Trademarks year in review 2016

There were a number of developments in Canadian trademark law in 2016 but, of particular interest, were decisions of the Federal Court in the following areas:

1. Punitive damages in counterfeit cases
2. Scope of rights in registered mark
3. Place of origin

Punitive Damages in Counterfeit Cases

In a strongly worded decision, the Federal Court provided the reasons behind its award of $250,000 in punitive damages against repeat offenders selling counterfeit CHANEL products - Chanel S. de R.L. v.  Lam Chan Kee Co. Ltd.¹  The decision is good news for brand owners faced with the sale of counterfeit goods in the Canadian market.

In 2015, the Federal Court had before it repeat offenders selling counterfeit CHANEL products.  After a summary trial, the Court rendered judgment against the Defendants and awarded punitive damages of $250,000:² 

[24] The Court is satisfied that such blatant disregard for the rights of the plaintiffs, as well as the blatant disregard for the process and Orders of this Court, are clearly circumstances under which the subject defendants should be ordered to pay significant punitive and exemplary damages. Given the egregious nature of the subject defendants’ activities, the amount of nominal damages awarded above is simply not sufficient to denounce and deter the subject defendants’ activities.

However, one of the Defendants appealed the decision. The Federal Court of Appeal returned the case to the trial judge for re-determination, particularly with respect to the issue of puntive damages.  The Court of Appeal noted:³

[23] I agree with the appellant that the quantum of the punitve damages awared by the trial judge in the present case is significant and outstrips awards in many previous cases ….An award of this magnitude, one that outstrips awards made in some other cases, calls for an explanation, founded upon the applicable legal test and the specific facts of the case, an explanation more expansive than the trial judge gave.

The case went back to the trial judge who proceeded to provide an unambiguous explanation as to why a punitive damages award of $250,000 was entirely reasonable in the circumstances. Indeed, the trial judge provided a very detailed explanation of both the law on punitive damages as it applies to trademark cases and the facts that supported his award of $250,000, making his decision a useful guide to brand owners on punitive damages in general.

With respect to the theory behind an award of punitive damages, the trial judge noted:

[56] One of the most fundamental aspects of punitive damages is to ensure that the defendant does not treat compensatory damages merely as a licence to get its way irrespective of the legal or other rights of the plaintiff …. Where a compensatory award is lower and would not achieve the purposes of retribution, denunciation and deterrence, greater punitive damages may be necessary …. [It] is perfectly acceptable to use punitive damages to relieve a wrongdoer of its profits where compensatory damages would amount to nothing more than an expense paid to earn greater profits while flouting the law ….

[57]  On the other hand, punitive damages should be awarded “if, but only if” compensatory damages are inadequate to punish the defendant (i.e. means that punitive damages are a “topping up” award and a remedy of last resort). The test thus limits the award to an amount that is no greater than necessary to rationally accomplish their purpose ….

The trial judge went on to comment on the impact of compensatory damages:

[49] … given their recidivist conduct, it is apparent that those compensatory damages were insufficient and amounted to no more than a ‘license fee’ which encouraged the subject defendants to pursue their infringing and illegal activities for a number of years.

Finally, the trial judge went on to find that the malicious, oppressive and high-handed conduct of the defendants justified the award of $250,000.  In particular, he noted:

• Significant evidence showing the bad faith conduct of the defendants over a lengthy period of time;

• Attempts by the defendants to disclaim responsibility by putting the blame on others and transferring assets;

• The seriousness of the activity in question (the Court referred to it as “theft”);

• The plaintiffs were forced to spend a considerable amount of money in court proceedings and the defendants showed no sign of remorse whatsoever;

• Attempts by one of the defendants to materially mislead the Court regarding her involvement; and,

• The failure by the defendants to produce any records concerning their purchases of counterfeit goods which made it impossible for the Court to determine the precise amount of punitive damages needed to relieve the defendants of the profits in excess of the compensatory damages.

Accordingly, the award of punitive damages was upheld. However, an appeal is pending.

Scope of Rights in a Registered Mark

The Federal Court of Appeal dealt with two cases that both raised the issue of how to assess a registered word mark in an opposition to a design mark.

The first case, Les Restaurants La Pizzaiolle Inc. v.  Pizzaiolo Restaurants Inc.⁴ dealt with the degree of resemblance between the registered word mark LA PIZZAIOLLE and the following design mark which was the subject of an opposed application:

The opposition to the design mark was refused by the Opposition Board (“the Board”) and the registrant appealed.

