Passing Off And The Trade-Marks Act

The Claims

As discussed in our newsletter of May 2006, BMW Canada Inc. and Bayerische Motoren Werke Aktiengesellschaft ("BMW") brought an action against Nissan Canada Inc. ("Nissan"), claiming trade mark infringement of BMW’s registered trade marks M3, M5 and M & Design, as well as for the breach of paragraph 7(b) of the Trade-marks Act (the "Act") with respect to BMW’s common law trade marks M and M6.

BMW Canada Inc.’s trade marks are used as sub-brands to symbolize BMW’s high performance M cars. The trade marks designate the top model in each of BMW’s series of cars. The cars have enhanced performance characteristics.

Nissan Canada Inc. also produces and sells luxury cars under the INFINITY brand name and owns the registered trade marks M35 and M45. BMW alleged that in January 2005 Nissan commenced an advertising campaign containing statements such as "the M is coming" featuring a giant M and a small Nissan logo.

After an unsuccessful attempt to obtain an interlocutory injunction, the action proceeded to trial. The Trial Judge dismissed BMW’s claim of trade mark infringement on the basis that there was no likelihood of confusion as to the source of the wares or the wares themselves among the relevant group of prospective purchasers in the market.

BMW relied on paragraph 7(b) concerning the claim for passing off. The paragraph prohibits a person from directing public attention to his or her wares, services or business in such a way as to cause or to be likely to cause confusion, at the time he or she commenced the activity in question, with the wares, services or businesses of another. Surprisingly, the Judge found that Nissan’s use of the marks M and M6 caused a likelihood of confusion between the source of its wares and BMW’s wares.

Nissan appealed from this portion of the decision to the Federal Court of Appeal (the "Court"). On appeal, the Court said that paragraph 7(b) is the equivalent statutory expression of the common law tort of passing off with one exception. In order to rely on the paragraph, a plaintiff must prove ownership of a valid and enforceable trade mark, whether registered or unregistered.

The Court referred to the definition of "use" contained in the Act. Under subsection 4(1), a trade mark is deemed to be used in association with wares if, at the time of the transfer of the property and/or possession of the wares, in the normal course of trade, it is marked on the wares themselves or on the packages in which they are distributed, or it is in any other manner so associated with the wares that notice of the association is then given to the person to whom the property or possession is transferred.

Applying this approach, the Court found there was no evidence that the alleged M and M6 trade marks were marked on BMW’s wares themselves or the packages in which they were distributed. In addition, they found that the M and M6 marks were not associated with BMW’s wares at the time property or possession was transferred. The only evidence of the use of the trade mark M by itself was in car advertisements, magazines or on television and generally in close association with the BMW trade mark or other BMW trade marks.

Since there was no evidence showing that the advertisements or promotional materials were given to purchasers at the time of the transfer, there was no evidence to support a finding that the M and M6 trade marks had been "used" as required by the Act. As a result, it was found that the Trial Judge erred in concluding that the M and M6 marks were unregistered trade marks concerning which rights could be asserted under paragraph 7(b).

The Court also found that the Trial Judge erred in assuming that BMW would suffer damages. Actual or potential damages are a necessary element in finding liability under paragraph 7(b). In the absence of such evidence, the Court could not find any liability.

The position taken by the Court concerning paragraph 7(b) is restrictive. No previous decision had suggested that the provisions of the Act relating to trade mark "use" apply in an action relying on paragraph 7(b). As a result, in the future it may be preferable to bring an action for common law passing off in the Ontario courts since it does not require a plaintiff to establish trade mark "use" as required by the Act.

A recent case decided under the Uniform Domain Name Dispute Resolution Policy ("UDRP") shows that the policy cannot be used to decide cases involving complicated facts or claims that should be determined in an appropriate judicial proceeding.

Stephen Cleeve is a businessman who operates a real estate company known as Commercial Land. On August 3, 2005, an entity described as Consumer Protection obtained the domain name stephencleeve.com and posted material on the site obtained from various sources suggesting that Mr. Cleeve was not a reputable businessman. In response to this website, it appears that Mr. Cleeve obtained a registration for the trade mark STEPHEN CLEEVE on November 8, 2006 in the United Kingdom and filed a complaint under the UDRP in May 2007.

