Canada: The Importance Of Keeping One’s Eyes Firmly On The Money

By John McKeown

In January 2002, our newsletter featured an article about a battle between two British magazines which involved a breach of confidentiality. The battle has finally been completed.

Hello! is a magazine published in the U.K. each week. Okay! publishes a similar magazine in the same market. It appears that these two magazines have each engaged in spoiling tactics with respect to the activities of the other. In a number of instances, after one of the magazines paid substantial funds to obtain exclusive rights to publish articles about the weddings of celebrities, the other magazine surreptitiously published material in advance.

The wedding of Michael Douglas and Catherine Zeta-Jones provided a new opportunity for both magazines. Okay! entered into an agreement with Mr. Douglas and Ms. Zeta-Jones approximately eight days before their wedding and agreed to pay a large sum of money to each of them for the exclusive right to publish colour photographs of their wedding. The couple retained wide rights of approval in relation to anything to be published and the identity of other publications in which published material might appear.

The wedding couple undertook to use their best efforts to ensure that no other media would be permitted access to the wedding and that no guest or anyone else present at the wedding would be allowed to take photographs. All service providers at the wedding entered into confidentiality agreements which prohibited them from keeping, disclosing, using or selling any photographic film, videotape, etc. obtained at the wedding reception. All wedding guests were told that the couple would appreciate no photography or video device at the ceremony or reception. A professional security service controlled access and searched all individuals entering the wedding and reception.

Hello! purchased the exclusive U.K. rights to nine unauthorized photographs for use in Hello! magazine. The photographs were taken covertly using a small camera.

After a hard fought battle to determine whether an interlocutory injunction should be granted to Okay!, the case proceeded to trial. At trial Okay! and the Douglases were successful in their claims against Hello! for breach of confidence. The Douglas’ claim was not appealed but Hello! successfully appealed the significant monetary judgment granted against it to the English Court of Appeal. That Court found that rights of privacy were personal and could not be extended to Okay! as if they were an intellectual property right.

Okay! successfully appealed to the House of Lords, the English equivalent of the Supreme Court of Canada. The majority in the House of Lords made it clear that Okay!’s appeal was not concerned with the protection of privacy but was limited to protecting commercially confidential information.

Okay! paid ₤1M for the benefit of the obligation of confidence imposed on all those present at the wedding in respect of any photographs taken during the event. This was clear to all concerned and unless there was a conceptual or policy reason why they should not have the benefit of the obligation, they were entitled to enforce it. The Court found no such reason: provided that one keeps one’s eye firmly on the money and why it was paid, the case was quite straightforward.

There was no question of creating an "image right". The information in the case was capable of being protected, not because it concerned the Douglas’ image but simply because it was information of commercial value over which the Douglases had sufficient control to enable them to impose an obligation of confidence.

This decision will become a very strong precedent to support the position that both the owners of confidential information who have taken steps to control the use of such information and those with exclusive rights to publish the information can expect protection under the law of confidence. The commercialization of the obligation of confidence may also have broader implications.

Expungement in the Federal Court

Two recent decisions of the Federal Court show that the possibility of an application for expungement should be anticipated.

Mr. Thorkelson is a pharmacist who acquired the domain name CanadaDrugs.com ("CanadaDrugs") in February 2001 and used it to provide distance-based prescription services to international consumers by way of the Internet. By the time of the application, Canada Drugs had over 250 employees, including 15 pharmacists, and filled approximately 2,500 prescriptions a day.

The pharmaceuticals supplied to the customers of CanadaDrugs do not all originate from Canada as only about 50% of the pharmaceuticals are sourced in Canada. Approximately 95% of the customers of CanadaDrugs are located in the United States and less than 5% of its customers are Canadian.

Mr. Thorkelson obtained trade mark registrations for CANADADRUGS.COM and CANADA DRUGS in association with the online operation of a drug store, dispensary and pharmacy. Although there were examiner’s reports which took the position that the applied-for marks were clearly descriptive, the objection was overcome and the words "Canada" and "Drugs" were disclaimed apart from the trade marks.

Pharma West Pharmacy Ltd. ("Pharma West") provides similar distance-based prescription services to international consumers. It uses the trade names "GetCanadianDrugs.com" and "GetCanadianDrugs".

When Mr. Thorkelson learned of Pharma West’s activities, proceedings were brought in the Federal Court against Pharma West on the basis that its trade names infringed Mr. Thorkelson’s trade mark registrations. Pharma West defended the proceedings.

