Potential new restriction to claims for false or misleading statements under Section 7(a) of the Trademarks Act

Section 7(a) of the Trademarks Act precludes anyone from making a false or misleading statement tending to discredit the business, goods or services of a competitor. Previously, section 7(a) has provided a recourse for companies that had been harmed by allegations of intellectual property infringement made by their competitors that turned out to be false. This right of recourse also helped provide guardrails for cease-and-desist letters or accusations of intellectual property infringement that had not been adjudicated by the Courts.

In the Federal Court’s recent decision in Zoe International Distributing Inc. v. Smoke Arsenal Inc., 2026 FC 792 [Zoe International] the court’s comments suggest a potential refinement in cases to which a section 7(a) claim could be made. This, in turn, may have an impact on the ability to rely on section 7(a) to seek remedy where a company has been harmed by false infringement accusations made by a competitor.

Zoe International

In Zoe International, the court struck the defendants’ counterclaims under section 7(a) of the Trademarks Act with respect to alleged false and misleading statements. The Plaintiff Zoe International Distributing Inc. (“Zoe”) commenced the underlying action alleging that defendants, Smoke Arsenal Inc. (“Smoke”) and Vanpak Limited (“Vanpak”) each infringe Zoe’s copyrights and trademarks, contrary to the Copyright Act and the Trademarks Act. In their respective defences, Smoke and Vanpak both deny the infringement allegations made by Zoe.

In addition, Smoke and Vanpak also both made counterclaims under section 7(a) of the Trademarks Act, alleging that Zoe made false or misleading statements about them. Smoke and Vanpak each allege, inter alia, that Zoe has falsely alleged that their disputed products are infringing upon Zoe’s trademarks or copyrights, and that the product are counterfeit, illegal or illegitimate. Smoke and Vanpak’s counterclaims each reference a letter allegedly sent by Zoe to Smoke and Vanpak customers in March 2024 in which Zoe made the statements that Smoke and Vanpak allege are false or misleading.^[1]

The Case Management Judge denied Zoe’s motions to strike Smoke and Vanpak’s counterclaims under section 7(a). However, on appeal to the Federal Court, the judge granted the appeal in part and struck Smoke and Vanpak’s section 7(a) counterclaims. The judge struck the counterclaims seemingly because the allegedly false or misleading statements were not about Smoke and Vanpak’s intellectual property.^[2]

However, the reason given for striking the counterclaims — that the allegedly false or misleading statements had to concern the section 7(a) claimants’ own intellectual property — appears to introduce a new refinement to the requirements for a claim under section 7(a) of the Trademarks Act, as compared with prior cases in which section 7(a) has been applied.

Section 7(a) jurisprudence

As noted by the court in Zoe International, the three-part test applicable in section 7(a) claims comes from the Supreme Court’s decision in S & S Industries. The test requires (1) a false or misleading statement, (2) which tends to discredit the business, wares, or services of a competitor, and (3) resulting damage.^[3]

In that case, S & S Industries published a trade paper advertisement alleging that Rowell infringed its patent. S & S Industries further threatened to commence patent infringement actions against companies which supplied themselves with the allegedly infringing product from Rowell.^[4] S & S Industries’ patent was subsequently held invalid. Rowell also sought damages under section 7(a) of the Trademarks Act because of S & S Industries’ false statements that Rowell was infringing the patent.

The Supreme Court upheld that section 7(a) could be used to seek remedy for the harm suffered by Rowell for the false allegations of infringement made by S & S Industries.^[5]

In Riello,^[6] another frequently cited case on section 7(a), the defendant Lambert sent letters to distributors of Riello products, alleging that the Riello products infringed his patent. Riello commenced an impeachment action with respect to Lambert’s patent, and sought damages under section 7(a) of the Trademark Act with respect to Lambert’s statements that Riello was infringing the patent.^[7] After having held Lambert’s patent not to be infringed and invalid, the Federal Court held that Riello could pursue damages under section 7(a) on account of the false or misleading statements that it had infringed Lambert’s patent.

