Souvenir maker granted injunction, delivery up and awarded compensatory damages for lost sales

In Gary Gurmukh Sales Ltd v Quality Good Imd Inc (2014 FC 436), the Federal Court has held that the trademarks CANADIAN FAST FOOD and CANADIAN POLAR BEAR IN SNOW STORM were valid and infringed.

This case involved two competitors in the souvenir-making industry, and at issue were two trademarks: CANADIAN FAST FOOD and CANADIAN POLAR BEAR IN SNOW STORM. Per-Design Inc was the owner of the trademarks, while Gary Gurmukh Sales Ltd (GGS) sold merchandise bearing these trademarks, and was the exclusive licensee of Per. In one of the herein proceedings, GGS and Per commenced an infringement proceeding against Quality Goods IMD Inc (QG), a competitor to GGS, where GGS and Per sought an injunction restraining QG from using the trademarks, delivery up of Quality’s infringing merchandise, damages for trademark infringement, pre- and post-judgment interest, and costs. In the second proceeding, QG started an expungement proceeding, where it sought an order striking the trademarks, as well as damages for continuing lost sales resulting from threatening letters sent to its customers after the alleged improper registration of the trademarks, as well as pre-judgment interest and post-judgment interest on any damages award.

According to the court, GGS has sold merchandise bearing the trademarks since 2005, while QG used the trademarked phrases on merchandise, often accompanied by images similar to those used by GGS, since 2005. QG claimed that its art and design department developed the designs independently in 2004, and that they were well known in Canada. It was also noted that, when GGS registered the trademarks, QG was aware, and chose not to file an opposition to the registrations. GGS only became aware that QG was selling merchandise bearing its trademarks in 2007, which continued into 2008. GGS sent several cease and desist letters during this time, while the trademarks were in the process of being registered.

Once the trademarks were registered, in 2010 GGS sent another cease and desist letter to QG providing conditions that, if fulfilled, would result in GGS not taking legal action. QG did not fulfill the conditions and continued selling merchandise bearing the trademarks. Over the course of nearly a year, GGS discovered several retailers selling merchandise, purchased from QG, bearing the trademarks. Cease and desist letters were also sent to those retailers. QG refused to stop using the trademarks, claiming that they were not unique, and that the concepts were well known in the industry before they were registered as trademarks. QG also claimed that they entered into an agreement (orally, not in writing) with GGS (which GGS denied) to allow both companies to sell merchandise bearing the trademarks. QG claimed that GGS breached that agreement by sending cease and desist letters to its retail customers and that, as a result, several of QG’s customers returned its merchandise.

In the expungement proceeding, the court first considered whether the trademarks were distinctive. In the court’s view, QG failed to rebut the presumption of validity in the marks, as it produced insufficient evidence to demonstrate that the marks are no longer distinctive. While QG’s argument that the trademarks lack distinctiveness was premised on GGS’s failure to adduce evidence that its trademarks distinguished its products, the court held that this type of argument was insufficient to prove that a trademark is no longer distinctive. The court also considered the issue of whether the trademarks were confusing with trademarks previously made known in Canada by QG, at the time of registration. QG claimed it had common law trademarks in the phrases prior to GGS registering them. However, the court held that QG failed to adduce sufficient evidence to demonstrate that it used the trademarks (pursuant to Section 4 of the Trademarks Act) or made them known prior to GGS. On these bases, the court found that QG had failed to show invalidity of the trademarks.

In the infringement proceeding, the court first addressed the issue of the alleged agreement between the parties. In view of “inconsistent” and “insufficient” evidence, the court held that there was no such agreement whereby GGS consented to QG’s use of the trademarks. On the issue of infringement pursuant to Section 19 of the Trademarks Act, the court found the evidence clear that QG sold merchandise bearing the exact phrases covered by the trademarks, and thus infringed. With respect to infringement pursuant to Section 20, the court considered the trademarks used by QG (FAST FOOD CANADIAN STYLE and CANADIAN POLAR BEAR IN A BLIZZARD) and conducted a confusion analysis using the factors set out in Subsection 6(5). The court noted that infringement for the purposes of Section 20 requires only a likelihood of confusion, not actual confusion. The court considered the factors for confusion, and held that, when viewed in all of the circumstances and with regard to the evidence and factors in Subsection 6(5), the trademarks used by QG were confusing with the registered trademarks.

The court also considered GGS’ passing off claim, and acknowledged that the important issue to consider was whether GGS had demonstrated goodwill attaching to its trademarks. GGS relied primarily on the volume of sales of its products to support its argument. No other significant evidence was provided, and thus, the court could not establish goodwill. GGS’ claim for passing off failed.

With respect to remedies, GGS sought an injunction, delivery up, compensatory damages (a claim of $160,000, based on QG’s 50% profit margin, tied to revenues from sales of the infringing merchandise), and punitive damages (a claim of $65,000 for persistent and deliberate infringing behaviour and disregard for demand letters). GGS actually claimed slightly higher damages at the hearing, citing further infringing activities. QG argued at the hearing that GGS was not entitled to claim damages and an amount based on QG’s profits, and noted that GGS presented no evidence of any loss suffered.

The court held, however, a lack of evidence as to the losses suffered by GGS did not preclude an award of damages. Where appropriate, the amount of infringing sales and profits are a relevant consideration and the court can rely on its best estimate of damages that should be awarded. In light of GGS’ failed claim for passing off, the court did not consider the sales of merchandise bearing the trademarks between 2005 and 2008; this reduced the overall included sales. Therefore, when considering the total amount of QG’s remaining sales, and applying the 50% profit margin, the court calculated that approximately $74,000 was lost due to QG’s infringement. The court did not think this was an appropriate case to award punitive damages, as the court did not characterise QG’s behaviour as “malicious, oppressive or offensive” to the court’s sense of decency. Compensatory damages, the court held, were sufficient to remedy the harm suffered by GGS. In addition to those damages, the court also granted the requested injunction and delivery up of infringing goods, together with pre- and post-judgment interest, and costs.

Ryan Steeves, Borden Ladner Gervais LLP, Ottawa