Supreme Court clarifies factors for assessing likelihood of confusion

The Supreme Court of Canada has released its decision in Masterpiece Inc v Alavida Lifestyles Inc (2011 SCC 27, May 26 2011) and, in so doing, has clarified important legal principles concerning the interrelationship in Canada between common law trademark rights and those rights which flow from registration. Prior to this decision, very little jurisprudence had dealt with the differences, overlaps and interrelationships between rights flowing from registration and those existing at common law through use.

The appellant had brought an application before the Federal Court to invalidate a recent registration by the respondent for the trademark MASTERPIECE LIVING for use in association with retirement residences. The respondent’s application had been based upon proposed use, with registration being granted after a declaration of actual use had been filed. The appellant alleged invalidity based upon its prior common law use of the confusing trademark and trade name MASTERPIECE, along with other various MASTERPIECE-related marks, in association with the same services. However, the appellant had used its mark in Calgary (Alberta), whereas the respondent was located in Ottawa (Ontario), some 3,000 kilometres away.

The trial court and the Court of Appeal had both refused to invalidate the registration on the basis that:
  • there was no likelihood of confusion because the respective trademarks were not being used in the same geographic area;
  • the designs used in association with the marks sufficiently distinguished one from the other; and
  • the high price of the services would result in great care when making the purchase thus avoiding confusion.
In so doing, the Court of Appeal granted the respondent the exclusive national right to use that mark despite the existence of prior localised common law use. If a literal reading of the Court of Appeal decision were followed, Canada would arguably have become a first-to-file jurisdiction, instead of a first-to-use jurisdiction.

Before the Supreme Court, the appellant argued that the courts below had inappropriately applied principles of the common law test for passing off into their likelihood of confusion analysis, as it concerns registered trademarks. The Canadian Trademarks Act has always accorded priority to trademarks based upon first use, not first registration, all in the context of a registration system that grants national monopolies regardless of the geographic scope of the registrant’s operations. In contrast, common law passing off has required proof of a protectable reputation in the same geographic area as the impugned user. The act altered the common law insofar as registered marks by requiring a confusion analysis under the hypothetical assumption that both marks are used in the same geographic area.

The Supreme Court agreed with the appellant, reversed the trial judge and the Court of Appeal, and invalidated the respondent’s registration. The court first noted that:

[t]he Canadian trademarks regime is national in scope. The owner of a registered trademark, subject to a finding of invalidity, is entitled to the exclusive use of that mark in association with the wares or services to which it is connected throughout Canada.”

The court then noted that the test for confusion mandated by the act is based upon the hypothetical assumption that both trade names and trademarks are used “in the same area”, irrespective of whether this is actually the case. As a result, geographical separation in the use of otherwise confusingly similar trade names and trademarks does not play a role in this hypothetical test. “This must be the case, because, pursuant to Section 19, subject to exceptions not relevant here, registration gives the owner the exclusive right to the use of the trademark throughout Canada.” In essence, and as argued by the appellant, in order for the owner of a registered trademark to have exclusive use of the mark throughout Canada, there cannot be a likelihood of confusion with another previously used trademark or trade name.

In addition to confirming the underlying rationale of the act that it is not the registration that makes a party proprietor of a trademark, but that it must be proprietor before registration, the decision is also noteworthy in that it clarifies certain factors that can be considered in a likelihood of confusion analysis, how those are to be weighted and the scope of rights ultimately afforded by a registration. The decision is also of significant importance with respect to the admission of expert evidence in trademark cases. The court has clearly cautioned against the wholesale admissibility of expert and survey evidence: “Courts must fulfil their gatekeeper role to ensure that unnecessary, irrelevant and potentially distracting expert and survey evidence is not allowed to extend and complicate court proceedings.” The court’s discussion and analysis of the role of experts in trademark proceedings will be welcome by many, not the least of which will be trademark stakeholders themselves, who often feel forced to spend large sums on expert and survey evidence when such is so often unnecessary and distracting to the proper analysis required to be undertaken by the courts.

The author was a counsel to the appellant before the Supreme Court.

Kelly Gill, Gowlings, Toronto

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