More recently in E Mishan & Sons - trading under the name Emson - Supertek sought damages under section 7(a) because of false or misleading statements made to Supertek’s customer Canadian Tire that Supertek’s product infringed Emson’s patent.^[8] The patent was held to be invalid.^[9] The Federal Court concluded that Emson statements to Canadian Tire were therefore false or misleading.^[10] Although, the court ultimately found that Supertek had not suffered damages as a result of Emson’s false statements, thereby failing at the third prong of the applicable test. But it's clear a claim under section 7(a) would have been made out if damages had been suffered.^[11]

In Excalibre Oil, API sent letters to customers of Excalibre Oil alleging that product distributed and sold by Excalibre Oil infringed their patents. Excalibre Oil commenced an impeachment action, also claiming damages under section 7(a) of the Trademark Act for false allegations of patent infringement. After having held all patents at issue either not infringed or invalid, the court concluded that API had made false allegations of infringement. It held that Excalibre Oil was entitled to damages under section 7(a), with a reference being ordered to quantify the damages.^[12]

In Fluid Energy Group, Fluid sent cease and desist letters to a supplier and to a subcontractor of Exaltexx alleging that the company’s products infringed Fluid’s patents. Exaltexx sought and was granted an interlocutory injunction against Fluid based on a claim under section 7(a).^[13] In doing so, the court noted that:

[49] It has long been recognised that a false allegation that a competitor infringes a patent may fall within subsection 7(a): S&S Industries Inc v Rowell, 1966 CanLII 53 (SCC), [1966] SCR 419 at pp 422, 424-425, 429-432. This is so even if the falsity of the allegation may not be established until later, such as after a finding that the patent is invalid: S&S Industries at p 425.^[14]

In these cases, the false or misleading statements were made about the section 7(a) claimant. But the statements did not appear to be about the section 7(a) claimant’s intellectual property. Instead, the false or misleading statements were about the section 7(a) defendant’s intellectual property being falsely alleged to be infringed by the section 7(a) claimant.

The situation at issue in Zoe International appears to be comparable to those other section 7(a) cases. The allegedly false or misleading statements made by Zoe appear to be to the effect that Smoke and Vanpak infringes Zoe’s intellectual property.

Arguments raised for restricting section 7(a) claims

In Zoe International, Zoe advanced the argument that a claim under section 7(a) needs to be about the section 7(a) claimant’s intellectual property. Zoe’s argument relied on paragraph 27 of the Federal Court’s decision in CCLA.^[15]

In that case, CCLA, claimed that Business Depot engaged in copyright infringement through its photocopying services. CCLA is a non-profit corporation acting as a collective for the administration of copyrights in certain works for the benefit of their owners. CCLA had issued a press release relating to the litigation and Business Depot’s alleged copyright infringement.

Business Depot brought a counterclaim under section 7(a) alleging that the press release contained false or misleading statements.^[16] The counterclaim was struck because it failed to allege how Business Depot and CCLA would be competitors:

[18] It appears from the wording of that subparagraph that the “competitor” requirement is a fundamental element of section 7(a). Yet, there is no allegation in the counterclaim that the plaintiff is in any way a “competitor” of the defendant. On its face, the counterclaim is therefore deficient as it fails to allege on of the constituent elements of the statutory prohibition.^[17]

Zoe relied on obiter from CCLA. At paragraph 27 of CCLA, the court stated that “For section 7(a) to be valid, its application must be limited to creating a cause of action relating to false and misleading statements made about a trade mark or other intellectual property owned by the claimant.”

