Canada: Wine Not Use A Competitor’s Trademark To Promote Your Own Lower-priced Alternative?

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The Court of Appeal of Québec ruled that in suitable situations, the use of third-party trademarks in comparison advertising is acceptable, emphasizing the need of pursuing appropriate remedies in IP matters.

The Québec Court of Appeal upheld a decision of the Québec Superior Court on November 5, 2021. A claim for copyright and trademark infringement was dismissed by the trial judge. In this occasion, the Société de vin internationale ltée (SVI), a Québec wine producer, handed out 2,500 promotional brochures during wine tastings to promote its new “Apollo Découvertes” wines.

Photographs of wine bottles made by the plaintiff, Constellation Brands US Operations (Constellation), as well as its registered “MEIOMI” trademark, were included in the flyers, along with images of SVI’s wines and remarks comparing the wines. Constellation claimed that the leaflets infringed on its copyright and trademark rights, that their use depreciated the goodwill associated with its MEIOMI trademark, and that they were thus entitled to all profits from SVI’s Apollo Découvertes wine sales, which were alleged to total CA$833,680, plus punitive damages of CA$50,000 and legal costs.

The trial decision

Constellation’s recovery claim was dismissed by Justice Bachand during the trial. “the holder of a copyright or trademark is only entitled to recover profits made as a result of an infringement of its intellectual property rights,” the trial judge stated (emphasis added by the Court).

Constellation was attempting to recoup all of SVI’s Apollo wine sales, even sales from a wine that wasn’t even advertised in the comparative ads. Furthermore, the alleged violation was limited to a single minor part of SVI’s marketing effort. The trial judge concluded that “one cannot simply assume that the use of the leaflets led to an increase in SVI’s revenues,” and that, given the lack of a causal relationship in the evidence, profits generated from the sale of SVI’s Apollo wines could not be said to be “as a result of an infringement of [Constellation’s] intellectual property rights.”

Therefore, Constellation’s claim for profits on the entire line was overly broad – Constellation had the burden of proving that the rise in SVI’s revenue was caused by infringement of Constellation’s intellectual property rights, which it failed to accomplish.

The only matters left for the trial court were the alleged Trademarks Act violations, as SVI had conceded on the question of copyright infringement. However, the trial court did not consider whether there was trademark infringement or a depreciation of SVI’s goodwill, instead dismissing the case for the reasons stated above, denying Constellation’s claim for profit accounting.

The appeal

Constellation stated in its appeal to the Quebec Court of Appeal that the trial judge made a reversible error by refusing to rule on the charges of trademark infringement and applying the burden of proof erroneously. Constellation’s appeal was dismissed by the Court of Appeal, which concluded that while it was incorrect for the trial judge to merely address remedies sought, this was not a reversible error because it had no bearing on the outcome.

The Court of Appeal began its investigation by determining whether a trademark violation had occurred. Constellation’s main argument was based on Section 22 of the Trademarks Act, which states that “[n]o person shall use a trademark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto”. The Supreme Court of Canada outlined the four components required for a successful section 22 claim, claim in the case Veuve Clicquot Ponsardin, namely:

(1) The registered trademark has been used by the defendant in connection with wares or services – whether or not such wares and services are competitive with those of the claimant;

(2) The registered trademark is sufficiently well known to have significant goodwill attached to it;

(3) The trademark was used in a manner likely to have an effect on the goodwill; and

(4) The likely effect of this use would be to depreciate the value of its goodwill

SVI’s use of Constellation’s trademark in the pamphlet was not unlawful, according to the Court of Appeal, because it did not appear on the defendant’s products or packaging, and it was not utilized in a way that diminished any goodwill associated with the mark. Indeed, the Court stated that a trademark can be used in comparative advertising without causing infringement.

There was insufficient evidence to show that SVI’s use of the MEIOMI trademark had an impact on MEIOMI’s goodwill, let alone a negative one. In fact, even after the distribution of SVI’s leaflets, sales of MEIOMI wines continued to climb, according to the facts. Even if SVI was comparing its wines to Constellation’s wines in an attempt to ride the “coat-tails” of Constellation’s “well-established goodwill”, the Court said that this does not establish that depreciation was likely to occur or actually occurred as a result. As a result, the Court found no infringement of the Trademarks Act.

The Court of Appeal considered whether Constellation was entitled to an accounting of profits in light of SVI’s admission of copyright infringement. The Court said no, repeating the Superior Court’s rationale that the leaflets played a minor role in SVI’s marketing strategy and that there was no proof of a causal link between the leaflets and SVI’s earnings.

The benefits given by the Trademarks Act and other intellectual property statutes are not limitless, as this case demonstrates. In certain instances, it is evident that the courts are willing to allow comparable advertisements that use another’s trademarked material. Nonetheless, extreme caution should be exercised if a competitor’s intellectual property is used.

A slew of regulations and industry norms can come into play, therefore legal guidance should be sought to avoid future issues. Finally, plaintiffs should carefully analyze the remedies available in intellectual property proceedings, having in mind that in situations involving an accounting of profits, only those sums linked to the infringing acts will be included. According to the Court of Appeal, an accounting of profits is simply not possible if there is no direct link between the improper use of the plaintiff’s intellectual property and the defendant’s earnings.

(As cited in mondaq.com)

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