Playtime’s over: Toys R Us wins trademark depreciation of goodwill claim against Herbs R Us

Trademark owners often face challenges when attempting to enforce against non-confusing third-party trademark use. In many cases, a third party may be using a similar trademark, or a trademark with the same “look and feel,” but in a completely different consumer space such that consumer confusion is unlikely. A recent Federal Court decision has arguably extended the ability of trademark owners to take action in such circumstances, by expanding the extent to which “depreciation of goodwill” claims apply to a third party’s depreciative use of non-identical trademarks.

Depreciation for “similar” marks

“Depreciation of goodwill’ is codified in Section 22 of Canada’s Trademarks Act, which prohibits use of "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.” Importantly, consumer confusion is not a necessary element of a Section 22 claim – and depreciation of goodwill may be found even if the parties market to different consumer groups. A plain language reading of Section 22 suggests that a depreciation claim is only useful against third-party use of the trademark as registered, i.e., the parties must be using identical trademarks; however, Canadian jurisprudence has been somewhat inconsistent on this point. 

The leading “depreciation of goodwill” case is Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, (Veuve Clicquot). In Veuve Clicquot, the Supreme Court of Canada found that a depreciation claim could apply where a third party’s use of a mark is “sufficiently similar” to the registered mark to evoke in consumers a “mental association” of the two marks that is likely to depreciate the value of the goodwill attaching to the registered mark. 

The court seemed wary about over-extending the availability of the depreciation remedy – recognizing it may be considered a “super weapon,” which in the interests of fair competition needs to be kept in check. While the court felt a mere misspelling of a registered trademark (e.g., Cliquot/Clicquot or Klenex/Kleenex) would be “sufficiently similar,” it did not consider “Cliquot” to be use of the registered trademark “Veuve Clicquot.”

Inconsistent treatment

The Federal Court of Appeal’s subsequent treatment of Veuve Clicquot has been inconsistent: 

• In Red Label Vacations Inc v 411 Travel Buys Ltd, the court did not consider “red tag” to be use of the registered trademark “redtag.ca,” noting that “’Use’ under section 22 requires use of the plaintiff’s trademark, as registered [emphasis added].
• In Venngo Inc v Concierge Connection Inc, Section 22 was considered as applying to “use of a mark that, while not identical to the plaintiff's registered trade-mark, is so closely akin to the registered mark that it would be understood in a relevant universe of consumers to be the registered mark.”
• In Energizer Brands, LLC v The Gillette Company, in refusing a motion for summary judgement, the court confirmed that the scope of Section 22 extends beyond registered marks and mere misspellings, but provided little insight into the limits of the depreciation remedy. Without deciding the issue, the court permitted Energizer’s depreciation claim against Duracell’s use of the phrase “the bunny brand,” in reference to Energizer’s bunny logo, to proceed to trial. 

Toys R Us expansion

Most recently, the Federal Court appears to have expanded the application of the depreciation remedy to confirm it includes trademarks that are clearly not the same, but which nonetheless have the same “look and feel” or same “striking elements” as the registered mark. In Toys “R” Us (Canada) Ltd v Herbs “R” Us Wellness Society (link to case) (Herbs R Us), the Federal Court granted Toys R Us judgement against a Vancouver-based cannabis boutique and dispensary operating as “Herbs R Us.” Notably, the Federal Court granted a permanent injunction, damages and costs to Toys R Us based on its finding that the Herbs R Us branding, while not considered confusingly similar to the Toys R Us trademark, nevertheless depreciated its goodwill. The parties’ respective logos are depicted below:

 
 
The Federal Court first dealt with Toys R Us’ claims of statutory passing off and trademark infringement. In dismissing these claims, the Federal Court held that Toys R Us had failed to establish a reasonable likelihood of confusion between the parties’ respective trademarks. The court considered there to be a “high degree of resemblance” between the two marks, noting the very similar overall commercial impression of the marks; however, the court ultimately held that it would be “unlikely in the extreme” for an average Canadian consumer, even a casual one somewhat in a hurry, to conclude that a well-known toy retailer had branched out into cannabis dispensary services. 