Pharma West also instituted an application in the Federal Court to have Mr. Thorkelson’s trade-mark registrations expunged on the basis that:

1. the trade marks were not registrable as of the date of registration because they were clearly descriptive or deceptively misdescriptive of the character or quality of the services in association with which the trade marks were used and their place of origin; and
2. the trade marks did not distinguish the services in association with which they were registered or used by Mr. Thorkelson from the wares or services of others, including those of the applicant.

In order for a mark to be clearly descriptive, it must be more than merely suggestive of the character or quality of the services in issue. The descriptive character must go to the material composition of the services or refer to an obvious intrinsic quality of the services. In order to be found deceptively misdescriptive, a mark must be found to be descriptive and suggest that the services are or contain something that is not the case. The test for determining whether a mark is either of the above is the immediate or first impression created by the mark. The impression must be assessed from the perspective of the ordinary, everyday purchaser or user of the services.

The Judge concluded on the balance of probabilities that as a matter of first impression and as a matter of common sense, the ordinary consumer would consider the descriptive character of the trade marks in issue as relating to the material composition of the services. To the ordinary consumer, CANADA DRUGS would indicate pharmaceuticals from Canada.

The Judge also found that the ordinary consumer would be deceived as to the character of the services. Canadian consumers would trust prescription fulfillment from a Canadian pharmacy more than that from a pharmacy located in another country. The only consistent connection with Canada, besides the mark CANADA DRUGS, was that the respondent’s office, where orders were processed, was located in Canada.

As a result of these findings, the court ordered that the two trade mark registrations in issue be expunged.

A plaintiff in an action for infringement should be aware that the defendant will frequently attempt to attack the validity of the plaintiff’s mark.

Hyundai Auto Canada ("HAC") is a division of California-based Hyundai Motor America, a wholly-owned subsidiary of Hyundai Motor Company. All Canadian sales of HYUNDAI brand vehicles are made through HAC but the vehicles are manufactured by Hyundai Motor Company.

The Canadian registration for the trade mark HYUNDAI was initially obtained by Hyundai Motor Company but was assigned in 1985 to a predecessor of HAC and eventually assigned to HAC in December 1996.

Cross-Canada Auto Body Supply (Windsor) Limited ("Cross-Canada") is a reseller of automotive parts and accessories including parts for HYUNDAI brand automobiles.

HAC brought proceedings in the Federal Court against Cross-Canada for trade mark infringement and passing off as a result of Cross-Canada’s unauthorized sale of HYUNDAI brand parts and accessories. In response, Cross-Canada brought an application to expunge the registration of the HYUNDAI trade mark in Canada.

In the late 1960s and early 1970s two similar cases were decided by the Federal Court and the Supreme Court of Canada. In each of those cases, trade marks had been transferred by a foreign parent company to its Canadian subsidiary to allow the subsidiary to bring proceedings for infringement against third parties who had obtained gray market goods and were attempting to sell them in Canada. In both of those cases the Court determined that the trade marks were not distinctive of the source of the goods and the registrations were expunged.

Cross-Canada relied on these cases and in particular the fact that HYUNDAI brand motor vehicles bore markings on their door jams and engine compartments to the effect that they were manufactured by Hyundai Motor Company. They argued the registration was not distinctive since the source of the goods associated with the trade mark was the Hyundai Motor Company.

HAC responded by presenting evidence to show that it was the exclusive "source" of the products in Canada through its network of franchised dealers. All references at point of sale were to HAC and it retained control over its dealers’ use of the trade mark through license agreements.

In addition HAC presented survey evidence to show that the public perception is generally that the dealer is responsible for selling and leasing, as well as for addressing consumer issues and that therefore HAC dealers are viewed as the "source". Under the Trade-marks Act since the dealers were licensed and the use of the mark was controlled, their use is deemed to be use by HAC.

In order to be successful in its application Cross-Canada had to show that the HYUNDAI trade mark was not distinctive at the time they instituted the application.

Distinctiveness is the very essence of a trade mark. The test for determining whether a trade mark is distinctive is whether a clear message has been given to the public that the wares with which the trade mark is associated and used are the wares of the trade mark owner and not those of another party.

The Judge concluded that the HYUNDAI trade mark was distinctive of HAC. She distinguished the previous decisions on the basis that HAC and its predecessor had build up goodwill in association with the HYUNDAI mark from the time of the 1985 assignment until the time of the application to expunge.

The essence of a trade mark is its distinctiveness. After an assignment a brand owner must ensure that all necessary steps are taken to bring to the attention of the relevant public that it is the owner of the mark and the source of the wares.

www. casslesbrock.com