On May 26, 2011, the Supreme Court of Canada released its much anticipated decision in Masterpiece Inc. v. Alavida Lifestyles Inc., 2011 SCC 27. Because the Supreme Court of Canada only very rarely hears a trademark case, such decisions are considered very important and can significantly affect Canadian trademark law and practice.
As noted below, this case appears to have introduced concepts that may support initial interest confusion amounting to "confusion" under the Canadian Trademarks Act. The case may also significantly impact the weight given to expert evidence in future trademark cases.
The decision concerns a proceeding brought by Masterpiece Inc. seeking to expunge a registration for the trademark MASTERPIECE LIVING owned by Alavida Lifestyles Inc. Masterpiece Inc. alleged that Alavida was not entitled to the registration since it was confusing with Masterpiece Inc.'s trade name and trademarks used prior to Alavida's proposed use application.
Background. The case addresses several distinct issues arising in the context of analysis of likelihood of confusion under the Canadian Trademarks Act.
Both parties operated in the retirement residence industry. Masterpiece Inc. had used its trade name and several unregistered MASTERPIECE formative trademarks, including "MASTERPIECE THE ART OF LIVING," in Alberta prior to the filing date of Alavida's MASTERPIECE LIVING trademark application.
The proceeding was dismissed in the Federal Court of Canada on the basis that Masterpiece Inc. had not established a likelihood of confusion, and the decision was upheld by the Federal Court of Appeal. One issue addressed was the fact that the parties did not operate in the same geographic area (Alavida operated only in Ontario). In its reasons, the Court of Appeal held that evidence regarding planned future expansion by Masterpiece Inc. into other geographic markets in Canada was not relevant.
The Supreme Court of Canada decision. Justice Rothstein, speaking for a unanimous Supreme Court of Canada, identified four issues considered by the Court as follows:
- "Is the location where a mark is used relevant when considering the likelihood of confusion between an applied for or registered trademark and a prior unregistered trademark or trade-name?
- What considerations are applicable in the assessment of the resemblance between a proposed use trademark and an existing unregistered trademark?
- When considering the 'nature of the trade' under s. 6(5) of the Act, what effect does the nature and cost of the wares or services have on the confusion analysis?
- When should courts take into account expert evidence in trademark or trade-name confusion cases?"
Relevance of location of use. Noting that 1) the Canadian trademark registration regime is national in scope and the owner of a registered trademark is provided with the right to exclusive use of the mark "throughout Canada," 2) the statutory statement of the test for confusion raises a "hypothetical assumption" that the marks being considered are used in the same area, and 3) the test for a person entitled to registration precludes registration where a mark was confusing with a trademark "previously used in Canada," the Court took the opportunity to "dispel any doubt" on the question of whether geography is relevant to an analysis of confusion. Justice Rothstein stated that:
"[g]eographical separation in the use of otherwise confusingly similar trade-names and trademarks does not play a role in the hypothetical test."
Considerations applicable to assessment of resemblance. Justice Rothstein identified a non-exhaustive list of issues he felt were useful to address in assessing resemblance between a proposed use trademark and an existing unregistered trademark:
- The relationship between use and registration — The Court emphasized that registration under the Canadian system is only available once the right to the trademark has been established through use. It was noted that, while a priority date may be established through a proposed use application, the registration would not issue until a declaration demonstrating use was filed. In the present case, the Court noted that the registration issuing to Alavida barred registration of the same or a confusing mark by Masterpiece Inc. (the Trademarks Office had refused Masterpiece Inc.'s application seeking to register the same trademark and the trademark MASTERPIECE per se). Justice Rothstein noted that the fact of refusal by the Registrar of Trademarks of Masterpiece Inc.'s marks on the basis of confusion with Alavida's mark was a relevant surrounding circumstance that should have been considered, albeit, not in any way binding.
- The test for confusion — The Court cited a restatement of the test for likelihood of confusion from the decision of the Supreme Court of Canada in the Veuve Clicquot case as follows:
"The test to be applied is a matter of first impression in the mind of a casual consumer somewhat in a hurry who sees the [mark] at a time when he or she has no more than an imperfect recollection of the [prior] trademarks, and does not pause to give the matter any detailed consideration or scrutiny, nor to examine closely the similarities and differences between the marks."
- Each mark must be considered separately — Justice Rothstein noted that reliance on several trademarks and trade names presented distinct bases for invalidation. He found that the Trial Judge had erred by not undertaking a separate analysis regarding resemblance between each of Masterpiece Inc.'s trade name and marks asserted instead of a single "composite analysis."
- The approach to testing resemblance — Justice Rothstein noted that, while the degree of resemblance is the last factor listed in the statutory statement of the test on a confusion analysis, it was likely to have the greatest effect. Accordingly, it was noted that consideration of resemblance may be the place where most confusion analyses should start.
