Hot Off the Press: Supreme Court of Canada Confirms First to Use Trade-mark Principle

For the first time since 2006, the Supreme Court of Canada ("SCC") has issued a decision on trade-marks law (Masterpiece Inc v Alavida Lifestyles Inc. 2011 SCC 27).  In a nutshell, this case deals with a company’s right to obtain a trade-mark registration in Canada where a similar trade-mark (albeit unregistered) is already in use in the Canadian marketplace. 

Trade-marks: Who cares?

First, I think it is important to appreciate the significance that trade-marks have to a business.  In the SCC decision, Justice Rothstein succinctly explains the importance of trade-marks to both a business and its consumers:

“Trade-marks in Canada are an important tool to assist consumers and businesses.  In the marketplace, a business marks its wares and services as an indication of provenance.  This allows consumers to know, when they are considering a purchase, who stands behind those goods or services.  In this way, trade-marks provide ‘a shortcut to where they want to go’”.

Given the important role that trade-marks play for both the business and the consumer, problems arise where competitors have similar trade-marks:

“Where the trade-marks of different businesses are similar, a consumer may be unable to discern which company stands behind the wares or services.  Confusion between trade-marks impairs the objective of providing consumers with a reliable indication of expected source of wares or services.”

Trade-marks 101

This case is really dealing with the intersection of statutory trade-mark rights (i.e. a trade-mark registration) and common law trade-mark rights. 

Trade-mark rights are acquired in Canada through use.  Common law trade-mark rights exist as soon as a trade-mark is used in Canada.  There is no requirement to register a trade-mark in order to have rights to the trade-mark in Canada.  A trade-mark registration, however, affords benefits above and beyond common law trade-mark rights, which is why it is favoured by companies. 

The Facts

In order to understand this decision, it is first necessary to understand the facts of the case. 

Masterpiece Inc. and Alavida Lifestyles Inc. operate in overlapping industries: the retirement residence industry.  The parties operate in Alberta and Ontario, respectively.   

In 2001, Masterpiece Inc. started to use a series of trade-marks containing the word MASTERPIECE, some in combination with the word LIVING. 

In December 2005, Alavida Lifestyles Inc. filed a Canadian trade-mark application for MASTERPIECE LIVING based on proposed use.  It began using the trade-mark in January 2006. 

Masterpiece Inc. subsequently filed a trade-mark application for MASTERPIECE.  However, this was rejected by the Canadian Trade-marks Office based on Alavida’s trade-mark application. 

Masterpiece Inc. sought to invalidate Alavida’s Lifestyles Inc.’s trade-mark registration for MASTERPIECE LIVING on the basis that Masterpiece Inc. had used its trade-marks prior to Alavida Lifestyles Inc.’s trade-mark and, therefore, Alavida Lifestyles Inc.’s trade-mark should not have registered.

The Trial and Appeal Level Decisions

At trial, the Federal Court upheld Alavida’s Lifestyles Inc.’s trade-mark registration.

At the appeal level, the Federal Court of Appeal agreed with the trial judge.

The case was appealed to the Supreme Court of Canada, which is the highest level of court in Canada.

The Issue

As posed by the SCC:

“The question in this case is whether the trade-mark MASTERPIECE LIVING proposed and subsequently registered by Alavida Lifestyles Inc., a company entering the retirement residence industry in Ontario, was then confusing with the unregistered trade-marks or trade-name previously used by another company, Masterpiece Inc., in the retirement residence industry in Alberta.”

The Decision

The SCC held that Alavida Lifestyles Inc.’s trade-mark registration should be expunged (i.e. invalidated) on the basis that it was confusingly similar with Masterpiece Inc.’s previously used trade-marks. 

The Reasoning

Basically, the SCC declared that use of a trade-mark trumps all.  Those that are first to use a trade-mark, have first rights to the trade-mark (regardless of whether the trade-mark is registered or not). 

Confirming the national scope of trade-marks, the SCC held that it was irrelevant that Masterpiece Inc. and Alavida Lifestyles Inc. operate in different provinces.  The confusion analysis must be undertaken under the hypothetical assumption that the trade-marks exist in the same market.  This is based on the principle that a trade-mark registration grants exclusivity throughout Canada.  Therefore, there must be no likelihood of confusion throughout Canada (regardless of whether a competitor’s trade-marks are registered or common law trade-mark rights) in order for the trade-mark to register:

“In order for the owner of a registered trade-mark to have exclusive use of the trade-mark throughout Canada, there cannot be likelihood of confusion with another trade-mark anywhere in the country.”

Determining the likelihood of confusion between trade-marks (frustratingly for our clients) is a subjective test.  The court has determined that the appropriate test is to determine confusion is to examine the trade-marks from the perspective of a “casual consumer somewhat in a hurry”, who is regarding the trade-marks on first impression with an imperfect recollection of the parties’ trade-marks.  Subsequent research undertaken by the consumer to dispel any possibility of confusion should not be taken into account:  “it is confusion when [the consumer] encounters the trade-marks that is relevant.”

What Can You Do To Avoid This?

Given that this decision was released only very recently, application of this decision has yet to be tested.  However, it does confirm the necessity of conducting comprehensive due diligence prior to seeking to register trade-marks in Canada.  Conducting fulsome preliminary trade-mark availability searches can have great utility. 

A preliminary trade-mark availability search is not mandatory, however, it is a prudent course of action to take in terms of branding due diligence.  In essence, it will provide the opportunity to determine whether pre-existing third party trade-marks may pose a significant barrier to registration.  This helps reduce the risk of re-branding your company’s product or services at a later date and losing goodwill and market recognition your company has developed.