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28 September 2020
A recent Federal Court decision illustrates the danger of adopting a mark or name inspired by a famous or well-known brand, even when confusion is unlikely. The decision is a cautionary tale, particularly for those in burgeoning industries, such as Canada's cannabis industry, which may wish to piggyback on an established brand's goodwill and reputation.
Toys "R" Us (Canada) Ltd, the well-known toy retailer, brought an application in the Federal Court against Herbs "R" Us Wellness Society, a Canadian company operating a cannabis boutique and dispensary in Vancouver, British Columbia. The respondent had adopted and was using the trademark HERBS R US and prominently displayed, outside its storefront, the following design mark.
In its application, Toys "R" Us alleged that Herbs "R" Us had:
The court granted the application in part.
The court dismissed the applicant's claims for trademark infringement and passing off, finding that it was:
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.(1)
However, the court found that Toys "R" Us had established that the use of the HERBS "R" US design mark was likely to depreciate the goodwill attached to the TOYS R US registered trademark and design, contrary to Section 22 of the Trademarks Act (RSC 1985, c T-13).
The court permanently enjoined Herbs "R" Us from "adopting, using, or promoting the trademark or trade name HERBS R US as or as part of any trademark, trade name, logo, domain name or social media account name"(2) and ordered it to:
Section 22 of the Trademarks Act prohibits depreciation of goodwill, a cause of action similar to trademark dilution under the US Lanham Act. Section 22 of the Trademarks Act reads as follows:
Depreciation of goodwill
22 (1) No person shall use a trademark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto.
The provision is broad in scope and may serve to enjoin a defendant's unlawful activities where traditional trademark infringement cannot be established. For example, Canada's courts, including the Supreme Court of Canada, have found as follows in respect of Section 22:
For these reasons, Section 22 is a useful and versatile tool that may assist brand owners in defending their brand equity where a clear-cut case of trademark infringement or passing off is difficult to establish.
The court's decision in Toys "R" Us also serves as a cautionary tale for small start-ups in any industry that wish to trade on the goodwill and reputation of an established brand with a playful mark or name. As the court's decision clearly demonstrates, this is never a good idea.
Cannabis companies have been particularly prone to adopting 'punny' marks or names inspired by those of famous or well-known brands. One dispensary, based in Oklahoma, adopted the short-lived name Dank of Oklahoma before BOKF, NA, which owns the registered trademark BANK OF OKLAHOMA, sued the infringers in the US District Court for the Northern District of Oklahoma. Earlier in 2020, Mondelez Canada Inc, which owns the registered trademark SOUR PATCH KIDS, secured a court order from the US District Court for the Central District of California compelling Facebook and Google to disclose information associated with the Instagram and Gmail accounts of a company selling THC-infused gummies in blatantly infringing packaging that bore an undeniable resemblance to the brand owner's own distinctive packaging (Figure 3).
Mondelez Canada Inc subsequently amended its complaint (filed in California in July 2019) to name the defendants responsible for marketing and selling the gummies and, in April 2020, the court issued its final order and judgment on consent, permanently enjoining the defendants from further infringing Mondelez's IP rights.
Further, unlike the Copyright Act, which recognises as 'fair dealing' (analogous to the US concept of 'fair use') the use of another's works for the purposes of parody or satire,(8) the Trademarks Act does not share its sense of humour; parody or satire is not a viable defence to trademark infringement, passing off or depreciation of goodwill.
Brand owners in Canada's cannabis industry should also be mindful of the additional restrictions imposed by the Cannabis Act and the Cannabis Regulations, which prohibit a person from:
In its application, Toys "R" Us sought punitive damages partly on the basis that the respondent's use of a brand associated with children "amount[ed] to targeting an illegal dispensary business at children, which is particularly reprehensible".(11) While the court did not go so far as to award the damages sought, as it did not "view the use of the HERBS R US mark as targeting a cannabis dispensary to children in a reprehensible manner", the decision nevertheless underscores the inherent dangers of adopting, for one's own commercial gain, a mark or name that alludes to another's brand.(12) In finding that Herbs "R" Us had depreciated the goodwill in the TOYS "R" US brand, the court ruled that:
the creation of an association between the Toys 'R' Us and a cannabis 'dispensary,' particularly one that appears to be operating without a licence, and one that markets through social media with adult-themed content said to include nudity and swear words, is 'utterly inconsistent' with the reputation of the TOYS R US brand, and that this association is likely to tarnish the goodwill [associated with its registered trademark].(13)
This decision provides useful lessons for both established brands that enjoy significant goodwill and small start-ups in search of a brand name. For major brand owners, the breadth and flexibility of Section 22 makes it a powerful weapon to wield against others who may depreciate, dilute, tarnish or whittle away their brand equity. For new companies, particularly those in the cannabis industry, the adoption of a punny name may lead to litigation and a subsequent rebranding, which can cost significant amounts of money and doom a company to failure before it even starts. In either case, expert trademark counsel should be sought before steps are taken to defend an established brand, or launch a new one, in Canada.
For further information on this topic please contact Graham Hood at Smart & Biggar by telephone (+1 416 593 5514) or email (email@example.com). The Smart & Biggar website can be accessed at www.smart-biggar.ca.
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