of Canada in Ciba-Geigy Canada v Apotex established three requirements for a successful passing off action.

First, the entity claiming passing off must have the benefit of goodwill as passing off protects goodwill. In the event of a dispute, the claiming entity must furnish proof (e.g., in the form of surveys) of an association between their trademark and the products or services to which the trademark attaches. In other words, it must establish a reputation in the market.

Secondly, the claiming party must prove that there has been deception of the public due to a misrepresentation. To prove this element, the claimant must show that the public was exposed to a false statement, image, or other identifier that is likely to cause confusion under the same test applied to registered trademarks. A simple example is the use of the claiming party’s unregistered trademark on another’s goods, although passing off claims also encompass numerous other misrepresentations. Notably, any misrepresentation does not need to have been deliberate and actual confusion having occurred does not need to be shown.

The last requirement, damage suffered by the claimant, is generally presumed since courts consider that interference with a business’s goodwill will result in damage.

What You Can Do if Your Trademark is Being Infringed

The most common remedy for trademark infringement is an injunction, which is a legal tool that stops the adverse party from continuing their illicit use of a trademark, or damages, which provides monetary compensation in an attempt to correct the harms resulting from the wrongdoing. However, the best tool against would-be infringers is to approach trademark protection proactively by registering your trademark.

In the event of a trademark dispute, both parties must provide evidence to support their claims of legitimate trademark use. For registered marks, furnishing a registration that establishes your exclusive right to the trademark can be sufficient to defeat many claims.

In contrast, unregistered marks have additional evidentiary steps. A claimant in a passing off dispute must prove that there is goodwill attached to the trademark in dispute and that they would suffer or are likely to suffer harm as a result of the adverse party’s use of their trademark.

These additional steps demand more time, money, and effort in order to successfully defend one’s brand against competitors. Furthermore, the higher threshold of proof is not irrelevant at a time of high stress and financial strain – that is, in the middle of a trademark dispute.

Consequently, thinking proactively about the value of one’s brand, seeking expert opinion on how to leverage one’s trademarks effectively, and registering your business’s most valuable trademarks can be the difference between success and failure in a court of law.

Is Your Brand Growing? We Can Help.

Building goodwill in a brand takes a significant amount of time, effort, and trust and infringement can severely damage both the public's perception of your business and your bottom line. As such, it is important to be proactive in protecting your brand by registering your legal rights wherever you do business. It is equally important to police the unauthorized use of your marks to keep imitators from diverting customers away from your business or damaging your market reputation.

If you believe that your trademark is original and has commercial potential, registration and pursuing legal action against infringers is necessary to maintain a healthy brand. To learn more about the steps involved in applying for a trademark registration in Canada, or to resolve a dispute involving trademark infringement, contact us for a complimentary and confidential initial telephone appointment.