Canada: IP Monitor - Measure Twice And Cut Once: Federal Court Dismisses Trademark Case For Insufficient Evidence

Trademark owners are increasingly using an abbreviated process – the application – to enforce their rights. Applications avoid the costs and delay of discovery and the complexities of trial. This litigation strategy can be effective if a trademark owner carefully marshals its evidence at the outset. Evidentiary gaps can be fatal, as demonstrated in Justice Locke's recent decision in EAB Tool Company Inc. v Norske Tools Ltd., 2017 FC 898.


Background

EAB owns a series of registered trademarks (both a word mark and several designs) for the trademark EXCHANGE-A-BLADE. EAB sells saw blades that customers can return when dull and trade in on new sharpened blades. In October 2016, Norske entered the Canadian market providing the same service under the trademark TRADE-A-BLADE. EAB commenced the application complaining of trademark infringement, passing off and unfair competition. Justice Locke found that none of these claims were made out.

The history between the parties and their predecessors is lengthy and complicated. In brief, EAB started business in 1976 and became the Canadian distributor for Sibkis Trade-A-Blade Inc. using Sibkis' TRADE-A-BLADE trademark. The relationship between EAB and Sibkis terminated in 1978. EAB continued using the TRADE-A-BLADE trademark until 1982 when, at Sibkis' instance, it stopped using TRADE-A-BLADE and began using the EXCHANGE-A-BLADE trademark instead. Tellingly, there was evidence elicited on cross-examination that EAB switched to the EXCHANGE-A-BLADE trademark to distinguish itself from TRADE-A-BLADE.

Although Sibkis had obtained a Canadian trademark registration for TRADE-A-BLADE, the mark was not used in Canada and the registration was expunged in 1996 for failure to renew. Norske purchased Sibkis' assets in December 2015 and began selling products under the TRADE-A-BLADE mark in Canada. Norske also promotes itself as "THE ORIGINAL EXCHANGE SYSTEM." Norske applied for two Canadian trademarks for TRADE-A-BLADE; these applications were approved by the Trademarks Office, advertised and are being opposed by EAB.

Confusion between the marks?

In analyzing EAB's trademark infringement claim, Justice Locke quickly focused on whether the marks were confusing. Applying the statutory test in subsection 6(5) of the Trade-marks Act from the perspective of a casual consumer in a hurry who sees the impugned mark when he or she has not more than an imperfect recollection of the registered mark and does not give the matter any scrutiny nor examine the similarities and differences between the marks, the court found there was no confusion. 

  • Neither mark was considered to be inherently distinctive. Accordingly, they were only entitled to a narrow ambit of protection such that even small differences would be sufficient to diminish the likelihood of confusion. Additionally, the court noted that in the case of weak marks, some confusion may be inevitable without sanction.
  • Considering that the EXCHANGE-A-BLADE mark had been in use since 1982, that the goods, services and business of EAB and Norske were essentially the same, and that there was nothing about the nature of the trade to differentiate the marks, all three of these factors favoured EAB.
  • The court then turned to the most important factor in assessing confusion: the degree of resemblance between the trademarks or trade names in appearance or sound or in ideas suggested by them. The court recognized that both marks share the common "-A-BLADE" element, and EXCHANGE and TRADE are synonyms. However, it applied the well-established proposition that the first part of mark is often the most important in assessing distinctiveness and found the marks looked and sounded different. Recognizing that TRADE-A-BLADE and EXCHANGE-A-BLADE are similar in the idea suggested by them, the court found the difference was significant given the low ambit of protection that inherently non-distinctive marks are entitled to, especially since the difference is at the beginning of the mark.
  • Interestingly, the court was also influenced by the fact the applications for the TRADE-A-BLADE word and design mark were both approved by the Trademarks Office and EXCHANGE-A-BLADE was originally registered over TRADE-A-BLADE (which was on the register when the EXCHANGE-A-BLADE mark was applied for).
  • In considering the surrounding circumstances, the court found that a lack of evidence of actual confusion was not determinative because the marks had only been in concurrent use for one month when the application was filed and three months when the applicant's evidence was prepared. Such a short period was not considered telling.
  • EAB argued Norske had "carefully orchestrated [a] plan to emulate [EAB's] product line, packaging, credit system and hire its employees to gain access to [EAB's] customers." This was of no consequence. The court found that EAB's evidence on this point was weak, as was the jurisprudential basis for the complaint, noting "There is nothing inherently improper in emulating a successful business model or in hiring away a competitor's employees."

Given a lack of confusion, the court dismissed EAB's infringement claim.

Passing off and unfair competition

The court also rejected EAB's complaint under paragraph 7(a) of the Trade-marks Act. Paragraph 7(a) provides that no person shall make a false or misleading statement tending to discredit the business or goods or services of a competitor. The elements of that cause of action are: (a) a false and misleading statement; (b) tending to discredit the business, goods or services of a competitor; and (c) resulting damage.

The court noted it is not necessary to establish that the false or misleading statement was made with malice or knowledge of its falsity but that a trademark owner must show that the tendency of the statement is to discredit and that it has suffered damage as a result.

EAB's complaint focused on Norske's use of the phrase "THE ORIGINAL EXCHANGE SYSTEM." EAB argued this was false and misleading because it suggested EAB was not the first to offer a blade exchange system in Canada. Norske defended its use of the phrase on the basis that it traced its rights to Sibkis and that Sibkis was (albeit through EAB as distributor) in fact the "original" saw blade trade-in business in Canada.

This tenuous argument was rejected. The court found that the representation was false and misleading; Sibkis had abandoned its TRADE-A-BLADE trademark; and it was disingenuous for Norske to claim to be the "original." However, EAB's case failed for lack of evidence that it had suffered damage as a consequence of Norske's claim. Justice Locke held that evidence as to damage has to be directly attributable to the false or misleading statement and not result from competition generally.

While EAB's passing off claim was also dismissed because there was no confusion, the court did highlight the differences between a trademark infringement action – which compares the registered trademark and the impugned trademark – and a passing off action – where the marks as used are compared. Comparing the marks as used, the court was struck by the stark differences between the parties' respective colour schemes and their different packaging.

Subparagraph 7(d)(i) of the Trade-marks Act prohibits anyone from describing the character, quality, quantity or composition of their goods or services in manner that is materially false and likely to mislead the public. While the court found that Norske's claim to be THE ORIGINAL EXCHANGE SYSTEM was materially false, it dismissed EAB's claim because the evidence failed to establish a causal link between Norske's use of this phrase and the EAB's lost sales.

The take-aways

This decision is important for several reasons. First, it highlights the speed with which trademark disputes can be determined on application – the parties had a decision within 11 months. Trademark infringement actions will typically take more than two years. Second, it is a timely review of the distinctions between the various causes of action that trademark owners have to protect their brands. Finally, it is a cautionary tale – trademark owners who elect to proceed by way of application need to be ready to put a compelling case forward. Where claims are based on the unfair competition provisions of section 7 of the Trade-marks Act, some evidence of actual damage will be required.


About Norton Rose Fulbright Canada LLP

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Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

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