Such a restriction of section 7(a) claims was not applied in subsequent decisions under section 7(a),such as seen E. Mishan & Sons, Excalibre Oil, or Fluid Energy Group. Indeed, in Fluid Energy Group, the court cites to paragraph 27 of CCLA as follows:

[48] Section 7 of the Trademarks Act is “nourished for federal legislative purposes in so far as it may be said to round out regulatory schemes prescribed by Parliament in the exercise of its legislative power in relation to patents, copyrights, trade marks and trade names”: MacDonald v Vapor Canada Ltd, [1977] 2 SCR 134, 1976 CanLII 181 (SCC) at p 172. Thus for subsection 7(a) to be valid, it must be read to pertain to false and misleading statements made about a trademark or other intellectual property: Riello Canada Inc v Lambert (1986), 1986 CanLII 7623 (FC), 9 CPR (3d) 324 at para 35; Canadian Copyright Licensing Agency v Business Depot Ltd, 2008 FC 737 at para 27.^[18]

In citing paragraph 27 of CCLA, the Federal Court in Fluid Energy Group had not retained the restriction that claims under section 7(a) must be about the section 7(a) claimant’s intellectual property. The court instead remained with the interpretation that the alleged false or misleading statement must simply be “made about a trademark or other intellectual property.”^[19]

In Excalibre Oil, the Federal Court of Appeal referred to CCLA for its holding that section 7(a) requires that the false or misleading statement be made by a competitor.^[20] However, the court in that decision did not comment about paragraph 27 of CCLA.

Paragraph 27 of CCLA cites to the Supreme Court’s decision in MacDonald v. Vapor Canada Ltd. However, in that decision the Supreme Court does not indicate whether section 7(a) claims should be restricted only to statements about the section 7(a) claimant’s intellectual property more narrowly, or just pertain to intellectually property. The portion of the Supreme Court’s decision cited in CCLA merely says that “Section 7 is, however, nourished for federal legislative purposes in so far as it may be said to round out regulatory schemes prescribed by Parliament in the exercise of its legislative power in relation to patents, copyrights, trade marks and trade names.”^[21]

It should also be noted that in MacDonald v. Vapor Canada Ltd, the Supreme Court also references its prior decision in S & S Industries.^[22] The Supreme Court did not make any comment that would alter the ratio of S & S Industries or otherwise limit its applicability.

The future of Section 7(a) claims

The decision in Zoe International, if it is followed in subsequent cases, could mean a potential narrowing of the types of false or misleading statements that can be the subject of section 7(a) claims.

Specifically, the false or misleading statements would have to be about the section 7(a) claimant’s intellectual property. This creates ambiguity over whether claims with respect to false statements that the section 7(a) claimant has infringed the section 7(a) defendant’s intellectual property could potentially be excluded going forward.

Zoe International respondents Smoke and Vanpak, do not appear to have presented or argued the situation in similar cases such as S & S Industries, Riello, E. Mishan & Sons, Excalibre Oil, or Fluid Energy Group, in their attempts to rebut the argument advanced by Zoe. The court has therefore not distinguished or reconciled those cases with the restriction now being made in Zoe International that the allegedly false or misleading statements must be about the section 7(a) claimant’s intellectual property.

The ambiguity over whether section 7(a) claims are restricted only to false or misleading statements about the section 7(a) claimant’s intellectual property will likely persist until the Federal Court of Appeal weighs in on the issue.

The decision in CCLA was not appealed to the Federal Court of Appeal. Instead, Business Depot commenced a defamation suit in the Superior Court of Ontario with respect to the same CCLA press release.^[23]

The decision in Zoe International has also been appealed by Vanpak to the Federal Court. However, whether the court will address that point, or what issues or arguments will be advanced at the hearing, remains to be seen.

If section 7(a) claims will be further restricted going forward to only to false or misleading statements about the section 7(a) claimant’s IP. Parties falsely accused of infringing another’s intellectual property may also need to consider other avenues for seeking redress. Some of the guardrails around cease-and-desist letters may also be viewed in a different light if the risk of claims under section 7(a) is further restricted.

If you have any questions, please contact the author or a member of our Trademarks, Brands & Designs team.