Canada: Not All Pun And Games: Federal Court Not Amused With Cannabis Company's Brand Parody

In a recent decision of Canada's Federal Court illustrates the danger of adopting a mark or name "inspired" by a famous or well-known brand, even when confusion is unlikely. The decision is a cautionary tale, particularly for those in burgeoning industries, such as Canada's cannabis industry, which may wish to piggyback on an established brand's goodwill and reputation.

Background

Toys "R" Us (Canada) Ltd. ("Toys 'R' Us"), the well-known toy retailer, brought an application in the Federal Court against Herbs "R" Us Wellness Society ("Herbs 'R' Us"), a Canadian company operating a cannabis boutique and "dispensary" in Vancouver, BC. The respondent had adopted and was using the trademark HERBS R US, and prominently displayed, outside its storefront, the following design mark:

In its application, Toys 'R' Us alleged that Herbs 'R' Us had (i) infringed its trademark rights, (ii) directed public attention to its goods, services and business in such a way as to cause or be likely to cause confusion in Canada (also known as passing off), and (iii) depreciated the value of the goodwill attached to the registered trademark TOYS R US & Design:

Court decision

The Court granted the application in part.

The Court dismissed the applicant's claims for trademark infringement and passing off, having found it "unlikely in the extreme that a Canadian consumer, even a casual one somewhat in a hurry with an imperfect recollection of the TOYS R US mark, would see the HERBS R US trademark and conclude that a well-known toy retailer had started branching out into storefront 'dispensary' services or cannabis sales".¹

However, the Court found that Toys R Us had established that the use of the HERBS R US design mark is likely to depreciate the goodwill attached to the registered trademark TOYS R US & Design, contrary to section 22 of the Trademarks Act, RSC 1985, c T-13.

The Court permanently enjoined Herbs R Us from "adopting, using, or promoting the trademark or trade name HERBS R US as or as part of any trademark, trade name, logo, domain name or social media account name",² ordered it to deliver up or destroy under oath any goods, packages, labels and advertising material in its possession, power or control, that bear the HERBS R US trademark, trade name or logo, and to pay Toys R Us damages and costs totalling $30,000 CAD.

Lessons learned

Section 22 of Canada's Trademarks Act prohibits "depreciation of goodwill", a cause of action similar to that of "trademark dilution" under the U.S. Lanham Act. Section 22 of Canada's Trademarks Act reads:

The provision is broad in scope, and may serve to enjoin a defendant's unlawful activities where traditional trademark infringement cannot be established. For example, Canada's courts, including the Supreme Court of Canada, have found, in respect of section 22, that:

• a defendant need not use the identical trademark registered by another person. Rather, a claimant need only show that the defendant has made use of a mark "sufficiently similar to ... evoke in a relevant universe of consumers a mental association of the two marks".³
• a defendant need not use the mark in connection with goods or services that are the same as or similar to the claimant's own, or, indeed, in connection with goods or services that are competitive with those of the claimant.⁴
  
• a defendant need not use the mark "as a trademark" (i.e. as an indicator of source).⁵
• the claimant's mark need not be "famous", or even "well-known". Rather, the claimant need only show that its mark is "sufficiently well known to have significant goodwill attached to it".⁶
  
• a claimant need not demonstrate "confusion" in order to establish "depreciation", which may refer to reputational damage, dilution, disparagement or tarnishment of the claimant's mark, or the "whittling away" of its "brand equity" as the result of "blurring".⁷

For these reasons, section 22 is a useful and versatile tool that may assist brand owners in defending their brand equity where a clear-cut case of trademark infringement or passing off is difficult to establish.

The Court's decision in Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society also serves as a cautionary tale for small startups in any industry that wish to trade on the goodwill and reputation of an established brand with a playful mark or name. As the Court's decision clearly demonstrates, it's never a good idea.