Under the policy, the registered owner of the domain name is required to submit to a mandatory administrative proceeding when a complainant asserts that:

• the domain name is identical or confusingly similar to a trade mark or service mark in which the complainant has rights;
• the registrant has no rights or legitimate interest in the domain name; and
• the domain name has been registered and is being used in bad faith.

In this case there was no issue with respect to the first element.

The Panellist who decided the case observed that the burden of proof was on Mr. Cleeve to show the registrant had no rights or legitimate interest in the domain name. The Panellist found that Mr. Cleeve had made out a prima facie case that the respondent did not have rights or a legitimate interest in the disputed domain name. Having done this, the burden of proof shifted to the respondent to rebut the complainant’s contention.

It was found that Consumer Protection’s use of the disputed name to establish a website for criticism and commentary about the complainant’s business was a legitimate commercial use and fair use within the meaning of the policy. Based on the evidence before it, the Panellist found that Consumer Protection’s principal purpose for using the domain name was not for commercial gain by misleading or diverting consumers to its website but rather to criticize and comment on Mr. Cleeve and his business activities. In addition, there was no evidence that showed the respondent’s use of the disputed domain name was to tarnish the complainant’s trade mark.

With respect to bad faith, the Panellist noted that Mr. Cleeve had registered his trade mark well after the disputed domain name had been registered. The consensus view of panellists is that when a domain name is registered before trade mark rights are established, the registration of the domain name is not in bad faith because the registrant could not have contemplated the complainant’s non-existent rights. The Panellist also noted that Mr. Cleeve had not shown any trade mark use in relation to any goods or services.

Finally, with respect to Mr. Cleeve’s assertion that Consumer Protection’s use of the disputed domain name was defamatory and thus in bad faith the Panellist observed that these claims were beyond the scope of the policy and should be decided at a court in the appropriate jurisdiction.

The UDRP works well for cases that clearly come within its defined scope. However, attempts to expand its reach will not likely be successful.

A number of manufacturers in the United Kingdom sell nutritional supplements for dogs which are said to have a beneficial effect on joints. The tablets are said to contain, amongst their active ingredients, chondroitin as well as glucosamine and curcumin. In 2006, one of the manufacturers, Vetplus Limited ("Vetplus"), decided to test their competitors’ products to see whether they had a chondroitin content consistent with that claimed on their respective labels. The tests allegedly show that the product of one competitor did not contain the quantity of chondroitin specified by the label claim.

After some initial scrimmaging, Vetplus indicated it would publish a comparative advertisement that stated the competitor’s product did not contain as much chondroitin as was claimed on the label.

The competitor instituted an action for trade mark infringement, among other claims, and sought an interlocutory injunction to enjoin Vetplus from publishing the comparative advertisement pending the trial of the action. The Judge who heard the motion seeking the injunction refused to grant it on the basis that, in substance, the plaintiff’s claim was for malicious falsehood and libel, notwithstanding that reference was made to trade mark infringement. The Judge applied the well-known principle that, in the interest of freedom of speech, courts will not restrain the publication of a defamatory statement where the defendant says it is going to justify the statement at the trial of the action, except where the statement is obviously untruthful and libellous. Justification in this context means to prove that the statement is true.

On appeal to the English Court of Appeal, the Court made it clear that the above principle does not apply to a claim involving trade mark infringement or passing off. The rule that no injunction will be given if there is an intention to justify developed in the law of defamation and was extended to malicious falsehood for historical reasons relevant to those types of claims. No such reasons apply to an action for trade mark infringement that seeks to protect a particular form of intellectual property, which is different in kind from a right relating to reputation of a trader or its goods.

Notwithstanding these comments, the Court dismissed the appeal based on other free speech issues raised by English legislation of which there is no Canadian equivalent.

The reasoning of this case may be of some assistance in determining if the rule relating to restraining defamatory statements should be applied to comparative advertising in Canada.

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