- Consideration with regard to registered mark — Justice Rothstein found that the judge had erred by giving too much weight to Alavida's actual use of its mark in undertaking the comparison. The actual use "did not reflect the entire scope of exclusive rights that were granted to Alavida under its registration" since the registration was a word mark registration permitting use of the trademark in any style, font, colour or design. Justice Rothstein stated:
"Actual use is not irrelevant, but it should not be considered to the exclusion of potential uses within the registration. For example, subsequent use that is within the scope of a registration, and is the same or very similar to an existing mark will show how the registered mark may be used in a way that is confusing with an existing mark."
- Assessment of unregistered trademarks — Justice Rothstein pointed out that it was necessary to consider the alleged prior trademark as it had actually been used.
- Justice Rothstein's analysis of the resemblance between the marks at issue — Justice Rothstein indicated that the first consideration should be whether an aspect of either mark is particularly unique or striking. In the case at bar, he found that MASTERPIECE was the dominant word in both marks being considered (MASTERPIECE LIVING vs. MASTERPIECE THE ART OF LIVING, which was found to be the closest mark asserted by Masterpiece Inc.). Justice Rothstein found that it was "very difficult not to find a strong resemblance as a whole" between the marks at issue.
Effect of nature and cost of wares on confusion analysis. Justice Rothstein noted that the manner in which the Trial Judge took into account the nature of the trade and cost associated with retirement residences was problematic. The Trial Judge had noted that consumers would take considerable care in choosing a retirement residence and ultimately would be less likely to be confused than if they were in the market for less significant wares or services. Justice Rothstein noted that the Supreme Court of Canada has affirmed that consumers shopping for expensive goods may be less likely to be confused. However, he noted that did not change the test of confusion away from one of "first impression" and could not change the test "to a test of consumers being 'unlikely to make choices based on first impression.'" While the fact that someone may take more care when buying an expensive product may be taken into account, Justice Rothstein noted:
"However, as one element of the broader hypothetical test, this care or attention must relate to the attitude of the consumer approaching an important or costly purchase when he or she encounters the trademark, not to the research or inquiries or care that may subsequently be taken."
Justice Rothstein further stated:
"Indeed, before source confusion is remedied, it may lead a consumer to seek out, consider or purchase the wares or services from a source they previously had no awareness of or interest in ... Leading consumers astray in this way is one of the evils that trademark law seeks to remedy ..."
Justice Rothstein, for the unanimous Court, went on to hold that the Trial Judge had erred by discounting the likelihood of confusion based on consideration of steps "the consumer might take after encountering a mark in the marketplace."
Expert evidence in trademark confusion cases. Justice Rothstein noted four requirements to be met for expert evidence to be admissible, namely: "(a) relevance; (b) necessity in assisting the trier of fact; (c) the absence of any exclusionary rule; and (d) a properly qualified expert." He noted that necessity required that the testimony should be outside the typical experience and knowledge of a judge. He also noted that courts should fulfil a gatekeeper role in order to avoid expert and survey evidence complicating and extending court proceedings.
Justice Rothstein considered the evidence filed in the case at bar. He noted that much of the expert testimony would not meet the necessity requirement quoting from jurisprudence establishing that, while expert evidence may assist when analyzing confusion in specialized markets of which the judge may not have knowledge, such evidence may not be useful in respect of goods that "are sold to the general public for ordinary use."
Justice Rothstein also considered survey evidence filed. He noted that surveys provide "empirical evidence which demonstrates consumer reactions in the marketplace." Further, he noted that was something that would not be generally known to a Trial Judge and therefore the evidence would likely meet the necessity requirement. However, he noted that a difficult question was often whether the "relevance" requirement was met. In that regard, he noted jurisprudence mentioning the need for reliability (same result) and validity (correct universe and questions to elicit useful information) to make the evidence relevant.
Justice Rothstein went on to adopt a recommendation given by Lady Justice Arden of the English Court of Appeal in the esure case to the effect that case management could be used in trademark cases to "assess the admissibility and usefulness of proposed expert and survey evidence at an early stage so as to avoid large expenditures of resources on evidence of little utility."
Conclusion. Justice Rothstein found that a reversible error had been committed by the Trial Judge. He concluded that the trademarks at issue were confusing and ordered expungement of the Alavida registration.
The decision provides further guidance from Canada's highest court on the approach to be taken to analysis of likelihood of confusion in trademark cases in Canada. It also provides support for arguments regarding issues such as initial interest confusion and the need for and weight of expert evidence in confusion analysis. It will be interesting to see how such issues develop in the near future.
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