Cannabis companies have been particularly prone to adopting "punny" marks or names "inspired" by those of famous or well-known brands. One dispensary, based in Oklahoma, adopted the short-lived name "Dank of Oklahoma" before BOKF, NA, which owns the registered trademark BANK OF OKLAHOMA, sued the infringers in Oklahoma federal court. Earlier this year, Mondelez Canada Inc., which owns the registered trademark SOUR PATCH KIDS, secured a court order from the U.S. District Court, Central District of California, compelling Facebook and Google to disclose information associated with the Instagram and Gmail accounts of a company selling THC-infused gummies in blatantly infringing packaging that bears an undeniable resemblance to the brand owner's own distinctive packaging:

Mondelez Canada Inc. has since amended its complaint filed last July in California to name the defendants responsible for marketing and selling the gummies, and, in April 2020, the U.S. District Court issued its Final Order and Judgment on Consent, permanently enjoining the defendants from further infringing Mondelez's intellectual property rights.

Furthermore, unlike Canada's Copyright Act, which recognizes as "fair dealing" (analogous to the U.S. concept of "fair use") the use of another's works for the purposes of "parody or satire",⁸ the Trademarks Act does not share its sense of humour; parody or satire is not a viable defence to trademark infringement, passing off or depreciation of goodwill.

Brand owners in Canada's cannabis industry should also be mindful of the additional restrictions imposed by the Cannabis Act and the Cannabis Regulations, which prohibit a person from:

• promoting cannabis or a cannabis accessory or any service related to cannabis in a manner that there are reasonable grounds to believe could be appealing to young persons (i.e. those under 18 years of age)⁹; and
• selling cannabis or a cannabis accessory in a package or with a label if there are reasonable grounds to believe that the package or label could be appealing to young persons.¹⁰

In its application, Toys R Us sought punitive damages partly on the basis that the respondent's use of a brand associated with children "amounts to targeting an illegal dispensary business at children, which is particularly reprehensible".¹¹  While the Court did not go so far as to award the damages sought, as it did not "view the use of the HERBS R US mark as targeting a cannabis dispensary to children in a reprehensible manner", the decision nevertheless underscores the inherent dangers of adopting, for one's own commercial gain, a mark or name that alludes to another's brand.¹² Indeed, in finding that Herbs 'R' Us had depreciated the goodwill in the TOYS R US brand, the Court ruled that "the creation of an association between the Toys 'R' Us and a cannabis 'dispensary,' particularly one that appears to be operating without a licence, and one that markets through social media with adult-themed content said to include nudity and swear words, is 'utterly inconsistent' with the reputation of the TOYS R US brand, and that this association is likely to tarnish the goodwill" associated with its registered trademark.¹³

Conclusion

Whether you are, or represent, an established brand that enjoys significant goodwill, or a small startup in search of a brand name, there are lessons to be learned from the Court's decision in Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society. For major brand owners, the breadth and flexibility of section 22 makes it a powerful weapon to wield against others who may depreciate, dilute, tarnish or "whittle away" their brand equity. For new companies, particularly those in the cannabis industry, the adoption of a "punny" name may lead to litigation and a subsequent rebranding, which can cost significant amounts of money, and doom a company to failure before it even starts. In either case, expert trademark counsel should be sought before taking steps to defend an established brand, or launch a new one, in Canada.

Footnotes

1. Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society, 2020 FC 682 at para 44.

2. Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society, 2020 FC 682, Judgment.

3. Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, 2006 SCC 23 at para 38.

4. Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, 2006 SCC 23 at para 46.

5. H-D USA, LLC v Berrada, 2014 FC 207 at para 67.

6. Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, 2006 SCC 23 at para 46.

7. Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, 2006 SCC 23 at paras 63-64.

8. Copyright Act, RSC 1985, c C-42, s 29.

9. Cannabis Act, SC 2018, c 16, s 17(1)(b)

10. Cannabis Act, SC 2018, c 16, s 26(a), 27(a)

11. Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society, 2020 FC 682 at para 69.

12. Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society, 2020 FC 682 at para 70.

13. Toys "R" Us (Canada) Ltd v Herbs "R" Us Wellness Society, 2020 FC 682 at para 61.