Trademarks perform a key function in the marketplace. Trademarks serve as a shortcut for consumers: "trade-marks assure consumers that they are buying from the source from whom they think they are buying and receiving the quality which they associate with that particular trade-mark."1 Not surprisingly, the issue of consumer confusion between sources of goods and services is often at the center of a trademark dispute.
In a recent trademark decision, Masterpiece Inc. v. Alavida Lifestyles Inc.,2 the Supreme Court of Canada provided clarification on key legal principles concerning confusion.
This decision, which addressed the issue of confusion in the context of competing trademark rights flowing from registration and common law, affirmed the first-to-use principle in Canada: "It is not the registration that makes the party proprietor of a trade-mark; he must be proprietor before he can register."3
The Trial Court and Court of Appeal
The issue in this case was whether the trademark MASTERPIECE LIVING proposed (and subsequently registered and used) by Alavida, a company entering the retirement residence industry in Ontario, was then confusing with the unregistered trademarks/trade name previously used by Masterpiece, a competitor operating in Alberta.
Masterpiece commenced an application in the Federal Court to invalidate (and expunge) Alavida's trademark registration for MASTERPIECE LIVING. Masterpiece argued that Alavida's trademark was invalid because, on the date Alavida's application was filed, it was confusing with Masterpiece's previously used unregistered trade name and trademarks, all of which included the word "Masterpiece".
The Federal Court and Federal Court of Appeal dismissed the application, finding that the registration was not invalid as there was no likelihood of confusion. The Federal Court and Federal Court of Appeal found that there was no likelihood of confusion because (1) the respective trademarks were not being used in the same geographic area, (2) the designs were sufficiently different and (3) the high cost of the services would result in greater care when making the purchase.
The Supreme Court Decision
In the Supreme Court, Masterpiece's prior common law rights prevailed over Alavida's subsequently obtained (and used) registered trademark rights. The Supreme Court reversed the courts below, finding that the registration was invalid.
In reaching its conclusion, the Supreme Court made a number of important clarifications on the test for confusion.
Location of Actual Use
The Supreme Court clarified that the test for confusion is based upon the hypothetical assumption that the marks are used in the same area, irrespective of whether this is actually the case. In reaching this conclusion, the Supreme Court considered the exclusive right granted under section 19 of the Trade-marks Act. In particular, given that the exclusive use is granted throughout Canada, the requirement that there be no likelihood of confusion with another trademark or trade name must also extend throughout Canada. In other words, to obtain a registration and therefore exclusive use in Canada, there can be no likelihood of confusion with another trademark or trade name anywhere in the country.
In this case, the fact that Masterpiece's prior use of its unregistered marks was localized in Alberta, and not in Ontario where Alavida provided competing services, was irrelevant.
In assessing the resemblance between Alavida's MASTERPIECE LIVING trademark and Masterpiece's existing unregistered trade names and trademarks, the Supreme Court provided the following guidance:
- The degree of resemblance is often likely to have the greatest effect on the confusion analysis.
- A separate resemblance analysis of each asserted trademark/trade name and the registered trademark must be conducted. In this case, the trial judge erred in considering the unregistered marks as a composite.
- A registered trademark must be considered based on the registration and not by its actual use. In this case, the trial judge erred in considering only Alavida's actual use of MASTERPIECE LIVING and not how it may use the mark under the registration (i.e., in any size, font style, colour or design).
- A common law trademark must be considered according to its actual use. In this case, because Masterpiece's trademarks were unregistered on the date of issue, it could only rely on those trademarks and trade names that it had actually used (and not any future uses).
The Supreme Court found that the marks shared striking similarities and that there was a strong resemblance as a whole between the Masterpiece trademark and the Alavida trademark.
Cost of the Wares or Services
The Supreme Court confirmed that the test for confusion is still a test of first impression. Therefore, while it is possible that there may be a lesser likelihood of confusion where consumers are in the market for expensive or important wares or services, this reduced likelihood is still premised on the first impression of consumers when they encounter the trademarks in question.
The trial judge erred in discounting the likelihood of confusion by considering what actions the consumer might take after encountering a mark in the marketplace (for example, subsequent research which may be undertaken by consumers of expensive wares and services).
The Supreme Court emphasized that while careful research and deliberation may dispel any trademark confusion that may have arisen, it does not mean that no confusion ever existed or that it will not continue to exist in the minds of consumers who did not carry out that research. The Supreme Court highlighted that diversion (leading a consumer to seek out or consider the wares and services from a source they previously had no awareness of or interest in) prior to remedying confusion, diminishes the value of the goodwill associated with the trademark the consumer initially thought he or she was encountering upon seeing the trademark.
In this case, the Supreme Court held that cost was not irrelevant because consumers for expensive retirement residence accommodation may be expected to pay somewhat more attention when first encountering a trademark than consumers of less expensive wares or services. However, in this case, the Supreme Court did not find that cost would change the conclusion of a likelihood of confusion dictated by the strong resemblance between the marks.
In addition to clarifying legal principles on confusion, this case is also notable for the Supreme Court's critical observations on expert and survey evidence.
The Supreme Court emphasized the court's gatekeeper role in ensuring that unnecessary, irrelevant and potentially distracting expert and survey evidence is not allowed to extend and complicate court proceedings.
In this case, the Supreme Court rejected the expert evidence filed by the parties, finding that the expert and survey evidence failed the relevant and necessary elements of the test in R. v. Mohan.4 In particular, the expert evidence directed to assessing the resemblance of the marks was not necessary. The Supreme Court held that in cases of wares or services being marketed to the general public, judges should consider the marks at issue, each as a whole, but having regard to the dominant or most striking or unique feature of the trademark. They should use their own common sense, excluding influences of their "own idiosyncratic knowledge or temperament" to determine whether the casual consumer would likely be confused. The survey evidence in this case was not relevant because the consumers surveyed did not have an imperfect recollection of the first mark (Masterpiece had not yet established a presence in the community).
Also interesting is the Supreme Court's recommendations proposing that expert and survey evidence be assessed for admissibility and usefulness at an early stage in the litigation so as to avoid large expenditures of resources on evidence of little utility.
This decision reinforces the importance of conducting thorough searches of unregistered (and not only registered) trademarks and trade names in assessing the risk associated with the adoption of a proposed trademark.
1. Mattel Inc. v. 3894207 Canada Inc., 2006 SCC 22 at paras. 21-22.
2. 2011 SCC 27 (Masterpiece).
3. Masterpiece at para. 35, citing Partlo v. Todd (1888), 17 SCR 196 at 200.
4.  2 SCR 9.
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