In turning to the depreciation of goodwill claim, the court held that Toys R Us had satisfied all four elements of the modern test set out in Veuve Clicquot:

1. Use of the trademark: The court considered the Herbs R Us logo to be sufficiently similar to Toys R Us’ registered trademark. In particular, the court recognized that the Herbs R Us logo was so similar to the Toys R Us logo that a “mental association” between the two marks was “all but inevitable, and must be inferred to have been intended.”
2. Evidence of significant goodwill: The court recognized that the Toys R Us mark had acquired significant goodwill across Canada, based on the applicant’s affidavit evidence of extensive use across Canada.
3. Effect on goodwill: The court found that there was the necessary “mental linkage” between the parties’ trademarks given the similarity of the marks. The court noted that specific consumer evidence or survey evidence of such linkage was not required to establish the likelihood of such linkage, but rather it was open to the court to “infer the existence of such linkage in the mind of the consumer from the marked similarities” between the parties’ trademarks. The court also referred to a news article, which drew a connection between the two parties’ marks, as supporting its finding on this point.
4. Damage to goodwill: The court recognized that damage to goodwill comes in various forms. In this case, the mark was considered damaged, in part, by (a) the reduction of mark’s distinctiveness, i.e., the diminution of the uniqueness of the trademark, due to the mark being “bandied about by different users” not under the control of Toys R Us, and (b) the creation of an association between Toys R Us, a children’s toy store, 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.”

Takeaways

As a result, the court granted an injunction against further use of “Herbs R Us” and awarded Toys R Us “nominal damages” for $15,000 and costs of $15,000. The court did not believe Herbs R Us’ conduct, which included the deliberate evocation of the Toys R Us logo among other alleged behavior, was sufficient to warrant punitive damages.

This decision is one of only a few instances where a depreciation of goodwill claim has been successful in Canadian jurisprudence (outside of counterfeiting cases, where depreciation of goodwill is readily assumed). Depreciation of goodwill claims often play second fiddle to the more common trademark infringement or actions in passing off; however, the Federal Court’s decision in Herbs R Us may increase the likelihood of such claims appearing in Canadian courts in the future. Takeaways from Herbs R Us relevant to trademark owners and practitioners include:

1. Perhaps the most notable element of this decision is that the Federal Court considered the Herbs R Us logo to be sufficiently similar to the registered Toys R Us logo so as to qualify for the depreciation remedy. This seemingly expands the limits of the depreciation remedy beyond Veuve Clicquot and recent Federal Court of Appeal decisions, which (a) at a minimum, required the third-party mark to be the same as the registered mark and (b) at a maximum, vaguely recognized that such claims extend beyond identical marks and mere misspellings. 
   
   For the time being, Toys R Us appears to (i) confirm that the depreciation remedy is available where the impugned mark is not the same as, or a mere misspelling of, the registered mark; and also (ii) expands the depreciation remedy to include trademarks that are clearly non-identical but which nonetheless have the same “look and feel” or same “striking elements” as the registered mark.
2. This case is also notable in that it was brought by way of a summary application procedure with the Federal Court. There has continued in recent years to be an uptick in the number of trademark proceedings brought by way of application, likely owing to the cost-effective nature of such proceedings, which do not involve expensive discovery or live witness testimony at trial. 

On a procedural note, the court rejected large portions of a solicitor’s affidavit sworn by an articling student of Toys R Us’ legal counsel. While this did not appear to materially change the outcome, this is a cautionary reminder for solicitors to be wary of Rule 82 of the Federal Courts Rules, SOR/98-106, which provides that a solicitor shall not both depose to an affidavit and present argument to the court based on that affidavit without leave of the court, which the Federal Court has repeatedly held extends to articling students and other employees of that lawyer’s firm.