The Federal Court held that the Board, in its confusion analysis, failed to consider the potential uses of the PIZZAIOLLE word mark by virtue of the registration.

Specifically, the Court noted the principles established by the Supreme Court of Canada in Masterpiece:

[61] … Given that the registration of a trade-mark confers, under section 19 of the Act, exclusive rights upon its owner, the issue is whether the trade-mark for which registration is being sought creates confusion with a registered word mark must be examined keeping in mind not only the current use of the registered mark but also the likelihood of confusion arising from the use of this mark which is nonetheless permitted by the registration; the current use of registered word mark does not therefore limit the rights of its owner because the registration of the mark grants the owner the right to use the words that constitute the mark in any size and with any style of lettering, colour or design. (emphasis added)

The Court went on to apply the principle to the facts of the case and concluded:

[66] In my opinion, Masterpiece required the Registrar to take into account possible future uses of the mark LA PIZZAIOLLE (or its variant PIZZAIOLLE) ….  In doing so, the Registrar ought to have recognized that the applicant was authorized, based on the rights granted to it from the registration of its word mark LA PIZZAIOLLE to ultimately use the words LA PIZZAIOLLE or PIZZAIOLLE “in any size, and with any style of lettering, colour or design”, and, therefore, to depict these words in an identical or very similar to that of the Graphic Mark PIZZAIOLO, that is to say, with the same style and colour of lettering as well as the same background colour as that Graphic Mark. (emphasis added)

The appeal was allowed and the Board’s decision was set aside. The case then went to the Federal Court of Appeal which upheld the lower court’s decision.⁵  The Court of Appeal agreed with the lower Court that the Board failed to consider the full scope of the protection afforded by the registration of LA PIZZAIOLLE including the various ways in which the registrant might use a registered word mark (colours, fonts and design elements). However, it added a note of caution:

[33] Before concluding, I note that I agree with the appellant that one should be careful not to give the principle set out at paragraph 55 of Masterpiece too great a scope, for there would no longer be any need to register a design mark when one has a word mark. It is clear that my conclusion here is entirely based on the facts of this case and the Board’s findings as to what would constitute proper use of the registered mark (Reasons, at para. 72). When comparing the marks, one is always limited to a “use that is within the scope of the registration” (Masterpiece, at para. 59). The existing case law provides ample guidance as to what graphic or other deviations from the mark as registered are acceptable. (emphasis added)

A short while later, the Federal Court of Appeal had the opportunity to comment further on use within the scope of the registration.

In Constellation Brands Inc. v. Domain Pinnacle Inc.⁶, the Federal Court of Appeal had before it an appeal that started when the Board dismissed an opposition by Constellation Brands, the owner of the registered mark PINNACLES, on the basis that there was no likelihood of confusion between the PINNACLES trademark and the following design mark:

 

When the matter reached the Federal Court, the Court held that the Board erred in failing to consider the PINNACLES mark “according to its terms rather than resorting to actual use, in the degree of resemblance analysis.”  The Court explained its position as follows:

[43]   Upon review of the jurisprudence, contrary to the assertion of the Respondent, I find that as long as the confusion analysis uses a registered word mark as the basis for the analysis, the teaching of Masterpiece, on the question of potential uses included in a registration is particularly pertinent and not distinguishable. It makes no difference that the applied-for mark is a word & design mark. I find that in the circumstances of this case, it is even more significant because the Board’s analysis of this factor hinges on the visual element and the ideas suggested. The Board should have taken into account that the registered word mark PINNACLE could have had a different style of lettering, colour or design which would have suggested, for example, the “idea of cold and winter”, similarly to the applied-for Design & Word Mark DOMAINE PINNACLE & DESIGN. (emphasis added).

The decision was appealed and the Federal Court of Appeal overturned the lower Court:⁷

[10]  The Federal Court faulted the Board for not having explicitly considered the possible uses open to the respondents of their word mark, uses that could give their mark more of a flavour of “ice and winter”, as the appellant’s mark was characterized by the Board …. However, the Board did cite the Supreme Court’s decision in Masterpiece at the beginning of its analysis of confusion under subsection 6(5) …. No more was required of the Board, so long as its application of that precedent to the facts before it was not unreasonable. In our opinion, the Board applied Masterpiece reasonably. It was not the task of the Board to consider all potential and unidentified uses of the respondents’ word mark, which had been characterized by the Board as weak.

