Article by Graham Hood, Mondaq
In a recent decision of Canada’s Federal Court 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. (“Toys ‘R’ Us”), the well-known toy retailer, brought an application in the Federal Court against Herbs “R” Us Wellness Society (“Herbs ‘R’ Us”), a Canadian company operating a cannabis boutique and “dispensary” in Vancouver, BC. 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 (i) infringed its trademark rights, (ii) directed public attention to its goods, services and business in such a way as to cause or be likely to cause confusion in Canada (also known as passing off), and (iii) depreciated the value of the goodwill attached to the registered trademark TOYS R US & Design:
The Court granted the application in part.
The Court dismissed the applicant’s claims for trademark infringement and passing off, having found it “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 is likely to depreciate the goodwill attached to the registered trademark TOYS R US & 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 ordered it to deliver up or destroy under oath any goods, packages, labels and advertising material in its possession, power or control, that bear the HERBS R US trademark, trade name or logo, and to pay Toys R Us damages and costs totalling $30,000 CAD.
Section 22 of Canada’s Trademarks Act prohibits “depreciation of goodwill”, a cause of action similar to that of “trademark dilution” under the U.S. Lanham Act. Section 22 of Canada’s Trademarks Act reads:
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, in respect of section 22, that:
- a defendant need not use the identical trademark registered by another person. Rather, a claimant need only show that the defendant has made use of a mark “sufficiently similar to … evoke in a relevant universe of consumers a mental association of the two marks”.3
- a defendant need not use the mark in connection with goods or services that are the same as or similar to the claimant’s own, or, indeed, in connection with goods or services that are competitive with those of the claimant.4
- a defendant need not use the mark “as a trademark” (i.e. as an indicator of source).5
- the claimant’s mark need not be “famous”, or even “well-known”. Rather, the claimant need only show that its mark is “sufficiently well known to have significant goodwill attached to it”.6
- a claimant need not demonstrate “confusion” in order to establish “depreciation”, which may refer to reputational damage, dilution, disparagement or tarnishment of the claimant’s mark, or the “whittling away” of its “brand equity” as the result of “blurring”.7
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 (Canada) Ltd v Herbs “R” Us Wellness Society also serves as a cautionary tale for small startups 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, it’s 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 Oklahoma federal court. Earlier this year, Mondelez Canada Inc., which owns the registered trademark SOUR PATCH KIDS, secured a court order from the U.S. District Court, 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 bears an undeniable resemblance to the brand owner’s own distinctive packaging:
Mondelez Canada Inc. has since amended its complaint filed last July in California to name the defendants responsible for marketing and selling the gummies, and, in April 2020, the U.S. District Court issued its Final Order and Judgment on Consent, permanently enjoining the defendants from further infringing Mondelez’s intellectual property rights.