Comparative Advertising In Canada – The Changing Landscape

Article by Anthony Prenol, © 2006, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Intellectual Property, November 2006

When the Supreme Court of Canada released its decisions this summer in the Veuve Clicquot and Mattel cases (see The Limits of Fame – Supreme Court of Canada Rules on Famous Marks, Blakes Bulletin on Intellectual Property, June 2006), the focus was understandably on what these cases had to say about the protection to be given to famous marks in Canada.

Of lesser immediate interest was Justice Binnie’s commentary in Veuve Clicquot on the appellant’s claim that the respondent had depreciated the goodwill attaching to the appellant’s registered trade-mark VEUVE CLICQUOT, contrary to section 22 of the Trade-marks Act (the Act). This commentary may, however, cause a substantial change in the Canadian law on comparative advertising.

Comparative advertising, depending on its content, can be attacked under the provisions of several statutes and at common law. For example, provisions of the Competition Act prohibit advertising that is false or misleading. The common law tort of injurious falsehood can be used to seek redress for damages caused by a competitor’s false advertising. The Copyright Act may be used by a company to prevent a competitor from reproducing the company’s logos in advertising.

It is often the case, however, that a competitor’s comparative advertising refers only to a company’s word marks (but not its logos) and cannot be said to be false, deceptive or misleading. In such circumstances, a trade-mark owner has still in many cases been able to rely upon section 22 of the Act to obtain relief.

Section 22 provides that "No person shall use a trade-mark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto."

It can be difficult to reconcile the decisions that have come out of the federal and provincial courts over the years on section 22. Most of these cases, however, going back to Clairol v. Thomas Supply (Clairol), have held that for an advertisement to be objectionable under this section, the defendant’s activities must constitute a "use" of the plaintiff’s trade-mark within the meaning of section 4 of the Act.

Section 4 provides that for a mark to be "used" in association with wares, it must at the time of the transfer of the property in or possession of the wares, be marked on the wares or their packaging or in any other manner be associated with the wares such that notice of the association is given to the person to whom the property is transferred. Most comparative advertising of wares does not meet this test because the defendant’s use of the plaintiff’s mark does not take place at the time of transfer of the defendant’s wares. There are, of course, exceptions such as where the defendant’s comparative advertising takes place on point of sale materials in stores.

It is much easier to show that a defendant has used the plaintiff’s mark in association with services since under section 4 it is sufficient if the mark is used or displayed in the performance or advertising of the services. As such, a defendant who displays the plaintiff’s mark in the course of advertising the defendant’s services would be deemed to have used the plaintiff’s mark within the meaning of section 4.

Although this distinction has been called "bizarre" by a Federal Court judge, the distinction has nevertheless resulted in many of the comparative advertising cases that have been decided to date turning on whether the advertisements in question could be said to constitute advertising of the defendant’s services (as opposed to its wares). In contrast to the level of attention that courts have paid to the issue of "use", they have paid relatively little attention to the second part of the test under section 22, namely whether the defendant’s advertisement depreciated the goodwill in the plaintiff’s registered mark. In many cases, the court appears to have assumed, without proof, that depreciation would necessarily result from the defendant’s unauthorized use of the plaintiff’s mark.

In Veuve Clicquot, Justice Binnie had before him a claim by Veuve Clicquot against the owners of a chain of women’s clothing stores operated under the name Cliquot. Veuve Clicquot argued in part that the defendants’ activities violated section 22. Veuve Clicquot was not a comparative advertising case. However, it will still be influential in shaping the law of comparative advertising since Justice Binnie’s commentary on section 22 is now the leading authority in this country on the section.

Justice Binnie began his analysis of Veuve Clicquot’s section 22 claim by examining the origins of the section (which was enacted in 1953) and also the anti-dilution provisions of the Lanham Act in the United States. Of particular interest is Justice Binnie’s comment that section 22 claims should be confined to cases "in which the protectable interest is clear and the threat of interference is substantial."

Justice Binnie then proceeded to distill the section 22 cause of action into four elements: (i) the defendant must have used the plaintiff’s registered trade-mark in association with wares or services; (ii) the plaintiff’s registered trade-mark must be sufficiently well known to have significant goodwill attached to it; (iii) the plaintiff’s mark must have been used by the defendant in a manner likely to have an effect on that goodwill (i.e., linkage); and (iv) the likely effect must be to depreciate the value of the plaintiff’s goodwill (i.e., damage).