[11] We agree with the appellant, Domaines Pinnacle Inc., that the full scope of the rights granted to the registered mark of the respondents would not permit them to use the distinctive graphic elements—the apple and snowflake design—that the Board identified as being central to the distinctiveness of the appellant’s mark …. In this vein, we are reminded of paragraph 75 of the Board’s decision wherein a distinction is drawn between apple-based and grape-based beverages. The design elements, once again the apple and snowflake, are equally protected by copyright. In our opinion, even if the respondents chose in the future to use the same font as the appellant, the Board’s finding on the likelihood of confusion would remain a reasonable outcome, because the combination of word and design in the appellant’s mark are sufficiently distinctive. In this way, the case at bar is distinguishable from this Court’s recent decision in Pizzaiolo.

In other words, while the court has to keep in mind that a registered word mark can be used “in any size, and with any style of lettering, colour or design”, it is not the role of the court to speculate as to “all potential and unidentified uses”.

Place of Origin

MC Imports Ltd. v. Afod Ltd., the Federal Court considered the validity of the mark LINGAYEN registered for use in association with various types of Filipino foods including a fish sauce called bagoong.⁸

The primary issue was whether LINGAYEN was clearly descriptive or deceptively misdescriptive of origin.  Of interest, the Federal Court looked at the issue from two perspectives:

[17] The parties contend that there is a doctrinal divide in the decisions with respect to the role that the perception of ordinary consumers plays in the analysis ….  One perspective is that the recognition of a name as a place of origin is irrelevant ….  The alternate view is that a mark must have, in the mind of the consumer a generally recognized connection to the wares or services at issue.

The Court determined that it did not need to decide which approach was correct because, under either approach, the mark was clearly descriptive of origin. Applying the first approach, the Court concluded:

[26] It is clear on the evidence that Lingayen is a geographical location.  It is a city of 100,000 people or more, and is situated on a large bay of the same name.  The plaintiff’s website displayed information confirming Lingayen as a place of origin for bagoong, referencing media reports and literature emphasizing the Philippine origin of bagoong.  Municipal, regional and national tourism and trade websites identify Lingayen both as a place, and as a source of bagoong.  As such, the wares are clearly descriptive of this place of origin, and not registerable …

[27] Secondly, the goods in question originate from Lingayen.  While the plaintiff does not admit that the goods come from Lingayen, saying that it has no knowledge as to the origin and “that the specific region in the Philippines cannot be determined”, the plaintiff admitted Lingayen as the place of origin in proceedings before the Unites States Trademark Office.  Third, the plaintiff, in its evidence, is silent on the source of origin, a matter which presumably is, or ought to have been, in its knowledge.

[28] As I find that the goods originate from Lingayen, the wares were clearly descriptive of their place of origin and not registerable ….

The Court went on to consider the perspective of the ordinary consumer and arrived at the same result.  Amongst the group that would typically purchase the goods (essentially Canadians of Filipino or South East Asian origins), LINGAYEN would be viewed as clearly descriptive of origin.  Accordingly, the registration was ordered expunged.

The Federal Court of Appeal upheld the decision but noted that the appeal “highlights a need for guidance from this Court with respect to the registrability of trade-marks that describe places of origin of wares and services”.⁹  It went on to state a three part test (which has now been incorporated into a Trademarks Office Practice Notice):

1. Determine if the trademark is a geographical name – the perspective of the ordinary consumer is only meaningfully relevant when there is ambiguity whether the trademark actually refers to a place (i.e. it has other meanings).Lingayen is a place.

2. Determine the place of origin of the goods or services – if the goods or services originate in the place referred to by the trademark, then the trademark is clearly descriptive of origin (if they do not originate from the place, the mark may be deceptively misdescriptive but further analysis would be required).The goods originate in Lingayen.

3. Assess the owner’s assertions of prior use if any – acquired distinctiveness may be relevant.Consumer perceptions would be highly relevant.What must be demonstrated is that the mark has acquired a dominant secondary or distinctive meaning in relations to the goods or services. There was insufficient evidence of secondary meaning for the trademark.

   Accordingly, the registration was found to be invalid.

Conclusion

These cases are just a few of the cases decided in the Federal Court and the Federal Court of Appeal but are important in terms of setting generally applicable principles relevant for trademark owners.