Although section 22 speaks of the defendant’s use of the plaintiff’s registered trade-mark, Justice Binnie clarified that it is not essential to prove that the defendant has used the plaintiff’s mark exactly as registered. Rather, in Justice Binnie’s view, it is sufficient if the "casual observer" would recognize the mark used by the defendant as the mark of the plaintiff. In the case before him, the fact that the defendants had used the mark CLIQUOT was not enough for it to avoid the application of section 22 since there was evidence that CLICQUOT was the distinguishing feature of the plaintiff’s registered VEUVE CLICQUOT mark and "cliquot" was sufficiently close to "clicquot".

Justice Binnie did not have to decide whether the defendants’ activities constituted a "use" within the meaning of section 4 of the Act since their provision of services was clearly such a use. Nevertheless, Justice Binnie clearly adopted the Clairol line of cases holding that, for a defendant’s activities to be objectionable under section 22, they must constitute a "use" within the meaning of section 4.

Justice Binnie next examined the second element, namely the existence of goodwill in the plaintiff’s registered trade-mark. After reviewing Canadian and U.S. authorities, Justice Binnie concluded that, although a plaintiff need not prove that its mark is famous, one of the factors that a court should consider under section 22 is whether the plaintiff’s mark retains its source significance when encountered outside the context of the wares or services with which it is used by its owner. Other factors that a court should consider include the degree of recognition of the mark "within the relevant universe of consumers", the volume of sales and depth of market penetration of products associated with the plaintiff’s mark, the geographic reach of the plaintiff’s mark, its inherent or acquired distinctiveness, whether products associated with the plaintiff’s mark are confined to a narrow or specialized channel of trade or move in multiple channels and the extent to which the mark is identified with a particular quality. Applying this test to the facts before him, Justice Binnie had no difficulty concluding that the VEUVE CLICQUOT mark had considerable goodwill that extended beyond wine and champagne.

Veuve Clicquot’s case started to falter when Justice Binnie came to analyze the third element, namely whether there was the necessary linkage between the plaintiff’s goodwill and the defendant’s use such that the defendant’s use would likely have an effect on that goodwill. Justice Binnie concluded that the trial judge was justified in finding that a consumer who saw the word "cliquot" used in the defendants’ stores would not make any link or connection to the plaintiff. Without such a linkage, there could be no impact – positive or negative – on the goodwill attached to the plaintiff’s registered mark.

After reviewing a dictionary definition of the word "depreciate" and U.S. authorities on dilution, Justice Binnie concluded that the scope of the meaning to be given to "depreciation" under section 22 had yet to be determined by Canadian courts and should therefore not necessarily be limited to the notions of blurring and tarnishment. Given the lack of a linkage under the third criterion, Justice Binnie concluded that the plaintiff had not established that depreciation had occurred or was likely to occur.

As noted above, although Veuve Clicquot was not a comparative advertising case, its impact on the law of comparative advertising will likely be substantial.

First, it resolves any doubt about the Clairol requirement that a defendant must have "used" the plaintiff’s mark within the meaning of the Trade-marks Act.

Second, Justice Binnie’s admonishment that section 22 should only be used where the threat of interference is substantial would appear to nullify most complaints concerning comparative advertising that is otherwise fair and accurate.

Third, in circumstances where a consumer would, upon viewing a comparative advertisement, appreciate that the advertiser is not associated with the plaintiff, it would normally be very difficult for a plaintiff to satisfy the third and fourth criteria (linkage and depreciation). This is particularly the case where the defendant’s advertisement stresses the differences between its services and the plaintiff’s services.

Fourth, a plaintiff which seeks to enjoin a comparative advertisement will need to adduce compelling evidence of a likelihood of depreciation; the simple fact of registration of the plaintiff’s mark will not lead automatically to an inference that the goodwill attaching to its mark will be depreciated.

Only time will tell exactly how Canadian courts apply Veuve Clicquot in comparative advertising cases. Stay tuned.

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